Case Note & Summary
The judgment concerns two arbitration petitions arising from a dispute between Tulsi Castings and Machining Limited (and its directors) and India Venture Trust, an investor. India Venture Trust had invested Rs. 40 crores in the company under a Share Subscription cum Shareholder Agreement dated 01/03/2012. Disputes arose, and India Venture Trust alleged mismanagement and diversion of funds by the directors. It exercised a put option requiring the directors to purchase its shares, but they failed to do so, leading to a money claim in arbitration. India Venture Trust filed an application under Section 17 of the Arbitration and Conciliation Act, 1996 seeking interim measures, including an injunction against the company and directors. The arbitrator passed an order on 25/04/2014 granting various interim measures, including directions in paragraph 44(v) and (vi) requiring the directors to file an affidavit of assets and restraining them from alienating assets. The directors challenged these directions in Arbitration Petition No.769 of 2014 under Section 37, while India Venture Trust challenged the arbitrator's refusal to direct deposit of money or security in Arbitration Petition (L) No.1003 of 2014. The court noted that the arbitrator had in paragraph 41 of the impugned order held that no case under Order 38 Rule 5 CPC was made out, yet granted relief akin to it. The court held that the arbitrator exceeded jurisdiction by granting such relief without proper pleadings. The court set aside directions 44(v) and (vi) but upheld other interim measures. The court also dismissed India Venture Trust's petition, finding no error in the arbitrator's refusal to order deposit or security. Both petitions were disposed of accordingly.
Headnote
A) Arbitration Law - Interim Measures under Section 17 - Power of Arbitrator - The arbitrator under Section 17 of the Arbitration and Conciliation Act, 1996 has power to grant interim measures similar to a court under Section 9, but cannot grant relief akin to Order 38 Rule 5 CPC (attachment before judgment) without proper pleadings and satisfaction of conditions. The court held that the arbitrator's directions in paragraph 44(v) and (vi) requiring the petitioners to file an affidavit of assets and restraining them from alienating assets were beyond jurisdiction as no case under Order 38 Rule 5 was made out. (Paras 5-6)
B) Arbitration Law - Appeal under Section 37 - Scope - An appeal under Section 37 of the Arbitration and Conciliation Act, 1996 lies against an order granting or refusing interim measures under Section 17. The court can interfere if the arbitrator has exceeded jurisdiction or acted contrary to law. (Para 1)
C) Civil Procedure - Order 38 Rule 5 - Attachment before Judgment - The principles under Order 38 Rule 5 of the Code of Civil Procedure, 1908 require a clear case of intent to defeat or delay creditors. The arbitrator's finding that no such case was made out precluded the grant of such relief. (Para 5)
Issue of Consideration
Whether the arbitrator under Section 17 of the Arbitration and Conciliation Act, 1996 can grant relief akin to Order 38 Rule 5 of the Code of Civil Procedure, 1908 without proper pleadings, and whether the impugned directions in paragraph 44(v) and (vi) of the arbitrator's order were valid.
Final Decision
The court allowed Arbitration Petition No.769 of 2014 in part, setting aside directions in paragraph 44(v) and (vi) of the arbitrator's order dated 25/04/2014. The court dismissed Arbitration Petition (L) No.1003 of 2014, upholding the arbitrator's refusal to direct deposit or security. Both petitions disposed of by common order.
Law Points
- Arbitrator's power under Section 17 is akin to court's power under Section 9
- but cannot grant relief under Order 38 Rule 5 CPC without proper pleadings
- Interim measures must be based on prima facie case and balance of convenience
- Section 37 appeal lies against orders under Section 17 granting or refusing interim measures
Case Details
2014 LawText (BOM) (07) 172
Arbitration Petition No.769 of 2014 with Arbitration Petition (L) No.1003 of 2014
Pravin Samdhani Sr. Adv. a/w. Satyan Vaishnav a/w Nupur Mukherji & Anil Chauhan i/by N. N. Vaishnava & Co. for petitioners in Arbp/769/14 and for respondents in Arbp(L)/1003/14; Vyapak Desai a/w Ashish Kabra i/by Nishith Desai Associates for respondents in Arbp/769/14 and for petitioners in Arbp(L)/1003/14
Tulsi Castings and Machining Limited & Ors. (in ARBP 769/2014); India Venture Trust (in ARBP(L) 1003/2014)
India Venture Trust & Ors. (in ARBP 769/2014); Tulsi Castings and Machining Limited & Ors. (in ARBP(L) 1003/2014)
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Nature of Litigation
Arbitration petitions under Section 37 of the Arbitration and Conciliation Act, 1996 challenging an interim order passed by the arbitrator under Section 17 of the Act.
Remedy Sought
The petitioners in ARBP 769/2014 sought to set aside directions in paragraph 44(v) and (vi) of the arbitrator's order. The petitioner in ARBP(L) 1003/2014 sought to challenge the arbitrator's refusal to direct deposit of money or security.
Filing Reason
Disputes arose from a Share Subscription cum Shareholder Agreement dated 01/03/2012, where India Venture Trust invested Rs. 40 crores in Tulsi Castings and Machining Limited. Allegations of mismanagement and fund diversion led to arbitration.
Previous Decisions
The learned Arbitrator passed an interim order on 25/04/2014 granting various interim measures under Section 17, including directions in paragraph 44(v) and (vi) which are impugned.
Issues
Whether the arbitrator under Section 17 of the Arbitration and Conciliation Act, 1996 can grant relief akin to Order 38 Rule 5 CPC without proper pleadings?
Whether the impugned directions in paragraph 44(v) and (vi) of the arbitrator's order are valid?
Whether the arbitrator erred in refusing to direct deposit of money or security?
Submissions/Arguments
Petitioners (Tulsi Castings) argued that the arbitrator in paragraph 41 held that no case under Order 38 Rule 5 CPC was made out, yet granted relief akin to it, exceeding jurisdiction.
Respondents (India Venture Trust) argued that the arbitrator had power to grant such relief and that the refusal to order deposit was erroneous.
Ratio Decidendi
The arbitrator under Section 17 of the Arbitration and Conciliation Act, 1996 cannot grant relief akin to Order 38 Rule 5 of the Code of Civil Procedure, 1908 without proper pleadings and satisfaction of conditions. The arbitrator's own finding that no case under Order 38 Rule 5 was made out precluded the grant of such relief. The court upheld other interim measures as within the arbitrator's jurisdiction.
Judgment Excerpts
The Petitioners in Arbitration Petition No.769 of 2014 which is filed under Section 37 of the Arbitration and Conciliation Act, 1996 have impugned the interim order passed by the learned Arbitrator under Section 17 of the Act and in particular in paragraph44(v) and 44(vi).
In paragraph 41 of the impugned order the learned Arbitrator has come to the prima facie conclusion that even if the Arbitrary Tribunal could grant relief by exercising principle under Order 38 Rule 5 of the Code of Civil Procedure 1908, no case had been made out by the respondents herein in their pleadings to satisfy those principle required to be satisfied under Order 38 Rule 5 for grant of reliefs.
Procedural History
On 01/03/2012, parties entered into Share Subscription cum Shareholder Agreement. Disputes arose. India Venture Trust filed a money claim in arbitration and an application under Section 17 for interim measures. The arbitrator passed an interim order on 25/04/2014. Both parties filed appeals under Section 37 before the Bombay High Court, which were heard together and disposed of by this judgment on 17/07/2014.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 17, Section 37, Section 9
- Code of Civil Procedure, 1908: Order 38 Rule 5
