2025 (3) TMI 633 - HC - Companies Law

Appeal dismissed under Section 37(2) - interim injunction upheld restraining share alienation pending arbitration proceedings

Delhi HC dismissed appeal under Section 37(2) of Arbitration Act challenging interim injunction restraining appellants from alienating shareholding ... Grant of an interim injunction restraining the Appellants from alienating their shareholding in the company pending arbitration - Share Purchase Agreement, a contingent contract - HELD THAT:- This Court while dealing with an appeal under Section 37 (2) of the A&C Act, especially one arising from discretionary orders passed at an interlocutory stage, has to be circumspect in its approach, keeping in view the principle of least intervention. The A&C Act is intended to provide an alternative avenue for dispute resolution and any interpretation of the act which tends to multiply disputes must be avoided. An appellate court will ordinarily not interfere with the discretion exercised by the AT in the first instance, unless the said discretion is proved to have been exercised arbitrarily, capriciously, perversely or ignoring the settled principles of law regulating grant or refusal of interlocutory injunctions. In Bakshi Speedways v. Hindustan Petroleum Corpn. [2009 (8) TMI 1306 - DELHI HIGH COURT], this Court imported the principles governing appeals arising from interim injunctions given under Order 39 Rules 1 and 2 CPC to the appeals under Section 37 (2) (b) A&C Act, holding that 'The principles applicable to an appeal under Section 37 (2) (b) in my view ought to be the same as the principles in an appeal against an order under Order 39 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 with the order merely because the appellate Court in the exercise of its discretion would have exercised so otherwise'. The SPA in question pertains to an ostensible sale of shares, though, for all intent and purpose, the underlying Plot, which is the only immoveable property, in which Appellant No 1 has interest, is being conveyed, in favour of Respondent, by ceding ownership and control over the Appellant No 1 Company in favor of the Respondent by the Appellant Nos. 2 and 3 - There is no provision for termination of SPA until the sale is consummated. Appellant’s have alleged breach of SPA by the Respondent and resorted to termination, which is disputed by the Respondent. The adjudication of underlying dispute is pending before the AT and pending the adjudication, the AT has passed the impugned order to ensure that the subject matter of the SPA i.e. the shares, are not lost by way of sale to a third party by the Appellant Nos. 2 and 3 - the impugned order passed by AT does not suffer from any legal vice for this court to overturn the same in this appeal. The Appellant’s objection that the SPA being a contingent contract and not capable of being enforced because the contingent event of sale of the Plot in favor of the Appellant by the OL, did not occur, is without any merit. The Appellant is alleging breach of the SPA by the Respondent to terminate the SPA and not on the ground that the Plot in question is no longer capable of being acquired by the Appellant No 1 for reasons, beyond its control, thereby frustrating the objective of the SPA. Conclusion - i) The Respondent's actions demonstrated readiness to perform the SPA, justifying the interim injunction. ii) The AT cannot be said to have exercised its discretion arbitrarily, capriciously, perversely or ignoring settled principles of law. Appeal dismissed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this case revolve around the following issues: Whether the Arbitral Tribunal (AT) erred in granting an interim injunction restraining the Appellants from alienating their shareholding in the company pending arbitration. Whether the Share Purchase Agreement (SPA) is inherently determinable and thus not capable of specific performance under the Specific Relief Act. Whether the SPA is a contingent contract and if the non-occurrence of the contingent event affects its enforceability. Whether the Respondent's failure to seek specific performance of the SPA disentitles it from seeking interim relief.ISSUE-WISE DETAILED ANALYSIS1. Interim Injunction by Arbitral TribunalThe relevant legal framework involves Section 17 of the Arbitration & Conciliation Act, 1996, which allows the AT to grant interim measures. The Court emphasized the principle of minimal judicial interference in arbitral proceedings, as outlined in Section 5 of the A&C Act. The Court referred to precedents that establish the appellate court's limited scope in interfering with the AT's discretion unless it is exercised arbitrarily or perversely.The AT's decision to restrain the Appellants from selling their shares was based on preserving the subject matter of the SPA, i.e., the shares, pending arbitration. The Court found no legal vice in the AT's order, noting that the AT acted within its jurisdiction and discretion.2. Determinability of the SPAThe Appellants argued that the SPA is inherently determinable and not capable of specific performance due to Section 14(d) and Section 41(e) of the Specific Relief Act. They cited precedents like Indian Oil Corpn. Ltd. v. Amritsar Gas Service and Rajasthan Breweries Ltd. v. Stroh Brewery Co. to support their contention.The Court noted that the AT had distinguished these precedents as they pertained to service contracts, whereas the SPA involved the sale of shares and an underlying plot. The AT found no provision for termination in the SPA until the sale was consummated, and the Court agreed that the objections regarding determinability required final adjudication by the AT.3. Contingent Nature of the SPAThe Appellants contended that the SPA was a contingent contract, dependent on the acquisition of the plot by the Appellant No. 1. The Court found this argument without merit, as the Appellants themselves had entered into another agreement post-termination, indicating the plot's acquisition was still feasible.The AT's reasoning was that the Respondent's alleged breach was the ground for termination, not the non-occurrence of the contingent event. The Court upheld this view, finding no arbitrariness in the AT's discretion.4. Respondent's Failure to Seek Specific PerformanceThe Appellants argued that the Respondent's failure to seek specific performance of the SPA disentitled it from interim relief. The Court found this argument specious, noting that the Respondent's request to declare the termination null and void effectively indicated a willingness to perform the SPA.The AT had addressed this objection by noting the Respondent's readiness and willingness to conclude the sale, as evidenced by its financial actions post-impugned order. The Court found the AT's observations on this point to be sound.SIGNIFICANT HOLDINGSThe Court preserved the AT's interim order, emphasizing the principle of minimal judicial interference in arbitral proceedings. It reiterated that the AT's discretion should not be overturned unless exercised perversely or contrary to law. The Court concluded that the AT's order was within its jurisdiction and discretion, dismissing the appeal.The core principles established include the limited scope of appellate intervention in arbitral interim orders and the necessity for final adjudication on the determinability and contingent nature of contracts. The Court affirmed that the Respondent's actions demonstrated readiness to perform the SPA, justifying the interim injunction.