Calcutta High Court
Jagrati Trade Services Private ... vs Deepak Bhargava & Ors on 31 January, 2023
IN THE HIGH COURT AT CALCUTTA
CIVIL APPELLATE JURISDICTION
COMMERCIAL DIVISION
ORIGINAL SIDE
Present:
The Hon'ble Justice Shekhar B. Saraf
APO 108 of 2022
IA NO. GA 1 of 2022
JAGRATI TRADE SERVICES PRIVATE LIMITED
VS.
DEEPAK BHARGAVA & ORS.
For the Petitioner : Mr. Ratnanko Banerjee, Sr. Adv.
Mr. Anirban Ray, Adv.
Mr. Rudrajit Sarkar, Adv.
Mr. Debangshu Dinda, Adv.
Mr. Jai Kumar Surana, Adv.
Mr. Arundhuti Roy, Adv.
For the Respondent Nos. 1-13 : Mr. Jishnu Saha, Sr. Adv.
Mr. Arindam Banerjee, Adv.
For the Respondent No. 14 : Mr. Zeeshan Haque, Adv.
Mr. Saket Chaudhury, Adv.
Last Heard on : January 05, 2023
Judgement on : January 31, 2023
Page 1 of 35
Shekhar B. Saraf, J.:
1. Jagrati Trade Services Private Limited being represented by one of its
directors, Jagdish Sarda [hereinafter referred to as 'the petitioner'], is
a company incorporated under the Companies Act, 1956 having its
registered office at premises No. 3A, Shakespeare Sarani, Kolkata -
700071.
2. The instant application [being A.P.O. No. 108 of 2022] is filed under
section 37 of the Arbitration and Conciliation Act, 1996 [hereinafter
referred to as 'the Act'] by the petitioner against the order dated
November 6, 2022 [hereinafter referred to as the 'Impugned Order'],
passed by the arbitrator in an application filed by the petitioner under
section 17 of the Act.
3. Deepak Bhargava, Rajni Bhargava, Deepak Bhargava (HUF), Vaibhav
Bhargava, Monisha Bhargava, Smriti Raina, Megha Saigal, Gayatri
Bhargava along with: -
a. Box and Carton Private Limited, a company incorporated under
the Companies Act, 1956 having its registered office at 12/478,
McRobertganj Kanpur - 208001, Uttar Pradesh,
b. CSP Exim Private Limited, a company incorporated under the
Companies Act, 1956 having its registered office at 7/48, Tilak
Nagar, Kanpur - 208002, Uttar Pradesh,
Page 2 of 35
c. The Calcutta Phototype Company Limited, a company
incorporated under the Companies Act, 1913 having its registered
office at Unit-III, 1st Floor, Central Plaza, 41, B.B. Ganguly Street
Kolkata 700012, and
d. CSP Investment & Financial Services Private Limited, a company
incorporated under the Companies Act, 1956 having its registered
office at Unit-III, 1st Floor, Central Plaza, 41, B.B. Ganguly Street
Kolkata 700012
are hereinafter collectively referred to as 'respondent nos. 1-12'.
4. James Glendye & Company Private Limited [hereinafter referred to as
respondent no. 13] is a company incorporated under the Companies
Act, 1913 having its registered office at 6, Jawarahlal Nehru Road,
Kolkata - 700013.
5. Orbit Towers Private Limited is a company incorporated under the
Companies Act, 1956 having its registered office at 3B, Camac Street,
Kolkata - 700106 and Damani Infracon Private Limited [hereinafter
collectively referred to as 'respondent nos. 14 and 15'] is a company
incorporated under the Companies Act, 1956 having its registered
office at P-32, Kasba Industrial Estate, Phase-I, Kolkata - 700107.
Page 3 of 35
6. The petitioner has filed the current application praying for stay of the
order and grant of interim reliefs, namely in the form of: -
a. An order of injunction restraining the company from dealing with
and/ or alienating and/or creating any third-party rights over and
in respect of the owners' allocation in the premises being No. 6,
Jawahar Lal Nehru Road.
b. A fit and proper person be appointed as Receiver to visit and to
make an inventory as to what third party liabilities have been
prayed by the respondent no. 13 is the said premises.
c. An order be passed directing the respondent no. 13 to disclose the
particulars of the third-party rights created on the owner's
allocation in the premises being 6, Jawaharlal Nehru Road,
Kolkata - 700013.
Relevant Facts
7. The petitioner and respondent nos. 14 and 15 entered into a Share
Purchase Agreement [hereinafter referred to as 'the SPA'] with
respondent nos. 1-12 who had 100% shareholding of respondent no. 13
company [hereinafter referred to as 'the company/respondent no.13'].
