Third Parties To Arbitration Proceeding Entitled To Appeal If They Are Affected By Arbitrator’s Decision: Bombay HC [Read Judgment]

In a landmark judgment, the Bombay High Court has held that a third party to an arbitration proceeding has the right to maintain an appeal under Section 37 of the Arbitration and Conciliation Act, 1996, if they are affected by an order passed by an arbitrator under Section 17 of the said Act.

Justice RD Dhanuka heard a batch of 13 petitions filed under section 37 of the Arbitration & Conciliation Act, wherein the petitioners prayed for leave to appeal against the order passed by a sole arbitrator dated December 27, 2016, and an order by the high court dated November 17, 2017, in an arbitration proceeding between Excel Metal Processors Pvt Ltd (Respondent No.1) and Shakti International Pvt Ltd (Respondent No. 2).

The petitioners contended that these orders were causing prejudice to their interest.

Case background

The petitioners in the lead petition contended that they had imported 46 HR steel coils from Win Faith Trading Limited and M/s Hyundai Corporation. They claimed to possess the documents of title regarding the said coils, including the bills of entries, mill test certificates, inspection certificates etc.

These coils are embossed with specific unique coil numbers which makes them easily identifiable. According to the petitioner company, Arisha Metal Precisions (Respondent No. 3), which is in the business of slitting/cutting HR steel coils out of a warehouse in Taloja, told them that the said property was owned by Excel Metal Processors.

Directors of Excel, Mohammed Iqbal Khan and Imran Khan provided a written declaration dated December 11, 2014 whereby Excel Metal Processors affirmed that they were the owners of the said warehouse. It was also stated in the letter that Respondent No.3 was given permission to conduct its business in the said warehouse on a no rental basis.

On December 8, 2016, the petitioners entered into a conducting agreement with Arisha Metal Precisions whereby the petitioners gave the said HR steel coils to Respondent No.3 for storing, handling and recoiling on job work basis.

Between December 2016 and January 2017, the petitioners delivered coils owned by them to Respondent No.3 for storing, processing and recoiling the same. Respondent No.3 acknowledged the receipt of those coils through a stock list/ letter dated January 9, 2017.

All these details were written on the said coils by Respondent No.3 by white paint. It is the case of the petitioners that on January 15, 2017, when they visited the said warehouse to take delivery of the said coils from Respondent No.3, they noticed that some of the coils, including the said coils of the petitioner, were marked as “SIPL” in yellow paint. (SIPL standing for Shakti International Pvt Ltd.)

At that point of time, the offices of Respondent No.1 and Respondent No.3 informed the petitioner about some arbitration proceedings pending between Respondent No.1 and Respondent No.2 and that the coils of the petitioners were identified amongst 5092.860 MT HR coils which were purportedly claimed by Respondent No.2 and have been attached/injuncted pursuant to an order dated December 27, 2016 passed by arbitrator Justice Dr. S. Radhakrishnan (Retd.).

The petitioner was provided with a copy of the impugned order dated December 27, 2016. Despite requests by the petitioner, the said coils were not returned by the respondents.

Submissions and Judgment

A court receiver was appointed and directed by the high court to submit a report after inspecting the said coils and examining all the documents relating to title etc. In his report, the court receiver concluded that 237 of the 255 coils in the said warehouse belonged to the 13 petitioners in the present proceeding.

Petitioner’s counsel Dr. Birendra Saraf submitted that if any orders are passed by the court exercising powers under Section 9 of the Arbitration Act affecting third party, such third party can always approach the court for vacating or modification of such order passed by the court.

Saraf argued that just because the arbitration proceedings were between Respondent No.1 and Respondent No.2, it does not mean petitioners shall remain remedyless. No restriction is thus imposed under Section 37 of the Arbitration Act for a third party who is affected by the impugned order passed under Section 17 of the Arbitration Act to file an appeal under Section 37 of the Arbitration Act, Saraf said.

Gautam Ankhad appeared on behalf of Shakti International and vehemently opposed the petitions on the issue of maintainability.

The court noted that it was an admitted fact as per all the documents on record as well as parties involved that the said coils belonged to the petitioners and that both Respondent No.1 and Respondent No.3 were sister concerns which tried to disguise a money lending transaction as sale.

“In my prima-facie view, since the transaction between the respondent no.2 and the respondent no.1 was money lending transaction which was camouflaged as sale transaction, the respondent no.2 could not claim any right, title or interest of any nature whatsoever in respect of such coils which belongs to the petitioners to the extent claimed by the petitioners,” the court said.

Thus, the court held that the petitioner’s interests were being prejudiced and they were entitled to an appeal, thereby, holding that appeal under Section 37 was maintainable. Justice Dhanuka allowed the petitions and set aside the order passed by the arbitrator:

“In my view, since the petitioners have demonstrated before this Court their right, title and interest in those coils, the respondent no.1 and the respondent no.3 have also admitted before the learned arbitrator and also before this Court that those coils belonged to the petitioners as well as Karamtara Engineering Private Limited respectively and in view of the fact that the respondent no.2 has also admitted that those coils have been allegedly removed / replaced by the respondent no.1 which were alleged to have been purchased by the respondent no.2, the impugned order passed by the learned arbitrator granting injunction against the respondent no.1 and the respondent no.3 from handing over possession thereof to any third party deserves to be set aside.”

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