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2021 (4) TMI 1324 - HC - Indian LawsSeeking interim protection pending arbitration to restrain the 1st Respondent, IL FS Financial Services Ltd. (IFIN) from acting on its Event of Default (EoD) notice of 23rd July 2019 - seeking temporary injunction restraining IFIN from acting in furtherance of a pledge invocation notice - Sections 241 and 242 of the Companies Act 1956 - HELD THAT - The NCLAT has absolutely no jurisdiction over this Court, even on its Original Side, given that this is a Chartered High Court. The High Court is in no way subject to the NCLAT's jurisdiction or superintendence. I do not see how the words 'court of law' can be 'read down', because other than the NCLT, there is no other judicial authority over which the NCLAT exercises such superintending power. But if we leave that aside and focus on the words 'arbitration panel and arbitration authority', and even assuming for a moment that the NCLAT has the power to stay arbitrations, it certainly does not have the authority to stay the hands of this Court in hearing a petition under Section 9 or any other petition that properly comes before this Court under the Arbitration and Conciliation Act 1996. Indeed, I do not even see how the NCLAT has such control over arbitral tribunals. The NCLAT can make no order under Section 9, Section 11, Section 34, Section 37 or any of the other provisions of the Arbitration and Conciliation Act 1996. Notably, Section 9 of the Arbitration Act--and indeed no provision of that Act--is made subject to the provisions of the Companies Act 2013. This in itself is a telling circumstance. It is enough for the present order to hold that the NCLAT order cannot and does not come in the way of this Court making an appropriate order under Section 9 of the Arbitration and Conciliation Act 1996. When and how that arbitration is to be commenced is another matter, one with which I am not presently concerned. Everything in the Arbitration Act is founded on a contract; and this necessarily means that to claim an equitable and discretionary relief, a Section 9 petition is not to be handled like a regular civil suit invoking a non-contractual civil remedy. The Respondent must be shown to be in wrongful conduct. Its actions must be shown to ones in violation of the contract. A respondent seeking to enforce its contractual rights will suffer no injunction unless it is shown that the Respondent itself is in breach or has acted contrary to the contract. Once a breach by the Petitioner is not only demonstrated but is accepted, equity will not operate in its favour. Conversely, where there is a demonstration of a breach by the Respondent, the Petitioner may be entitled to seek an equitable relief in the court's discretion. Petition dismissed.
Issues Involved:
1. Maintainability of the Petition under Section 9 of the Arbitration and Conciliation Act, 1996. 2. Legitimacy of the Event of Default (EoD) notice and the invocation of the pledge. 3. Jurisdiction and authority of the NCLAT order in relation to the proceedings. 4. Entitlement to interim relief under Section 9 of the Arbitration and Conciliation Act, 1996. 5. Costs and consequences of the dismissal of the Petition. Detailed Analysis: 1. Maintainability of the Petition under Section 9 of the Arbitration and Conciliation Act, 1996: The Petition sought interim protection pending arbitration to restrain the Respondent from acting on its EoD notice and pledge invocation. The Respondent argued that the Petition was not maintainable due to an NCLAT order staying proceedings against IL & FS and its group companies. The Court rejected this objection, holding that the NCLAT order could not impede the Court’s jurisdiction under Section 9 of the Arbitration and Conciliation Act, 1996. The Court emphasized that the NCLAT has no jurisdiction over the High Court, especially in matters under the Arbitration Act, which is not subject to the Companies Act. 2. Legitimacy of the Event of Default (EoD) notice and the invocation of the pledge: The EoD notice issued by the Respondent cited several defaults, including non-payment of overdue amounts, failure to obtain approval for a merger, and non-registration of the hypothecation charge. The Court noted that the Petitioner admitted to some of these defaults, such as the failure to create the pledge of shares. The Court found no merit in the argument that the provision for penal interest was in the nature of liquidated damages, indicating that the defaults were legitimate and the Respondent was within its rights to issue the EoD notice and invoke the pledge. 3. Jurisdiction and authority of the NCLAT order in relation to the proceedings: The Court scrutinized the NCLAT order, which stayed proceedings against IL & FS and its group companies. The Petitioner argued that the NCLAT lacked the authority to issue such a broad order affecting other courts. The Court agreed, stating that the NCLAT has no jurisdiction over the High Court or arbitral tribunals in matters under the Arbitration Act. The Court emphasized the principle from the Supreme Court’s decision in Cotton Corporation of India Ltd. v. United Industrial Bank Ltd., which underscores that access to justice should not be impeded by judicial actions. 4. Entitlement to interim relief under Section 9 of the Arbitration and Conciliation Act, 1996: The Court evaluated whether the Petitioner was entitled to interim relief. The Petitioner sought to restrain the Respondent from enforcing its contractual rights, despite admitted defaults. The Court held that Section 9 is not meant to aid parties in breach of their contracts. The Petitioner’s defaults were evident, and the Court found no justification to grant interim relief. The Court highlighted that equitable relief under Section 9 requires the Petitioner to demonstrate that the Respondent’s actions were wrongful and in violation of the contract, which was not the case here. 5. Costs and consequences of the dismissal of the Petition: The Court dismissed the Petition and imposed costs on the Petitioner. The Court ordered the Petitioner to pay Rs. 7.5 lakhs to the Respondent within two weeks, with interest accruing at 9% per annum if not paid on time. The Court emphasized that costs follow the event as mandated by Section 35 of the Code of Civil Procedure, 1908, as amended by the Commercial Courts Act, 2015. Conclusion: The Petition was dismissed on the grounds that the NCLAT order did not bar the Court’s jurisdiction under Section 9 of the Arbitration Act, the Petitioner’s defaults were legitimate, and there was no basis for granting interim relief. The Petitioner was ordered to pay costs to the Respondent.
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