ANALYSING SUPREME COURT’S ERRONEOUS RULING ON SECTION 17 OF ARBITRATION ACT – The RMLNLU Legislation Overview Weblog

Not too long ago, the Supreme Court docket of India (hereinafter ‘Supreme Court docket’), in Evergreen Land Mark Pvt. Ltd. v. John Tinson & Firmnoticed that an interim measure can’t be granted beneath Part 17 of the Arbitration and Conciliation Act, 1996 (hereinafter ‘Arbitration Act’) the place the legal responsibility to pay has been significantly disputed.

FACTUAL BACKGROUND

Evergreen Land Mark Pvt. Ltd. (hereinafter ‘tenant’) had entered right into a lease settlement regarding two separate premises owned by Respondents 1 and a couple of (collectively known as landlords) respectively. On each premises, the tenant was working a restaurant and a bar (hereinafter ‘retro-bar’). As disputes arose because of the termination of the lease settlement, the events referred to the disputes for arbitration.

Through the pendency of the arbitral proceedings, the landlords filed purposes beneath Part 17 of the Arbitration Act, praying that the tenant is directed to deposit the hire for the interval between March 2020 and December 2021. The tenant contested the purposes by arguing that resulting from Covid-19, the Indian Authorities had imposed a lockdown inflicting full/partial closure, and thus the current dispute was coated by the power majeure clause contained within the lease settlement. Nonetheless, by an order dated 5 January 2022, the arbitral tribunal allowed the purposes filed beneath Part 17 of the Arbitration Act, thereby directing the tenant to deposit your entire rental quantity for the interval between March 2020 and December 2021.

The tenant challenged the order of the arbitral tribunal earlier than the Excessive Court docket of Delhi (‘Excessive Court docket’) beneath Part 37(2)(b) of the Arbitration Act. Nonetheless, the Excessive Court docket dismissed the identical on 10 February 2022. Subsequently, the tenant has approached the Supreme Court docket within the current proceedings.

ARGUMENTS BEFORE THE SUPREME COURT

The counsel argued on behalf of the tenant that the arbitral tribunal had failed to contemplate the impact of the power majeure clause. Actually, the arbitral tribunal had noticed in its order that it isn’t contemplating the difficulty of power majeure on the stage of deciding the purposes filed beneath Part 17. Thus, it was argued that the legal responsibility to pay your entire rental quantity throughout the lockdown interval was significantly disputed by the tenant and the order of the arbitral tribunal beneath Part 17 of the Arbitration Act couldn’t have been handed. It was additional argued that there isn’t any materials on file to counsel a chance of the tenant irritating the financial award which can be handed in opposition to it. Subsequently, it was submitted that the arbitral tribunal’s order, which is akin to an order handed beneath Order XXXVIII, Rule 5 of the Code of Civil Process 1908 (hereinafter ‘CPC’), may haven’t been handed until the circumstances therein have been happy.

Additional, other than the time when there was a whole lockdown, throughout the remaining interval, the tenant was allowed to function the premises with solely 50% capability from 12 PM to 10 PM. Lastly, it was additionally argued that the tenant has already paid some quantity as hire and doesn’t have any intention of defrauding the landlords.

The landlords nonetheless argued that the tenant has continued to stay in possession of each the premises and has didn’t pay the month-to-month hire. Additional, it was additionally argued that Order XXXVIII, Rule 5 was inapplicable as, within the prompt case, the arbitral tribunal’s order was solely directing the tenant to deposit the rental quantity whereas it continued to be within the tenant’s possession. Subsequently, so long as the tenant continued to stay in possession, the legal responsibility of the tenant to pay the hire continued and the power majeure clause was inapplicable.

THE ISSUE BEFORE THE SUPREME COURT

The only situation earlier than the Supreme Court docket was whether or not the arbitral tribunal had rightly directed the tenant to deposit your entire rental quantity as an interim measure beneath Part 17 of the Arbitration Act.

SUPREME COURT’S HOLDING

On the outset, the Supreme Court docket held that for the reason that legal responsibility was significantly disputed by the tenant and the identical had not but been thought of by the arbitral tribunal, the impugned order beneath Part 17 of the Arbitration Act couldn’t have been handed by the arbitral tribunal .

Furthermore, it was additionally noticed that there was a whole lockdown for a substantial time, and for the remaining interval; the tenant was working the retro-bar with 50% capability solely. The Supreme Court docket, due to this fact, directed the tenant to deposit your entire rental quantity besides the interval throughout which there was full lockdown. It additionally held that the difficulty of non-deposit of hire for the interval throughout which there was full closure/lockdown can be in the end determined by the arbitral tribunal.

