Not too long ago, the Supreme Courtroom of India (hereinafter ‘Supreme Courtroom’), 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.
Throughout 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 as a consequence of Covid-19, the Indian Authorities had imposed a lockdown inflicting full/partial closure, and thus the current dispute was lined by the drive majeure clause contained within the lease settlement. Nonetheless, 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 whole rental quantity for the interval between March 2020 and December 2021.
The tenant challenged the order of the arbitral tribunal earlier than the Excessive Courtroom of Delhi (‘Excessive Courtroom’) beneath Part 37(2)(b) of the Arbitration Act. Nonetheless, the Excessive Courtroom dismissed the identical on 10 February 2022. Subsequently, the tenant has approached the Supreme Courtroom within the current proceedings.
ARGUMENTS BEFORE THE SUPREME COURT
The counsel argued on behalf of the tenant that the arbitral tribunal had failed to contemplate the impact of the drive majeure clause. In actual fact, 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 whole rental quantity in the course of 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 is no such thing as a materials on document to recommend a chance of the tenant irritating the financial award which can be handed towards it. Subsequently, 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’), may haven’t been handed until the situations therein had been glad.
Additional, other than the time when there was a whole lockdown, in the course of 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 didn’t 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. Subsequently, 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 problem earlier than the Supreme Courtroom was whether or not the arbitral tribunal had rightly directed the tenant to deposit the whole rental quantity as an interim measure beneath Part 17 of the Arbitration Act.
SUPREME COURT’S HOLDING
On the outset, the Supreme Courtroom held that for the reason that legal responsibility was significantly disputed by the tenant and the identical had not but been thought-about 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 Courtroom, subsequently, directed the tenant to deposit the whole 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 will probably be finally determined by the arbitral tribunal.
Subsequently, the Supreme Courtroom directed the arbitral tribunal to contemplate 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 strategy of the Supreme Courtroom within the current case is opposite to the settled rules of regulation. 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.
Underneath Order XXXVIII, Rule 5 of the CPC, courts can order attachment earlier than judgment to stop a decree from turning into infructuous. Thus, the place a court docket is glad that the defendant, with the intent to impede or delay the execution of any decree which may be handed towards him, is both about to get rid of the whole property or any half thereof or is about to take away the identical from the court docket’s jurisdiction, then the court docket might name upon the defendant to furnish safety or to indicate trigger why safety shouldn’t be furnished. Underneath 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 article behind these provisions is to stop the get together towards whom the declare has been made out of dispersing its property or from appearing in a fashion to frustrate the award which may be handed (see Navtrip Implementation Society v. IVRCL Restricted).
The Delhi Excessive Courtroom, in Navtrip Implementation Society v. IVRCL Restricted, had noticed that the article 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 situations must be saved in thoughts whereas passing orders beneath Part 17 (1)(ii)(b) of the Arbitration Act. Within the mentioned case additionally, the Delhi Excessive Courtroom 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 appearing in a fashion which might frustrate the award which may be finally handed towards it.
Circumstances for granting an order beneath Order XXXVIII, Rule 5 of the CPC have been defined by the Supreme Courtroom in Raman Tech. & Course of Eng. Co. v. Solanki Merchants. In para 4 of the mentioned judgment, it was held {that a} plaintiff will probably 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 attempting to take away or get rid of his property to defeat the decree which may be handed.
Nonetheless, with out discussing the applicability or inapplicability of Order XXXVIII, Rule 5 of the CPC, the Supreme Courtroom centered 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 Courtroom 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 glad its necessities, have to be put aside.
CONCLUSION
In mild of the above, the Supreme Courtroom ought to have thought-about the current dispute by analyzing if there was any materials on document to recommend that there was a prima facie case in favor of the landlords and whether or not the tenant was attempting to make the decree which may be lastly handed towards it, infructuous.
Fairly, the Supreme Courtroom positioned undue reliance on the truth that the legal responsibility was significantly disputed. Putting 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. Fairly 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 finally handed towards it, courts/arbitrators, after this judgment, will have in mind whether or not the legal responsibility was significantly disputed whereas deciding functions beneath Sections 9/17 of the Arbitration Act.
Subsequently, this judgment units a harmful precedent, and it will be attention-grabbing to see if there are any future developments on this level of regulation.
(Raghav Bhatia and Aastha Kapoor is an advocate in Hon’ble Supreme and a ultimate 12 months pupil at Jindal International Legislation College, Sonepat [2018-2023]. The writer could also be contacted through mail at [email protected] and [email protected]).
Cite as: Raghav Bhatia and Aastha Kapoor, ‘Evergreen v John Tinson: Analysing Supreme Courtroom’s Faulty Ruling on Part 17 of Arbitration Act’ (The RMLNLU Legislation Overview Weblog09 September 2022)