8. The SPA was complemented by an Escrow Agreement signed by the
same parties and on the same day, laying down conditions to be
fulfilled by the petitioner and respondent nos. 14 and 15 after which
the designated Escrow Agent would transfer the shares to them.
9. In October 2016, shares of the company were transferred to
respondent nos. 14 and 15 and no shares were transferred to the
petitioner because of which the present arbitral proceedings were
initiated.
10. The company is the owner of immovable properties in Kanpur and is
the holder of leasehold rights in respect of premises No. 6, Jawahar
Lal Nehru Road, measuring 2 Bighas 13 Cootahs, 11 Chittacks and 23
square feet [hereinafter referred to as 'the property'] for an
approximate period of 98 years by virtue of a lease deed. The property
is one of the reasons behind the current dispute.
11. The company entered into a Development Agreement on September 8,
2014 [hereinafter referred to as the 'development agreement'] with one
Siddha Real Estate Private Limited to develop the property and
construct a new building.
12. The construction was initiated in the year 2014 and advertisements
for the same began circulating from November 2017 and continue till
the current date.
13. The petitioner sought to resist the execution of the development
agreement through:
a. An application under section 9 of the Act [being A.P. No. 122 of
2018] for specific performance of the SPA was made prior to the
commencement of the arbitral proceedings. The same was refused
vide order dated June 18, 2018 [being A.P. No. 122] as passed by
the Hon'ble Justice Ashish Kumar Chakraborty, as construction
of the new building began in 2013 and the petitioner was unable
to demonstrate that they had paid the consideration as per the
SPA.
b. An application under section 17 of the Act before the arbitrator
was filed by the petitioner in the year 2022. The petitioner claimed
that third party rights are being created by sale of commercial and
office spaces in the property, that is, over the assets of the
company which were being sold to third parties. During the
arbitral proceedings, the arbitrator had passed an order at the ad-
interim stage on September 22, 2022, restricting any transactions
to occur up to the 9th floor of the new building in the property.
However, in the light of the application under section 17 the
arbitrator refused to grant further reliefs vide order the Impugned
Order.
14. Since no reliefs were provided to the petitioner in the Impugned Order,
the petitioner has filed the current appeal.
Submissions
15. Mr. Ratnanko Banerjee, senior counsel appearing on behalf on the
petitioner propounded the following arguments: -
a. The SPA was to sell shares of the company to the petitioner and
respondent nos. 14 and 15, comprising of (i) 5000 equity shares
of Rs. 100 each [carrying voting rights] and (ii) 31278 equity
shares of Rs. 100 each [not carrying voting rights]. The
petitioner had fulfilled their obligations in the SPA through (i)
payment of a sum of Rs. 3.6 crores and (ii) providing a loan of
Rs. 16,22,262,966/- to the company. However, no shares were
transferred and it was only after repeated correspondences sent
by the petitioner that a direction to transfer shares were made
on August 28, 2017, to the Escrow Agent by respondent nos. 1-
12. The direction was forwarded to petitioner on September 7,
2017. However, no actual transfer took place, and the Escrow
Agent states that they received subsequent instructions by
respondent nos. 1-12 to not transfer the shares.
b. The SPA laid down terms and conditions which the petitioner and
respondent nos. 14 and 15 had fulfilled. However, only
respondent nos. 14 and 15 received the shares pursuant to the
SPA and Escrow Agreement. Thus, respondent nos. 1-12 were
unwilling to transfer shares to the petitioner as per the SPA. The
shareholders, inclusive of all respondents, were colluding against
the petitioner.
c. Respondent nos. 14 and 15, on receiving the shareholding of the
company, began mismanaging its affairs by illegally entering into
the development agreement. This activity created third party
rights over the company's assets, which prompted an application
under section 17 of the Act to be filed before the arbitrator by the
petitioner. Thus, it is the strong assertion of the counsel that the
signing of the development agreement was done with the intent to
render the company assetless. The same was being done in
anticipation that if an award would be made in favour of the
petitioner by the arbitrator, it would be reduced to a mere paper
award as they would be 36% shareholders of nothing.
d. All respondents had wilfully concealed several events to the
detriment of the petitioner:
i. Respondent nos. 14 and 15 becoming shareholders of the
company;
ii. Signing and execution of the development agreement;
iii. Particulars of allocation of the company's properties already
made to the third party;
iv. Non-filing of audited Balance Sheet of respondent nos. 13 for
the last two financial years i.e., 2020-21 and 2021-22.
e. The audited balance sheet for the financial year of 2019-20 did
not depict any income from the sale of commercial space in the
said property. Thus, it was argued that since the petitioner was
completely unaware of the aforesaid events leading to the creation
of third-party rights, there was no need to approach the arbitrator
for interim protection at that point of time.
