Bombay High Court Hears Section 37 Petitions Challenging Arbitral Tribunal's Interim Restraint Order. The arbitral tribunal had restrained the appellants from alienating assets under Section 17 of the Arbitration and Conciliation Act, 1996, pending arbitration over terminated Master Service Agreements, despite arguments that the transfer was involuntary and assets were encumbered to secured creditors.

Challenge under Section 37 of the Arbitration and Conciliation Act, 1996 to an interim order passed by an arbitral tribunal under Section 17 of the Act.

The petitioners sought to set aside or vary the arbitral tribunal's order dated 5 March 2018 restraining them from transferring, alienating, encumbering, or disposing of assets without the tribunal's permission.

The petitioners alleged that the arbitral tribunal's order was contrary to the principles of Order XXXVIII Rule 5 CPC and detrimental to the interests of secured creditors, and that the transfer of assets was involuntary and directed by lenders.

The arbitral tribunal had, on 5 March 2018, passed an interim order under Section 17 of the Act, restraining the petitioners from alienating assets while denying certain other reliefs sought by the respondent. The tribunal did not terminate the arbitral proceedings despite the petitioners' attempt to withdraw the arbitration invocation.

Whether the arbitral tribunal's order under Section 17 restraining the petitioners from transferring, alienating, or disposing of assets is legally sustainable in light of the principles of Order XXXVIII Rule 5 CPC and the fact that the assets were encumbered and the transfer was involuntary, directed by the Joint Lender Forum of secured creditors.

The principles of Order XXXVIII Rule 5 CPC were not satisfied as there was no prima facie finding that the petitioners intended to defeat the claims of the respondent by disposing of assets. The assets were already encumbered or charged to secured lenders, and the proposed transfer was involuntary, being directed by the Joint Lender Forum consisting of secured creditors of the Reliance Group. The respondent, being an unsecured creditor, would not benefit from the injunction as the proceeds would go to secured lenders, and the injunction would prejudice the interests of a large number of secured lenders. The balance of convenience favored the petitioners, and the arbitral tribunal failed to consider that the transfer was not an act of the petitioners but of the secured lenders.

The arbitral tribunal has also made it clear that the said impugned order is without prejudice to any order that may be passed by the Board/Courts of competent jurisdiction. It is submitted by the learned senior counsel that all the assets of each of the petitioners have already been encumbered or charged with those lenders much prior to the date of execution of the MSAs between the parties.

Master Service Agreements entered into on 25 January 2013. Dispute arose. Respondent no.1 issued notices under Section 9 of the Insolvency and Bankruptcy Code, 2016 on 7 May 2017. Parties discussed settlement; revised payment schedule recorded on 29 June 2017. Respondent no.1 filed IBC application. MSAs terminated on 7 September 2017. Respondent no.1 refused to comply with MSAs on 10 October 2017. Petitioners invoked arbitration on 1 November 2017. Arbitral tribunal constituted; preliminary meeting held on 10 February 2018. Respondent no.1 filed Section 17 application and counterclaim on 17 February 2018. Petitioners attempted to cancel arbitration on 13 February 2018. Tribunal passed impugned interim order on 5 March 2018. Petitioners filed Section 37 petitions before the High Court.

• Arbitration and Conciliation Act, 1996: Section 17, Section 37
• Code of Civil Procedure, 1908: Order XXXVIII Rule 5, Order XXXIX
• Insolvency and Bankruptcy Code, 2016: Section 9