Court Overturns Interim Injunction Order, Finds Lack of Manifest Intention to Arbitrate - 2024-06-28

# Court Overturns Interim Injunction Order, Finds Lack of Manifest Intention to Arbitrate

Background

This case involves a dispute between the partners of a registered partnership firm, D' Heavenly Mist. The 1st respondent was the managing partner of the firm, but the majority of the partners decided to remove him from this position on June 12, 2023, alleging that his conduct was in violation of the partnership terms and detrimental to the business. The 7th respondent then assumed the role of managing partner.

Arguments

The 1st to 4th respondents challenged the decision to remove the 1st respondent from the managing partner position by filing an application under Section 9 of the Arbitration and Conciliation Act, 1996 (the Arbitration Act) before the Commercial Court. The Commercial Court granted an interim injunction order, restraining the 7th respondent from acting as the managing partner and the other respondents from obstructing the 1st respondent's continuation as the managing partner.

The petitioners (respondents 2 and 7 before the Commercial Court) and respondents 7 to 11 challenged the interim injunction order before the Commercial Appellate Court. They argued that the Additional District Court-IV, Thodupuzha, which passed the order dismissing the application to stay the interim injunction, lacked jurisdiction. They also argued that the interim injunction order should have automatically stood vacated as the respondents 1 and 2 did not commence arbitration proceedings within the 90-day period required by the Arbitration Act.

On the other hand, the respondents 1 to 5 argued that the Additional District Court had the jurisdiction to decide the application, as it exercises the same functions and powers as the District Court. They also claimed that the arbitration proceedings had commenced within the 90-day period.

Court's Analysis and Reasoning

The court first addressed the issue of jurisdiction, finding that the Additional District Court-IV had the authority to decide the application, as Additional District Judges are appointed to the District Court and can discharge all the functions of the District Judge.

However, the court agreed with the argument that the respondents 1 and 2 did not demonstrate a manifest intention to arbitrate the dispute, as required by the Supreme Court's decision in Sundaram Finance Ltd. v. NEPC India Ltd. The court found that there was no clear averment in the application under Section 9 indicating the respondents' intention to initiate arbitration proceedings. The court also noted that the subsequent conduct of the respondents, such as the letter produced before the court, did not satisfy the requirement of a manifest intention to arbitrate.

Decision

The court set aside the order passed by the Commercial Appellate Court and allowed the application for a stay of the interim injunction order. The court held that without being satisfied with the existence of a manifest intention to arbitrate, the Commercial Court was not justified in granting the interim injunction order, and the Commercial Appellate Court also erred in dismissing the application for a stay.

This judgment highlights the importance of demonstrating a clear intention to arbitrate when seeking interim relief under Section 9 of the Arbitration Act before the commencement of arbitral proceedings. The court's emphasis on the requirement of a "manifest intention" to arbitrate serves as a reminder to parties seeking such interim measures to ensure that their actions and pleadings clearly reflect their commitment to resolving the dispute through arbitration.