Court affirms jurisdiction on interim injunction application under Arbitration Act. Prima facie case established. Balance of convenience favors injunction.

The court affirmed the jurisdiction of the Additional District Judge, Alipore to entertain the application under Section 9 of the Arbitration and Conciliation Act, 1996. It found that the respondent nos.1 & 2 had established a strong prima facie case for an interim injunction to prevent respondent no.3 from using the proceeds of a right issue to discharge a loan security obligation. The court upheld the trial court's decision to grant the interim temporary injunction, emphasizing the balance of convenience favored protecting the company's financial stability. The appeal was dismissed without costs.

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Issues Involved:
1. Jurisdiction to entertain the application u/s 9 of Arbitration and Conciliation Act, 1996.
2. Prima facie case for interim injunction u/s 9 of Arbitration and Conciliation Act, 1996.
3. Justification of the trial court in granting interim temporary injunction.

Summary:

1. Jurisdiction to entertain the application u/s 9 of Arbitration and Conciliation Act, 1996:
The court examined whether the Additional District Judge, Alipore had territorial jurisdiction to entertain the application u/s 9 of the Arbitration and Conciliation Act, 1996. The shareholders agreement was executed on 22nd March 2007 at Kolkata, and the personal guarantees of the promoters were also executed in Kolkata. The stamp papers for the agreement were purchased in Kolkata, giving rise to a presumption that the agreement was executed there. The court found that the denial of execution in Kolkata by the appellant and respondent no.3 was evasive and not specific. The invocation of arbitration proceedings was initiated in Kolkata, and the company continued to run its business in Kolkata. Therefore, the court held that the Additional District Judge, Alipore had territorial jurisdiction to entertain the application.

2. Prima facie case for interim injunction u/s 9 of Arbitration and Conciliation Act, 1996:
The court considered whether the respondent nos.1 & 2 had made out a prima facie case for an interim order of temporary injunction. The shareholders agreement aimed to augment funds for the company, and respondent no.3 stood as a guarantor for a Rs. 130 crore loan from HSBC. The object of the right issue was debt obligation and day-to-day business operations. The respondent nos.1 & 2 apprehended that respondent no.3 intended to use the proceeds of the right issue to discharge the security obligation of the loan, which was valid until 2014. The court found that the respondent nos.1 & 2 had a strong prima facie case and sufficient cause of action to seek interim protection under Section 9.

3. Justification of the trial court in granting interim temporary injunction:
The court evaluated whether the trial court was justified in granting an interim temporary injunction restraining respondent no.3 from using the proceeds of the right issue to discharge the security obligation of the Rs. 130 crore loan. The court noted that the balance of convenience and inconvenience favored the respondent nos.1 & 2. If the application was refused, respondent no.3 could use the proceeds to discharge their loan security obligation, jeopardizing the company's financial condition. Allowing the application would help the company survive. Therefore, the court affirmed the trial court's decision to grant the interim temporary injunction.

Conclusion:
The judgment and order passed by the learned Additional District Judge, Alipore, were affirmed, and the appeal was dismissed without any cost.

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