2021 (6) TMI 1188 - HC - Indian Laws

Court can appoint arbitrator if agreement's mechanism fails under Arbitration Act Section 9; escrow account ordered for disputed funds

QUIPPO INFRASTRUCTURE LTD. Versus A2Z INFRASERVICES LTD & ANR.

The HC allowed the appeal against the dismissal of the Section 9 application under the Arbitration and Conciliation Act, 1996. It held that when the ... Maintainability of appeal - Dismissal of application of the appellant u/s 9 of Arbitration and Conciliation Act, 1996 - non-constitution of arbitral tribunal - HELD THAT:- An agreement may provide for arbitration by one named arbitrator. Or it might provide that one arbitrator may be appointed by the parties by agreement or an arbitrator to be appointed by each of the two parties and a third arbitrator to be chosen by the appointed arbitrators. Or there might be a mechanism provided for appointment of an arbitrator by a third party. If the system provided in the agreement for appointment of an arbitrator cannot be worked out, the court will appoint an arbitrator. The appellant in the Section 9 application was not asking for attachment of the bank account of the respondents. Neither were they seeking a judgment upon admission for the admitted amount. The court under Order 39 Rule 1 of the Code of Civil Procedure has the power to pass an order of injunction in respect of the property in dispute in the suit. If money is considered as property the dispute between the parties is whether the money received by the respondents under the Concession agreement is to be kept in the Escrow account or not. On the basis of the above prima facie case, admission by the respondents and their promise to deposit all payments received in the escrow account, the court has the power to direct this disputed property to be deposited in the escrow account. The respondents shall deposit all the money received by them in future from South Delhi Municipal Corporation in connection with the work covered by the Master Service Agreement in the escrow account subject to further direction in this behalf by the arbitral tribunal or the arbitral award that may be passed - Appeal allowed. ISSUES: Whether an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 is maintainable after constitution of the arbitral tribunal.What is the proper interpretation of the term 'constitution of the arbitral tribunal' under Section 9(3) of the Arbitration and Conciliation Act, 1996.Whether the Court can entertain an application under Section 9 of the Arbitration and Conciliation Act, 1996 for interim measures after the arbitral tribunal has been constituted.Whether the respondents are obligated to deposit all monies received under the Concession Agreement into the Escrow account as per the contractual terms and interim relief sought.Whether a prima facie case exists for directing deposit of disputed monies into the Escrow account pending arbitration. RULINGS / HOLDINGS: The appeal under Section 37 is maintainable notwithstanding the constitution of the arbitral tribunal, as the term 'constitution of the arbitral tribunal' must be interpreted purposively to mean the assumption of jurisdiction by the tribunal after commencement of arbitral proceedings, not merely appointment of arbitrators.The phrase 'constitution of the arbitral tribunal' in Section 9(3) does not equate to mere appointment of arbitrators; it requires the arbitral tribunal to have assumed jurisdiction under Section 21 of the Act for the Court to decline entertaining Section 9 applications.Section 9(1) confers a wide power on the Court to grant interim measures 'before or during arbitral proceedings,' and the 2015 amendment introducing Section 9(3) was not intended to substantially restrict this power immediately upon appointment of arbitrators.The Court has jurisdiction to entertain an appeal against an order passed under Section 9 even after constitution of the arbitral tribunal, preventing an anomalous situation where the tribunal could not challenge interlocutory orders of the Court.The respondents are not under an absolute obligation to deposit all monies received under the Concession Agreement into the Escrow account; the contractual clauses provide a complex payment mechanism where payments from the Escrow account are conditional and subject to defaults.Prima facie, there is an admission of liability by the respondents of Rs. 8,17,93,600/- as evidenced by a WhatsApp message constituting a statement of account, and an email dated 27th August 2018 wherein the respondents agreed to deposit payments into the Escrow account.On the basis of the prima facie case, admission by respondents, and their promise to deposit payments into the Escrow account, the Court has the power under Order 39 Rule 1 CPC to grant an injunction directing the respondents to deposit all future monies received from the South Delhi Municipal Corporation into the Escrow account pending arbitration. RATIONALE: The Court applied the Arbitration and Conciliation Act, 1996, especially Section 9 as amended in 2015, and interpreted the term 'constitution of the arbitral tribunal' in a purposive manner to avoid unduly restricting the Court's power to grant interim relief.The Court relied on the broad language of Section 9(1), which allows applications 'before or during arbitral proceedings,' and reasoned that equating constitution with mere appointment of arbitrators would render Section 9(1) ineffective in most cases.The Court noted the absence of statutory definition for 'constitution of the arbitral tribunal' and distinguished it from 'appointment of arbitrators,' emphasizing assumption of jurisdiction as the key event.The decision avoids an anomalous procedural consequence whereby appeals against Section 9 orders would become non-justiciable once arbitrators are appointed but prior to their assumption of jurisdiction.The Court invoked its inherent power under Order 39 Rule 1 CPC to grant interim injunctions in respect of disputed property, here interpreted to include monies, to preserve the status quo pending arbitration.The Court acknowledged the complexity of the contractual payment and Escrow arrangements, interpreting them in light of the parties' conduct and admissions to justify interim relief without prejudging substantive rights.