f. The petitioner was unaware of several material events as
described above, namely respondent nos. 14 and 15 becoming
shareholders and the execution of the development Agreement,
the petitioner had no means to know if any transaction
occurred/have been occurring. Moreover, it was not until the
newspaper advertisement in 2019, depicting sale of commercial
and office spaces, that it was brought to the petitioner's attention
that third party rights are actively being created following which
the arbitration proceedings were initiated.
g. Respondent nos. 1-12 and respondent no. 13 were directed by the
arbitrator to disclose the allocations of assets. However, they
failed to adhere to the same resulting in the inability of the
arbitrator to appreciate the factual matter.
h. Finally, the senior counsel argued that the 36% shareholding
contains voting rights of which they have been deprived. Thus,
had they been shareholders of the company they would have a say
in the company's affairs, especially whether to dispose of its
assets and enter into the development agreement. However, since
they were not given their shares, all respondents collectively took
the opportunity to conspire together to enter into the said
development agreement illegally.
16. Mr Jishnu Saha, senior counsel appearing on behalf of respondent
nos.1-13 made the following submissions: -
a. The petitioners had previously prayed for interim relief under
section 9 of the Act [A.P. No. 122 of 2018] with respect to the
development agreement which was refused by this Court vide
order dated June 18, 2018. The petitioner further submitted an
application under section 17 of the Act before the arbitrator which
was also refused while taking into consideration that the
construction commenced in 2015.
b. This court had granted the liberty to the petitioners to file an
application under section 17 of the Act before the arbitrator, vide
its order dated December 12, 2018. However, there was an undue
delay of nearly four years until the said application was made,
which is when the arbitral proceedings were at its concluding
stage. The senior counsel further submits that the arbitrator,
being conscious of the delay, refused to pass an order in favour of
the petitioners. Thus, any order passed by this court, interfering
with the arbitrator, would severely prejudice respondent no. 13
and its shareholders.
c. The petitioner had wilfully suppressed and misrepresented facts
since several advertisements, regarding the sale of commercial
and office spaces in the new building at the said property, were
made since the commencement of its construction. Furthermore,
the senior counsel submits that the development being conducted
in the said property was registered under the provisions of the
West Bengal Housing Industry Regulation Act, 2017 [hereinafter
referred to as 'HIRA'] on November 19, 2018, which is in public
domain. Moreover, the senior counsel maintains that these facts
were also suppressed by the petitioner in their application under
section 17 before the arbitrator, which disentitled them from any
reliefs.
d. The petitioner was not entitled to the shares due to failure of
making payment of the entire consideration in terms of the true
and correct SPA. As such he further submits that the SPA relief
upon by the petitioner is a fabricated copy of the true SPA, evident
by their inability to produce the original of their purported SPA
whereas respondent nos. 1-12 and respondent no. 13 have
submitted the original true and correct SPA to the physical
custody of the arbitrator. Thus, the petitioner is required to prove
their entitlement before staking any claim over the company
and/or its allocation in the new building at the said property.
e. The issue of entitlement and compensation is a matter reserved
for the determination of the arbitrator and until the issue is
resolved, the petitioner cannot challenge or assert any right over
the company. The petitioner was merely entitled to 36% shares
which they have not received. Thus, he highlights the error of the
petitioner in seeking an entitlement of a right to an actual right
over the company's affairs. Thus, since the petitioner was neither
a shareholder at that stage nor at present, there is no justifiable
reason for the respondent no. 13 to submit financial statements
and similar documents to the petitioner.
f. Arguendo, even if the petitioner had their entitled shareholdings,
contrary to their claim, it did not entail any voting rights. Thus,
even if the petitioner were to be designated as shareholders, they
would not have any influence over the decision of the company
entering into the said development agreement.
g. The documents pertaining to the company are confidential and no
outside party is entitled to have access to it. Senior counsel
expressed his anxiety that if the financial statements were to be
disclosed to the petitioner, they would exploit the same to the
detriment of the company and possibly jeopardise the
development agreement which is the product of a decision taken
by the existing shareholders of the company. Thus, the
petitioner's insistence on viewing the audited balance sheet
following the financial year of 2019-20 is merely to further their
agenda as troublemakers, challenging the decisions of the
company without proving a prior entitlement.
h. The development agreement is not the subject matter of the
arbitral reference considering the statement of claim made by the
petitioner. Consequently, they cannot obtain any relief in lieu of
the development agreement and the construction of the new
building in the property.
Analysis
17. In light of the present factual matrix, I find it exceedingly important to
identify the principle of minimum judicial intervention which is one of
the fundamental tenets of arbitration law. The present regime under
the Act, especially after the Amendment of 2015, validated the anxiety
of the Law Commission of India which recommended limitations on
judicial interference, while enhancing the powers of the arbitrator
in providing interim reliefs.
