2023 (7) TMI 1564 - HC - Indian Laws

Arbitrator's order preserving Rs.5 crores in FDR upheld under Section 17 Arbitration Act 1996

Delhi HC dismissed an appeal challenging an arbitrator's interim order directing preservation of Rs.5 crores in FDR form. The court held that under ... Forum shopping - Direction to preserve a sum of Rs.5 Crores in the form of an FDR in the name of SMC till the passing of the final award, within two weeks of the order - Section 17 of the Arbitration and Conciliation Act, 1996 - scope and ambit of jurisdiction of this Court under Section 37(2) of the 1996 Act - violation of principles of natural justice. Scope and ambit of jurisdiction of this Court under Section 37(2) of the 1996 Act - HELD THAT:- From a reading of the observations of the Supreme Court in Wander Ltd. v. Antox India (P) Ltd. [1990 (4) TMI 280 - SUPREME COURT], it is clear that an Appellate Court shall not interfere in exercise of discretion by the Court of first instance and substitute its views except where the discretion is exercised arbitrarily, capriciously or where the decision impugned is perverse and Court has ignored the settled principles of law governing grant or refusal of interim orders. It is not open to re-assess the material and if the view taken by the Court below is a reasonable or a plausible view and all relevant material has been considered, no interference is warranted solely on the ground that the Appellate Court may have taken a different view on the same set of facts and circumstances. In Ascot Hotels and Resorts Pvt. Ltd. and Another v. Connaught Plaza Restaurants Pvt. Ltd., [2018 (3) TMI 2053 - DELHI HIGH COURT], this Court reiterated the above principles. In Bakshi Speedways v. Hindustan Petroleum Corporation [2009 (8) TMI 1306 - DELHI HIGH COURT], Court observed that the principles applicable to an appeal under Section 37(2)(b) of the 1996 Act ought to be the same as principles in an appeal against an order passed under Order XXXIX Rules 1 and 2 CPC i.e. unless the discretion exercised by the Court against whose order the appeal is preferred is found to have been exercised perversely and contrary to law, the Appellate Court ought not to interfere merely because the Appellate Court would have exercised its discretion otherwise. From a conspectus of the aforesaid judgments, it is explicitly and luminously clear that while exercising power under Section 37(2)(b), the Court is required to maintain an extremely circumspect approach keeping in mind the object and purpose of the legislation and Section 5 of the 1996 Act which is a clear pointer to the legislative intent of keeping the Court’s interference at the minimum. Once the scope of interference by this Court in an order passed by the learned Arbitrator under Section 17 of the 1996 Act is understood, it is necessary to look at the scope of power of the Arbitral Tribunal under Section 17, which to my mind is an issue no longer res integra. Section 17 of the 1996 Act has been specifically enacted by the legislature to provide to a party, during the arbitral proceedings or after the award is made but before it is enforced, a right of seeking preservation of the subject matter of the arbitration agreement and/or securing the amount in dispute in arbitration. Post the amendment of Section 17 of the 1996 Act, it is in the same province as Section 9 of the Act, as held by the Supreme Court in a recent decision in Arcelor Mittal Nippon Steel (India) Ltd. v. Essar Bulk Terminal Ltd., [2021 (9) TMI 731 - SUPREME COURT] and bestows power on the Arbitral Tribunal to make orders of interim protection on a wider canvass. In the limited scope and confines of jurisdiction that the Court has over the interim order passed by the learned Arbitrator, this Court does not find that the same warrants interference. Be it ingeminated that whether it is Section 9 or 17 of the 1996 Act, the ultimate consideration, applying the law laid down in Ajay Singh v. Kal Airways Private Limited and Others [2017 (7) TMI 1078 - DELHI HIGH COURT], is doing complete and substantial justice between the parties. The impugned order has not resulted in grant of an order in the nature of mandatory injunction to pay any amount to SMC and nor has the learned Arbitrator directed a deposit. HHEC has only been directed to preserve the amount in the form of an FDR in the name of SMC for securing the amount being part of the subject matter of the arbitration proceedings. The learned Arbitrator has exercised a power statutorily conferred under Section 17(1)(ii)(b) and the order passed is a well-reasoned order balancing the equities between the parties. The impugned order is far from being perverse or in excess of jurisdiction and cannot be termed as a product of arbitrary exercise of discretion applying the parameters circumscribing the limited window of interference under Section 37(2) of the 1996 Act. Conclusion - The Arbitrator's order to preserve