Commercial Courts Empowered To Hear Commercial Original Petition Arising From Section 37 Of Arbitration Act: Telangana High Court

Brief Facts:

The matter pertained to a Civil Revision Petition which arose from an order passed by Special Judge for Trial and Disposal of Commercial Disputes, Ranga Reddy District. This petition was filed by Narayana Educational Institutions (Petitioner) under Section 37(2)(b) of The Arbitration and Conciliation Act, 1996. The Petitioner's Commercial Original Petition (C.O.P.) was directed against an earlier order issued by the Respondent No.2, the Telangana Regional Micro and Small Enterprises Facilitation Council (Council), under Section 18(3) of The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act). In this order, the Council dismissed the Petitioner's Interlocutory Application which was filed under Section 17(1) of the Arbitration Act. Following this rejection, the Petitioner challenged the Council's decision before the Commercial Court through C.O.P.No.18 of 2024. The proceedings before the Commercial Court resulted in the order which was challenged in the High Court by the Petitioner.

The issue before the High Court was whether the Commercial Court was competent to entertain the C.O.P. under section 37(2)(b) of the Arbitration Act. During the proceedings, the Petitioner initially sought to withdraw petition arguing that it was incorrectly advised to file an appeal under section 37 of the Arbitration Act before the Commercial Court. This was because, according to the Petitioner, the application under section 17(1) of the Arbitration Act was not maintainable. However, this withdrawal request was strongly contested by the Senior Counsel representing Respondent No.1.

The Petitioner, acting as the 'Buyer' as defined under section 2(d) of the MSMED Act, opposed a reference made by Respondent No.1 (the seller) to the Council concerning the amount allegedly owed to the seller. This reference under section 18(1) of the MSMED Act advanced to the arbitration stage under section 18(3) of the Act. During these proceedings, the Petitioner filed an Interlocutory Application before the Council and sought a reframing of the issues in the arbitration and the introduction of further evidence. This application was made under section 17(1) of the Arbitration Act. However, the Council dismissed this application and held that the Petitioner, who was the respondent before the Council, was afforded ample opportunity to present final submissions but had failed to do so.

Subsequently, the Petitioner filed Commercial Original Petition (C.O.P.) before the Commercial Court under section 37(2)(b) of the Arbitration Act seeking to set aside the Council's order. The Council was named as Respondent No.2 in the petition. The Petitioner's primary argument was that the C.O.P. was not maintainable because the Petitioner's application before the Council could not be considered an application under section 17(1) of the Arbitration Act. Therefore, the Petitioner contended that the Commercial Court lacked the inherent jurisdiction to entertain the C.O.P. filed under section 37(2) of the Arbitration Act.

Observations by the High Court:

The High Court held that the Commercial Court was the appropriate forum with the competence to entertain the C.O.P./Appeal under section 37 of the Arbitration Act. The Commercial Court at Ranga Reddy District, being constituted under section 3 of The Commercial Courts Act, 2015, was vested with jurisdiction under section 6 of the same Act. The High Court held that there was no dispute regarding the Commercial Court's competence in terms of specified value, territorial jurisdiction, and the nature of the dispute, which was a commercial dispute. The High Court also dismissed the argument that the Commercial Court lacked inherent jurisdiction to entertain the C.O.P. and held that the issue of maintainability is distinct from the ability to entertain an application.

The High Court further elaborated on the power conferred upon it under Article 227 of the Constitution of India which allows for superintendence over District Courts and Tribunals within its jurisdiction. The High Court explained that while its powers are plenary, they are not without limits. It held that the High Court should exercise its jurisdiction cautiously, within the recognized limits, and avoid re-evaluating evidence as an appellate court might. The High Court noted that it is not vested with an unlimited prerogative to correct wrong decisions made by subordinate courts. Interference should be limited to cases of serious dereliction of duty and violation of fundamental legal and justice principles.

The High Court noted the need for caution when dealing with jurisdictional courts and tribunals especially when the conduct of the revision petitioner was questionable. The Petitioner invoked the jurisdiction of the Commercial Court by filing two C.O.Ps. under section 34 of the Arbitration seeking to set aside the interim award passed by the Council. Given that the Petitioner actively participated in the proceedings before the Commercial Court, the High Court held that it could not now claim that the Court lacked jurisdiction.

The High Court criticized the Petitioner's conduct as manipulative and an abuse of the legal process. The Petitioner, having invoked the Commercial Court's jurisdiction and invited it to decide, now sought to challenge the Court's jurisdiction to pass the impugned order. The High Court described this conduct as reckless and self-serving referring the legal principle that "no man can take advantage of his own wrong."

Regarding the Petitioner's interlocutory application under section 17 of the Arbitration Act, the High Court clarified that whether the application was misconceived was a matter of statutory interpretation. The High Court pointed out that section 17(1) of the Arbitration Act provides for interim measures by the Arbitral Tribunal to preserve the subject matter of the arbitration. Section 37(2)(b) allows an appeal from an order of the Arbitral Tribunal granting or refusing to grant an interim measure. Hence, the High Court held that the order appealed from under section 37(2)(b) presupposed the Arbitral Tribunal's order to be within the contours of section 17(1).

The High Court held that the Commercial Court was statutorily vested with the power to entertain the C.O.P., and therefore, the C.O.P. was maintainable before the said Court. The decision of the Commercial Court was neither without jurisdiction nor in excess of it. Accordingly, the High Court dismissed the Civil Revision Petition as not maintainable.

Case Title: Narayana Educational Institutions v. Mrs Paruchuri Janaki and Anr.

Case Number: Civil Revision Petition No. 2243 of 2024

For Appellant(s): Mr. J.Prabhakar, learned Senior Counsel representing Mr. A.Nagaraj Kumar, learned counsel for the petitioner.

For Respondent(s): Mr. A.Venkatesh, learned Senior Counsel representing Mr. Sinde Mohan Devidhas, learned counsel for the respondent No.1.

Date of Judgment: 14 Aug 2024

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