The Single Bench of the Delhi High Court in the case of Manish Aggarwal & Anr. vs RCI Industries and Technologies Ltd consisting of Justice Anup Jairam Bhambhani while dismissing an appeal reiterated that the discretionary jurisdiction as exercised by the arbitrator u/s 17 of the Arbitration & Conciliation Act 1996 (‘A&C Act’) merits interference u/s 37(2)(b) of the A&C Act only where such exercise is palpably arbitrary or unconscionable. It was also observed that the purpose of O38R5 CPC is not to convert unsecured debt into a secured debt.
Facts
The appellants assailed an order made by the learned Sole Arbitrator, declining to allow an application seeking interim measures of protection u/s 17 of the A&C Act. The application u/s 17 was moved by the non-claimants (the appellants herein) who had sought to secure the amounts comprised in their counterclaims. The principal ground for seeking to secure the amount in dispute in the counterclaims was the alleged ruinous financial position of the claimant, who is the respondent in the present appeal. 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) along with its assets on a ‘going concern basis’.
Contentions Made
Petitioner: At the time of sale of DMT to the respondent, the respondent was a ‘solvent company’. But during the pendency of arbitral proceedings, the respondent’s net-worth eroded due to which the amount comprised in the counterclaims deserves to be secured. The learned Sole Arbitrator has declined relief u/s 17 of the A&C Act holding that the counterclaims of the appellants are ‘speculative, undetermined and disputed’ and therefore the powers under section 17 cannot be exercised to secure such counterclaims. In doing so, he has grossly erred and has thereby rendered the counter-claims academic, since even if the appellants were to succeed, they would get an unenforceable ‘paper award’ since the respondent’s net-worth is already in the negative.
Respondent: The present appeal must be decided within the scope of interference permissible u/s 37(2)(b) of the A&C Act. The section 17 application moved before the learned Sole Arbitrator was an attempt by the appellants to ‘crystalize’ their otherwise doubtful, bloated and speculative counterclaims and they cannot be permitted to convert an unsecured claim or debt into a secured one, by seeking security from the respondent as an interim measure. There is no covert or overt act on the respondent’s part in disposing of and transferring its assets, that would render any award passed a mere paper decree. Mere ‘financial hardship’ of a party can never be the sole ground for passing interim orders u/s 17 of the A&C Act.
Observations of the Court
The Bench relied on certain precedents regarding a brief overview of the judicial perspective on the scope of interference by a court u/s 37(2)(b) with a decision taken by an arbitrator u/s 17 and reiterated that:
“It is indisputable that the exercise of jurisdiction, by the arbitrator, u/s 17, is fundamentally discretionary in nature… the discretionary jurisdiction, as exercised by the arbitrator, merits interference, under Section 37(2)(b), therefore, only where such exercise is palpably arbitrary or unconscionable… the appellate court will not interfere with the exercise of discretion except where the discretion has been shown to have been exercised arbitrarily or where the court had ignored the settled principles of law regulating grant or refusal of interlocutory injunctions… The purpose of O38R5 CPC is not to convert an unsecured debt into a secured debt… 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 O38R5.”
Judgment
The learned Sole Arbitrator had rightly declined to grant the interlocutory order sought by the appellants in exercise of his discretionary power u/s 17 of the A&C Act as grant of the interlocutory relief sought, would have amounted to converting the indeterminate and unsecured counterclaims preferred by the appellants, into secure claims, which is ordinarily frowned upon in law. The present appeal was hereby dismissed.
Case Name: Manish Aggarwal & Anr. vs RCI Industries and Technologies Ltd
Citation: ARB. A. (COMM.) 46/2021
Bench: Justice Anup Jairam Bhambhani
Decided on: 05th May 2022
Read Judgment @Latestlaws.com
Picture Source :
