2020 (9) TMI 1322 - HC - Indian Laws

Scope of interference under Section 37 - direction by the Sole Arbitrator to DGG to furnish security equivalent to the sums involved - Section 17(1) and applicability of Order XXXIX CPC - Applicability of Order XXXVIII Rule 5 CPC to Section 9(1)(ii)(b) and Section 17(1)(ii)(b) of the 1996 Act - learned Sole Arbitrator has exceeded his jurisdiction by granting relief in excess of that sought by the respondents or not. HELD THAT - This Court while exercising appellate jurisdiction under Section 37 (2) of the 1996 Act over the interim order of the learned Sole Arbitrator is not expected or even required to delve deep into the facts of the case. Nor is it expected to substitute its own discretion for the discretion of the learned Sole Arbitrator. If the exercise of discretion by the learned Sole Arbitrator suffers from patent illegality or is otherwise unconscionable in law or on facts interference may be justified; never otherwise. Judicial intervention with arbitral proceedings has necessarily to be reduced to a bare minimum under the 1996 Act. Applying this salutary principle it is opined that were this Court to set aside or even modify the direction of the learned Sole Arbitrator to DGG to furnish security for the amount in dispute in the arbitration which clearly is within the province of the jurisdiction of the learned Sole Arbitrator conferred by Section 17(1)(ii)(b) it would do violence to the entire ethos of the 1996 Act and would militate against the avowed objective of the legislation itself. Any interlocutory order by the arbitrator under Section 17 to furnish security if preceded by adequate examination and appreciation of the facts and the rival stands of the parties should remain impervious to judicial interference. The Court is required to adopt a holistic and comprehensive view in such cases. Any attempt by the Court to vivisect microscopically the order of the arbitrator to find flaws would be entirely inappropriate. So long as the decision is informed by adequate application of mind it should be allowed to prevail especially as it is in the nature of an interlocutory direction and is always subject to the final award to be passed in the arbitral proceedings. This Court is in the present case essentially concerned with whether a case for interference with the impugned direction of the learned Sole Arbitrator has within the confines of Section 37 of the 1996 Act been made out or not and has for the reasons adduced hereinbefore answered the issue in the negative. Conclusion - i) The Arbitrator s direction to DGG to furnish security was within jurisdiction under Section 17(1)(ii)(b) and necessary to balance equities. ii) The Arbitrator did not exceed jurisdiction or grant relief beyond requests as the direction to secure the amount was justified to protect AGG s interests. iii) The principles of Order XXXVIII Rule 5 CPC inform but do not bind the Arbitrator s discretion under Section 17 allowing for a balanced approach. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the direction by the Sole Arbitrator to DGG to furnish security equivalent to the sums involved was justified and sustainable in law.
• Whether the Sole Arbitrator exceeded his jurisdiction by granting relief not explicitly sought by AGG in its applications under Section 17 of the Arbitration and Conciliation Act, 1996.
• Whether the principles of Order XXXVIII Rule 5 of the Code of Civil Procedure, 1908 (CPC) apply to the exercise of jurisdiction under Section 17 of the Arbitration and Conciliation Act, 1996.
• Whether the Court should interfere with the discretionary order of the Sole Arbitrator under Section 37 of the Arbitration and Conciliation Act, 1996.

2. ISSUE-WISE DETAILED ANALYSIS

Direction to Furnish Security:

• Relevant legal framework and precedents: The Arbitrator's power to direct furnishing of security is derived from Section 17(1)(ii)(b) of the Arbitration and Conciliation Act, 1996, which allows securing the amount in dispute in arbitration. The Court also considered principles from Order XXXVIII Rule 5 of the CPC.
• Court's interpretation and reasoning: The Court found that the Arbitrator acted within his jurisdiction in directing DGG to furnish security. The Arbitrator's decision was based on balancing competing claims and interests, considering the allegations of fraudulent misappropriation by DGG.
• Key evidence and findings: The Arbitrator noted that AGG alleged fraudulent appropriation of shares and funds by DGG, which DGG claimed were transferred as part of a family settlement. The Arbitrator chose to secure the disputed amount without granting the full relief sought by AGG.
• Application of law to facts: The Arbitrator applied Section 17(1)(ii)(b) to secure the amount in dispute, balancing the equities between AGG and DGG. The Court found no excess of jurisdiction or improper application of mind by the Arbitrator.
• Treatment of competing arguments: The Arbitrator rejected AGG's request for restitution and injunctions but directed security to protect AGG's interests if it ultimately succeeded. The Court upheld this balancing approach.
• Conclusions: The direction to furnish security was justified to balance the equities and protect AGG's interests without granting full relief. The Court upheld the Arbitrator's decision.

Jurisdiction and Relief Beyond Requests:

• Relevant legal framework and precedents: The Court considered the Arbitrator's jurisdiction under Section 17 and the ability to grant relief necessary to secure the interests of parties, even if not explicitly sought.
• Court's interpretation and reasoning: The Court found that the Arbitrator did not exceed his jurisdiction as the direction to furnish security was within the scope of Section 17(1)(ii)(b) and necessary to balance equities.
• Key evidence and findings: The Arbitrator considered the applications and counterclaims, balancing the need to protect AGG's potential recovery without granting full relief sought by AGG.
• Application of law to facts: The Arbitrator's decision to direct security was based on a holistic view of the applications and the need to secure AGG's potential claims.
• Treatment of competing arguments: The Court noted that the Arbitrator's decision was informed by a comprehensive analysis of the claims and counterclaims, rejecting the notion that relief was granted beyond requests.
• Conclusions: The Arbitrator acted within jurisdiction, and the direction to furnish security was appropriate to balance interests.

Applicability of Order XXXVIII Rule 5, CPC:

• Relevant legal framework and precedents: The Court examined whether the principles of Order XXXVIII Rule 5, CPC, apply to Section 17 of the Arbitration and Conciliation Act, 1996.
• Court's interpretation and reasoning: The Court noted that while principles of Order XXXVIII Rule 5 may guide the exercise of jurisdiction under Section 17, the Arbitrator is not strictly bound by them. The Arbitrator's discretion is informed by these principles but not confined to them.
• Key evidence and findings: The Arbitrator's decision to direct security was based on the need to secure AGG's potential claims, considering allegations of fraudulent appropriation by DGG.
• Application of law to facts: The Arbitrator's direction was consistent with the need to balance equities and protect potential claims, within the discretionary power under Section 17.
• Treatment of competing arguments: The Court found that the Arbitrator's decision was informed by the principles of Order XXXVIII Rule 5 but not bound by them, allowing for a balanced approach.
• Conclusions: The Arbitrator's direction was justified and within the scope of Section 17, informed by but not bound to Order XXXVIII Rule 5 principles.

3. SIGNIFICANT HOLDINGS

• The Arbitrator's direction to DGG to furnish security was within jurisdiction under Section 17(1)(ii)(b) and necessary to balance equities.
• The Arbitrator did not exceed jurisdiction or grant relief beyond requests, as the direction to secure the amount was justified to protect AGG's interests.
• The principles of Order XXXVIII Rule 5, CPC, inform but do not bind the Arbitrator's discretion under Section 17, allowing for a balanced approach.
• The Court upheld the Arbitrator's decision, emphasizing minimal judicial interference with arbitral proceedings under the 1996 Act.