1. Arbitration dispute — Section 17 order restraining asset alienation — Confirmation by High Court under Section 37, Arbitration and Conciliation Act, 1996. (Para 3 )
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2018 Supreme(SC) 570
SUPREME COURT OF INDIA
ADARSH KUMAR GOEL, ROHINTON FALI NARIMAN, JJ.
State Bank of India - Appellant
Versus
Ericsson India Private Limited & Ors. - Respondents
Civil Appeal Nos. 3613-3615 of 2018 (Arising out of S.L.P.(C) Nos. 7973-7975 of 2018)
Decided On : 05-04-2018
Important Points
Arbitral Tribunal's jurisdiction does not extend to affecting the rights and remedies of third-party secured creditors.
Subject
Arbitration Law - Secured Creditors' Rights
Act Referred
Headnote
Arbitration - Secured Creditors - Validity of Impugned Order
Fact of the Case:
An arbitration dispute was pending between unsecured creditors and debtors. The Arbitral Tribunal passed an order restraining the claimants and its heirs from alienating, encumbering, transferring any of its assets without permission of the Arbitral Tribunal. The order was confirmed by the High Court under Section 37 of the Arbitration and Conciliation Act, 1996.
Finding of the Court:
The court set aside the impugned orders, stating that the Arbitral Tribunal had no jurisdiction to affect the rights and remedies of the third-party secured creditors. It was emphasized that the secured creditors should proceed against the assets of the debtors in accordance with the law.
Issues: Validity of the impugned order passed by the Arbitral Tribunal and confirmed by the High Court.
Ratio Decidendi: The court held that the impugned orders could not be sustained as they did not comply with the mandate of the Civil Procedure Code. It was emphasized that the Arbitral Tribunal had no jurisdiction to affect the rights and remedies of the third-party secured creditors.
Final Decision: The impugned orders were set aside, and it was clarified that the secured creditors should proceed against the assets of the debtors in accordance with the law.
Legal Category Hierarchy
Advocates:
Advocate Appeared:
For the Appellant : Mr. Kapil Sibal, Mr. Mukul Rohatgi, Mr. Mahesh Agarwal, Mr. Ameet Naik, Mr. Abhishek Kale, Ms. Shally Bhasin, Mr. Ankur Saigal, Mr. Chaitanya Safaya, Mr. Manan Shukla, Ms. Ishita Chakarbarti, Mr. E. C. Agrawala, Mr. Tushar Mehta, Mr. Sandeep Sethi, Mr. Sanjay Kapur, Ms. Megha Karnwal, Ms. Mansi Kapur, Ms. Shubhra Kapur, Mr. K.V. Viswanathan, Mr. Sanjay Kapur, Ms. Megha Karnwal, Mr. Ravi Raghunath, Ms. Mansi Kapur
For the Respondents: Mr. Arvind P. Datar, Mr. Sujjain Talwar, Mr. Vikram S. Nankani, Ms. Iqbal Chagla, Mr. Naresh Thacker, Mr. Sailesh Poria, Ms. Mihika Jalan, Mr. Ashish Prasad, Ms. Mukta Dutta, Mr. Sanyam Saxena, Mr. Rohan Roy, Mr. M.P. Devanath, Mr. C.A. Sundaram, Mr. Anil K. Kher, Mr. Bhargava V. Desai, Mr. Kunal Kher, Mr. Akshat Malpani, Mr. Dushyant Dave, Mr. Gopal Jain, Mr. Nishant Menon, Mr. Rajiv Sharma, Ms. Kavita Sarin, Mr. Sumit R. Sharma, Mr. Shafiq Ahmed, Mr. Prateek Seth, Ms. Prashanti, Mr. A. Nabi
Advocate Appeared:
For the Appellant : Mr. Kapil Sibal, Mr. Mukul Rohatgi, Mr. Mahesh Agarwal, Mr. Ameet Naik, Mr. Abhishek Kale, Ms. Shally Bhasin, Mr. Ankur Saigal, Mr. Chaitanya Safaya, Mr. Manan Shukla, Ms. Ishita Chakarbarti, Mr. E. C. Agrawala, Mr. Tushar Mehta, Mr. Sandeep Sethi, Mr. Sanjay Kapur, Ms. Megha Karnwal, Ms. Mansi Kapur, Ms. Shubhra Kapur, Mr. K.V. Viswanathan, Mr. Sanjay Kapur, Ms. Megha Karnwal, Mr. Ravi Raghunath, Ms. Mansi Kapur
