Telangana High Court
M/S. Corvine Chemicals And ... vs Srinivasulu Kanday on 27 February, 2025
THE HON'BLE JUSTICE MOUSHUMI BHATTACHARYA
AND
THE HON'BLE JUSTICE B.R. MADHUSUDHAN RAO
COMCA.No.40 of 2024
Counsel for the appellants: Sri M.Ravindranath Reddy, learned Senior
Counsel representing Sri B.Srinarayana.
Counsel for the respondent Nos.1,2 and 4 to 7: Sri Sunil B. Ganu, learned
Senior Counsel representing Smt.Manjari S. Ganu.
JUDGMENT:
(per Justice Moushumi Bhattacharya)
The present Commercial Court Appeal arises out of a docket
order dated 11.12.2024 passed by the learned Commercial Court at
Hyderabad on an application filed by the appellants under section 9 of
The Arbitration and Conciliation Act, 1996 (the 1996 Act)
i.e.,I.A.No.260 of 2024 in COP.No.100 of 2024. The appellant filed the
COP.No.100 of 2024 for restraining the respondent Nos.1 - 7 from
causing any changes to the rights of the petitioners in two projects of
the respondent No.7 LLP : "SreeSumeru" and "SreeTatva".
2. The appellants filed the I.A for interim protection in line with the
orders passed by this Court on 11.09.2024 as modified by orders
dated 27.09.2024 and 01.10.2024. In the alternative, the petitioners
sought continuation of the order dated 11.09.2024 till constitution of
the Arbitral Tribunal or orders passed by the Arbitral Tribunal.
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Submissions made on behalf of the Parties:
3. Learned Senior Counsel appearing for the appellants relies on
the Supreme Court decision in Arcelor Mittal Nippon Steel India Limited
Vs. Essar Bulk Terminal Limited 1 to submit that the interim protection
granted by this Court in Civil Revision Petitions filed by the petitioners
should continue till constitution of the Arbitral Tribunal or till the
orders are passed by the Arbitral Tribunal as the Court has applied its
mind to the merits of the matter. Counsel submits that the
Commercial Court allowed the parties to file pleadings with extensive
documents and that the I.A. filed by the petitioners was ripe for final
disposal. Counsel submits that the Arbitral Tribunal was constituted
on 26.11.2024 pursuant to an order dated 22.11.2024 under section
11(6) of the 1996 Act. Counsel assails the impugned order dated
11.09.2024 to urge that the Commercial Court should not have
closed the appellants' application under section 9 on the ground of an
efficacious remedy being available to the appellants before the Arbitral
Tribunal. Counsel submits that there is every likelihood that the
respondents would withdraw money from the respondent No.7 LLP
and render the arbitration infructuous unless the appellants continue
to remain protected.
1(2022) 1 SCC 712
MB,J & BRMR,J
4. Learned Senior Counsel appearing for the respondent Nos.1 - 4
and 7 opposes the contentions of the appellants/petitioners and
submits that the prayers in the I.A. are untenable and contrary to law.
Counsel submits that the appellants failed to make out a case for
interim protection before the Commercial Court and that the
Commercial Court is yet to entertain the matter as per the dictum in
Arcelor Mittal (supra). Counsel submits that there was no question of
the Commercial Court continuing to adjudicate the section 9
application in the absence of having entertained the merits of the
dispute.
Decision:
5. We have heard learned Senior Counsel appearing for the parties
and carefully considered the material placed before us. We organize
the decision under the following heads.
6. Line up of facts leading to the Impugned Order:
03.09.2024 The Commercial Court refused to pass an ex parte
interim order in the C.O.P. filed by the appellants without
issuing notice to the respondents. The matter was made
returnable on 20.09.2024.
The Commercial Court also refused to entertain the
three interlocutory Applications filed by the appellants.
