"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well."

-Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Saturday, October 23, 2010

Scope of Jurisdiction to Award Interim Measures Vis-à-vis Third Parties (Part III)

In two previous posts in this blog (which can be accessed from here and here), we had discussed the law relating to the power of an arbitrator to pass an order against a third party under Section 17 of the Arbitration and Conciliation Act, 1996. Taking the case of Cadre Estate Pvt. Ltd. v. Salochna Goyal W.P.(C) 2782/2010 and C.M. No. 5556/2010 (Stay) by way of an example, we proffered justifications for the absence of such a power with an arbitrator. In that case, it was argued by the Petitioner in the application for interim measures under S 17 that although the Second Respondent was not a party to the arbitration agreement, since the second respondent was a subsequent purchaser of the disputed property, it would be deemed to be a party to the arbitration. The arbitrator ordered the first respondent (who was a party to the Agreement to Sell), and the second respondent (which was not a party to the Agreement to Sell) not to deal with the disputed property till further orders. In this short post, we give one further justification in support of the contention that the arbitrator had no such power to issue injunction against the second respondent and state further that the arbitrator’s award might be erroneous on other counts as well.

Consensus is the foundation of an arbitrator’s jurisdiction. Such consensus is to be formed in the manner specified in S 7 of the Act (arbitration agreement). A third party to the arbitration does not give consent. This argument was dealt with in sufficient detail in the previous posts.

Another reason for the absence of such a power is because of the manner in which arbitration proceedings are conducted. Arbitration is generally a private affair. The participants are the parties to the dispute and the arbitral tribunal formed pursuant to an arbitration agreement between parties. If that is so, a third party cannot participate in the said proceedings. The privacy of arbitral proceedings has been recognized world over. So is the concept that joinder of third parties is not permitted in arbitration proceedings unless such third party consents to the arbitration proceedings.

The tribunal’s order in the said case is erroneous for another reason It has been recognized that a third party transferee is bound by a decree passed in a suit between the transferor and another party on an immovable property that has been transferred pendente lite. Section 52 of the Transfer of Property Act, 1882. It has also been recognized that in such a case, the third party transferee need not even be impleaded as a party to the said suit nor does such transferee have the right to be impleaded [S.N. Arora v. Brokers and Brokers Pvt. Ltd. MANU/DE/2314/2010 cites several Supreme Court judgements on this point]

Further, the plaintiff in such a suit might not even be entitled to an injunction, whether temporary or final, as S 52 of the Transfer of Property Act, 1882 sufficiently protects the interests of the plaintiff. [Kachhi Properties v. Ganpatrao, decided by a Single Judge bench of the Bombay High Court. Also see Sharad Jamnadharji Mor v. Arjun Yeshwant Dhanwatey & Anr., 2009 (4) Bom.C.R. 523, a decision by the same judge] Even so, there might be situations where S 52 might not afford adequate protection to the plaintiff [this is even recognized in Kachhi Properties v. Ganpatrao]. Only in such cases would the plaintiff be entitled to the relief of injunction. In this case, the arbitrator passed an order of interim injunction under S 17 restraining a third party from dealing with the property. In this regard, it is pertinent to note the following observations in Kachhi Properties v. Ganpatrao:

There can be no doubt that there could always be cases where rule of lis pendens may be inadequate to prevent the mischief and a temporary injunction to prevent such mischief would be warranted. This would imply that a person claiming injunction in such a situation would have to show that protection under Section 52 of the TP Act is not adequate. Merely because there is a power, its exercise could not be sought as a matter of course; or simply because its exercise is unlikely to hurt the defendant; for, while granting injunction the Court must see that plaintiff makes out a case of irreparable loss and it is not for the defendant to prove that he would suffer if an injunction is issued. After plaintiff proves irreparable loss comes the question of balance of convenience or rather balance of inconvenience, when the Court would enquire as to who would suffer greater inconvenience and decide whether injunction ought to be granted.”

[In the next post on this topic, we would be dealing with the power of a court under S 9 of the Arbitration and Conciliation Act, 1996 to issue interim orders against third parties.]

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