Once The Arbitral Tribunal Is In Place, The Court’s Consideration Of Section 9 Application Should Be Limited

Summary:

[1]The Allahabad High Court held that merely because the present application seeking dismissal of the proceedings under Section 9 of the Act and two amendment applications were dealt with by the Tribunal and the order was passed on 15.11.2023, a day before the Tribunal was constituted, for leading evidence, it cannot be said that the Court had considered the case on merits, as the consideration on merits would necessarily mean for the purpose of grant of injunction and not for the purpose of deciding the applications filed during the pendency of the application.

Facts:

The respondent filed an application under Section 9 of the Act, inter alia, with the submissions that its main work was academic consultancy, teacher training and academic delivery system in the education field meant for schools being run as per C.B.S.E. norms. The said services are provided to societies, trusts, companies and other educational institutions on payment of consultancy charges for over 20 years.

 It was indicated that a Memorandum of Understanding was entered into between the appellant and the respondent on 30.01.2017 and a registered agreement dated 11.12.2018 was executed indicating the terms of the agreement. It was indicated that the academic consultancy charges amounting to Rs. 45,57,781/- were due for which cheques were issued, which were dishonoured. On account of the violation of the agreement, notice was issued on 10.04.2023, which was not responded.

However, the appellant continued to use the logo and school name which it was using under the agreement. Based on the said submissions, injunction was sought against the respondent for not using the name ‘Sunbeam’ and logo etc. and not to run the school in the name of Sunbeam School, Babatpur.

Issue:

The following issue was raised:

When a question to the consideration of the grounds upon which the application under Section 9 of the Arbitration and Conciliation Act,1996 can arise?

Judgment and analysis:

The Allahabad High Court analysed that it is apparent that the order impugned has been passed only on account of the fact that the response filed to the application under Section 9 of the Act was ordered not to be taken into consideration as the same was filed beyond the prescribed time. However, non-filing of the response to the application/non consideration of the reply filed, by itself does not entitle the applicant to get the relief as prayed for.

The Commercial Court, while dealing with an application under Section 9 of the Act, is required to record findings on the three parameters, i.e.,

• Prima facie case,
• Balance of convenience, and
• Irreparable injury, which determination is sine qua non for grant of relief in any application of the present nature.

Failure of the Commercial Court to record any finding on the said aspects worth the name, vitiates the order impugned.

In the present case, admittedly, the application was filed on 27.04.2023 before the Commercial Court, Varanasi, the Arbitrator was appointed by order of this Court on 16.11.2023 and the order impugned has been passed on 18.01.2024.

The court held that Merely because in the present application seeking dismissal of the proceedings under Section 9 of the Act and two amendment applications were dealt with by the Tribunal and order was passed on 15.11.2023, a day before the Tribunal was constituted, for leading evidence, it cannot be said that the Court had considered the case on merits, as the consideration on merits would necessarily mean for the purpose of grant of injunction and not for the purpose of deciding the applications filed during the pendency of the application.

In view of the above facts situation, it is apparent that once the Tribunal was constituted on 16.11.2023, passing of the order on 18.01.2024 by the Commercial Court was in the teeth of the provisions of Section 9(3) of the Act.

So far as the submissions made by counsel for the respondent on the merit of the dispute is concerned, the said aspect cannot be considered in the present appeal arising from the order passed by Commercial Court, which has been found to be in violation of provisions of Section 9(3) of the Act.

In view of the above discussion, the appeal filed by the appellant is allowed. The order dated 18.01.2024 is quashed and set aside. The application filed by the respondent under Section 9 of the Act is dismissed in view of the provisions of Section 9(3) of the Act. The respondent would be free to approach the Arbitral Tribunal under the provisions of Section 17 of the Act.

Analysis:

 The Allahabad High Court’s judgment addresses critical procedural inadequacies in handling an application under Section 9 of the Arbitration and Conciliation Act, emphasizing the necessity of a meticulous judicial approach in dealing with interim measures. The Court pointed out that the Commercial Court had erred by not considering the response due to its late submission but proceeded to grant relief without evaluating the three foundational criterions required under the Act: prima facie case, balance of convenience, and irreparable injury. The absence of substantive findings on these parameters rendered the order legally unsustainable.

The Court further scrutinized the timeline and procedural sequence leading to the Arbitrator’s appointment and subsequent orders. It highlighted that the impugned order dated January 18, 2024, was issued after the constitution of the Arbitral Tribunal on November 16, 2023. This chronology of events revealed non-compliance with Section 9(3) of the Act, which implies that once an Arbitral Tribunal is established, it generally gains the competence to address applications for interim measures.

Given these circumstances, the judgment underscores that the conduct of the Commercial Court was not in consonance with the stipulated legal standards and procedural requirements prescribed under Section 9 of the Act. By setting aside this order and dismissing the application under Section 9, the Court solidified the principle that adherence to procedural norms is paramount in arbitration proceedings. Moreover, while the Court acknowledged the arguments regarding the merits of the case presented by the respondent’s counsel, it concluded that these were not pertinent to the legal examination of the order’s validity under appeal; hence, they were not considered in this legal context. This decision underscores the importance of procedural propriety and reinforces the principle that arbitral proceedings should proceed within the framework set by the Act, underscoring the tribunal’s role once constituted.

[1]  https://ksandk.com/wp-content/uploads/sec9-application-539661.pdf

BEFORE THE HON’BLE ALLAHABAD HIGH COURT

GANGA PRASAD MEMORIAL TRUST AND ANR. v. DHK EDUSERVE LIMITED

APPEAL NO. 161 OF 2024 FILED UNDER SECTION 37 OF ARBITERATION AND CONCILIATION ACT, 1996

Judgment dated 29th April, 2024