11.09.2024 The appellants filed four Civil Revision Petitions
against the above orders. The Court granted limited
protection to the appellants by way of suspending the
impugned orders passed by the Commercial Court on
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03.09.2024. The High Court made it clear that the
suspension is interim in nature and the respondents shall
be at liberty of taking steps for vacating the interim order of
suspension.
27.09.2024 The High Court modified the order dated 11.09.2024
by permitting the respondent no.7 LLP to withdraw the
amounts for payment of statutory dues and staff salaries.
The respondent No.7 was directed to give a statement
of the amounts withdrawn as well as the manner in which it
has been used for payment to the appellants.
30.09.2024 The respondent No.7 sought further modification of
the order dated 27.09.2024 for payment to vendors subject
to verification by the appellants. The respondent No.7 also
sought for a direction on the Commercial Court to hear the
C.O.P. within a certain timeframe.
01.10.2024 The High Court directed the Commercial Court to
dispose of the C.O.P. by 02.12.2024 upon notice to the
respondents. The order dated 27.09.2024 was thereafter
modified to permit the respondent No.7 to release payments
to the vendors upon verification of the withdrawn amounts
by the appellants.
Learned Senior Counsel appearing for the respondent
No.7 submits that the direction with regard to verification of
the withdrawals shall be followed in both projects of the
respondent No.7 namely, "SreeSumeru" and "SreeTatva".
12.02.2024 The docket order was passed by the Commercial
Court recording the submission made on behalf of the
appellants that the respondents are alienating the
properties. The respondents were directed to file their
counter by 22.10.2024/the returnable date.
11.11.2024 The Commercial Court passed an order in I.A.No.203
of 2024 filed by the appellants for impleading the ICICI Bank
Limited as the respondent No.10 in the C.O.P.
The Commercial Court allowed the petition for
impleadment of ICICI Bank Limited as a party respondent to
the C.O.P.
22.11.2024 The Division Bench presided over by the Hon'ble The
Chief Justice of the High Court appointed Justice
L.Nageswara Rao, Former Supreme Court Judge as the sole
Arbitrator to resolve the disputes between the parties.
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27.11.2024 The Arbitral Tribunal was constituted.
The first procedural order was made on 01.12.2024.
05.12.2024 The appellants filed I.A.No.260 of 2024 in
COP.No.100 of 2024 for interim protection in line with the
order of this Court dated 11.09.2024 as modified by the
later orders till appropriate orders are passed by the Arbitral
Tribunal. The appellants also undertook to file an
Application under section 17 of the 1996 Act before the
Arbitral Tribunal within ten days from the date of interim
protection granted by the Commercial Court.
10.12.2024 The appellants filed their statement of claim along
with documents before the Arbitral Tribunal.
11.12.2024 The Commercial Court passed the impugned
order in the appellant's I.A.No.260 of 2024 closing the I.A.
on the ground that the appellant's have efficacious and
alternative remedy in approaching the Arbitral Tribunal
under the 1996 Act.
20.12.2024 The appellants filed the present Appeal.
The point which falls for Decision: Are the appellants/petitioners
entitled to the relief claimed in I.A.No.260 of 2024?
7. That is whether the Commercial Court should continue interim
suspension of the earlier orders passed by the Commercial Court on
03.09.2024 and the restraint on the respondents from taking money
out from the LLP (R7) until orders are passed by the Arbitral Tribunal.
8. It is necessary to examine the statutory object of section 9 of the
1996 Act read with the Supreme Court decision in Arcelor Mittal
(supra) for a just conclusion to the controversy.
MB,J & BRMR,J
Section 9 of The Arbitration and Conciliation Act, 1996 - Object:
9. Section 9 contemplates interim measures by the Court. Section
9(1) authorises a party i.e., a "party" to an Arbitration Agreement (as
defined in section 2(1)(h)) to apply to the Court for interim protection
before, during or after arbitral proceedings or at any time after making
of the arbitral Award but before the Award is enforced in accordance
with section 36 of the Act. The interim protectionsavailable to the
applicant/party are primarily for preservation of the subject-matter of
the Arbitration Agreement and includes a wide array of discretionary
protective orders.
