Case Note & Summary
The appeal arose from a partnership dispute between respondent Nos. 1 and 2 who had formed a firm named M/s Kasliwal Empires for a housing project in Aurangabad. The partnership deed contained an arbitration clause. They jointly obtained a loan of Rs.9 crore from Buldhana Urban Cooperative Credit Society, which was later transferred to the account of the appellant company, Tapadiya Construction Ltd., under the control of respondent No.2. Alleging fraud, respondent No.1 filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 against the appellant company and respondent No.2, seeking an injunction to restrain alienation of an immovable property purchased by the company in Hingoli, claiming the property was acquired with partnership funds. The Principal District Judge, Parbhani granted the injunction pending arbitration. The appellant company, which was not a party to the arbitration agreement, challenged the order under Section 37 of the Act. The High Court considered whether Section 9 could be invoked against a non-signatory to the arbitration agreement and whether the Parbhani court had territorial jurisdiction. The Court held that Section 9 permits interim measures only against a party to the arbitration agreement and a third-party company cannot be subjected to such relief. It also found that no part of the cause of action arose in Parbhani, as the partnership and project were in Aurangabad and the loan was from Buldhana; the mere location of the property in Hingoli did not confer jurisdiction. The company being a separate legal entity, its property could not be treated as belonging to the partners. Consequently, the appeal was allowed, the impugned order was set aside, and the Section 9 application against the appellant company was dismissed.
Headnote
A) Arbitration – Interim Measures – Section 9 of the Arbitration and Conciliation Act, 1996 – Scope – Held, an application under Section 9 for interim relief can be filed only against a party to the arbitration agreement; a third party cannot be subjected to such interim relief; the court cannot grant injunction against a company which was not a signatory to the arbitration clause (Paras 14-16). B) Jurisdiction – Territorial – Section 9, Arbitration and Conciliation Act – The court held that the District Court at Parbhani lacked territorial jurisdiction as no part of cause of action arose in Parbhani; the partnership was based in Aurangabad, the project in Aurangabad, and the loan was from Buldhana; mere location of the property in Hingoli was not sufficient (Paras 10-12). C) Company Law – Separate Legal Entity – A company is a distinct legal entity from its shareholders/directors; the appellant company’s property cannot be treated as property of the partners (Para 16).
Issue of Consideration
Whether an interim injunction under Section 9 of the Arbitration and Conciliation Act, 1996 can be granted against a third party who is not a signatory to the arbitration agreement?
Final Decision
The High Court allowed the appeal, set aside the order of the District Court, and held that the appellant company being a third party to the arbitration agreement cannot be injuncted under Section 9. The District Court's order was without jurisdiction both as to the person and territory. The Section 9 application against the appellant company was dismissed. No order as to costs.
Law Points
- Section 9 of the Arbitration and Conciliation Act
- 1996 is available only against parties to the arbitration agreement
- no injunction can be granted against a third party to the arbitration agreement
- the court under Section 9 can grant interim measures only against a party to the arbitration proceeding
- the remedy under Section 9 is ancillary to the arbitration and cannot be used against a stranger
