[Arbitration Act] Court Should Not Issue Broad Injunctions Under Section 9 If Dispute Involves Monetary Claim: Rajasthan High Court
The Rajasthan High Court bench of Justice Dinesh Mehta and Justice Rajendra Prakash Soni has held that while passing interim order or taking interim measure under Section 9 of the Arbitration and Conciliation Act, 1996, the court is required to have a prima-facie grasp of the dispute and claim of the parties. The bench held that the court should look at the nature of the controversy...
The Rajasthan High Court bench of Justice Dinesh Mehta and Justice Rajendra Prakash Soni has held that while passing interim order or taking interim measure under Section 9 of the Arbitration and Conciliation Act, 1996, the court is required to have a prima-facie grasp of the dispute and claim of the parties.
The bench held that the court should look at the nature of the controversy and consider the relief claimed or the amount claimed. It held that if the dispute involves a monetary claim or can be quantified in financial terms, rather than issuing broad injunctions to maintain the status quo regarding the property, the court should instead safeguard the anticipated amount to be awarded to the claimant.
Brief Facts:
The matter pertained to a dispute arising from an agreement signed between the Riddhi Siddhi Infraproject Private Limited (“Appellant”) and Anil Industries (“Respondent') to be resolved through arbitration as per clause 31 of the agreement. The Appellant appointed Satyanarayan Derashri as an arbitrator and initiated proceedings. However, due to the Respondent's lack of interest, proceedings and arbitration decisions pursuant to clause 31 were anticipated to take time. Therefore, the Appellant filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) for measures restraining the Respondent from alienating the property or constructing on disputed land. The Commercial Court passed an order and directed the parties to maintain status quo in relation to the land.
Subsequently, the Appellant filed an application under Section 11 of the Arbitration Act in the Rajasthan High Court (“High Court”) for the appointment of Mr. Derashri as the Arbitrator. During the pendency of the application, the Respondent contended that the interim order had a 90-day lifespan as per Section 9(2). In response, the Appellant filed an application and sought further orders under Section 9 or an extension of the interim order.
The Commercial Court rejected the Appellant's application and held that the Appellant failed to initiate arbitral proceedings within the statutory 90-day timeline, as the application under Section 11 was filed belatedly. Feeling aggrieved, the Appellant approached the Rajasthan High Court (“High Court”).
Observations by the High Court:
The High Court noted that Section 9(2) requires arbitral proceedings to commence within 90 days of the order. However, the High Court referred to Section 21 of the Arbitration Act. Section 21 dictates that the notice of appointment of an Arbitrator triggers the commencement of arbitral proceedings. The High Court held that filing an application under Section 11 for the appointment of an Arbitrator merely serves as a step toward securing such appointment and cannot be equated with the commencement of arbitral proceedings.
The High Court noted that the Appellant initiated arbitral proceedings by issuing the notice of appointment of an Arbitrator on 12.07.2023 which was well within the stipulated timeframe. Therefore, the Commercial Court's reliance on the failure to file the Section 11 application within 90 days was held flawed and contrary to the law.
In addressing the blanket injunction ordered by the Commercial Court, the High Court held that the court must consider the nature and quantum of the dispute before issuing such sweeping orders. It held that where the claim amounts to a substantial monetary sum it is inappropriate to maintain a status quo on the entire disputed land, which could potentially prejudice various stakeholders.
The bench held that:
“…..the Court has ordered to maintain the status quo regarding the entire land covered by the agreement. We are of the considered view that such an order has not only affected the rights of the respondent but has adversely impacted the rights of various investors and purchasers. Passing of the orders like the one that has been passed in the case in hands may lead to innumerable complications.”
To remedy this imbalance, the High Court imposed a requirement on the Respondent to furnish a solvent surety of Rs. 10 Crores to the satisfaction of the Commercial Court within 15 days. This surety, which shall remain in force until either party files an application under Section 17 before the Arbitrator, is intended to balance the equities between the parties and prevent undue prejudice.
Case Title: Riddhi Siddhi Infraproject Pvt. Ltd. Vs M/s Anil Industries and ors
Case Number: D.B. Civil Misc. Appeal No. 873/2024
Citation: 2024 LiveLaw (Raj) 112
Advocate for the Appellant: Mr. Pushkar Taimini and Mr. Sanjay Nahar
Advocate for the Respondent: Mr. Sandeep Saruparia and Mr. Nikhil Ajmera
Date of Judgment: 29/05/2024