Godrej Properties Ltd. v. Goldbricks Infrastructure Pvt. Ltd.
BRIEF FACTS:
A dispute between Godrej Properties Ltd. (“Appellant”) and Goldbricks Infrastructure Pvt. Ltd. (“Respondent”) led to filing of an application by both the parties under Section 17 of the Arbitration and Conciliation Act, 1996 (“the Act”). As both the parties were waiting for interim relief, the Respondent emailed another application to the sole Arbitrator (“Arbitrator”) under Section 17 of the Act, requesting that the Arbitrator set an early date to hear the application due to the reasons stated in the said application. The second application was also served to the Appellant.
The Arbitrator evaluated the Respondent’s Application suo moto, without even hearing both the parties, issued an ex-parte ad-interim order instructing the Appellant to maintain the status quo until the Respondent’s application is determined on the merits.
The Appellant, who was aggrieved by the ex-parte ad-interim order, filed an appeal with the Hon’ble Bombay High Court under Section 37 of the Act.
ISSUE RAISED:
Whether it was appropriate for the Arbitrator to pass an ex-parte ad-interim order on Respondent’s second application based on Section 17 of the Act?
SUBMISSIONS OF THE APPELLANT:
The Appellant argued that the parties had a reasonable expectation that the Arbitral Tribunal will hear them before making any orders on any new applications filed under Section 17 of the Act, which is required by law under Section 18 read with Section 24 (2) of the Act.
The Appellant also argued that the Respondent never prayed for an ex-parte ad-interim Order. It was asserted that the Respondent, via an email to the Arbitrator, had merely made a request to the Arbitral Tribunal for fixing a date for hearing of the Section 17 application.
In was submitted by the Appellant that an Arbitral Tribunal passing orders without notification to the parties engaged in the arbitral proceedings is contrary to arbitration law and/or is not a practice in India. Indian legislature took an express departure from what was adopted under the UNCITRAL Model law on International Commercial Arbitration in the year 2006 whereby provisions related to interim measures and preliminary orders under Section 2 were incorporated and Article 17B was inserted. A departure from these provisions was reflected in the Indian legislature when amendments were made in the Act in the year 2015 and 2019.
The Appellant also placed reliance on the Madras High Court judgement of Vendhar Movies v. S. Mukundchand Bothra,[1] where it was observed that proper hearing is required to be granted to the parties in arbitral proceedings.
It was also highlighted that even if it is assumed that ex-parte ad-interim reliefs were be sought, the requirements set forth in Civil Procedure Code, 1908 (“CPC”) Order 39 Rule 3 must be met. In support of this contention, reliance was placed on the decision of the Supreme Court in Shiv Kumar Chadha v. Municipal Corporation of Delhi.[2]
The appellant also referred to the extract of Commentary of Michael W. Buchler and Thomas H. Webster from the Handbook of ICC arbitration wherein insertion of Article 17B under UNCITRAL model law was criticised on the grounds of enforceability and how such provision is not available in most arbitration laws.
The Appellant also asserted that ex-parte orders with substantial effects should not be issued without the parties’ consent.
SUBMISSIONS OF THE RESPONDENT:
The Respondent argued that the purpose of moving the Application under section 17 of the Act was to prevent the Appellant from frustrating any orders that the Arbitral Tribunal might make in pending applications.
He also submitted that the requirements of sub-rule (3) of Order 39 of the CPC was also met, as evidenced by the averments in the application, to the effect that if the requested reliefs are not granted by the Arbitral Tribunal, and an award is made, it will be rendered a paper award, and there will be a likelihood of multiple proceedings.
He contended that the Arbitrator, looking at the grievance, has recorded that he was “persuaded by the consideration that the facts set out in the application call for status quo being maintained till the application is heard.”
The Respondents also asserted that the Arbitral Tribunal would hear the parties on the adjourned date, and they would be free to assert their separate petitions in front of the Arbitral Tribunal.
DECISION OF THE COURT:
The Hon’ble Bombay High Court, while setting aside the impugned order, held that a combined reading of Sections 18, 19 and 24 of the Act implies that the fundamental requirement in the conduct of arbitral proceedings is that the parties are not only treated equally but also given a full opportunity to present their case, particularly when the parties are already before the Arbitral Tribunal.
The Hon’ble Court noted that sub-section (2) of Section 19 of the Act recognises the role of parties by allowing them to agree on the method that the Arbitral Tribunal will follow in conducting its hearings. Section 24 of the Act, on the other hand, is critical. Section 24 (2) demands, among other things, that the parties “shall be” ” provided with advance notice of “any hearing.”
In these circumstances, an Arbitral Tribunal passing ex-parte ad-interim orders on the mere filing of an application under Section 17 of the Act, without even hearing the party making the application, much less the contesting party, who would undoubtedly be affected and/or prejudiced by such orders, would be unprecedented in law and quite unusual.
The Hon’ble Court noted that the Indian legislature has wilfully ignored and/or refused to recognise the 2006 revision to the UNCITRAL Model Law. Prior to 2006, the UNCITRAL Model Law had no mechanism for making preliminary orders in arbitral proceedings. In 2006, revisions which provided for “interim measures and provisional orders”. The aforementioned revisions do not appear to be typical in arbitral jurisprudence in many nations.
The Hon’ble Court held that the Respondent’s Application did not reflect any glaring unusual circumstances or exigencies justifying the Arbitral Tribunal’s ex-parte ruling, without the issuing of a notice, depriving the Appellant of the right to be heard. The reliefs sought were also not such that, absent an ex-parte ruling, the Respondent would be put in such a disadvantaged position that no reparation could be made.
Furthermore, while dealing with Order 39, Rule 3 of the CPC, the Court stated that the Arbitral Tribunal should have issued a notice before imposing such an injunction. However, the Court concluded that the competence of Civil/Commercial Courts to issue ex-parte orders could not be used to arbitral procedures because of the differences between them and actions before Civil Courts. The Court placed reliance on Section 24(2) read with Section 18 of the Act, stating that, in order to treat all parties equally at all stages of the proceedings, the Arbitral Tribunal must give sufficient advance notice of any hearing.
PSL OPINION
The Bombay High Court clarified the authority of Arbitral Tribunals to issue interim orders under Section 17 of the Act, as well as the difference between the powers of a Civil Court to issue interim reliefs under Section 9 of the Act. It was reflected that an Arbitral Tribunal, cannot issue orders without giving the other party adequate notice and an opportunity to submit their case. Through this case it can be observed that the Arbitrator should follow due process and function according to the powers laid down in the act so that parties are treated fairly and equally without reflecting any bias. This approach adheres to natural justice principles as well as internationally recognised arbitration law standards.
[1] 2017 SCC Online Mad 13577.
[2] (1993) 3 SCC 161.
