Sona Corporation India Pvt. Ltd. Versus Ingram Micro India Pvt. Ltd. and ors.

Court / Forum : Delhi High Court
Citation : Arb. A. COMM. 4/2019; MANU/DE/0247/2020
Coram : Justice Jyoti Singh
Subject : Section 37(2) of the Arbitration and Conciliation Act, 1996
Date of Decision : 2020-01-20

Brief Facts

• The appellant (lessor) and the respondent (lessee) had entered into two registered lease deeds. Certain disputes arose between the parties due to unilateral termination of lease deeds and violation of its terms such as vacating the premises in damaged condition. The Hon`ble Delhi High Court referred the matter to an Arbitral Tribunal (“Tribunal”).
• During the course of proceedings, an application under section 17 of the Arbitration and Conciliation Act, 1996 (“Act”) was filed by the respondent seeking refund of Rs. 2,70,00,000 i.e. the sum equivalent to security deposit made under lease deeds. The Tribunal vide order dated December 11, 2018, secured the refund of security deposit and ordered that the property shall not be transferred by sale or any other manner except leasing out. Also, the property cannot be put under encumbrance without the order of Tribunal or till decision in the Arbitration Proceedings.
• Thereafter, the respondent filed two applications, one under section 27(5) of the Act for initiating contempt proceedings against the appellant and its directors for violation of order dated December 11, 2018 and another application under section 17 of the Act, on the ground that property given in security under order dated December 11, 2018 was found to be mortgaged by the appellant. The Tribunal, vide order dated February 26, 2019, recalled the order dated December 11, 2018 and directed the appellant to either furnish bank guarantee of Rs. 2.70 crore valid for 12 months or deposit the said amount in a fixed deposit with an endorsement that it would be payable at the direction of Tribunal.
• The appellant filed appeal against the order dated February 26, 2019 under section 37(2) of the Act.

Issues

1. Whether an arbitral tribunal in a subsequent application filed under section 17 of the Act can vary the order passed under original application filed under section 17 of the Act?

Decision

• The Hon`ble Delhi High Court compared the power to grant interim measures, available to an arbitral tribunal under section 17 of the Act and to a court under section 9 of the Act. While referring to the case of Shakti International Private Limited vs. Excel Metal Processors[1], the Hon`ble Delhi High Court said that section 17 of the Act has been made akin to the jurisdiction of court under section 9 of the Act. Earlier, the powers of arbitral tribunal were much narrower than the power of court under section 9 of the Act. The arbitral tribunals were not considered as court of law and therefore neither the orders were considered as judicial orders, nor the functions were considered as judicial functions. This position was changed with the commencement of the Act but there were difficulties in enforcement of order passed by arbitral tribunal under section 17 of the Act. A party seeking interim measures before the tribunal was required to show that the specific interim order is covered by express provisions of section 9 of the Act and also covered by language of section 17 of the Act.
• Section 17 of the Act has been amended by the Arbitration and Conciliation (Amendment) Act, 2015. The powers to make different types of interim orders of protection are also provided in section 17 as they are present in section 9 of the Act. Now, the power of arbitral tribunal to give orders is at par with that of a court and with respect to enforceability of such orders, section 17(2) of the Act clearly provides that such orders are deemed to order of civil court and can be enforced as per the provisions of Code of Civil Procedure, 1908. Also, an amendment in section 9(3) has been made which provides that once an arbitral tribunal is constituted, the court will not entertain an application under section 9(1) of the Act, unless circumstances exist which may not render the remedy under section 17 of the Act as efficacious.
• Further, scope of judicial review under section 37 of the Act is limited and the court while exercising its power under section 37 of the Act cannot interfere with order passed under section 17 of the Act unless the discretion exercised by tribunal is perverse or contrary to law.
• The Court held that when encumbrances on the property were brought to the notice of the Tribunal, the Tribunal didn`t consider the security sufficient and therefore, in order to preserve and protect the subject matter of dispute, the Tribunal modified the earlier order. It is purely within the domain of arbitral tribunal to exercise its discretion in deciding the nature and extent of security to preserve the subject matter involved in arbitration proceedings.
• As there is no infirmity in the discretion exercised by the arbitral tribunal under section 17 of the Act, therefore, no interference was required.

Vipul Ganda is a Delhi based Advocate practicing largely at the Delhi High Court. His practice focus is Dispute Resolution and Litigation and his practice areas include Arbitration, Commercial, Civil, Constitutional, Corporate and Criminal Litigation.