ANALYSING SUPREME COURT’S ERRONEOUS RULING ON SECTION 17 OF ARBITRATION ACT – The RMLNLU Legislation Assessment 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 pair of (collectively known as landlords) respectively. On each premises, the tenant was operating a restaurant and a bar (hereinafter ‘retro-bar’). As disputes arose as a result of termination of the lease settlement, the events referred to the disputes for arbitration.

Through the pendency of the arbitral proceedings, the landlords filed functions 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 functions by arguing that because of Covid-19, the Indian Authorities had imposed a lockdown inflicting full/partial closure, and thus the current dispute was coated by the drive majeure clause contained within the lease settlement. Nevertheless, by an order dated 5 January 2022, the arbitral tribunal allowed the functions filed beneath Part 17 of the Arbitration Act, thereby directing the tenant to deposit the complete 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. Nevertheless, the Excessive Court docket dismissed the identical on 10 February 2022. Due to this fact, 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 think about the impact of the drive majeure clause. In truth, the arbitral tribunal had noticed in its order that it isn’t contemplating the problem of drive majeure on the stage of deciding the functions filed beneath Part 17. Thus, it was argued that the legal responsibility to pay the complete rental quantity through 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 a materials on document to counsel a risk of the tenant irritating the financial award which can be handed towards it. Due to this fact, 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’), might haven’t been handed until the circumstances therein had been happy.

Additional, aside from the time when there was a whole lockdown, through 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 nevertheless argued that the tenant has continued to stay in possession of each the premises and has did not 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. Due to this fact, so long as the tenant continued to stay in possession, the legal responsibility of the tenant to pay the hire continued and the drive majeure clause was inapplicable.

THE ISSUE BEFORE THE SUPREME COURT

The only real difficulty earlier than the Supreme Court docket was whether or not the arbitral tribunal had rightly directed the tenant to deposit the complete 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, subsequently, directed the tenant to deposit the complete rental quantity besides the interval throughout which there was full lockdown. It additionally held that the problem of non-deposit of hire for the interval throughout which there was full closure/lockdown can be finally determined by the arbitral tribunal.

Due to this fact, the Supreme Court docket directed the arbitral tribunal to think about the precept of drive 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 ideas of legislation. 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.

Below Order XXXVIII, Rule 5 of the CPC, courts can order attachment earlier than judgment to stop a decree from changing into infructuous. Thus, the place a courtroom is happy that the defendant, with the intent to hinder or delay the execution of any decree which may be handed towards him, is both about to get rid of the complete property or any half thereof or is about to take away the identical from the courtroom’s jurisdiction, then the courtroom might name upon the defendant to furnish safety or to indicate trigger why safety shouldn’t be furnished. Below Part 9(1)(ii)(b) or 17(1)(ii)(b) of the Arbitration Act, an arbitral tribunal is empowered to cross an order for securing the quantity in dispute within the arbitration. The thing behind these provisions is to stop the get together towards whom the declare has been comprised of dispersing its property or from performing 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 item of Part 17(1)(ii)(b) of the Arbitration Act is much like that of Order XXXVIII, Rule 5 of the CPC and subsequently its circumstances must be stored 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 cross 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 performing in a way which might frustrate the award which may be ultimately handed towards it.

Situations 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 get rid of his property to defeat the decree which may be handed.

Nevertheless, with out discussing the applicability or inapplicability of Order XXXVIII, Rule 5 of the CPC, the Supreme Court docket targeted on the truth that the legal responsibility was significantly disputed by the tenant and that the problem of drive majeure was but to be adjudicated by the arbitral tribunal . In State Financial institution of India v. Ericsson India Personal 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 document 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 towards 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 towards it, courts/arbitrators, after this judgment, will take into consideration whether or not the legal responsibility was significantly disputed whereas deciding functions beneath Sections 9/17 of the Arbitration Act.

Due to this fact, this judgment units a harmful precedent, and it will be fascinating to see if there are any future developments on this level of legislation.


(Raghav Bhatia, is an advocate practising on the Supreme Court docket of India and Aastha Kapoor, the second creator, is a last 12 months legislation pupil at Jindal International Legislation Faculty. The creator could also be contacted by way of mail at [email protected] and [email protected]).

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