Case Note & Summary
The petitioners, Arun Bhoomi Corporation and Vijay Kanhaiyalal Joshi, filed a Commercial Arbitration Petition under Section 37 of the Arbitration and Conciliation Act, 1996, challenging an interim order dated 21 June 2024 passed by the Arbitral Tribunal in an application under Section 17 filed by the respondents (Jagruti Developers and its partners). The dispute arose out of sub-development agreements dated 21 October 2009, 4 August 2011, and 4 August 2011, whereby the petitioners sub-licensed the development of a piece of land at Survey No.10, Hissa No.1, Village Mira, Thane, to Jagruti. The petitioners alleged that Jagruti committed material breaches, leading to a show cause cum termination notice dated 28 September 2015, which, according to the petitioners, automatically terminated the agreements. Jagruti disputed the termination and invoked arbitration. The Arbitral Tribunal, by the impugned order, directed the petitioners to disclose all agreements for sale, amounts received, and expenses incurred in respect of the project, and also to deposit 30% of the sale proceeds into an escrow account. The petitioners challenged this order, arguing that the Tribunal had no jurisdiction to pass such a drastic order without recording a finding of likelihood of dissipation of assets or that the claimants had a strong prima facie case. The respondents supported the order, contending that it was necessary to protect their interests. The High Court, after hearing the parties, upheld the disclosure directions, holding that they were necessary to preserve the subject matter of the arbitration and to enable the claimants to ascertain their entitlement. However, the court set aside the direction to deposit 30% of the sale proceeds, holding that the Tribunal had not recorded any finding that the respondents were likely to dissipate assets or that the claimants had a prima facie case for such deposit. The court observed that the balance of convenience did not favour such a drastic order and that the Tribunal's order was not supported by reasons. The court allowed the petition in part, modifying the impugned order by deleting the deposit direction.
Headnote
A) Arbitration - Interim Measures under Section 17 - Disclosure Orders - The Arbitral Tribunal directed the respondents to disclose all agreements for sale, amounts received, and expenses incurred in respect of the project. The High Court upheld this direction, holding that such disclosure is necessary to preserve the subject matter of the arbitration and to enable the claimants to ascertain their entitlement. (Paras 77, 78) B) Arbitration - Interim Measures under Section 17 - Deposit Orders - The Arbitral Tribunal directed the respondents to deposit 30% of the sale proceeds received from the project into an escrow account. The High Court set aside this direction, holding that the Tribunal had not recorded any finding that the respondents were likely to dissipate assets or that the claimants had a prima facie case for such deposit. The balance of convenience did not favour such a drastic order. (Paras 79-82) C) Arbitration - Appeal under Section 37 - Scope of Interference - The High Court held that while hearing an appeal under Section 37 against an interim order under Section 17, the court can interfere if the order is perverse, arbitrary, or based on no evidence. The court found that the deposit order was not supported by reasons and was therefore liable to be set aside. (Paras 83-85)
Issue of Consideration
Whether the Arbitral Tribunal's order under Section 17 of the Arbitration and Conciliation Act, 1996 directing disclosure of sale agreements, receipts, and expenses, and deposit of 30% of sale proceeds, was valid and should be sustained or modified in appeal under Section 37.
Final Decision
The High Court allowed the petition in part. It upheld the disclosure directions (clauses I and II of the impugned order) but set aside the direction to deposit 30% of sale proceeds (clause III). The court modified the impugned order accordingly.
Law Points
- Section 37 of the Arbitration and Conciliation Act
- 1996
- Section 17 of the Arbitration and Conciliation Act
- Interim measures
- Disclosure orders
- Deposit orders
- Balance of convenience
- Prima facie case
- Irreparable injury
