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2022 (5) TMI 1671 - HC - Indian LawsDeclination to allow an application seeking interim measures of protection under section 17 of the A C Act - principal ground for seeking to secure the amount in dispute in the counter-claims was the alleged ruinous financial position of the claimant who is the respondent in the present appeal - HELD THAT - In the present case quite clearly the learned Sole Arbitrator has declined to grant the interlocutory order sought by the appellants in exercise of his discretionary power under section 17 of the A C Act. Has this discretionary power been exercised in a manner that is palpably arbitrary capricious irrational or perverse? In the opinion of this court the answer to that question is an emphatic No . The interlocutory relief sought was to secure the counter-claims made by the appellants which counter-claims are evidently disputed and the determination of which is yet to be made. In fact the learned Sole Arbitrator was in the process of hearing the appellants on their counter-claims. Interlocutory orders were sought on the ground that the respondent s financial position was weak and would render any award granted on the counter-claims a mere paper-award . This ground was premised solely on the fact that the respondent s net-worth was in the negative . However the learned Sole Arbitrator proceeded objectively on the basis that the negative net-worth had reduced over the period March 2017 to March 2021 partly for the reason that the respondent had discharged the dues owed by DMT i.e. the unit purchased from the appellants to third party creditors. In any case grant of the interlocutory relief sought would have amounted to converting the indeterminate and unsecured counter-claims preferred by the appellants into secure claims which is ordinarily frowned upon in law. Conclusion - Viewed from the settled perspective of guarded and sparing use of the powers under section 37(2)(b) of the A C Act in only exceptional circumstances; and even more so when the exercise of discretion by the arbitrator is not seen to be arbitrary capricious irrational or perverse this court finds no reason to interfere in the order made by the learned Sole Arbitrator in this case. The appeal under section 37(b) of the A C Act is accordingly dismissed as being without merit.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment include:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Interim Measures under Section 17 of the A & C Act Relevant legal framework and precedents: Section 17 of the A & C Act allows an arbitrator to order interim measures of protection. The principles governing such orders are informed by Order XXXVIII Rule 5 of the Civil Procedure Code 1908, as elucidated in Raman Tech. & Process Engg. Co. vs. Solanki Traders. Court's interpretation and reasoning: The Court noted that the learned Sole Arbitrator declined relief under section 17, reasoning that the counter-claims were speculative, undetermined, and disputed. The Arbitrator considered that the financial condition of the respondent alone could not justify securing the counter-claims. Key evidence and findings: The Arbitrator found that the respondent's financial liabilities had decreased over the years, and there was no evidence of the respondent attempting to dispose of assets to defeat a potential award. Application of law to facts: The Arbitrator applied the principles from Raman Tech. & Process Engg. Co., emphasizing that interim measures should not convert an unsecured debt into a secured one without clear justification. Treatment of competing arguments: The appellants argued for security based on the respondent's financial distress, while the respondent contended that the appellants' claims were speculative and that the financial difficulties were due to the COVID-19 pandemic. Conclusions: The Arbitrator concluded that there was no basis to grant interim measures under section 17, as the appellants' counter-claims were not yet determined, and the respondent's financial situation did not warrant such measures. Issue 2: Judicial Interference under Section 37(2)(b) of the A & C Act Relevant legal framework and precedents: Section 37(2)(b) of the A & C Act limits judicial intervention in arbitral proceedings, emphasizing a circumspect approach as highlighted in Dinesh Gupta & Ors. vs. Anand Gupta & Ors. Court's interpretation and reasoning: The Court emphasized that judicial interference is limited to cases where the arbitrator's decision is arbitrary, capricious, irrational, or perverse. Key evidence and findings: The Court found that the Arbitrator's decision was discretionary and not arbitrary, as it was based on a thorough assessment of the facts and applicable legal principles. Application of law to facts: The Court applied the principle that discretionary decisions by an arbitrator should be respected unless they are palpably arbitrary or capricious. Treatment of competing arguments: The appellants sought to challenge the Arbitrator's decision as irrational, while the respondent argued for upholding the Arbitrator's discretion. Conclusions: The Court concluded that the Arbitrator's decision was not arbitrary or capricious and therefore did not warrant interference under section 37(2)(b). 3. SIGNIFICANT HOLDINGS Preserve verbatim quotes of crucial legal reasoning: "The power under Order 38 Rule 5 CPC is a drastic and extraordinary power. Such power should not be exercised mechanically or merely for the asking. It should be used sparingly and strictly in accordance with the Rule." Core principles established:
Final determinations on each issue:
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