Subsequently, the Supreme Court docket directed the arbitral tribunal to contemplate the precept of power majeure and conclude the arbitral proceedings inside 9 months, topic to the cooperation of each events.

ANALYSIS

The authors respectively submit that the method of the Supreme Court docket within the current case is opposite to the settled rules of regulation. It was rightly argued on behalf of the tenant that the order beneath Part 17 of the Arbitration Act was akin to an order handed beneath Order XXXVIII, Rule 5 of the CPC. The order of the arbitral tribunal had the impact of securing the quantity in dispute which is roofed by Part 17(1)(ii)(b) of the Arbitration Act.

Underneath Order XXXVIII, Rule 5 of the CPC, courts can order attachment earlier than judgment to stop a decree from turning into infructuous. Thus, the place a court docket is happy that the defendant, with the intent to hinder or delay the execution of any decree which may be handed in opposition to him, is both about to eliminate your entire property or any half thereof or is about to take away the identical from the court docket’s jurisdiction, then the court docket could name upon the defendant to furnish safety or to indicate trigger why safety shouldn’t be furnished. Underneath Part 9(1)(ii)(b) or 17(1)(ii)(b) of the Arbitration Act, an arbitral tribunal is empowered to go an order for securing the quantity in dispute within the arbitration. The item behind these provisions is to stop the celebration in opposition to whom the declare has been produced from dispersing its property or from appearing in a way to frustrate the award which may be handed (see Navtrip Implementation Society v. IVRCL Restricted).

The Delhi Excessive Court docket, in Navtrip Implementation Society v. IVRCL Restricted, had noticed that the thing of Part 17(1)(ii)(b) of the Arbitration Act is much like that of Order XXXVIII, Rule 5 of the CPC and due to this fact its circumstances should be saved in thoughts whereas passing orders beneath Part 17 (1)(ii)(b) of the Arbitration Act. Within the stated case additionally, the Delhi Excessive Court docket had refused to go an order beneath Part 17(1)(ii)(b) of the Arbitration Act as a result of there was no allegation of the defendant disposing of its property or appearing in a way which might frustrate the award which may be ultimately handed in opposition to it.

Circumstances for granting an order beneath Order XXXVIII, Rule 5 of the CPC have been defined by the Supreme Court docket in Raman Tech. & Course of Eng. Co. v. Solanki Merchants. In para 4 of the stated judgment, it was held {that a} plaintiff can be entitled to an order beneath Order XXXVIII, Rule 5 of the CPC the place it may be proven that there’s a prima facie case in favor of the plaintiff and the defendant is making an attempt to take away or eliminate his property to defeat the decree which may be handed.

Nonetheless, with out discussing the applicability or inapplicability of Order XXXVIII, Rule 5 of the CPC, the Supreme Court docket centered on the truth that the legal responsibility was significantly disputed by the tenant and that the difficulty of power majeure was but to be adjudicated by the arbitral tribunal . In State Financial institution of India v. Ericsson India Non-public Restrictedthe Supreme Court docket has held that an order handed beneath Part 17 of the Arbitration Act, which is akin to an order handed beneath Order XXXVIII, Rule 5 of the CPC, however has not happy its necessities, should be put aside.

CONCLUSION

In gentle of the above, the Supreme Court docket ought to have thought of the current dispute by analyzing if there was any materials on file to counsel that there was a prima facie case in favor of the landlords and whether or not the tenant was making an attempt to make the decree which may be lastly handed in opposition to it, infructuous.

Somewhat, the Supreme Court docket positioned undue reliance on the truth that the legal responsibility was significantly disputed. Inserting reliance on the truth that the legal responsibility is significantly disputed by a celebration on the time of deciding interim measures is a harmful precedent. Somewhat than contemplating whether or not there’s a prima facie case in favor of the plaintiff and the specter of the defendant irritating the decree which may be ultimately handed in opposition to it, courts/arbitrators, after this judgment, will take into consideration whether or not the legal responsibility was significantly disputed whereas deciding purposes beneath Sections 9/17 of the Arbitration Act.

Subsequently, this judgment units a harmful precedent, and it might be attention-grabbing to see if there are any future developments on this level of regulation.


(Raghav Bhatia and Aastha Kapoor is an advocate in Hon’ble Supreme and a ultimate 12 months scholar at Jindal World Legislation Faculty, Sonepat [2018-2023]. The creator could also be contacted through mail at [email protected] and [email protected]).

Cite as: Raghav Bhatia and Aastha Kapoor, ‘Evergreen v John Tinson: Analysing Supreme Court docket’s Faulty Ruling on Part 17 of Arbitration Act’ (The RMLNLU Legislation Overview Weblog09 September 2022) date of entry.