TaxTMI 
TaxTMI 
2022 (5) TMI 1671
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....the respondent in the present appeal. 2. The transaction that is the genesis of disputes between the parties is the sale by the appellants to the respondent of a business unit called Devi Metal Technologies (DMT) alongwith its assets on a 'going concern basis' based upon three principal documents: i. Balance sheet dated 14.04.2016 of DMT for FY ending 31.03.2016. ii. Deed of reconstitution dated 15.04.2016, which was to take effect from 01.04.2016; and iii. Supplementary deed dated 15.04.2016, which carved-out certain exceptions to the sale of the running business unit. Appellants' Arguments 3. Mr. Manish Vashisht, learned senior counsel appearing on behalf of appellants submits that at the time of sale of DMT to the respondent, the respondent was a 'solvent company' which had assured that the sale consideration would be paid to the appellants upon settlement and reconciliation of accounts. It is contended however, that during the pendency of arbitral proceedings, the respondent's net-worth has eroded; by reason whereof, the amount comprised in the counterclaims deserves to be secured, since otherwise the appellants would ....
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....ion to the respondent to furnish security or bank guarantee solely on the ground that the respondent company is facing 'financial hardship' as reflected in the financial results submitted by it to the Bombay Stock Exchange during FY 2021-2022. Counsel submits that these financial results are the result of the world-wide economic slow-down which has resulted from the COVID-19 pandemic and the lockdowns and restrictions imposed during that phase, which were entirely beyond the control of the respondent and the impact of which has been suffered not just by the respondent but by businesses across the world. In any case, it is argued, that that mere 'financial hardship' of a party can never be the sole ground for passing interim orders under section 17 of the A & C Act. 8. It is further pointed-out on behalf of the respondent that the application under section 17 that stands dismissed by way of the impugned order, was moved on 20.03.2021 at the fag-end of the arbitral proceedings, when final arguments had been heard on behalf of the respondent (claimants), and the appellants (counter-claimants) were in the process of addressing their arguments on their counterclaims. ....
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....'s total liability has occurred despite it sustaining business losses by reason of the COVID-19 pandemic, which shows that the respondent has been maintaining and running the company as a 'going concern' without increasing its liability, despite such losses. Even the pendency of certain proceedings before the National Company Law Tribunal (NCLT) has been considered by the learned Sole Arbitrator, and addressed by saying, that all such proceedings are being contested; none of the petitions before the NCLT have been 'admitted'; some of them have even been settled by the respondent; and the pending cases are towards 'resolution' of the debts and not towards 'liquidation' of the respondent company. iv. That the orders prayed for by the appellants under section 17, effectively to securitise an unsecured and indeterminate sum, would be governed by the broad principles of Order XXXVIII Rule 5 of the Civil Procedure Code 1908, which powers, the Hon'ble Supreme Court has held in Raman Tech. & Process Engg. Co. & Anr. vs. Solanki Traders 2008 (2) SCC 302, are drastic and extraordinary and must not be exercised mechanically but only sparingly, ....
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.... the directions for furnishing of bank guarantee/security as prayed for by the respondents in the present application is granted then it will cause a great miscarriage of justice and irreparable loss to the claimant in as much as such an order will amount to putting a death knell in the neck of the claimant which is already struggling lifeline for its survival particularly in view of the situation caused by Covid-19 pandemic. If, the claimant is directed to furnish bank guarantee to secure the undetermined amount of counter-claims, then it may tantamount to paralyzing all its business operations and would compound the financial difficulties already undergone by it." (under-scoring supplied; bold in original) 10. Now, the scope of interference by courts in arbitral proceedings is founded and defined in section 5 of the A & C Act in the following words: "5. Extent of judicial intervention.- Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part." 11. A brief overview of the judicial perspective on the scope of interference by a cour....
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....ioned. While examining such a challenge, however, the Court has to be mindful of its limitations, in interfering with the decision of the arbitrator, especially a decision taken at the discretionary level, and at an interlocutory stage." * * * * * Section 17(1), and applicability of Order XXXIX, CPC, thereto "73. As against this, orders which are appealable under Section 37(2)(b) are orders granting, or refusing to grant, interim measures under Section 17. Section 17(1), for its part, reads thus: * * * * * "75. The scope and ambit of Section 9, especially in the light of this concluding caveat, was examined by the Supreme Court in Arvind Constructions Co. (P) Ltd. v. Kalinga Mining Corporation (2007 6 SCC 798) and Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd. (2007 7 SCC 125) In Arvind Constructions Co. (P) Ltd., it was held thus (in para 15 of the report): "The argument that the power under Section 9 of the Act is independent of the Specific Relief Act or that the restrictions placed by the Specific Relief Act cannot control the exercise of power under Section 9 of the Act cannot prima facie be accepted. ..... It is also cl....
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....cise of jurisdiction, by the arbitrator, under Section 17, is fundamentally discretionary in nature - as contrasted with Section 16(2) and (3). Judicial interference, with the exercise of discretionary power, is, classically, limited, and is even more circumscribed, where the authority exercising discretion is itself a judicial authority - as opposed to a purely administrative or executive functionary. (One uses the expression "judicial authority", here, to denote the nature-rather than the status - of the jurisdiction exercised by the Arbitrator, it having been settled, by the Supreme Court, in M.D., Army Welfare Housing Organisation v. Sumangal Services (P) Ltd. (2018 209 Comp Cas 154), that an arbitrator is not a "Court", and does not exercises judicial functions.) Discretionary orders passed by arbitral tribunals have, therefore, to be handled with kid gloves, and protected from injury by any overzealous administration, by the court, of the law as it perceives it to be. If anything, therefore, the jurisdiction of the Court, under Section 37(2)(b), is even more limited than the jurisdiction that it exercises under Section 37(2)(a) or, for that matter, under Section 34. The discr....
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....ise the provisions of Order 38 Rule 5 as a leverage for coercing the defendant to settle the suit claim should be discouraged. Instances are not wanting where bloated and doubtful claims are realised by unscrupulous plaintiffs by obtaining orders of attachment before judgment and forcing the defendants for out-of-court settlements under threat of attachment. "6. A defendant is not debarred from dealing with his property merely because a suit is filed or about to be filed against him. Shifting of business from one premises to another premises or removal of machinery to another premises by itself is not a ground for granting attachment before judgment. A plaintiff should show, prima facie, that his claim is bona fide and valid and also satisfy the court that the defendant is about to remove or dispose of the whole or part of his property, with the intention of obstructing or delaying the execution of any decree that may be passed against him, before power is exercised under Order 38 Rule 5 CPC. Courts should also keep in view the principles relating to grant of attachment before judgment. (See Premraj Mundra v. Md. Manech Gazi [AIR 1951 Cal 156] for a clear summary of the pr....