The Delhi high Court recently comprising of a bench of Justices Manmohan and Asha Menon observed that Section 9 of Act, 1996 should be exercised in exceptional cases when there is adequate material on record leading to a definite conclusion that the respondent is likely to render the entire arbitration proceedings infructuous or where there is an admitted liability. (Savita Jain Sole Proprietor Of M S Navkar Sales v. M/S Krishna Packaging)
Facts of the Case
The appellant has filed an appeal challenging the order passed by the trial court whereby the petition filed by the appellant under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “Act, 1996”) was dismissed with costs.
Contention of the Parties
The counsel for the appellant submitted that discretionary relief enshrined under Section 9 of the Act, 1996 should have been exercised as there was adequate material on record leading to a definite conclusion that the respondent had “admitted its liability”. He placed reliance on Rajendran and Others Vs. Shankar Sundaram and Others.
Learned counsel for the appellant/petitioner stated that the precarious financial condition of the respondent was apparent from the documents and financial statements filed by the respondent itself. He submitted that the learned trial court despite finding a prima facie case in favour of the appellant got swayed by irrelevant considerations and dismissed the petition and imposed costs upon the appellant.
Per contra learned counsel for the respondent stated that the appellant had failed to establish urgency in this matter, both in the application before learned District Judge and in the present appeal warranting this Court’s interference. He stated that there was no admitted liability.
Learned counsel for the respondent contended that the appellant had failed to establish that the respondent was frittering away/disposing of his assets so as to defeat the very purpose of Arbitration and if an interim relief by way of securing alleged admitted amount was not granted, the Arbitration proceedings would become infructuous. He stated that the change of address of respondent, as claimed by the appellant, as evidence of trying to evade paying outstanding liabilities was an address change from Mathura to Vrindavan, a mere 12 kms apart. He further stated that the respondent’s turnover and profit was growing progressively and in the unlikely event of an award being passed against it, respondent was capable of paying the decretal amount.
Courts Observation & Judgment
The Court at the very outset observed, “Having heard learned counsel for the parties, this Court is of the opinion that Section 9 grants wide powers to the Courts in granting an appropriate interim order based on the relevant facts of the case at all stages of the arbitration proceedings namely before, during or after the arbitration proceedings. However, this Court is in agreement with the submission of learned counsel for respondent that the discretion under Section 9 of Act, 1996 should be exercised in exceptional cases when there is adequate material on record leading to a definite conclusion that the respondent is likely to render the entire arbitration proceedings infructuous or where there is an admitted liability. Needless to state, though exercise of such powers is premised on the underlying principles of Orders XXXVIII and XXXIX of the C.P.C, yet it is settled law that the Court is not unduly bound by the text of these provisions.”
The court referred to the order of the Coordinate Bench of the Court in the case of Ajay Singh v. Kai Airways Private Limited, wherein the following observations were made, “Though apparently, there seem to be two divergent strands of thought, in judicial thinking, this court is of the opinion that the matter is one of the weight to be given to the materials on record, a fact-dependent exercise, rather than of principle. That Section 9 grants wide powers to the courts in fashioning an appropriate interim order, is apparent from its text. Nevertheless, what the authorities stress is that the exercise of such power should be principled, premised on some known guidelines – therefore, the analogy of Orders 38 and 39. Equally, the court should not find itself unduly bound by the text of those provisions rather it is to follow the underlying principles.”
The bench was of the view that the jurisdiction of an Appellate Court while hearing an appeal against application under Section 9 of the Act, 1996 is limited as the appeal is against exercise of discretion by the learned Single Judge, yet as the trial court in the present case has acted contrary to the settled principles of law as well as facts, it sets aside the trial court‟s order on the ground of perversity as the appellant’s case is a case of admitted liability as reflected in respondent’s own balance sheets and statement of accounts without any caveat/explanation and that too post its counter-claim in its letter dated 24th October, 2019.
The bench while dismissing the petition observed, “Accordingly, the impugned order dated 26th November, 2020 passed by the Trial Court is set aside and the respondent is directed to furnish a bank guarantee of Rs.15,40,318/- (being the admitted amount) to the satisfaction of the Trial Court within four weeks. The bank guarantee shall be kept alive till an award is rendered by the Arbitrator and shall abide by further orders to be passed by the learned Arbitrator while rendering the final award. This Court clarifies that the conclusions arrived at by this Court are prima facie in nature for determination of this proceeding and shall not bind the Arbitrator who shall decide the matter on its own merits without being influenced by any observation made by this Court. Consequently, present appeal and application stand disposed of.”
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