LLP And Its Individual Partners Can't Raise Same Issue By Separate Appeals U/s 37 Of Arbitration Act: Calcutta High Court

Brief Facts:

The arbitration was initiated by Gaurav Churiwal (“Mr Gaurav”), one of the partners in Concrete Developers LLP (“LLP”), against the other partners (“Appellants”). One of the claims in the arbitration was for the induction of Mr Gaurav as a partner in the LLP. However, this request became infructuous because he was already made a partner before the final award. Another claim sought to invalidate the financial statements for 2019-2020 and 2020-2021, which were prepared without accounting for the shares of Mr Gaurav's deceased father. The Arbitrator passed an interim order under Section 17 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) and directed the Appellants to set aside ₹6,41,73,413 in a separate account until the final adjudication of the arbitration.

Feeling aggrieved, the Appellants filed two separate appeals under Section 37 before the Calcutta High Court (“High Court”) – one by the LLP and the other by the Appellants themselves. The LLP's appeal was dismissed on November 24, 2023. The Appellants argued that this dismissal did not preclude them from challenging the interim order, citing that the LLP and the individual partners (Appellants) were distinct entities. They also contended that the dismissal did not prevent them from raising all grounds in their challenge. The Appellants argued that the Arbitrator had erred by not considering the LLP's liabilities and by directing the setting aside of assets without full consideration of the Balance Sheet.

On the other hand, Mr Gaurav argued that Section 37 should be interpreted in light of Section 34 and that the interim order was justified given the risk of misappropriation of LLP assets by the Appellants. He asserted that the Arbitrator's decision should be upheld, as it was within the permissible scope of Section 37, and that the High Court should not replace the Arbitrator's view with its own.

Observations of the High Court:

Firstly, the High Court examined whether the parameters of Section 34 of the Arbitration Act apply to Section 37. Mr Gaurav argued that since Section 34 is the final challenge to an award, an interim challenge under Section 37 should not exceed the scope of the final challenge. However, the High Court rejected this argument. Reliance was placed on GLS Foils Products Pvt Ltd. v. FWS Turnit Logistic Park LLP, where it was held that the Court should be hesitant to interfere with well-reasoned interim measures granted by an arbitral tribunal, especially when the order is thorough and well-examined.

The High Court further held that challenges under Section 37 should not necessarily mirror those under Section 34. It pointed out that Section 37 is titled 'Appealable Orders' and uses a different terminology from Section 34, which is referred to as 'an application'. The High Court noted that Section 37 deals with a variety of orders and is not restricted by the same parameters as Section 34. Therefore, the challenge under Section 37 against an order under Section 17 would be governed by the limitations of Section 17, whereas an appeal under Section 37 against an order under Section 34 would follow the restrictions applicable to Section 34.

The High Court observed that while Section 37's parameters vary based on the specific provision under which the order was passed, a challenge under Section 37 is generally more limited than one under Section 34. The appellate court under Section 37 must be more circumspect and can only interfere in cases of palpable error or patent perversity.

The High Court also considered whether the dismissal of a previous appeal filed by the LLP barred further appeals by the Appellants (individual partners). It was noted that the LLP is a separate legal entity from its partners. Despite this, the High Court found that the Appellants were bound by the decision of the earlier appeal because they had been given an opportunity to be heard and had exercised the right to argue their case. The principle of res judicata applied, preventing the Appellants from reopening the same issues in a new appeal.

As a result, the High Court decided not to enter into the merits of the appeal, as the issues had already been conclusively decided in the previous appeal. Consequently, the High Court dismissed the appeal and ordered no costs.

Case Title: Gaurav Churiwal vs Concrete Developers LLP and Ors.

Case No.: EC/283/2023

Advocate for the Petitioner: Mr Ratnanko Banerji, Mr Kumarjit Banerjee, Ms Sanchari Chakraborty, Ms Tanishka Khandelwal

Advocate for the Respondent: Mr Sabyasachi Chaudhury, Mr Sayantan Bose, Mr Shaunak Mukhopadhyay and Ms Ankita Chaudhury

Date of Pronouncement: 19.07.2024

Click Here To Read/Download Order