The Test for Interim Measures
18. I am conscious of the fact that the current application is made under
section 37 of the Act, appealing against the Impugned order that
denied any further interim protection to the petitioner under section
17 of the Act.
19. The required threshold for providing interlocutory relief has been
identified by the Division Bench of the Supreme Court in Shanti
Kumar Panda vs Shakutala Devi as reported in (2004) 1 SCC
438.The relevant paragraph is reproduced below: -
At the stage of passing an interlocutory order such as on an
application for the grant of ad interim injunction under Rule 1 or 2
of Order 39 of the CPC, the competent Court shall have to form its
opinion on the availability of a prima facie case, the balance of
convenience and the irreparable injury __ the three pillars on
which rests the foundation of any order of injunction.
20. The threshold has been in existence even earlier than 2003,
designated as a cornerstone of consideration when providing
interlocutory injunctions. However, the rationale is limited to the Civil
Procedure Code, 1908 (hereinafter referred to as 'CPC') and it is also
settled law that the procedures and rules encoded within it are merely
for the sake of assistance. In view of the same, the Supreme Court
quite recently settled the issue in the case of Essar House Private
Limited v. Arcellor Mittal Nippon Steel India Limited as reported
in 2022 SCC OnLine SC 1219. The relevant paragraphs are extracted
below: -
48. Section 9 of the Arbitration Act confers wide power on the
Court to pass orders securing the amount in dispute in
arbitration, whether before the commencement of the arbitral
proceedings, during the arbitral proceedings or at any time after
making of the arbitral award, but before its enforcement in
accordance with Section 36 of the Arbitration Act. All that the
Court is required to see is, whether the applicant for interim
measure has a good prima facie case, whether the balance of
convenience is in favour of interim relief as prayed for being
granted and whether the applicant has approached the court
with reasonable expedition.
49. If a strong prima facie case is made out and the balance of
convenience is in favour of interim relief being granted, the Court
exercising power under Section 9 of the Arbitration Act should not
withhold relief on the mere technicality of absence of averments,
incorporating the grounds for attachment before judgment under
Order 38 Rule 5 of the CPC.
21. In consonance with the judicial precents set out above, I can
succinctly conclude that for granting an interim protection a party
must satisfy four specific criteria:- (i) there is a prima facie case in
their favour, (ii) not granting the relief would result in irreparable
harm and loss which cannot be compensated at a later stage and (iii)
the balance of convenience, if such interim protection is granted, must
lie in favour of the applicant and (iv) the application praying for the
relief is made expeditiously.
Reliefs under Section 9 and Section 17
22. The current application is an appeal to an order under section 17. I
find myself entirely conscious of the fact that section 9 and section 17
are different provisions and the analysis conducted in Essar
House(supra) was based on a section 9 application. However, I also
find it essential to reiterate the recommendations made in the 246th
Law Commission Report, 2013, the relevant paragraph of which is
reproduced below: -
49.The Commission believes that while it is important to provide
teeth to the interim orders of the arbitral tribunal as well as to
provide for their enforcement, the judgment of the Delhi High
Court in Sri Krishan v. Anand is not a complete solution. The
Commission has, therefore, recommended amendments to section
17 of the Act which would give teeth to the orders of the Arbitral
Tribunal and the same would be statutorily enforceable in the
same manner as the Orders of a Court.
23. In the Amendment of 2015, this recommendation was accepted and
the powers of the arbitrator were accordingly enhanced. In fact, as the
Madras High Court had identified in Flywheel Logistics Solutions
Private Limited v. M/S. Hinduja Leyland Finance Limited as
reported in 2020 MAD LJ 475, the enhancement made the powers of
the arbitrator under section 17 akin to that of the Court under section
9 and consequently as a corollary, the arbitrator passing interim
reliefs under section 17 would be bound by the same standards as
section 9. The relevant paragraphs are reproduced below: -
24. ...it is clear that the object of amending Section 17 of the Act
was to vest with the Tribunal with the same powers as a civil
court in relation to the grant of interim measures. In other words,
the power to pass interim measures imposes a discretion vested
in the Tribunal would have to be exercised in consonance with
thewell settled principles governing the grant of such reliefs by
the civil court.
