India – Statement Of Claim Not Sine Qua Non To Filing An Application Under Section 17.

Post the 2015 Amendment, the powers of the Arbitral Tribunal under Section 17 of the Arbitration and Conciliation Act, 1996 (“Act”), are at par with and akin to the powers of the Court under Section 9 of the Act. Whilst the non-filing of the Statement of Claim did not serve as an impediment to the Courts granting interim reliefs under Section 9, the question on whether an Arbitral Tribunal is empowered to grant interim reliefs under Section 17 in the absence of a Statement of Claim remained unclear.

The Hon’ble Delhi High Court has in the matter of Sanjay Arora and Anr. v/s. Rajan Chadha & Ors. (2021 SCC Online Del 4619), put the above controversy to rest and opined that an Application for interim reliefs preferred under Section 17 of the Act need not mandatorily be preceded by filing of the Statement of Claim. Interestingly, the view taken by the Delhi High Court deviates from the one taken by the Hon’ble Bombay High Court in as much as the latter has held that filing of the Statement of Claim is sine qua non to preferring an Application under Section 17.

Facts

The dispute pertains to a Memorandum of Understanding (“MoU”) dated December 21, 2019, executed between M/s. RBT Pvt. Ltd. (“RBT”) and its shareholders and directors viz. Mr. Sanjay Arora (“Appellant”), Rajan Chadha, Rajiv Chadha (“Chadhas”) Sumit Gupta and Shilpa Gupta (“Guptas”).

Briefly, RBT had availed a loan from South Indian Bank (“Bank”) against which a property belonging to Rajan Chadha and his wife stood mortgaged. The Chadhas and Guptas had expressed their disinclination to continue in and contribute to the funds of RBT and desired to exit the company. The MoU spelled out the modalities of such exit of the Chadhas and Guptas from RBT, post which the entire management and control of RBT would vest with the Appellant. In terms of the MoU, the Appellant had agreed to transfer shares of the Chadhas and Guptas to himself, subject to fulfilment of certain obligations envisaged by the MoU. The present dispute relates to fulfilment of these obligations.

Alleging default by the Chadhas and Guptas of their obligations under the MoU, the Appellant invoked arbitration and arbitral proceedings commenced before the Ld. Sole Arbitrator Mr. D. K. Saini before whom, the Appellant had filed an Application under Section 17 of the Act.

During the pendency of the above arbitral proceedings, the Chadhas moved an application under Section 9 wherein they inter alia sought a direction to the Appellant to forthwith pay the loan liability of RBT and release the collateral security provided by Chadhas to the Bank. During the hearing of the above application, the parties agreed to appoint another Arbitrator who could conduct the arbitral proceedings de novo.

Consequently, Justice Indermeet Kaur (Retd.) was appointed as the sole arbitrator to adjudicate the dispute between the parties and the Section 9 petition was disposed off.

A request was made by the Chadhas to the Arbitral Tribunal to treat the Section 9 petition as an application under Section 17 of the Act and to adjudicate upon the reliefs in the said application. To which, the Appellant raised a two-fold objection, namely, the Arbitral Tribunal could not have converted the Section 9 petition to a Section 17 application and that no Statement of Claim had till then been filed by the Chadhas, as a result whereof, no prayer for interlocutory relief under Section 17 was maintainable.

The Ld. Sole Arbitrator rejected the arguments put forth by the Appellant and inter alia held that such application is wholly maintainable. This order of the Arbitral Tribunal was impugned before the Hon’ble Delhi High Court by the Appellant by way of a petition under Section 37 of the Act.

Reasoning

The Hon’ble Court has placed reliance upon the judgement of Wander Ltd. v Antox India P Ltd. (1990 Sipp SCC 727) of the Hon’ble Apex Court and reiterated that the scope of interference in an appeal preferred under Section 37 of the Act is extremely limited. When the question involved is in a matter relating to the subjective satisfaction of the Arbitral Tribunal, then the court ought not to substitute its subjective satisfaction for that of the Arbitral Tribunal.

While rejecting the twin objections raised by the Appellant, the Hon’ble Court observed that there is no provision in the Act, which prohibits the Ld. Arbitral Tribunal from treating a petition under Section 9 as an application under Section 17 of the Act and that the Statement of Claim is not a prerequisite to filing an application under Section 17.

The Hon’ble Court has drawn a distinction between ordinary civil law where an application for interlocutory relief lies only in substantive proceedings, claiming main relief and the arbitral protocol, which is peculiar in its dispensation in as much as it envisages grant of interim protection under Section 9, prior to the institution of arbitral proceedings, which in certain circumstances can be invoked even before the notice of arbitration is issued under Section 21. This is premised on the proposition that while considering a prayer for grant of interim relief either under Section 9 or Section 17 of the Act, apart from the trinity test of a prima facie case, balance of convenience and irreparable loss, the Court or Tribunal is also required to preserve the sanctity of the arbitral process. Consequently, all efforts to foster and promote the arbitral process and prevent its interception or interdiction must therefore be made.

The Hon’ble Court has observed that a wide amplitude of powers are available to the Court under Section 9 and to the Arbitral Tribunal under Section 17 to grant interim protection where a possibility of the arbitral proceedings being frustrated is found, irrespective of whether such frustration is found to exist before, during or after the arbitral proceedings. As a result whereof, if a situation presents itself,  where such  grant of interim protection is necessary to prevent the arbitral proceedings from being frustrated, then the Court under Section 9 and the Arbitral Tribunal under Section 17 are empowered to grant such protection, even in the absence of the Statement of Claim.

The rationale of the Hon’ble Court while arriving at the above conclusion is based on a conjoint reading of the provisions of Section 21 and Section 17 of the Act, which in view of the Hon’ble Court warrants grant of relief under Section 17 at any point of time.

Pertinently, after the 2015 amendment, the phrase “during the arbitral proceedings” was incorporated  in Section 17. Section 21 of the Act stipulates that arbitral proceedings deem to commence on the date when a notice, requesting for reference of the dispute to arbitration is issued by one party to another, thereby implying that arbitral proceedings commence even before the Arbitral Tribunal is constituted as the notice invoking arbitration would necessarily be prior in point of time.

On perusing the above referred provisions in unison, the Hon’ble Court observed that they empower the Arbitral Tribunal to pass orders in terms of Section 17 at any point of time and that post the 2015 amendment, filing of the Statement of Claim, prior to moving the Arbitral Tribunal under Section 17, can no longer be regarded as a mandatory requirement.

Concluding Remarks

The 2015 amendment to the Act has ensured that the powers of the Arbitral Tribunal under Section 17 are aligned and co-equal with the powers of the court under Section 9 of the Act. The Hon’ble Court has primarily taken cognisance of the above parity whilst arriving at the conclusion that akin to the proceedings under Section 9, wherein there is no requirement of filing substantive pleadings for the Court to consider grant of interim reliefs, the Arbitral Tribunal is also empowered to grant interim reliefs under Section 17 to an aggrieved party, in the absence of the Statement of Claim.

This decision takes a progressive step to renew the faith of parties in arbitral process. The pro-arbitration stance adopted by the Hon’ble Delhi High Court will certainly initiate a paradigm shift towards minimising judicial intervention and speeding up grant of interim measures in arbitral proceedings. It remains to be seen whether a similar approach will be adopted by Courts across the country, and when.