Rs.5 Crores was upheld as a valid exercise of discretion under Section 17, aimed at securing the subject matter of the dispute. Appeal dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the Arbitrator's order to preserve a sum of Rs.5 Crores in the form of an FDR in the name of SMC was justified under Section 17 of the Arbitration and Conciliation Act, 1996.The scope and ambit of the Court's jurisdiction under Section 37(2) of the 1996 Act to test the impugned order passed by the Arbitrator.Whether the Arbitrator's decision was made in violation of principles of natural justice by not providing HHEC an opportunity to present its case.Whether the claims made by SMC were barred by limitation and if the Arbitrator erred in not addressing this issue.The appropriateness of the Arbitrator's directive to preserve funds as an interim measure and the applicability of relevant legal principles, including those under Order XXXVIII Rule 5 CPC.2. ISSUE-WISE DETAILED ANALYSISPreservation of Funds under Section 17 of the 1996 Act:Legal Framework and Precedents: Section 17 of the Arbitration and Conciliation Act, 1996 allows an Arbitral Tribunal to order interim measures of protection, including securing the amount in dispute. The amended Section 17 is akin to Section 9, which allows courts to grant interim measures.Court's Interpretation and Reasoning: The Court noted that the Arbitrator's order to preserve Rs.5 Crores was within the scope of Section 17, as the Arbitrator has the discretion to secure amounts in dispute to prevent frustration of the arbitral proceedings.Key Evidence and Findings: The Arbitrator considered various documents indicating the amounts outstanding to SMC and noted the approval of HHEC's closure by the Cabinet, which justified the need to preserve funds.Application of Law to Facts: The Arbitrator's decision was based on the acknowledgment of outstanding amounts by HHEC and the closure of HHEC, which raised concerns about its ability to satisfy a future award.Treatment of Competing Arguments: HHEC argued that the preservation order was akin to attachment before judgment and unnecessary, but the Court found the Arbitrator's decision justified given the circumstances.Conclusions: The Court upheld the Arbitrator's order as it was a well-reasoned exercise of discretion, balancing equities between the parties.Jurisdiction under Section 37(2) of the 1996 Act:Legal Framework and Precedents: An appellate court's interference with an Arbitrator's discretionary order is limited to cases of arbitrariness, capriciousness, or perversity.Court's Interpretation and Reasoning: The Court emphasized that interference is unwarranted unless the Arbitrator's decision is perverse or contrary to law. The Arbitrator's decision was found to be reasonable and based on relevant material.Conclusions: The Court found no basis to interfere with the Arbitrator's order under Section 37(2), as it was neither arbitrary nor capricious.Opportunity to Present Case and Natural Justice:Legal Framework and Precedents: Principles of natural justice require that parties are given notice and an opportunity to be heard.Court's Interpretation and Reasoning: The Court found that HHEC was given ample opportunity to participate in the arbitration proceedings but chose not to appear, and the Arbitrator made reasonable efforts to notify HHEC of hearings.Conclusions: The Court rejected HHEC's contention that it was denied an opportunity to present its case, as the Arbitrator provided sufficient notice and opportunity.Limitation and Merits of Claims:Legal Framework and Precedents: The issue of limitation is typically addressed during the merits of the arbitration proceedings, not in interim applications.Court's Interpretation and Reasoning: The Court noted that the limitation issue was not raised before the Arbitrator, and it was not appropriate to address it in the present appeal.Conclusions: The Court refrained from adjudicating the limitation issue, leaving it to the Arbitrator to decide during the merits of the case.3. SIGNIFICANT HOLDINGSPreservation of Funds: The Arbitrator's order to preserve Rs.5 Crores was upheld as a valid exercise of discretion under Section 17, aimed at securing the subject matter of the dispute.Jurisdiction and Interference: The Court emphasized the limited scope of interference under Section 37(2), reinforcing the principle of minimal judicial intervention in arbitral proceedings.Natural Justice: The Court held that HHEC was given reasonable opportunity to participate in the arbitration, and its absence was a result of its own choices.Limitation and Merits: The Court clarified that the limitation issue is to be addressed by the Arbitrator during the merits of the case, not in the present appeal.Final Determinations: The appeals were dismissed, affirming the Arbitrator's interim order and reinforcing the principles of arbitration as an alternative dispute resolution mechanism.