25. Section 17 was, accordingly, amended by Act 3 of 2016.
Under Clause 17(1) the Tribunal was given identical powers of
the Court under Section 9. A fortiori, the Arbitral Tribunal can
now pass orders akin to those passed under Section 9. As a
natural corollary, it follows that the ratio of the decision in
Adhunik Steels would apply equally to Tribunals as well, with
the result that Tribunals passing interim measures under Section
17 would be bound to observe the guiding principles governing
the grant of such reliefs under the Code. The discretion conferred
on the Arbitral Tribunal under Section 17 to pass interim
measures is undoubtedly judicial. As the Supreme Court pointed
out in Dev Prakash v. Indra [(2018) 14 SCC 292] "judicial
discretion has to be disciplined by jurisprudential ethics and can
by no means conduct itself as an unruly horse".
24. Moreover, quite recently, I had identified in Gainwell Commosales
Private Limited v. Minsol Limited as reported in 2022 SCC OnLine
Cal 3975, that the powers of an arbitrator post amendment of 2015
under section 17 of the Act is pari passu with the powers of the Court
to provide interim reliefs under section 9. Thus, I see no reason as to
why the four-part test for interim protection under section 9 cannot be
applied to test the validity of an order passed under section 17 of the
Act.
25. In the current dispute it is established as a matter of fact that the
petitioner's application under section 17, praying for interim
protection, was refused by the arbitrator. Aggrieved by the same the
current application for appeal was moved under section 37 of the Act.
The same reads as follows:-
37. Appealable orders.--(1) Notwithstanding anything contained
in any other law for the time being in force, an appeal shall lie
from the following orders (and from no others) to the Court
authorised by law to hear appeals from original decrees of the
Court passing the order, namely:--
(a) refusing to refer the parties to arbitration under section
8;
(b) granting or refusing to grant any measure under section
9;
(c) setting aside or refusing to set aside an arbitral award
under section 34.
(2) Appeal shall also lie to a court from an order of the arbitral
tribunal--
(a) accepting the plea referred to in sub-section (2) or sub-
section (3) of section 16; or
(b) granting or refusing to grant an interim measure under
section 17.
(3) No second appeal shall lie from an order passed in appeal
under this section, but nothing in this section shall affect or
takeaway any right to appeal to the Supreme Court.
26. Section 37(2)(b) provides the opportunity for appealing against an
arbitral tribunal's orders which refuses to grant any measure under
section 17. I have already established in the preceding paragraphs
and in Gainwell (supra) that section 17 and section 9 are pari passu
and further with Flywheel (supra) that section 17 would follow the
same standards as applicable to section 9. Thus, utilising the said
reasoning I conclude that the threshold guiding the eligibility of
interim measures for both these provisions are identical and hence,
applicable.
The four-stage Test
Prima Facie case
27. The phrase 'prima facie' literally translates to 'at first face' or 'at first
appearance'. This standard is laid down keeping in view that Court's
interference with the arbitral proceedings is minimised. In Godrej
Industries v. Colin Mario Rebello and Ors. reported in 2013 BOM
CR 755, the Bombay High Court when faced with an application
under section 37, indicated a mechanism, the relevant extracts of
which are provided below: -
'24. For assessing prima facie case in the matter at hand,
examination of the clauses of MoU and other documents will be
required. This examination, however, need not be and cannot be
as in depth as will be done at the time of main arbitration
proceedings...
25. ...What needs to be noticed however is that generally the
courts have regarded detailed scrutiny and interpretation of
documents as a matter within the domain of arbitrator. The
scrutiny at the stage of Section 9 is to ascertain whether the
petitioner has prima facie case so as to consider granting
protection till the parties approach the Arbitrator. The enquiry at
the stage of Section 9 of the Act is to ascertain whether the party
approaching the Court has a triable dispute and if so how best
the subject matter of the dispute is to be protected in the
intervening period. An order passed under Section 9 is not an end
in itself but is only a means to facilitate effective arbitration
between the parties. The inquiry under Section 9 of the Act, is not
meant to be as comprehensive as the main arbitral proceeding.'
28. In light of the current factual matrix, it would be pertinent to
scrutinise, albeit not in great detail, the SPA signed between the
parties, this court's order dated June 18, 2018 dismissing the section
9 application and the arbitrator's refusal to grant additional reliefs
under section 17 in the Impugned Order. The petitioner claimed to
have paid the consideration as per the SPA but have not received any
shareholdings of the company. Moreover, there are other factors to be
considered which are mentioned herein below: -
a. Shares not being transferred to the petitioner even after they
claimed to have paid the consideration.
b. The Escrow Agent being informed not to execute the SPA in favour
of the petitioner.
c. Respondent nos. 14 and 15 becoming shareholders under the
same SPA being concealed from the petitioner.
d. Respondent nos. 1-13 were not disclosing relevant facts even
when directed to do so by the Learned Arbitrator.
