2015 Supreme(Bom) 2285

IN THE HIGH COURT OF BOMBAY AT AURANGABAD BENCH
T.V. NALAWADE, J.
Tapadiya Construction Ltd. - Appellant
Versus
Sanjay Suganchand Kasliwal & Anr. - Respondents
Arbitration Appeal No. 6 of 2015
Decided on : 3-12-2015

The existence of a valid arbitration agreement is a condition precedent for the appointment of an arbitrator and for the grant of interim relief under section 9 of the Arbitration and Conciliation Act, 1996.

Headnote:

ARBITRATION - INTERIM MEASURES - INJUNCTION - THIRD PARTY - JURISDICTION - PARTNERSHIP - UNREGISTERED FIRM - ARBITRATION AGREEMENT - DISPUTE - SECTION 9 OF THE ARBITRATION AND CONCILIATION ACT, 1996 - SECTION 69 OF THE INDIAN PARTNERSHIP ACT, 1932.

Fact of the Case:

Sanjay Kasliwal, Respondent No.1, entered into a partnership agreement with Jugalkishor Tapadia, Respondent No.2, on 7th March, 2007, under the name M/s Kasliwal Empires. The partnership's objective was to construct and develop a housing project at Satara area of Aurangabad. The partners agreed to distribute profit and loss equally. Sanjay alleged that Jugalkishor made a fraudulent representation to him and transferred Rs.8 Crore from the joint loan account of Jugalkishor and Sanjay to the account of Appellant Company, a public limited company, of which Jugalkishor was the Managing Director. Sanjay contended that the amount was used to purchase an immovable property in Hingoli for Rs.9.51 Crore. Sanjay filed an application under section 9 of the Arbitration and Conciliation Act, 1996 (the Act) in the District Court, Parbhani, seeking an injunction against the Appellant Company and Jugalkishor from alienating the property in Hingoli till the dispute between Sanjay and Jugalkishor was adjudicated by the Arbitral Tribunal. The District Court granted the injunction and gave an option to Jugalkishor to give a bank guarantee of the decretal amount in the related execution proceeding to vacate the injunction.

Finding of the Court:

The High Court held that the District Court erred in granting the injunction against the Appellant Company. The Court found that the property in Hingoli belonged to the Appellant Company and not to Kasliwal Empire or its partners. The Court also held that the dispute between Sanjay and Jugalkishor was not covered by the arbitration agreement and that the bar under section 69(3) of the Indian Partnership Act, 1932, applied, which prevented the reference of the dispute to arbitration. The Court further held that the District Court, Parbhani, did not have jurisdiction to entertain the application under section 9 of the Act as the subject matter of the arbitration was situated in Hingoli, District Hingoli, and not in Parbhani.

Issues: 1. Whether the District Court had jurisdiction to grant an injunction against the Appellant Company, a third party to the arbitration agreement, under section 9 of the Act? 2. Whether the dispute between Sanjay and Jugalkishor was covered by the arbitration agreement? 3. Whether the bar under section 69(3) of the Indian Partnership Act, 1932, applied to prevent the reference of the dispute to arbitration? 4. Whether the District Court, Parbhani, had jurisdiction to entertain the application under section 9 of the Act?

Ratio Decidendi: 1. A third party can be subject to an order under section 9 of the Act if the subject matter of the arbitration is with the third party and the third party has no independent right in respect of the subject matter, or if the property of the third party affects the subject matter of the arbitration. 2. The existence of a valid arbitration agreement is a condition precedent for the appointment of an arbitrator and for the grant of interim relief under section 9 of the Act. 3. The bar under section 69(3) of the Indian Partnership Act, 1932, applies to prevent the reference of a dispute to arbitration if the partnership firm is unregistered and the dispute arises from a contract or is conferred by the Act. 4. The District Court having jurisdiction to entertain an application under section 9 of the Act is the District Court of the District where the subject matter of the arbitration is situated or where the cause of action arose.

Final Decision: The High Court allowed the appeal, set aside the order of the District Court, and rejected the application filed by Sanjay under section 9 of the Act. The injunction granted by the District Court was vacated.