Arbitral Tribunal Can't Pass Ex-Parte Ad-Interim Order; Arbitration Act Mandates Advance Notice : Bombay High Court

Justice GS Kulkarni observed that a combined reading of Sections 18,19 and 24 (2) of the Act requires all parties to be treated fairly at all stages. Also, the tribunal should give them adequate/ sufficient opportunity to present their case, including a chance to be heard at the time of ad-interim orders.

The court allowed Godrej Properties Ltd's application under Section 37 of the Act and set aside the tribunal's ex-parte ad-interim order in favour of Goldbricks Infrastructure Pvt. Ltd. By the order, the tribunal had restrained Godrej from creating third party rights in case of the disputed property, apart from various other reliefs.

The court observed that in the present case, the arbitral tribunal didn't even hear either party before passing the order, nor did it issue notice.

"It may be that the arbitral tribunal is of a firm opinion in the facts of a given case, that some urgent orders are required to be passed to protect the arbitral interest of the parties, however, fairness of the procedure and more particularly as reflected by the provisions, as discussed above, would not permit an arbitral tribunal to pass an ex-parte order on a section 17 application and more so when the parties are sufficiently before the arbitral tribunal," the court observed.

Facts of the Case

In January 2021 a sole arbitrator was appointed with the parties' consent. Applications under Section 17, praying for interim measures, were filed by both parties. On 8 September 2021 and thereafter on 12th September 2021, the Section 17 applications were reserved for orders.

In the meantime, on October 7, Goldbricks (respondent in the appeal proceedings) filed a second interim application under section 17 alleging that Godrej was trying to arbitrarily sell the balance inventories of Tower 'F', without sharing the Gross Sales Revenue with Goldbricks and that they were high-handedly threatening appropriation of Goldbricks shares towards the alleged pending D.M.Fees although the issue pertaining to Godrej's entitlement was pending adjudication.

The sole arbitrator passed an order in Goldbrick's favour, suo-motu, on October 8, restraining Godrej, without hearing either party.

Before the High Court

Godrej, represented by Senior Advocate Birendra Saraf approached the High Court in an appeal against this order. He claimed that since both the parties were already before the tribunal they should have been heard. Moreover, Goldbrick hadn't even prayed for an ex-parte ad-interim order and merely sought a date for hearing.

Saraf submitted that although an occasion arose for the Indian legislature to consider amending Section 17 for ad-interim reliefs, as has been adopted under the UNCITRAL Model Law, such an amendment was not brought in. He placed reliance on the procedure to be adopted by the tribunal in passing ex-parte or interim orders based on Vendhar Movies vs. S.Mukundchand Bothra.

Advocate Shyam Dewani for the respondents contended that the application under section 17 was necessary so that the order passed by the tribunal in the future is not rendered a paper award.

He submitted that looking at grievance as raised in the Section 17 application, the learned Arbitrator has recorded that he was "persuaded by the consideration that the facts set out in the application call for status quo being maintained till the application is heard."

Court's Observations

The High Court observed that section 18 of the Act requires the parties to be treated fairly. Section 19 of the Act allows parties to agree on a procedure to be followed by the tribunal, distinguishing it from the court. Moreover, section 24(2) mandates that all parties 'shall be' given sufficient advance notice of 'any hearing'.

The High Court held that the proviso which deals with the Court's power to pass ex-parte orders, cannot be applied to arbitral proceedings, in view of the clear provisions of sub-section (2) of Section 24 read with Section 18 of the Act.

"Thus, even if the arbitral tribunal is recognized to have the same power for making orders as that of the Court, for the purposes of and in relation to any proceedings before it, due meaning to the provisions of sub-section (2) of Section 24 read with Section 18 would be required to be given when it prescribes that a party shall be given sufficient advance notice of any hearing and further qualified with an obligation of the tribunal to treat all the parties equally and that each party shall be given a full opportunity to present its case, which is required to be recognized to be applicable at all stages of the proceedings before the arbitral tribunal."

The court further said that the application did not reflect any glaring circumstances for passing the ex-parte order and at the most, the court could have listed the matter for an urgent hearing.

"Even assuming that there was jurisdiction to pass an ex parte ad-interim order (when in there is none), such order was certainly not warranted considering the nature of the Section 17 application as filed…Moreover, the nature of the reliefs as prayed for as also granted by the impugned order, show that these are drastic reliefs which necessarily ought to have been granted after hearing the parties."

Case Title: Godrej Properties Ltd  V/s. Goldbricks Infrastructure Pvt. Ltd.

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