These events cumulatively may have made for a prima facie case in
favour of the petitioner, but there are delays which would be
addressed in the succeeding paragraphs. The senior counsel for the
petitioner has expressed their anxiety that the activities of respondent
nos. 1-13, if allowed unchecked, would reduce the arbitral award to a
mere paper decree. As per the petitioner, respondent nos. 1-13 were
allegedly disposing of the assets of the company to ensure that in the
event an award is issued in favour of the petitioner, which means
that, if the 36% shareholding is transferred to the petitioner, it would
be of no tangible value. In consideration of similar circumstances, the
Delhi High Court in Ajay Singh v. Kal Airways Private Limited as
reported in (2018) 209 Comp Cas 154 identified as follows: -
'112. ...in the facts of the present cases, that if the respondents
will dispose of the shares of respondent No. 1 to the third party,
award if passed in favour of the petitioners, the same will become
merely paper decree.
113. Without expressing anything on merit, as all the disputes
have to be decided by the Arbitral Tribunal the part prayers in
both petitions are allowed...'
In relation to same, I find it necessary to reiterate what the Supreme
Court in Essar House (supra), had previously observed in this
regard:-
'50. Proof of actual attempts to deal with, remove or dispose of the
property with a view to defeat or delay the realisation of an
impending Arbitral Award is not imperative for grant of relief
under Section 9 of the Arbitration Act. A strong possibility of
diminution of assets would suffice.'
29. I remain conscious that there are multiple facts in dispute. The senior
counsel appearing for respondent nos. 1-13 have expressed that the
SPA submitted by the petitioner is a fabricated copy and that they had
not paid the consideration as per the true and correct SPA. As such
the arbitrator has not rendered its award and remains to adjudicate
over the dispute.
30. Thus, I find merit in the approach adopted by the Delhi High Court in
Ajay Singh (supra) as per which I am not to enter the merits of the
dispute, rather at this stage, decide the eligibility of interim protection
at the prima facie stage. Furthermore, Essar House (supra) clarifies
that no actual proof disposing off the assets is required but rather a
strong possibility indicating the same. Prima facie, both the petitioner
on one hand and respondent nos. 14 and 15 on the other, had paid
consideration for the SPA but only the latter group received the
shareholdings of the company, following which the company entered
the development agreement and proceeds to dispose of its assets.
31. However, when inspecting the orders of the arbitrator, it has been
noted that the petitioner had not adequately satisfied the arbitrator
that it had paid consideration as per the SPA. This determination
when viewed against the allegation of the respondent that the SPA
submitted by the petitioner is fabricated further complicates the issue.
In fact, the allegation of fabrication itself distinguishes the current
dispute from that of Ajay Singh (supra), Essar House (supra) and
Godrej Industries (supra) wherein prima facie cases existed, but
basis a valid instrument. The answer to this predicament can be
inferred from the formula expounded within Godrej Industries
(supra). The Bombay High Court identified that the purpose of section
9 (and consequently, section 17) is for facilitating effective arbitration
and not to operate as a comprehensive inquiry running parallel to the
main arbitral proceeding. Furthermore, I find it essential to note the
analysis expounded by the Delhi High Court in World Window
Infrastructure Private Limited v. Central Warehousing
Corporation as reported in (2021) 3 HCC (Del) 731which is reiterated
below: -
'29. The scope of interference, in appeal, against orders passed by
arbitrators on applications under Section 17 of the 1996 Act is
limited...the court has to be alive to the fact that, by its very
nature, the 1996 Act frowns upon interference, by courts, with
the arbitral process or decisions taken by the arbitrator. This
restraint, if anything, operates more strictly at an interlocutory
stage than at the final stage, as interference with interlocutory
orders could [cause] interference with the arbitral process while it
is ongoing, which may frustrate, or impede, the arbitral
proceedings.
30. Views expressed by arbitrators while deciding applications
under Section 17 are interlocutory views. They are not final
expressions of opinion on the merits of the case between the
parties. They are always subject to modification or review at the
stage of final award. They do not, therefore, in most cases,
irreparably prejudice either party to the arbitration. Section 17 -
like Section 9 - is intended to be a protective measure, to preserve
the sanctity of the arbitral process. The pre-eminent
consideration, which should weigh with the arbitrator while
examining a Section 17 application, is the necessity to preserve
the arbitral process and ensure that the parties before it are
placed on an equitable scale. The interlocutory nature of the order
passed under Section 17, therefore, must necessarily inform the
court seized with an appeal against such a decision, under
Section 37...'
32. In my opinion, the arbitrator is yet to identify the correctness of
several key facts in dispute, few of which I have identified above. Until
a concrete finding regarding the same is made, any order passed by
me would possess the possibility of prejudicing or affecting the
ongoing arbitral proceedings which, as per the reasoning provided
above, has been forbidden.
