Balasore Alloys Ltd vs Srei Equipment Finance Ltd
2021 Latest Caselaw 202 Cal/2

                                       ORDER SHEET
                              IN THE HIGH COURT AT CALCUTTA
                               CIVIL APPELLATE JURISDICTION
                                       ORIGINAL SIDE
                                   (COMMERCIAL DIVISION)


                                       APO 26 OF 2021
                                       AP 429 OF 2020
                                     (IA NO.GA/1/2021)
                                  BALASORE ALLOYS LTD.
                                          VERSUS
                               SREI EQUIPMENT FINANCE LTD.




  BEFORE:
  The Hon'ble JUSTICE I.P. MUKERJI
              AND
  The Hon'ble JUSTICE MD. NIZAMUDDIN
  Date : 24th February, 2021


                                                 Appearance :
                                                 Mr. Dhruba Ghosh, Sr. Adv.,
                                                 Mr. Rishad Medora,
                                                 Mr. Meghajit Mukherjee,
                                                 Mr. Sweta Mohanty, Advs.,
                                                 for the appellant.

                                                 Mr. Swatarup Banerjee,
                                                 Mr. Paritosh Sinha,
                                                 Mr. Saubhik Choudhury,
                                                 Mr. D. Majumder,
                                                 Ms. Ayusmita Sinha, Advs.,
                                                 for the respondent.

The Court : This is another interesting case under Section 9 of the Arbitration

and Conciliation Act, 1996.

The present Section 9 application was filed by the respondent in September,

2020.

According to the papers with us, on 8th December, 2020 the respondent took time

to file a supplementary affidavit before the court below. On 21 st December, 2020 further

time was prayed for and granted by the Court with a direction to serve a copy of the

application and the supplementary affidavit on the appellant.

Meanwhile, in December 2020 the arbitral tribunal was constituted.

On 7th January, 2021 the Court recorded that there was a possibility of settlement

between the parties and adjourned the application for two weeks. On 22 nd January, 2021

the Court recorded some steps having been taken by the parties further to their efforts to

arrive at a settlement and adjourned the application till 29th January, 2021.

It appears that the efforts to reach a settlement made no progress.

On 29th January, 2021 the Court passed the impugned judgment and order

appointing a receiver to take physical possession of the hypothecated assets. His

lordship also gave direction for filing affidavits.

It appears that it was only on 29th January, 2021 the appellant for the first time

took the point that since the arbitral tribunal had been constituted, the Court was

denuded of its jurisdiction under Section 9 of the said Act since there was no pleading

that such remedy could be efficaciously obtained from the arbitral tribunal.

Now, a little discussion on the law is necessary.

Section 9 of the said Act was amended with effect from 23 rd October, 2015 to the

effect that a party may, before or during arbitral proceedings or at any time after the

making of the arbitral award but before it is enforced in accordance with Section 36,

apply to the Court for protective orders. Sub-section 3 provided that once the arbitral

tribunal had been constituted, the Court shall not entertain an application under sub-

section 1 unless the Court found that circumstances existed which may not render the

remedy under Section 17 efficacious.

Therefore, the question which arises is : What was the duty of the Court after

constitution of the arbitral tribunal in December, 2020?

Mr. Ghosh submits that his client contested the proceedings only from 7 th

January, 2021.

If this was the defence of Mr. Ghosh's client, the appellant, it ought to have been

taken on 7th January, 2021 itself but for some reason it was not taken.

The Court proceeded to entertain the application on 22nd January, 2021.

On 29th January, 2021 the point was taken and the Court overruled it by holding

that "no doubt, a reference is pending. Pendency of the reference ipso facto does not oust

the jurisdiction of this Court under Section 9 of the Act of 1996. The petition is pending

since September 2020."

We were shown our judgment rendered on 15 th January, 2021 in FMAT 5 of 2021

(Kotak Mahindra Bank Limited Vs. Arjun Sharma & Anr.).

We ruled as follows.

"In our view the purpose of Section 9 sub section 3 of the said Act which was

brought in by way of an amendment, was not to undo any action taken by the Court

under Section 9 of the said Act, upon constitution of the Tribunal. On a proper

interpretation of the amendment, after constitution of the tribunal no new application

under Section 9 was to be entertained by the Court and any pending application could

not be entertained any further. This was subject to the exception provided in the

amendment giving the court power to entertain such an application or to continue

hearing the application in certain cases. When the Court decides not to entertain an

application any further, it does not mean that it will vacate all its earlier orders and

create a vacuum to be filled up by the Tribunal. This could lead to absurd and undesired

results. A receiver may have possession of a vehicle under orders of the Court. If this

possession is relinquished by the Court along with an order discharging the injunction

restraining transfer of the vehicle, by the time the other party approaches the tribunal,

the hirer will have enough opportunity, if he so desires to dispose of the vehicle. The

proper course for the Court is to relinquish jurisdiction, with the orders passed intact,

leaving it to the arbtiral tribunal to continue, vary or discharge these orders by passing

its own orders in the Section 17 application".

The facts of that case are different from those in this case.

In that case orders were passed in a Section 9 application before constitution of

the tribunal. The question before the Court was with regard to the fate of the orders once

the Court was denuded of its jurisdiction after constitution of the tribunal.

In this case after constitution of the arbitral tribunal, the objection with regard to

the lack of jurisdiction of the Court to entertain the application was not taken and the

Court proceeded to entertain it and pass orders recording the settlement efforts between

the parties. Each and every order was passed after constitution of the tribunal.

In our opinion, the bar created by Section 9(3) is absolute. Once the tribunal has

been constituted, the Court cannot entertain any new application or proceed to entertain

any old application. We do not think that jurisdiction could have been conferred upon

the Court by waiver or consent. But a situation has arisen which has not been taken

care by the legislature where the Court has been led by the parties to exercise

jurisdiction and thereafter the very point of jurisdiction has been taken by one of the

parties.

This is such a case. To give purposive interpretation to Section 9(3) of the said

Act, it has to be interpreted so as to imply that when the Court relinquishes jurisdiction

after passing orders, it shall either vacate those orders and pass suitable orders to

enable the parties to approach the tribunal or direct that its orders shall be subject to

continuance under orders of the tribunal. In this kind of a situation, the Court is

enjoined with the duty to pass orders so that the purpose of the legislation is not lost,

yet justice is done to the parties.

The impugned order dated 29th January, 2021 and all previous orders in the

Section 9 application passed by the Court on 21 st December, 2020, 7th January, 2021

and 22nd January, 2021 are set aside.

At the present point of time there is an order of status quo under which the

appellant is utilising the assets.

We direct that only for a period of two weeks from date, such status quo as

conditiioned hereinbelow will continue. Within this period either party may approach the

arbitral tribunal under Section 17 of the said Act.

The respondent is granted full liberty to inspect the assets and keep a watch so

that no loss is caused to them during this period of two weeks. The appellant will not

transfer/encumber or otherwise deal with the assets. The appellant will utilise the

subject assets under the status quo order strictly under the supervision of the

respondent.

The appeal and the connected application (APO 26 of 2021 and GA 1 of 2020)

were heard out, dispensing with all formalities. They are disposed of by the order. The

Section 9 application (AP 429 of 2020) is also disposed of.

(I.P. MUKERJI, J.)

(MD. NIZAMUDDIN, J.)

S.Das AR[CR]