LI Network
Published on: November 28, 2023 at 14:13 IST
The Calcutta High Court emphasized the need for caution when a court, under Section 37 of the Arbitration & Conciliation Act, 1996 (“1996 Act”), intervenes in the interim orders issued by an arbitrator.
A single-bench, presided over by Justice Moushumi Bhattacharya, declined to overturn the order made under Section 17 of the 1996 Act, which aimed to preserve the share of a deceased LLP partner totaling approximately Rs 6 crores in a separate interest-bearing account held in the LLP’s name.
The court stated:
“There can be no jurisdictional objection to the impugned order as the Act of 1996 grants the arbitral tribunal plenary powers to pass such orders for preserving the dispute in the arbitration. The order also does not suffer from any factual or legal infirmity and is certainly not arbitrary or perverse. Taking into account the legal position, the case law on the subject and the particular facts in the present matter, the Court is accordingly of the view that the impugned order does not call for any interference.”
The case revolved around an appeal filed under Section 37 of the 1996 Act challenging the directions of a sole arbitrator. The arbitrator had issued an interim order instructing the appellant LLP to deposit Rs 6 crores in a separate interest-bearing account following the death of the largest shareholder.
The deceased partner’s son, seeking inclusion in the LLP agreement, filed a statement of claim for an award. The arbitrator, considering the case, directed the appellant to set aside approximately Rs 6 crores in a separate account, representing the total balance of the deceased partner’s share.
The appellants argued that the order contradicted provisions of the 1996 Act, including Sections 28(3), 28(1)(a), and 17(1)(ii)(b), and was based on equitable considerations, impermissible under the Act.
However, the court observed that the respondents sought induction into the LLP, not an exit, rendering the appellant’s argument under Section 24(5) of the LLP Act irrelevant. The court noted that Section 24(5) did not apply to the facts since the respondent sought continuation in the LLP, not an exit.
The court also highlighted that the arbitrator’s interim order, preserving nearly Rs 6.4 crores, aimed to protect the interests of the deceased partner’s son, preventing irreparable loss and injury. The court rejected the appellants’ arguments, stating that the arbitrator’s order was justified, reasoned, and interim, causing no prejudice to the appellants.
In concluding the judgment, the court emphasized the need for caution in Section 37 appeals, stating:
“The Act contemplates giving unfettered power to the arbitral tribunal not only to pass interim orders but also to see the end of the lis before it. The section 37 court in appeal must therefore see an interim order passed by the arbitral tribunal within the prismatic efficacy of the statutory purpose in that the court would only intervene where the exercise of discretion is palpably perverse and the order is patently unconscionable.”
The court underscored the importance of circumspection, particularly when an arbitrator’s interim order is well-reasoned and not unconscionable, reinforcing the limited scope for court interference.
As a result, the appeal was dismissed.
Case: Concrete Developers LLP v Gaurav Churiwal and Ors.