10. Section 9(2) contemplates a pre-arbitration scenario and after a
party has obtained an interim measure of protection under section 9
(1) of the Act. Section 9(2) mandates that arbitration shall commence
within 90 days from the date of such interim protection or within such
further time as the Court may determine. The Court would be the
Court under section 9(1) i.e., the Court which passed the interim
order.
11. Section 9(3) conceives of a situation after constitution of the
Arbitral Tribunal and contains an embargo on the Court from
entertaining an application under section 9(1) for interim measures
unless the Court finds existence of circumstances which renders the
remedy available to a party under section 17 to be inefficacious.
Section 17 provides for interim measures ordered by the Arbitral
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Tribunal. In essence, section 9(3) mandates a seamless transition of
proceedings pending before a Court under section 9(1) to the Arbitral
Tribunal once the latter is constituted within the time frame provided
under section 9(2) that is within 90 days from the interim order.
12. Section 9(3) aims to prevent multiple levels of adjudication for
the same relief and encourages a forward-looking momentum for
dispute-resolution after constitution of the Arbitral Tribunal. The only
break in that momentum is wherethe section 9 Court has already
dealt with the application under section 9(1) on merits. This creates
an exception to the bar under section 9(3) - that the Court shall not
entertain the 9(1) petition once the Arbitral Tribunal has been
constituted.
Has the section 9 Court "entertained" the dispute between the parties
in the present case?
13. The penultimate paragraph of the impugned order dated
11.12.2024 passed by the Commercial Court records that
"..... the hearing of the main COP has not yet commenced in view of
several interlocutory applications and the learned arbitral tribunal
was constituted on 26.11.2024........"
14. The Trial Court again records a few lines later
".... The hearing in the present COP is not yet commenced, hence,
question of "entertaining" the same does not arise."
MB,J & BRMR,J
15. Therefore, the section 9 Court makes a categorical statement
that it has notentertained the petition filed by the appellants under
section 9 of the Act (C.O.P.No.100 of 2024).
16. This Court is of the firm view that the Court hearing a petition
is the only Court which is competent to opine whether that Court has
entertained a matter or not. In this case, it is the Commercial Court
and the Commercial Court alone which can form that view. The view
expressed by the section 9 Court runs counter to the stand of the
appellants.
17. The High Court in the present Appeal is not competent or armed
with the necessary facts to arrive at an opinion on whether the
Commercial Court has entertained the C.O.P. or not. We are simply
not in a position to take a different view of the matter i.e., that the
Commercial Court had "entertained" the C.O.P. in view of the
categorical recording of the Commercial Court/Trial Court.
18. Even if we were to assume that the impugned order contains an
incorrect recording and that the Commercial Court had indeed dealt
with the merits of the section 9 petition filed by the appellant, the
orders on record show otherwise.
19. Admittedly, there is no order on record reflecting that the
Commercial Court entertained the C.O.P. i.e., dealt with it on merits.
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The only orders relied upon by the appellants are docket orders
passed by the Commercial Court on 15.10.2024 in the C.O.P.
recording the contentions of the parties with regard to alienation of
assets/apartments.
20. The other orders of the Commercial Court are in the I.A. filed by
the appellant (I.A.No.203 of 2024) on 11.11.2024 with regard to
impleading ICICI Bank. There are no other orders placed by the
appellants to show that the Commercial Court either considered the
C.O.P. or I.A.No.260 of 2024 filed by the appellants in detail, i.e., on
facts or in law or reserved the same for orders.
