INTRODUCTION
Adjudging the arbitrability of a party based on the arbitration agreement is a scenario which is often encountered by our courts. Although, adjudging the arbitrability of an entity based on its status in an interim measure proceeding under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter 'the Act') is rare. The Bombay High Court in the recent case of Deccan Paper Mills Co. Ltd. through Rahul Nainesh Mehta versus M/s. Regency Mahavir Properties & Ors1 ,wherein, Ashray Premises Private Limited is Respondent no. 2 and Atul Ishwardas Chordia is Respondent no. 3, underwent to adjudge the arbitrability of a party whose name was deleted from a prior application for interim measures.
BACKGROUND
The contentious agreement in the present case deals with development rights which were at first granted to Respondent No. 2 to develop the property of the Petitioner. Thereafter, an agreement was executed between the Petitioner, Respondent No. 1, and Respondent No. 2, whereby development rights were granted to Respondent No.1 and possession of the property also stood handed over to Respondent No.1.
Dispute arose between the parties as it was alleged that the agreement was procured through the means of fraud with specific allegations made against Respondent no. 3 for fraud and collusion.
The Petitioner moved an application under Section 9 of the Act for an interim measure against the Respondents regarding carrying out development activities and specifically disallowing them from being able to create third party rights in the property of the Petitioner. The Petitioner however informed the Court that it does not wish to prosecute Respondent nos. 2 and 3 under the application. Accordingly, the said Respondents were deleted from the proceedings. When the Petitioner invoked arbitration between the parties, the same was objected to by Respondent no. 3 on the ground that there existed no dispute between the Petitioner and Respondent no. 3 as it was the Petitioner itself who deleted the said Respondent from its application seeking interim measure.
The issue before the Court was that whether deletion of a party under a Section 9 application is an admission on part of the other party that there was no arbitrable dispute, and in consequence the Petitioner has extinguished the right conferred as per the arbitration agreement.
The basic argument in support of the Petitioner 's claim is that mere "deletion of Respondent Nos.2 and 3 from the array of parties in the application filed under Section 9 of the said Act cannot accrue to the benefit of the said Respondents".2 The Petitioner in the instant case argued that the adjudication and finality of Section 9 application in the present matter dealt with the issues which did not necessitate the presence of Respondent no. 2 and 3, which led to the consequential deletion of the parties. Although, it was obvious that the said application was concerned only with interim measures and that it did not amount to admission on the part of the Petitioner that there was no dispute between the Petitioner and Respondent no. 3.
Respondent no. 3 objected Petitioner's contention stating that it was deleted from the Section 9 application by the Petitioner itself and in doing so had specifically stated that Respondent no. 3 was not concerned with the development activities pertaining to the property in question. Respondent no. 3 further argued that the arbitration stood invoked with filing of the application and the act of the Petitioner of consequently deleting Respondent no. 3 from the application for interim measure under Section 9 of the Act when read with Section 4 of the Act, i.e., waiver of Right to Object, essentially extinguishes the Petitioner's right from bringing forth the dispute in arbitration against Respondent no. 3.
JUDGMENT
The Bombay High Court interpreting the object behind Section 9 of the Act stated that the object behind the section is to grant power to competent courts to issue interim measures at any time before, during or after the arbitration proceedings. The High Court dwelling upon the consequence of deleting a party from the application of interim measure stated that the purpose of Section 9 of the Act is to provide an interim relief to the parties. Under the said Section, any party may choose to seek interim measures against all the parties or any specific party or parties if it is of the opinion that it requires such interim measures only against such party.
Further, the competent court can also, while granting such interim reliefs may do so against some parties and not all. The court stated that the act of a deleting a party from a section 9 application for interim measures does not translate to it losing its right of invoking arbitration against such party. If the contention of Respondent no. 3 that simply because it was deleted from the Section 9 application, it cannot at this instance be made a party to the arbitration is to be accepted, the same shall lead to "incongruous results" and would run against the very object and purpose of the Act.3
Therefore, the Bombay High Court answered the question that whether deletion of party from a Section 9 application extinguishes the right to initiate arbitration proceedings against such party in negative.
Irrespective of whether interim measures were sought against all or some parties the same does not absolve the party from being brought to arbitration. Parties to an arbitration agreement have the right to seek interim measures as they deem fit against any party or parties without hampering its right under arbitration against the other parties.
ANALYSIS
The end goal of an interim measure under Section 9 is different from the end goal of an arbitral award. The primary distinction that needs to be ascertained in the arbitration proceedings is the nature of interim measures and its application considering that a Section 9 application deals with pressing issues which are to be addressed to protect the rights of the parties.4
In the case of Vidya Drolia and Ors. v. Durga Trading Corporation5 it was held that even though Section 9 of the Act has the protection to affect the rights of the parties, it does not affect the conduct of arbitration, and the same is supported by the Supreme Court's order in the case of Pravin Electricals (P) Ltd. v. Galaxy Infra and Engg. (P) Ltd. where this assessment was confirmed.6 In this backdrop the Respondent's contention that the deletion of its name from the interim measures proceeding would bar the Petitioner from invoking arbitration holds no ground.
The Supreme Court in the case of Firm Ashok Traders v. Gurumukh Das Saluja7 held that the commencement of arbitral proceedings is independent of the interim relief under Section 9 being allowed or denied. In the same breath it can be very well construed that filing for interim measures and the non-inclusion of a party has no bearing on the arbitrability of the matter or the parties' right to invoke arbitration against a specific party. In this case, the Bombay HC specifically highlighted that the very reason that interim measures can be sought even before issuing notice invoking arbitration under Section 21 of the Act supports this analysis.8
The Arbitration and Conciliation Act, 1996 provides for interim measures as a form of relief for the parties, the same can not be construed to narrow down the scope of arbitrability of the dispute.
Footnotes
1 Arbitration Petition No. 52 of 2021, High Court of Bombay
2 Id, para 13
3 Supra note 2, para 10.
4 Suresh Dhanuka v. Sunital Mohapatra, (2012) 1 SCC 578.
5 (2021) 2 SCC 1.
6 (2021) 5 SCC 671
7 (2004) 3 SCC 155.
8 Sundaram Finance Ltd. Vs. NEPC India Ltd, (2004) 3 SCC 155
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