Irreparable Harm
33. At this stage, several third-party rights have been created over the
said property due to the development agreement and judging by the
facts presented, more third parties would be added which would
further complicate execution of the award. The senior counsel for the
petitioner submitted that once respondent nos. 14 and 15 became
shareholders of the company with respondent nos. 1-12, they
cumulatively conspired to keep the petitioner from acquiring their
entitlement over the company. As per the petitioner, the respondents
collectively utilised this opportunity to enter into the development
agreement behind their back and began the process of alienating
assets of the company. In fact, as identified in the preceding
paragraphs, it is the apprehension of the petitioner that by the time
an award is issued in the former's favour would render the company
assetless.
34. Senior counsel on behalf of the petitioner emphasised on their request
to direct the company to share the audited balance sheets succeeding
the financial year of 2019-20. The rationale behind such a request as
the petitioner asserts, is to accurately determine the true extent of
assets already alienated by the respondent nos. 13. However, I cannot
interpret as to why they insist on the company to reveal the balance
sheets. As indicated earlier, which I shall now reiterate, third party
rights have already been created over the said property and
consequently, the arbitrator granted an interim injunction against
respondent no. 13 from entering transactions over the property up to
the 9th floor. Furthermore, if respondent no. 13 fails to adhere to the
order, the arbitrator has indicated that it would be subjected to the
final award.
35. It is undisputed that an arbitral award is enforceable as a decree of
court. The wordings of section 36 of the Act clearly indicate the same
and given that the entitlement of the petitioner over the shareholdings
is disputed, the damages incurred can always be assured by valuation
of shares before the concealed transactions took place.
36. Respondent nos. 1-13 have constantly emphasised on the ineligibility
of the petitioner's claims. Senior counsel for the respondent nos. 1-13
in their oral submissions indicated that a mere claim of entitlement
over the shares does not translate into an actual right. Perusing the
prayers and allegations made by the petitioner, I cannot but find merit
in the respondent's insistence that the petitioner does not have a right
over the said property especially considering that the entitlement over
the company itself is in dispute.
37. At the current stage the petitioners are not shareholders of the
company and consequently have no right over the inner workings and
management of the same. As a result, their insistence on the balance
sheets regarding the transactions that took place is entirely
unjustified. I am entirely conscious of the threat of alienation as
expounded by the senior counsel appearing on behalf of the petitioner,
but the arbitrator has already granted an injunction effecting the
same. The entitlement of the shares is the subject matter of
arbitration and even if the said allegations as expounded by the
petitioner were to be held true, as aforementioned, the petitioner is
entitled to apply for due compensation in respect of their original
entitlement of shares and therefore get access to the balance sheet
and financial documents. Thus, there exists a mechanism for the
petitioner to be compensated and I do not see any irreparable loss or
injury to occur.
Balance of Convenience
38. As aforementioned, the petitioner has already received an injunctive
relief from the arbitrator who is yet to make a firm determination of
various facts in dispute. When deciding whether serious harm would
be caused to the petitioner if their prayers are not granted, I have
concluded that there is none. However, respondent no. 13 on the
other hand had entered into a development agreement and engaged in
the sale of commercial and office spaces in the said property. If the
petitioner's prayers are granted there is no doubt that the respondent
nos. 1-13 will be seriously prejudiced as the development agreement
and all rights created under it would be halted. Respondent nos. 1-13
have already made serious investments and have incurred loans from
multiple parties for the construction of the new building at the said
property. As I had indicated earlier, the petitioner has already received
injunctive reliefs and I cannot but designate the current application to
be nothing more than troublesome as the balance of convenience lies
hugely in favour of the company.
Delay
39. With respect to the element of delay, I find it necessary to identify that
sufficient cause needs to be established when considering delays. The
arbitrator themselves did not find any 'sufficient cause' and primarily
dismissed the application under section 17 on grounds of delay. I, in
light of the overwhelming evidence against the petitioner, arrive at an
identical conclusion. The reasons are given below: -
a. First, the petitioner was aware of the existence of the development
agreement when the application under section 9 was made.