21. Therefore, we cannot accept the contention of the appellants
that the Commercial Court entertained the C.O.P. to the extent
ofcircumventing the prohibition in section 9(3) and marking an
exception thereto. In other words, that the Commercial Court was
relieved of the statutory obligation under section 9(3) to cede territory
of the section 9 petition in favour of the Arbitral Tribunal.
notwithstanding its formation on 27.11.2024.
22. We therefore conclude that the Commercial Court did not
"entertain" the appellants' section 9 application in line with Arcelor
Mittal (supra).
MB,J & BRMR,J
The Supreme Court's decision in Arcelor Mittal Nippon Steel India
Limited Vs. Essar Bulk Terminal Limited (2022) 1 SCC 712.
23. Learned Senior Counsel appearing for the appellant relies on
paragraph98 of the Report in Arcelor Mittaltourge that the section 9
Court has the discretion to pass an interim order as the section 9
Court has already entertained the matter.
24. We find the said contention to be unacceptable for the following
reasons.
25. First and foremost, the facts in Arcelor Mittal were entirely
different. In that case the section 9 Court had concluded the hearing
and reserved the matter for judgment. Hence, there was no dispute
on the issue of whether the Court hadentertained the dispute between
the parties. The Supreme Court came to a specific finding that the
section 9 Court had entertained the application before constitution of
the Arbitral Tribunal.
26. Contrary to the facts in Arcelor Mittal, the section 9 Court in the
present case has made a specific recording in the impugned order that
the hearing in the C.O.P. had not commenced at all.
27. Second, Arcelor Mittalexplains the expression 'entertain' to mean
'admit to consideration' : Lakshmi Rattan Engg. Works Ltd. Vs. CST 2.as
in considering a matter on merits. Hindusthan Commercial Bank Ltd.
2AIR 1968 SC 488
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Vs. PunnuSahu 3dwelt on the word 'entertain'as to 'adjudicate upon' or
'to proceed on merits' as opposed to a mere 'initiation of proceedings'.
It was in the context of the meaning ascribed to the word
'entertained'in Arcelor Mittalthat the Supreme Court preserved the
sanctity of the adjudication before the section 9 Court
notwithstanding constitution of the Arbitral Tribunal.
28. In our considered view, Arcelor Mittal does not come to the aid of
the appellant since the section 9 Court has not admitted the dispute
to consideration at all.
29. Jaya Industries Vs. Mother Dairy Calcutta 4involved a specific
finding of the section 9 Court having considered the matter in detail
(hence entertained) upon exchange of pleadings/affidavits.
Inefficacy of the remedy under Section 17 - the second limb of Section
9(3) of The Arbitration and Conciliation Act, 1996.
30. Section 9(3) of the 1996 Act reads as under:
"(3) Once the arbitral tribunal has been constituted, the Court
shall not entertain an application under sub-section (1), unless
the Court finds that circumstances exist which may not render
the remedy provided under section 17 efficacious."
3(1971) 3 SCC 124
42023 SCC OnLine Cal 2051
MB,J & BRMR,J
31. The exception to the prohibition on the section 9 Court
from entertaining the section 9(1) application would only be
triggered where the Court is satisfied that filing an application
for interim protection before the Arbitral Tribunal under section
17(1) would not afford effective relief to the petitioner.
32. The statutory object behind the second limb of section 9(3)
is clear. The Act aims to preserve the intention of the parties to
arbitrate and uphold the sanctity of the arbitral process. The
object is also to prevent Courts from trespassing into the arbitral
domain where the parties have already taken steps in aid of
arbitration by constitution of the Arbitral Tribunal. The Act also
intends to prevent multi-domain and simultaneous
litigationsbetween the same parties and for the same cause at
the cost of the chosen dispute-resolution mechanism. The
overall aim is for a clock-wise motion of adjudication as opposed
to the hands of the clock ticking in reverse motion where the
section 9 Court would be flooded with anxious petitions resulting
in jettisoning of the arbitral process.
