2023 (11) TMI 1274 - HC - Indian Laws

Direction to deposit Rs. 6 crores in a separate interest-bearing account in the name of the Limited Liability Partnership (LLP) namely Concrete Developers LLP - HELD THAT - The arbitrator was of the view that there is a likelihood that the legal heirs of the claimant (the respondent no.1 herein) would remain embroiled in litigation and that the claimant is entitled to accounts and to share in the profits in the LLP in accordance with the LLP Agreement. The arbitrator also expressed concern of the claimant being left without a remedy in the event the right of the deceased partner in a running business is not protected considering the substantial profits made by the LLP after the demise of the deceased partner. Essar House Private Limited vs. Arcellor Mittal Nippon Steel India Limited 2022 (9) TMI 672 - SUPREME COURT actually helps the respondent no.1 since the Supreme Court reiterated the wide power conferred on the Court to pass orders securing the amount in dispute in arbitration and proceeded to hold that the Court exercising such power should not withhold relief if a strong prima facie case is made out and the balance of convenience is in favour of an interim order. The facts and circumstances which were presented before the learned arbitrator or were disclosed in fits and spurts by the appellant/surviving partners fully justify the impugned interim order dated 17.4.2023. There can be no jurisdictional objection to the impugned order as the Act of 1996 grants the arbitral tribunal plenary powers to pass such orders for preserving the dispute in the arbitration. The order also does not suffer from any factual or legal infirmity and is certainly not arbitrary or perverse. The Court is accordingly of the view that the impugned order does not call for any interference - Application dismissed.

Summary

Issues Involved:
1. Validity of the interim order passed by the arbitrator under Section 17(1) of the Arbitration and Conciliation Act, 1996.
2. Entitlement of the respondent to be inducted as a partner in the LLP.
3. Preservation of the value of the deceased partner's share in the LLP.
4. Applicability of Section 24(5) of the Limited Liability Partnership Act, 2008.
5. Scope of interference by the court under Section 37 of the Arbitration and Conciliation Act, 1996.

Issue-wise Detailed Analysis:

1. Validity of the interim order passed by the arbitrator under Section 17(1) of the Arbitration and Conciliation Act, 1996:
The appeal challenges an interim order by the arbitrator directing the appellant to deposit Rs. 6 crores in a separate interest-bearing account. The arbitrator found that the claimant and other legal heirs of the deceased partner, Pawan Kumar Churiwal, were entitled to accounts and a share in the profits of the LLP. The arbitrator directed the appellants to keep Rs. 6 crores apart in a separate account and maintain the accounts until the arbitration's disposal. The court upheld the arbitrator's decision, stating that the interim measure was necessary to preserve the value of the deceased partner's share until the arbitration culminates in an award.

2. Entitlement of the respondent to be inducted as a partner in the LLP:
The respondent sought induction into the LLP following the death of his father, Pawan Kumar Churiwal, who held a 33.40% share in the LLP. The other partners refused to induct the respondent, leading him to file a statement of claim for his induction and an application for interim relief. The court noted that the primary relief sought by the respondent was induction as a partner, not exit from the LLP. Therefore, the appellant's argument under Section 24(5) of the LLP Act, premised on the alleged negative balance in the deceased partner's share, was found to be misplaced and irrelevant.

3. Preservation of the value of the deceased partner's share in the LLP:
The arbitrator directed the appellants to set apart Rs. 6 crores in a separate interest-bearing account to preserve the value of the deceased partner's share. The court noted that the interim order aimed to protect the claimant's share from being frittered away by the other partners. The court emphasized that the interim measure was not prejudicial to the appellants, as the money would remain in the LLP's account, while the claimant would suffer irreparable injury if the money was not preserved.

4. Applicability of Section 24(5) of the Limited Liability Partnership Act, 2008:
The court clarified that Section 24(5) of the LLP Act, which deals with the cessation of partnership interest and the recovery of the outgoing partner's share, was not applicable in this case. The respondent was not seeking to exit the LLP but to continue in place of his deceased father. The court highlighted that the deceased partner had a right, title, and interest in the LLP's assets, and the value of his share at the time of his demise should be preserved.

5. Scope of interference by the court under Section 37 of the Arbitration and Conciliation Act, 1996:
The court emphasized that an appeal under Section 37 is not in the nature of a first appeal and is bound by the general bar on judicial intervention under Section 5 of the Arbitration and Conciliation Act. The court stated that it must be circumspect in interfering with interim orders passed by the arbitral tribunal, which are essentially discretionary. The court noted that the arbitrator's interim order was supported by reasons and evidence, and there was no jurisdictional objection to the order. The court concluded that the impugned order did not call for interference, as it was necessary to preserve the dispute in the arbitration and protect the claimant's share in the LLP.

Decision:
The court dismissed the appeal and upheld the interim order passed by the arbitrator, directing the appellants to set apart Rs. 6 crores in a separate interest-bearing account to preserve the value of the deceased partner's share in the LLP until the arbitration's conclusion. The court found no merit in the appellant's objections and emphasized the limited scope of interference under Section 37.