"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.

Tuesday, October 26, 2010

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

 In the previous posts (see here, here and here), we had dealt with the issue of the power of arbitrator to order Interim Measures against third parties under S 17 of the Arbitration and Conciliation Act, 1996 (Act). This post and the following ones would deal with the power of the court to order interim measures under S 9 of the Act.

The question as to whether a court has under S. 9 of the Arbitration and Conciliation Act, 1996 the power to pass an order against non-signatories to the arbitration agreement if such orders are in relation to arbitral proceedings before it has been answered both ways by the High Courts of India. In the absence of any binding decision of the Supreme Court of India (SCI) on this point, seeking orders under S 9 against third parties for whatever reasons is like walking on a tight-rope blindfolded. The court may decide on way or the other. 

The purpose of this endeavour is to point out reasons in support of the contention that courts have the power to pass orders under S 9 against third parties. We would start off by completing the chain of events that took place in the case of Cadre Estate Pvt. Ltd. v. Salochna Goyal W.P.(C) 2782/2010 and C.M. No. 5556/2010 (Stay). We had, in the previous posts on this topic, explained the scope of the power of an arbitrator under S 17 through the said decision of the Delhi High Court. We had also stated that we would be using the same case for explaining the scope of power of a court under S 9.

Before we start off with the facts in the said case, this blawgger would like to acknowledge that this series of posts was inspired by a guest post in the Lex Arbitri blog by Mr. Naravane on the issue that is the leitmotif of this post. There was a discussion in that blog on the subject (see the comments section in the post).

Since we had already addressed certain facts in the above mentioned case, we will repeat only some relevant ones for this post:

“30.09.2008:     An agreement to sell was executed between Saroj Kumar Bagaria (Bagaria) and Salochna Goyal (Goyal) by which Bagaria agreed to sell a property (Disputed Property) for consideration. Goyal alleged that she had paid Earnest Money Deposit in respect of the Disputed Property.

31.12.2008:     A Tripartite Agreement was entered into between CEPL, Saroj Kumar Bagaria (Bagaria) and the Punjab National Bank (PNB) by which CEPL purchased the Disputed Property.

Goyal alleged that Bagaria, CEPL and PNB had colluded and had wrongfully denied Goyal of the right to the said property. Dispute arose under the Agreement to Sell."

At this stage, Goyal filed a petition under S 9 of the Arbitration and Conciliation Act, 1996 (Act) for interim measures. Bagaria, PNB, CEPL, Standard Chartered Bank (SCB), and Punjab National Bank (PNB) were made respondents to the petition for interim relief to protect her rights under the Agreement to Sell.

31.03.2009:     The Delhi High Court, where the petition was filed, ordered: “The petitioner in this petition under Section 9 of the Arbitration and Conciliation Act, 1996 made respondents No.2, 3 and 4 as party to this petition who are not parties to the agreement to sell. It is submitted by counsel for the petitioner that the petitioner does not press these respondents No.2 [CEPL], 3 [SCB] and 4 [PNB] as parties to this petition and their names may be deleted from the array of parties. Accordingly, names of respondents No.2, 3 and 4 are hereby deleted from the array of parties.”

It appears that the Delhi High Court might have stated that persons who are not parties to the Agreement to Sell cannot be made parties to a petition under S 9. Hence, Goyal was probably forced to agree to delete Respondents 2-4 as parties to the petition under S 9.

Essentially what has happened here is a case where the High Court has not afforded Goyal the right to pursue the remedy of interim relief against Respondents 2-4 (assuming Goyal was entitled to it. See the previous post on this topic where the law pertaining to the right to interim injunction despite the doctrine of lis pendens becoming applicable is briefly discussed). Subsequently, she had obtained the said relief from the arbitrator even against Respondents 2-4, who were not parties to the Agreement to Sell even though the arbitrator had, as we have argued in our previous post on this topic, absolutely no jurisdiction to do so!

This is a typical case where the court should have exercised its jurisdiction correctly and passed interim measures against even Respondents 2-4, if Goyal could establish that she was entitled to it. What might happen in this case is this: CEPL, the petitioner in the writ petition, would approach the appropriate court under Section 37 of the Act and invalidate (rightly so) the interim order passed by the arbitrator against CEPL (and Respondents 3 and 4 too probably). Goyal would be left remediless! More on this in the next post.

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