33. Section 17(1) of the 1996 Act, deals with interim measures
ordered by the Arbitral Tribunal and after the 2015 amendment
offers a generous bouquet of protections to a party during the
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course of the arbitral proceedings. The power of the Arbitral
Tribunal under section 17(1) is at par with that of the Court
under section 9(1) and affords full-bodied relief to a party in the
arbitration. This would be evident from the second part of the
section 17(1)(e) providing for plenary powers to the Arbitral
Tribunal to grant discretionary protection to the parties and
equates that power to the section 9 Court by use of the words:
"(e) such other interim measure of protection as may appear to
the arbitral tribunal to be just and convenient,
and the arbitaral tribunal shall have the same power for
making orders, as the court has for the purpose of, and in
relation to, any proceedings before it."
34. Section 17(2) fortifies this power by placing any order
passed by the Arbitral Tribunal on the same plane as an order of
a Court including for the purpose of enforceability purposes.
35. Therefore, the revitalized section 17(1) and (2), post-
amendment, casts a weightyburden on the party to persuade the
Court to hold on to the Section 9 petition despite formation of
the Arbitral Tribunal. The burden of making out a case for the
Court to hear the matter, even after constitution of the Arbitral
Tribunal, rests on the party who resists being relegated to
arbitration. The party seeking to put the breaks on arbitration,
at least for a limited period of time, must discharge the onus of
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proving the existence of factors which would render the relief
under section 17(1) inadequate or inefficacious.
36. There may be factors to plead inefficacy before the Arbitral
Tribunal including by reason of non-availability of arbitrators,
infrequent sittings of the Tribunal or any other disabling factors.
Notably, the appellant has not shown any reason in the present
case to discharge the burden cast on the appellant under the
second limb of section 9(3) i.e., the reasons for the appellants'
unwillingness to approach the already-constituted Arbitral
Tribunal. The appellants have also failed to show the inefficacy
of the reliefs provided under section 17(1) of the Act.
37. Paragraph 4.9 of the order passed by the Arbitral Tribunal
passed on 01.12.2024requiring the respondent to file a reply
within two weeks from the receipt of an application made by the
other party, is not reason enough to show inefficiency of the
statutory remedy under section 17(1).Paragraph 4.9 simply
preserves the requirement of natural justice. The procedural
order does not contain any embargo in filing time-sensitive
applications where a party needs urgent interim relief.
MB,J & BRMR,J
The power to make the assessment of whether a matter has been
entertained under section 9(3) rests with the section 9 Court alone:
38. The appellants' prayer for setting aside of the impugned order is
misconceived and contrary to law.
39. The appellants' stated position is that the Commercial Court
ought to have held on to the section 9 application, or alternatively,
passed an order in the nature of the order passed by this Court on
11.09.2024 until the appellants approached the Arbitral Tribunal with
a section 17 application. The relief sought for is contrary to the
mandate of section 9(3) as well as the decision of the Supreme Court
in Arcelor Mittal (supra). The reason for this view is as follows:-
40. First, the assessment of whether a petition under section 9(1) of
the Act has been entertained or not rests with the section 9 Court
alone and cannot be decided by any other Court. The assessment is
made on a subjective basis, i.e., the extent to which the Court feels it
has applied its mind to the matter. In the present case, there is no
record available before us to come to a conclusion that the
Commercial Court hadin fact commenced hearing of the section 9
application or actively engaged with the merits of the dispute in the
section 9 petition.
MB,J & BRMR,J
41. Second, by the order dated 11.09.2024 passed by this Court,
the impugned orders passed by the Commercial Court on 03.09.2024
were suspended for the sole reason of not disclosing reasons. The
order dated 11.09.2024 was an ex parte order. The respondents were
not represented on that date. The order was also subsequently
modified by orders dated 25.09.2024, 27.09.2024, 30.09.2024 and
01.10.2024 recording the correct facts represented on behalf of the
respondents.
