Courts Can't Constantly Interfere And Micro-Manage Arbitral Proceedings: Bombay High Court

The bench held that the scope of judicial interference under Section 37(2)(b) of the Arbitration Act is limited in nature.

The bench held that the court:

(i) will not interfere with the exercise of discretion by the Arbitral Tribunal and substitute its own view except when the Arbitral Tribunal has acted arbitrarily, or capriciously or where the Arbitral Tribunal has ignored the well-settled principles of law regulating the grant or refusal of interlocutory injunctions;

(ii) cannot reassess the material based on which the Tribunal has arrived at its decision so long as the Tribunal has considered the material and had taken a plausible view,

(iii) cannot interfere with the exercise of discretion by the Tribunal, if the discretion of the Tribunal had been exercised in a reasonable and judicious manner, solely on the ground that would have come to a contrary conclusion,

(iv) that matters of interpretation of the provisions of a contract lie primarily within the domain of the Arbitral Tribunal and

(v) cannot constantly interfere with and micro manage proceedings which are pending before Arbitral Tribunals.

Brief Facts:

The Petitioner, Chetan Narendra Dhakan, and Respondent Nos. 1 and 2 are partners in a construction business firm, Respondent No. 3. In 2018, disputes arose between the Petitioner and Respondent Nos. 1 and 2, with the Petitioner alleging that Respondent Nos. 1 and 2 were managing the firm's business to his detriment. This led the Petitioner to invoke arbitration under a Retirement Deed and file a petition under Section 9 of the Arbitration Act and an application under Section 11 for appointing an arbitrator. An order in the first Section 9 Petition recorded a statement by Respondent No. 1 counsel that Respondent No. 1 would abide by certain clauses of the Deed of Partnership which outlined duties and rights in case of disputes among the partners.

The High Court appointed a sole arbitrator and directed the status quo order from December 2018 to continue until the arbitrator rendered the final award. Subsequently, the Petitioner filed an application under Section 17 before the Arbitral Tribunal which was disposed of. The Tribunal, among other directives, maintained the status quo concerning the firm's properties and required Respondent No. 1 and Respondent No. 2 to disclose all firm properties and submit audited accounts. The Petitioner approached the High Court under Section 37 of the Arbitration Act.

The Petitioner contended that Respondent No. 1 disregarded the Tribunal's order by commencing construction activities on the Virar property. Respondent No. 1 dismissed the Tribunal's order in his comments on Facebook which prompted the Petitioner to file a Section 9 Petition in the High Court for the appointment of a Court Receiver. He argued that this measure was necessary to prevent Respondent Nos. 1 and 2 from continuing construction and potentially alienating the flats.

Observations by the High Court:

The High Court held that the scope of judicial interference under Section 37(2)(b) of the Arbitration Act is well settled. It referred to its decisions in Elster Instromet B. V. vs. Mrunal Gandhi, Max Healthcare Institute Limited vs Touch Healthcare Private Limited & Ors., Karanja Terminal & Logistics Pvt. Ltd. vs. Sahara Dredging Ltd, and Raymond Limited vs. Akshaypat Singhania & Anr. The bench held that the Court would not interfere with the exercise of discretion by the Arbitral Tribunal and substitute its own view except when the Arbitral Tribunal has acted arbitrarily, capriciously, or ignored the well-settled principles of law regulating the grant or refusal of interlocutory injunctions.

It also held that the court cannot reassess the material based on which the Tribunal has arrived at its decision so long as the Tribunal has considered the material and taken a plausible view. Matters of interpretation of the provisions of a contract lie primarily within the domain of the Arbitral Tribunal, and the Court cannot constantly interfere with and micro-manage proceedings which are pending before Arbitral Tribunals.

On a perusal of the Tribunal's order, the High Court held that the arbitrator, after interpreting clauses 11 and 17 of the Partnership Deed and considering the material on record, came to the conclusion that the order of status quo passed by the High Court in the first Section 9 Petition would equally apply to the Virar property. It held that the view taken by the arbitrator was most certainly a plausible view and not one which can in any manner be said to be arbitrary, capricious, or not based on the material before the Tribunal.

Further, the High Court noted that the Petitioner sought the appointment of the Court Receiver and argued that Respondent No. 1's actions were in breach of the status quo order. The bench held that an Arbitral Tribunal cannot appoint a Court Receiver which makes necessary Court's intervention.

The High Court found that the Petitioner made a compelling case for the appointment of a Receiver due to Respondent No. 1's blatant disregard for the Tribunal's order. Therefore, the High Court held it convenient to appoint the Court Receiver.

Case Title: Ambrish H. Soni vs Mr Chetan Narendra Dhakan & Ors.

Case Number: ARBITRATION PETITION NO. 100 OF 2024 with COMMERCIAL ARBITRATION PETITION (L) NO. 33385 OF 2023

Advocate for the Petitioner: Mr. Rashmin Khandekar a/w Pranav Nair and Anand Mishra for the Petitioner in CARBPL/33385/2023 and for Respondent No.1 in ARBP/100/2024.

Advocate for the Respondent: Dr. Uday Warunjikar a/w Sumit Kate for the Petitioner in ARBP/100/2024 and for Respondent No.1 in CARBPL/33385/2023.

Date of Judgment: 16th JULY, 2024

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