[Arbitration Act] Once Arbitral Tribunal In Place, Court's Consideration Of Section 9 Application Should Be Limited: Allahabad High Court
The Allahabad High Court bench of Chief Justice Arun Bhansali and Justice Vikas Budhwar held that the question as to the consideration of the grounds, upon which the application under Section 9 of the Arbitration and Conciliation Act, 1996 is based can only arise when it is being considered by the Court on the merits, i.e., when the court is called upon to apply its mind to the...
The Allahabad High Court bench of Chief Justice Arun Bhansali and Justice Vikas Budhwar held that the question as to the consideration of the grounds, upon which the application under Section 9 of the Arbitration and Conciliation Act, 1996 is based can only arise when it is being considered by the Court on the merits, i.e., when the court is called upon to apply its mind to the grounds urged in the application.
Further, the bench held once an Arbitral Tribunal is established, the court cannot entertain an application under Section 9 unless the remedy under Section 17 proves to be inefficacious.
The bench held that:
“The Commercial Court, while dealing with an application under Section 9 of the Act, is required to record findings on the three parameters, i.e., (i) prima facie case, (ii) balance of convenience, and (iii) irreparable injury, which determination is sine qua non for the purpose of grant of relief in any application of the present nature. Failure of the Commercial Court to record any finding on the said aspects worth the name, vitiates the order impugned.”
Section 9 of the Arbitration and Conciliation Act, of 1996, pertains to interim measures ordered by courts. It allows a party to apply to a court for interim measures before or during arbitration proceedings. These measures can include orders to preserve assets, prevent disposal of property, secure amounts in dispute, or ensure that arbitration proceedings are not frustrated. Essentially, it empowers courts to take provisional measures to safeguard the rights and interests of parties involved in arbitration.
Brief Facts:
The Respondent's primary business is related to academic consultancy and teacher training for schools adhering to C.B.S.E. norms. It claimed to have provided these services for over two decades to various educational institutions under consultancy agreements. Allegedly, a Memorandum of Understanding was executed between the Appellant and Respondent followed by a registered agreement on 11.12.2018, outlining the terms. The Respondent argued that academic consultancy fees totaling Rs. 45,57,781/- were outstanding, with issued cheques bouncing. Notice of violation was issued on 10.04.2023, but the Appellant continued using the agreed-upon school name and logo. Consequently, the Respondent filed a Section 9 application for an injunction against the unauthorized use of the name 'Sunbeam' and associated assets, and to cease operating the school under the name Sunbeam School, Babatpur. The Commercial Court allowed the application filed by the Respondent. Feeling aggrieved, the Appellant approached the Allahabad High Court (“High Court”) and challenged the decision of the Commercial Court.
The Appellant contended that the Commercial Court erred in accepting the application, arguing that the order lacked sufficient justification. It claimed that the Court failed to assess the prima facie case, the balance of convenience, and irreparable injury, prerequisites for granting injunction or interim orders. Moreover, it argued that under Section 9(3) of the Arbitration Act, once an Arbitral Tribunal is constituted, the Court cannot entertain an application unless it deems the arbitration remedy ineffective.
In contrast, the Respondent defended the order, stating that the closure of the response opportunity justified the Court's decision. It emphasized that the C.B.S.E. had already instructed the Appellant to cease using the name 'Sunbeam' and its logo.
Observations by the High Court:
The High Court noted that the Commercial Court, in its order, primarily emphasized the tardiness of the Appellant in filing their response to an application under Section 9 of the Arbitration Act. It reasoned that since the Appellant's response was submitted after the prescribed period, it could not be considered.
The High Court held that the mere non-filing or non-consideration of the Appellant's response does not automatically warrant the relief sought by the applicant. Specifically, when dealing with an application under Section 9 of the Arbitration Act, the Commercial Court is obligated to assess three crucial aspects: the prima facie case, the balance of convenience, and the likelihood of irreparable injury. Failure to address these elements renders the order defective.
Moreover, the High Court examined the violation of Section 9(3) of the Arbitration Act. This provision stipulates that once an Arbitral Tribunal is constituted, the Court should refrain from entertaining applications under Section 9(1) unless circumstances exist where the remedy provided under Section 17 is deemed ineffective. The High Court noted that the application was filed before the Commercial Court before the constitution of the Arbitral Tribunal. However, the subsequent passing of the order after the Tribunal's constitution contradicted the statutory restriction outlined in Section 9(3).
The High Court held that once an Arbitral Tribunal is in place, the Court's consideration of applications under Section 9 should be limited unless the remedy under Section 17 is deemed ineffective (referred to Kundan Lal v Jagan Nath Sharma and Ors. and Arcelor Mittal Nippon Steel India Ltd. v. Essar Bulk Terminal Ltd.).
Consequently, the High Court allowed the appeal filed by the Appellant. It quashed and set aside the order and dismissed the application filed by the Respondent under Section 9 of the Arbitration Act. However, the High Court clarified that the Respondent retained the option to pursue remedies before the Arbitral Tribunal under Section 17 of the Arbitration Act.
Case Title: Ganga Prasad Memorial Trust and another vs DHK Eduserve Limited
Case Number: Appeal Under Section 37 Of Arbitration And Conciliation Act 1996 No. - 161 Of 2024
Advocate for the Petitioner: Rakesh Pande (Sr.Adv.) with Sunil Kumar Singh and Utkarsh Srivastava
Advocate for the Respondent: Manish Goyal (Sr.Adv.) with Ajay Kumar Singh and Tejas Singh, Ashish Kumar Singh
Click Here To Read/Download Order