2003 (3) TMI 548 - HC - Companies Law

Delhi High Court's Authority in Arbitration Orders Clarified

The High Court of Delhi affirmed its authority to issue orders under section 9 of the Arbitration and Conciliation Act, 1996, even when parties are before ... Jurisdiction under section 9 of the Arbitration and Conciliation Act, 1996 - interim relief under section 17 of the Arbitration and Conciliation Act, 1996 - lessor's proprietary rights under lease agreement - appointment of Receiver in respect of leased goods on invocation of the Sick Industrial Companies (Special Provisions) Act, 1985Jurisdiction under section 9 of the Arbitration and Conciliation Act, 1996 - interim relief under section 17 of the Arbitration and Conciliation Act, 1996 - Court's power to grant interim relief under section 9 notwithstanding pendency of arbitral proceedings and availability of relief under section 17 - HELD THAT: - The Court held that the pendency of arbitration and the availability of powers under section 17 do not oust the jurisdiction of the Court to exercise its powers under section 9. The learned Single Judge decision in Arun Kapur was noted for advocating restraint where an arbitral tribunal is available, but the Court observed that that decision did not hold that section 9 cannot be invoked where section 17 is available. Reliance was placed on authoritative pronouncements (including a Division Bench decision and Supreme Court precedent referred to in the judgment) which support the proposition that the court may exercise jurisdiction under section 9 even when arbitration proceedings are pending and interim relief may also be attainable under section 17. The salutary practice of directing parties to an arbitral forum where appropriate was recognised, but it was held not to be a bar to invoking section 9 where the circumstances warrant court intervention. [Paras 2]The Court may exercise powers under section 9 of the Arbitration and Conciliation Act, 1996 notwithstanding the pendency of arbitral proceedings and the availability of relief under section 17.Lessor's proprietary rights under lease agreement - appointment of Receiver in respect of leased goods on invocation of the Sick Industrial Companies (Special Provisions) Act, 1985 - Validity and propriety of appointing a Receiver to take custody of leased equipment in favour of the lessor where lessee has invoked the Sick Industrial Companies (Special Provisions) Act, 1985 - HELD THAT: - The Court examined the lease clauses exchanged between the parties and found they consistently treated the leased equipment as the property of the lessor (clauses reproduced in the judgment illustrate obligations of the lessee as bailee, prohibition on transfer or encumbrance, recognition of lessor's ownership and entitlement to terminate). Having regard to these contractual provisions and earlier decisions where receivers were appointed in analogous circumstances, the Court concluded that appointment of a Receiver was warranted. The invocation of the Sick Industrial Companies (Special Provisions) Act, 1985 and the multiplicity of petitions against the lessee increased the risk of dissipation or damage to the plant and machinery and the possibility that instalments would become irrecoverable. The Court recognised a narrow exception where the lessee legitimately continues business and is demonstrably able to satisfy judicial orders, but found that exception inapplicable on the material before it. Accordingly, appointment of a Receiver to take possession and safe custody of the leased equipment was deemed necessary to protect the lessor's rights. [Paras 3, 4, 5, 6]A Receiver is appropriately appointed to take custody of the leased equipment and machinery in favour of the lessor given the lease terms and the lessee's invocation of the Sick Industrial Companies (Special Provisions) Act, 1985; a narrow exception exists where the lessee can legitimately carry on business and satisfy court orders.Final Conclusion: The petition was allowed: the Court affirmed its power to grant interim relief under section 9 despite pending arbitration where section 17 relief is available, and, on the facts and lease terms and in view of the lessee's invocation of the Sick Industrial Companies (Special Provisions) Act, 1985, a Receiver was appointed to take possession and safekeeping of the leased equipment. Issues:1. Exercise of jurisdiction under section 9 of the Arbitration and Conciliation Act, 1996 when parties are before an Arbitral Tribunal.2. Appointment of a Receiver in respect of leased properties possessed by a company under the Sick Industrial Companies (Special Provision) Act, 1985.Issue 1: Exercise of Jurisdiction under Section 9 of the Arbitration and Conciliation Act:The primary issue in this case revolves around whether the High Court should exercise jurisdiction under section 9 of the Arbitration and Conciliation Act, 1996, when the parties are already before an Arbitral Tribunal with similar powers under section 17 of the Act. The Court deliberated on the conflicting views presented in various judgments. The respondent argued that if a party seeks preliminary relief from the Arbitral Tribunal, invoking section 9 jurisdiction of the Court should be barred. However, the Court disagreed, citing precedents that emphasized the Court's authority to intervene under section 9 even if arbitral proceedings are ongoing. The Court clarified that section 17 is an additional recourse and does not oust the Court's jurisdiction under section 9. Ultimately, the Court held that it has the power to issue orders under section 9 despite the existence of arbitral proceedings.Issue 2: Appointment of a Receiver for Leased Properties under the Sick Industrial Companies (Special Provision) Act, 1985:The second issue pertains to the appointment of a Receiver for leased properties currently in possession of a company that has invoked the Sick Industrial Companies (Special Provision) Act, 1985. The respondent contended that there is a dispute regarding the ownership of the leased equipment, aiming to prolong the litigation process and potentially obstructing the grant of appropriate relief. The Court examined the clauses of the agreement between the parties, which unequivocally indicated that the leased equipment belonged to the petitioner. Referring to previous judgments, the Court highlighted the necessity of appointing a Receiver in such situations to prevent dissipation of assets, especially when the lessee fails to make payments or risks damaging the equipment. Considering the circumstances and the likelihood of dissipation of assets, the Court ordered the appointment of a Receiver to take possession of the leased equipment and machinery from the respondent, ensuring safe custody and bearing the associated costs.In conclusion, the High Court of Delhi addressed the dual issues of exercising jurisdiction under section 9 of the Arbitration and Conciliation Act and appointing a Receiver for leased properties under the Sick Industrial Companies (Special Provision) Act, 1985. The judgment clarified the Court's authority to intervene under section 9 despite ongoing arbitral proceedings and emphasized the importance of appointing a Receiver to safeguard assets in contentious situations.