For the Respondents: Mr. Arvind P. Datar, Mr. Sujjain Talwar, Mr. Vikram S. Nankani, Ms. Iqbal Chagla, Mr. Naresh Thacker, Mr. Sailesh Poria, Ms. Mihika Jalan, Mr. Ashish Prasad, Ms. Mukta Dutta, Mr. Sanyam Saxena, Mr. Rohan Roy, Mr. M.P. Devanath, Mr. C.A. Sundaram, Mr. Anil K. Kher, Mr. Bhargava V. Desai, Mr. Kunal Kher, Mr. Akshat Malpani, Mr. Dushyant Dave, Mr. Gopal Jain, Mr. Nishant Menon, Mr. Rajiv Sharma, Ms. Kavita Sarin, Mr. Sumit R. Sharma, Mr. Shafiq Ahmed, Mr. Prateek Seth, Ms. Prashanti, Mr. A. Nabi
Table of Contents
2. Secured creditors — Non-party status — Non-compliance with Order XXXVIII Rules 5 and 10, CPC — Deprivation of statutory rights against assets. (Para 4 )
3. Arbitral Tribunal lacks jurisdiction to affect third-party secured creditors' rights; impugned order failed to comply with Order XXXVIII Rules 5 and 10, CPC. (Para 5 )
4. An Arbitral Tribunal cannot exercise jurisdiction to affect the rights and remedies of third-party secured creditors during pending disputes. (Para 5 )
5. Impugned orders set aside — Secured creditors permitted to proceed against assets of debtors in accordance with law. (Para 5 , 6 , 8 )
6. Can an Arbitral Tribunal affect the rights of third-party secured creditors?
No, an Arbitral Tribunal has no jurisdiction to affect the rights and remedies of third-party secured creditors in the course of determining disputes pending before it. (Para 5 )
7. What procedural requirements must be met for orders restraining asset alienation akin to Order XXXVIII Rule 5 CPC?
Such orders must comply with the mandates of Rules 5 and 10 of Order XXXVIII of the Code of Civil Procedure. (Para 5 )
ORDER :
Leave granted.
2. We have heard learned counsel for the parties.
3. An arbitration dispute is pending between the unsecured creditors and the debtors. The Arbitral Tribunal passed an order under Section 17 of the Arbitration And Conciliation Act, 1996 restraining the claimants and its heirs from alienating, encumbering, transferring any of its assets without permission of the Arbitral Tribunal. The reason given for passing the order is balance of convenience and irreparable injury. The said order has been confirmed by the High Court under Section 37 of the Arbitration and Conciliation Act, 1996.
4. Principal contention of the secured creditor(s)- appellant(s) herein is that neither they are party before the arbitrator nor the order which purports to be akin to Order XXXVIII Rule 5 of the Civil Procedure Code has been passed by complying with the conditions under Order XXXVIII Rules 5 and 10 CPC. It is also submitted that the secured creditors cannot be deprived of their statutory rights against the assets by the Arbitral Tribunal.
5. Learned counsel for the respondents have supported the impugned orders by submitting that the sale by the secured creditors is to be in accordance with law. There can be no dispute that the Arbitral Tribunal has no jurisdiction to affect the rights and remedies of the third party-secured creditors in the course of determining disputes pending before it. Moreover, the impugned order does not comply with the mandate of Rules 5 and 10 of Order XXXVIII CPC. Thus, the impugned orders cannot be sustained and are accordingly set aside. It is, however, made clear that the secured creditors will proceed against the asset(s) of the debtor(s) in accordance with law.
6. This order will not affect any of the remedies of either of the parties.
7. We have not gone into any other issue except the validity of the impugned order.
8. The appeals are disposed of as above.
