Arbitrator’s Power To Grant Interim Measures Is pari passu With Court’s Powers Under S. 9 Of Arbitration Act: Calcutta High Court

The bench of Justice Shekhar B. Saraf remarked that the test applicable for granting interim protection under Section 9 would also apply to test the validity of an order passed by the Arbitrator under Section 17.

The petitioner, Jagrati Trade Services Pvt Ltd, entered into a Share Purchase Agreement (SPA) with respondent no. 1-12, to purchase the shares of respondent no. 13, James Glendye & Company Pvt Ltd. The respondents 1-12 held 100% shareholding in the said Company. After the petitioner was not transferred the shares as per the SPA, the dispute between the parties was referred to arbitration.

The petitioner filed an application under Section 17 of the A&C Act before the Arbitrator, seeking to resist the Company from going ahead with the execution of a Development Agreement in relation to the premises over which the Company held leasehold rights. The petitioner sought to restrain the Company from creating third-party rights by sale of commercial and office spaces in the property.

The Arbitrator passed an interim order, restricting any transaction up to the 9^th floor of the building constructed in the property. The Arbitrator, however, refused to grant further reliefs to the petitioner. Against this, the petitioner filed an application under Section 37 of the A&C Act before the Calcutta High Court.

The petitioner, Jagrati Trade Services, submitted before the High Court that execution of the Development Agreement was concealed from the petitioner, and was done with the intent to render the company assetless. If an arbitral award was rendered in favour of the petitioner, it argued that it would be a mere paper award.

The respondents, including Deepak Bhargava, contended that the petitioner was not entitled to the shares of the Company due to its failure to make payment of the entire consideration in terms of the SPA. It pleaded that the petitioner is required to prove its entitlement to the Company’s shares before the Arbitrator, before staking any claim over the company.

It further submitted that the petitioner’s application under Section 9 of the A&C Act made before the Calcutta High Court prior to the commencement of the arbitral proceedings, seeking interim relief with respect to the Development Agreement, was dismissed by the Court. The Court had granted liberty to the petitioner to file an application under Section 17 before the Arbitrator. However, there was an undue delay of nearly four years until the said application was made, which is when the arbitral proceedings were at its concluding stage. Being conscious of the delay, the Arbitrator had refused to pass an order in favour of the petitioner, it argued.

The High Court noted that by the Amendment Act of 2015, the enhancement made to the powers of the Arbitrator under Section 17 is akin to that of the Court under Section 9. Consequently, the Arbitrator passing interim reliefs under Section 17 would be bound by the same standards as applicable to Section 9 of the A&C Act, the Court said.

Referring to the Supreme Court’s decision in Shanti Kumar Panda v. Shakutala Devi (2004) and Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited (2022), the Court held, “In consonance with the judicial precents set out above, I can succinctly conclude that for granting an interim protection a party must satisfy four specific criteria:- (i) there is a prima facie case in their favour, (ii) not granting the relief would result in irreparable harm and loss which cannot be compensated at a later stage and (iii) the balance of convenience, if such interim protection is granted, must lie in favour of the applicant and (iv) the application praying for the relief is made expeditiously.”

The bench observed that as per Essar House (2022), while granting interim relief, no actual proof regarding disposal of assets is required, but rather a strong possibility indicating the same is sufficient. Perusing the orders of the Arbitrator, the Court took note that the petitioner had not adequately satisfied the Arbitrator that it had paid the entire consideration as per the SPA. “This determination when viewed against the allegation of the respondent that the SPA submitted by the petitioner is fabricated further complicates the issue,” the Court added. It ruled that the allegation of fabrication distinguishes the current dispute from that of Essar House (2022), where a prima facie case existed, but on the basis of a valid instrument.

Noting that the arbitrator has yet to adjudicate certain issues, including whether full consideration was paid by the petitioner as per the true and correct SPA, the Court said, “In my opinion, the arbitrator is yet to identify the correctness of several key facts in dispute, few of which I have identified above. Until a concrete finding regarding the same is made, any order passed by me would possess the possibility of prejudicing or affecting the ongoing arbitral proceedings which, as per the reasoning provided above, has been forbidden.”

The bench reckoned that even if the allegations made by the petitioner regarding disposal of assets, is held to be true in the arbitral proceedings, the petitioner is entitled to apply for due compensation in respect of the original entitlement of shares. “Thus, there exists a mechanism for the petitioner to be compensated and I do not see any irreparable loss or injury to occur,” the Court said.

The Court took note that that the petitioner had wilfully concealed the fact that advertisements relating to sale of office/ commercial spaces in the subject premises were circulated at a much earlier stage. Further, at every stage, every application made by the petitioner suffered from unreasonable delay and no ‘sufficient cause’ was made out by the petitioner for a delay amounting to several years, it observed.

“The conduct of the petitioner entirely disqualifies any grounds of urgency or a serious consideration that they would indeed suffer irreparable harm,” it concluded.

Thus, while holding that no irreparable harm would be suffered by the petitioner if interim relief was not granted to it, the bench said, “There is no urgency in this matter and the balance of convenience lies in favour of the respondent nos. 1-13, especially considering that the arbitrator has already provided injunctive reliefs to the petitioner.”

The Court thus dismissed the application.

Case Title: Jagrati Trade Services Pvt Ltd versus Deepak Bhargava & Ors.

Case Citation: 2023 LiveLaw (Cal) 29

Dated: 31.01.2023

Counsel for the Petitioner: Mr. Ratnanko Banerjee, Sr. Adv., Mr. Anirban Ray, Mr. Rudrajit Sarkar, Mr. Debangshu Dinda, Mr. Jai Kumar Surana, Mr. Arundhuti Roy, Advocates.

Counsel for the Respondents: Mr. Jishnu Saha, Sr. Adv., Mr. Arindam Banerjee, Mr. Zeeshan Haque, Mr. Saket Chaudhury, Advocates.

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