9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (3) TMI 2002 - HC - Indian LawsRestraint on petitioners and its affiliates from transferring, alienating, encumbrance or disposing off any of its assets without specific permission/leave of the arbitral tribunal - HELD THAT - The arbitral tribunal after considering the material on record rendered a prima facie finding that the respondent No. 1 had made out a prima facie case and was likely to succeed and would not be in a position to realise the said outstanding amount if they were permitted to transfer their assets. The arbitral tribunal also rendered a prima facie finding that the Reliance Group was now trying to transfer the assets. The submission of the learned senior counsel for the Reliance Group that neither there was any pleadings in the application filed by the respondent No. 1 under Section 17 of the Act to this effect nor was any prima facie finding rendered by the arbitral tribunal that the Reliance Group was trying to transfer the assets with the intention to defeat the decree, if any, passed in favour of the respondent No. 1, cannot be accepted. The arbitral tribunal was not exercising jurisdiction to bring an unsecured creditor into the list of secured creditors and its affiliates as also not to delete and adversely impact rights of the secured creditors particularly when it was an admitted case that the proceedings before the Insolvency and Bankruptcy Board under the Court were stated to be pending. The arbitral tribunal has also clarified in paragraph 37 of the impugned order that the said interim order was without prejudice to any order that may be passed by the Board/Courts of competent jurisdiction. The arbitral tribunal has also taken a cognizance of the admitted fact that the proceedings under the Insolvency and Bankruptcy Code has been initiated against the Reliance Group, however the said application is yet to be admitted by the National Company Law Tribunal. The arbitral tribunal ultimately held that the respondent No. 1 has made out an arguable case and thus the arbitral tribunal was of the opinion that in the event, the respondent No. 1 is denied any relief, it would be an irretrievable injury to the respondent No. 1. The balance of convenience is also in favour of the respondent No. 1 and not in favour of the Reliance Group. Merely on the basis of such presumption that though such unsecured creditor succeeds, such unsecured creditor will not be able to recover any amount, no relief of interim measures can be refused to such unsecured creditor. That is not the legislative purpose and intent of Order XXXVIII Rule 5 of CPC. If such an argument as advanced by the learned senior counsel for the petitioners is accepted, no unsecured creditor will be entitled to even file any proceedings for recovery of its legitimate dues and pray for interim measures by way of injunction or otherwise against such debtors to secure its claims. Such debtors cannot be allowed to deal with its properties with such intention of depriving the unsecured creditors of the fruits of success in the arbitral proceedings. Supreme Court in the case of Raman Tech Process Engg. Co. Anr. v. Solanki Traders 2007 (11) TMI 611 - SUPREME COURT has held that where the defendant is removing or disposing his assets, an attachment before judgment will not be issued, if the plaintiff is not able to satisfy that he has a prima facie case. It is held that the plaintiff has to show prima facie case that his claim is bonafide and valid and also satisfy the court that the defendant is about to remove or dispose of the whole or part of his property, with the intention of obstructing or delaying the execution of any decree that may be passed against him, before power is exercised under Order XXXVIII Rule 5 CPC. In this case, the respondent No. 1 has satisfied all these criteria laid down by the Supreme Court in the said judgment. The Reliance Group admitted the substantial part of the claim of the respondent No. 1 and has boldly urged before this Court that even if the respondent No. 1 succeeds, the said party would not be able to recover any amount from the Reliance Group. In my view, this type of stand taken by the Reliance Group has to be rejected at the threshold. The arbitral tribunal in this case, has rightly rendered a prima facie finding that the respondent No. 1 has made out a case that it would succeed finally in the arbitral proceedings and the balance of convenience was in favour of the respondent No. 1 - the arbitral tribunal has considered all the relevant facts and principles of law and have rightly granted interim measures in favour of the respondent No. 1. The arbitral tribunal has granted such interim measures restraining the Reliance Group from transferring, alienating, encumbrance or disposing off any of its assets without prior permission/leave of the arbitral tribunal. The commercial arbitration petitions are dismissed.
Issues Involved:
1. Validity of the arbitral tribunal's interim order under Section 17 of the Arbitration and Conciliation Act, 1996. 2. Applicability of Order XXXVIII Rule 5 of the Code of Civil Procedure, 1908 (CPC). 3. Rights of unsecured creditors in seeking interim measures. 4. Balance of convenience and irretrievable injury considerations. 5. Impact of financial restructuring and insolvency proceedings on interim measures. Issue-wise Detailed Analysis: 1. Validity of the arbitral tribunal's interim order under Section 17 of the Arbitration and Conciliation Act, 1996: The petitioners challenged the arbitral tribunal's order dated 5th March 2018, which restrained them from transferring, alienating, encumbering, or disposing of any assets without the tribunal’s permission. The tribunal clarified that the order was interim and without prejudice to any future orders by competent courts. The petitioners argued that the tribunal's order was unjustified, but the court upheld the tribunal's decision, noting that the tribunal had considered the correspondence and found that the petitioners had failed to honor their payment commitments, thus justifying the interim measures. 2. Applicability of Order XXXVIII Rule 5 of the Code of Civil Procedure, 1908 (CPC): The petitioners contended that the principles of Order XXXVIII Rule 5 CPC, which allows for attachment before judgment, were not met. They argued that there was no intention to defeat any decree by transferring assets. However, the court found that the arbitral tribunal had correctly applied these principles, noting that the petitioners' financial distress and their attempts to transfer assets justified the interim order to prevent any potential defeat of the respondent’s claims. 3. Rights of unsecured creditors in seeking interim measures: The petitioners argued that as unsecured creditors, the respondent could not seek to prevent the sale of assets already encumbered by secured creditors. The court rejected this argument, stating that unsecured creditors have the right to seek interim measures to protect their claims, especially when there is a prima facie case of potential asset transfer to defeat future decrees. The court emphasized that the respondent had made out a prima facie case and was likely to succeed in the arbitration. 4. Balance of convenience and irretrievable injury considerations: The court upheld the tribunal's finding that the balance of convenience favored the respondent. The tribunal had noted that the respondent would suffer irretrievable injury if the petitioners were allowed to transfer assets, potentially rendering any future award ineffectual. The court agreed that the interim order was necessary to prevent such harm and ensure the respondent's ability to recover its dues if it succeeded in the arbitration. 5. Impact of financial restructuring and insolvency proceedings on interim measures: The petitioners argued that the sale of assets was part of a financial restructuring plan approved by the Joint Lender Forum (JLF) and that the respondent, as an unsecured creditor, could not interfere. The court found that while the restructuring was acknowledged, it did not negate the respondent's right to seek interim protection. The tribunal had clarified that the interim order did not alter the financial status of the parties or impact the secured creditors' rights. The court concluded that the tribunal's order was well-reasoned and necessary to protect the respondent's interests without prejudicing the secured creditors. Conclusion: The court dismissed the petitions, affirming the arbitral tribunal's interim order. It held that the tribunal had correctly applied legal principles, considered the balance of convenience, and provided necessary protection to the respondent without unjustly affecting the petitioners' restructuring efforts. The court emphasized that unsecured creditors are entitled to seek interim measures to safeguard their claims, especially when there is a risk of asset transfer to defeat potential decrees.
|
