2003 (9) TMI 534 - HC - Companies Law

Issues Involved:
1. Scope of Section 9 of the Arbitration and Conciliation Act, 1996.
2. Power of the court to issue interim orders, specifically the appointment of a receiver as an interim measure of protection pending arbitration proceedings.
3. Jurisdiction of the court to pass orders under Section 9 before the commencement of arbitration proceedings.
4. Discretionary nature and equitable character of interim orders under Section 9.
5. Conditions for appointing a receiver under Section 9(ii)(d) as an interim measure of protection.

Issue-wise Detailed Analysis:

1. Scope of Section 9 of the Arbitration and Conciliation Act, 1996:
The judgment delves into the scope of Section 9, which allows the court to issue interim measures of protection. Section 9 is based on Article 9 of the UNCITRAL Model Law. The court's powers under Section 9 are broader compared to the analogous provision under the Arbitration Act, 1940. Section 9 is an independent statutory power, and its invocation does not require the pendency of court proceedings. The court's power under Section 9 is not restricted by any agreement between the parties, unlike the arbitrator's power under Section 17, which can be limited by mutual agreement.

2. Power of the court to issue interim orders, specifically the appointment of a receiver as an interim measure of protection pending arbitration proceedings:
The court addressed the appellant's request for appointing a receiver for the firm 'Dahlia Tourist Home' due to alleged misappropriation of funds by the respondents. The appellant claimed that the firm's accounts were not accurately maintained and that significant funds were misappropriated. The respondents countered that the allegations were unproven and that the accounts were audited and supervised by excise officials. The District Court found no sufficient grounds to appoint a receiver and dismissed the application, emphasizing that interim orders under Section 9 are discretionary and should be issued judiciously and cautiously.

3. Jurisdiction of the court to pass orders under Section 9 before the commencement of arbitration proceedings:
The court confirmed that it has the jurisdiction to pass interim orders under Section 9 even before the commencement of arbitration proceedings, provided there is an arbitration agreement and notice under Section 21 has been received by the contesting party. This was supported by the Supreme Court's ruling in Sundaram Finance Ltd. v. NEPC India Ltd., which stated that interim orders could be passed before the arbitral proceedings commence to protect the interests of the parties.

4. Discretionary nature and equitable character of interim orders under Section 9:
The judgment elaborates that the power to issue interim orders under Section 9 is discretionary and equitable. The court must be satisfied that there is a prima facie case, and the application is bona fide. The balance of convenience and the potential for injury or destruction of property must also be considered. The court should exercise this power judiciously and cautiously, particularly when appointing a receiver, as it is a harsh remedy and should only be used in compelling circumstances to prevent manifest wrongs.

5. Conditions for appointing a receiver under Section 9(ii)(d) as an interim measure of protection:
The court emphasized that appointing a receiver is a stringent measure that should be taken only when necessary for the protection of the property involved in arbitration. The appellant must demonstrate that the appointment is essential for protecting the property. The court noted that the appellant's allegations of misappropriation were not substantiated with prima facie evidence, and there was no indication that the business would be destroyed if the current management continued. The court also considered the appellant's conduct, noting that he had objected to the renewal of the bar license, indicating a lack of genuine interest in protecting the business.

Conclusion:
The court concluded that:
(i) Section 9 can be invoked before the commencement of arbitration proceedings if there is an arbitration agreement and notice under Section 21 is received.
(ii) An order under Section 9 is appealable whether the petition is allowed or dismissed.
(iii) Interim orders under Section 9 are discretionary and equitable, requiring a prima facie case and bona fides.
(iv) The list of interim measures in Section 9(ii) is not exhaustive, and the court can grant other measures if just and convenient.
(v) Section 9 is a statutory power, independent of the arbitration agreement.
(vi) Appointment of a receiver under Section 9(ii)(d) can only be made as an interim measure of protection.
(vii) The appellate court will not interfere with the lower court's discretion unless it was not exercised judiciously.

The appeal was dismissed, and the court upheld the lower court's decision, finding no grounds to interfere with the order denying the appointment of a receiver. The arbitrators were instructed to proceed with the dispute resolution without being influenced by the observations in the judgment.

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