42. Admittedly, the Commercial Court had passed detailed orders in
the four I.As filed by the appellants which were not brought to the
notice of the High Court on 11.09.2024. Apart from the modifications
made to the order dated 11.09.2024, the orders passed by the High
Court in the four C.R.Ps. filed by the appellants make it clear that the
High Court did not delve into the merits of the C.R.Ps. and only
attempted to balance the interest of the parties in terms of withdrawal
of amounts from the respondent No.7 (LLP). Therefore, asking the
Commercial Court to continue the order passed by the High Court till
the appellants filed a section 17 petition before the Arbitral Tribunal is
completely misconceived since the High Court passed the order only
as a stop-gap measure till the disputes were thrashed out before the
section 9 Court.
43. In essence, neither the Commercial Court nor the High Court
entertained the dispute between the parties (the section 9 Application
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filed by the appellants/C.O.P.No.100 of 2024) in the sense as held in
Arcelor Mittal (supra). Therefore, the matter at hand falls squarely
within the embargo in section 9(3) of the Act i.e., the prohibition on
the section 9 Court from entertaining a section 9 application once the
Arbitral Tribunal has been constituted.
44. Third, there is a lack of clarity on the specific relief sought for
by the appellants. The appellants have not been able to explain with
any precision as to the relief sought in the I.A filed before the
Commercial Court.
45. Admittedly, the sharpness of the order dated 11.09.2024 was
later softened by giving greater leeway to the respondents to withdraw
funds from the LLP. The appellants did not challenge the subsequent
modifications. Moreover, the appellants also did not take steps for
hearing of the C.O.P or the I.As. in the Commercial Court with any
diligence.Significantly, I.A.No.260 of 2024 filed by the appellants does
not contain any prayer for the Commercial Court to hear/entertain
the I.A and the C.O.P. on merits.
46. We are therefore of the view that the appellants have not made
out a case for setting aside the impugned order passed by the
Commercial Court on any error of reasoning on facts or in law or
otherwise.
MB,J & BRMR,J
The appellants have also not made out a case for urgency for
continuation of interim orders:
47. Contrary to the submissions made on behalf of the appellants,
we do not find any material disclosed from the records substantiating
the appellants' apprehension of the respondents taking imminent
steps to render the arbitration infructuous. On the other hand, we are
informed that the appellants have not complied with the order passed
by the High Court on 30.09.2024 in respect of payments to vendors
subject to verification by the appellants.
48. Whatever may be the continuing disputes between the parties,
the appellants have not shown good cause for failing to approach the
Arbitral Tribunal with a section 17 Application after 27.11.2024. The
appellants were further required to discharge the onus as to why the
appellants refused to initiate proceedings before the Arbitral Tribunal
from November, 2024 - February, 2025 despite the urgency which has
been argued before this Court. The fact that the appellant filed the
I.A. in the section 9 petition while seeking an extension of time to file
the statement of claim before the Arbitral Tribunal is of
furthersignificance.
Conclusion:
49. The appellants' lack of diligence to protect their rights or
continue the interim orders passed by the High Court does not
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warrant any intervention in their favour. The appellants should be
relegated to the chosen alternative dispute-resolution forum for
appropriate relief.
50. We are firmly of the view that there is no reason to doubt the
effectiveness of a Section 17 application before the Arbitral Tribunal at
this point in time. We have carefully considered each and every aspect
of the matter including balancing the interest of the parties before us.
We do not find any grounds to interfere with the impugned order or
correct the course of action taken by the Commercial Court. In fact,
there is no error in the reasons given by the Commercial Court which
requires correction.
51. C.O.M.C.A No.40 of 2024 is accordingly dismissed. All
connected applications are disposed of. Interim orders, if any, stand
vacated. There shall be no order as to costs.
_________________________________
MOUSHUMI BHATTACHARYA, J
____________________________
B.R.MADHUSUDHAN RAO,J
February 27, 2025
VA/BMS