However, there was a total gap of nearly three years since the
application was disposed vide this court's order dated June 18,
2018 and the section 17 application was made. To that effect, I
can conclude that the latter application was not made
expeditiously.
b. Second, the section 9 application itself was delayed. The
construction of the new building began in 2014 and the
application was moved after four years. Having perused the order
of the Court, I do not see any justifiable grounds for delay.
c. Third, the Court while dismissing the section 9 application gave
the petitioner the liberty to approach the arbitrator for interim
protection. However, the said application was made three years
later. The petitioner in their written submissions have maintained
that they became aware of the third-party rights only after the
advertisement circulated in 2019 for sale of commercial and office
spaces in the said property. However, there exists overwhelming
evidence against such a claim as noted by the arbitrator, which I
have listed below :-
i. The construction of the building in the said property was
registered under the HIRA in 2018. By virtue of the same, the
fact of construction became part of the public domain.
ii. The arbitrator has also come to an identical conclusion
refusing the petitioner's application under section 17. As such
I see no tangible reason or valid grounds for not instituting the
application under section 17 expeditiously instead of sleeping
on their rights for nearly three years.
iii. Notwithstanding the registration under HIRA, it is entirely
unreasonable to expect that the petitioner had become aware
of the status quo only on a single newspaper advertisement
nine years after commencement of its construction.
40. There is no doubt in concluding that at every stage and every
application made by the petitioner suffered from unreasonable delay
and no 'sufficient cause' could be made out by the petitioner for a
delay amounting to several years. The conduct of the petitioner
entirely disqualifies any grounds of urgency or a serious consideration
that they would indeed suffer irreparable harm and there is no doubt
that the petitioner had wilfully concealed the fact that advertisements
were circulated at a much earlier stage. Moreover, the court had
granted liberty to the petitioner to approach the arbitrator for reliefs
but for insufficient explanations, they failed to do so expeditiously.
The same was also observed by the Learned Arbitrator who dismissed
the application under section 17 on grounds of delay alone.
41. For the purpose of convenience, the principles that can be culled out
from a reading of the legal analysis undertaken above are mentioned
herein:
a. The power of the arbitrator to grant interim reliefs under section 17
of the Act is akin to the court's powers under section 9. The 246th
Law Commission Report recommended the enhancement of
arbitrator's powers to give teeth to their orders by elevating them to
the status of a statutorily enforceable order of a court. The
Parliament responded accordingly and made section 17 pari passu
to that of section 9. Succeeding precedents such as that of
Flywheel Logistics (supra) and my own observation in Gainwell
(supra) reiterate the identical nature of sections 9 and 17 and the
acceptance of the principle that applications under both these
provisions would be governed under the same test of interim
measures.
b. The test guiding the court's power to grant interim relief is equally
applicable to the arbitrator's power under section 17. The court
need not go beyond the standard, when determining appeals under
Section 37 against arbitrator's orders under Section 9, than to
determine:
1. prima facie case is in whose favour,
2. not granting the relief would result in irreparable harm and loss
which cannot be compensated at a later stage,
3. the balance of convenience, if such interim protection is
granted, must lie in favour of the applicant, and
4. the application praying for the relief is made expeditiously;
c. The grounds for appeal in the current application stems from
section 37(2)(b) of the Act. The investigation as established in the
precedents set in Ajay Singh (supra), Essar House (supra) and
Godrej (supra) cannot extend to entertain the merits of the
dispute. Instead, the degree of scrutiny is limited to a prima facie
overview. Furthermore, in World Window (supra) it was settled
that the Act by its very nature frowns upon judicial interference
against an arbitrator's decisions and even more so when such
decisions are made at interlocutory stages where the arbitral
process remains to be ongoing. A constrained overview in light of
the test stated above in sub-paragraph (b) is to be carried out.
Conclusion
42. Having been fully acquainted with the factual matrix, the tests for
granting interim reliefs and various stages of delay incurred by the
petitioner, there are several key elements within the current dispute
which are unsettled, namely (i) the entitlement of the petitioner over
the shares of the company, (ii) whether the 36% shares included
voting rights and (iii) whether the development agreement was valid.
Matters (i) and (ii) squarely fall under the jurisdiction of the arbitrator
who at this stage has not rendered an award. It would be incorrect to
interfere with the same. With respect to the development agreement, I
cannot comment on whether it is the subject matter of the dispute.
The arbitrator under his own authority has already restricted any
transaction up to the 9th floor of the new building and has explicitly
stated that any transaction entered would be subject to the final
award. No award has been issued yet and to that effect I am not to
make any determination until the same is issued.
43. I cannot pass any orders without risking interfering with the arbitral
proceedings. Furthermore, I do not see any irreparable harm to be
suffered by the petitioner if their prayers are not addressed, especially
considering the unreasonable delay in filing their applications. There
is no urgency in this matter and the balance of convenience lies in
favour of the respondent nos. 1-13, especially considering that the
arbitrator has already provided injunctive reliefs to the petitioner.
44. In view of the law as mentioned above, A.P.O. 108 of 2022 along with
G.A. 1 of 2022 are dismissed. There shall be no order as to costs.
45. An urgent photostat-certified copy of this order, if applied for, should
be made available to the parties upon compliance with requisite
formalities.
(Shekhar B. Saraf, J)
