The court upheld the interim measures under the Arbitration Act, emphasizing the need for protective reliefs due to misappropriation of funds and failure to allot shares.

JUDGMENT :

M.S. Karnik, J.

1. This Arbitration Appeal under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996 (‘the Arbitration Act’ for short) challenges an order dated 18.03.2025 passed by the learned Single Judge of this Court in Arbitration Petition No. 119 of 2024. The Arbitration Petition was filed under Section 9 of the Arbitration Act.

2. The agreement has an arbitration clause, and its existence is not disputed. Learned Single Judge for the reasons mentioned in the impugned order has protected the respondent (original petitioner in the Arbitration Petition) through the following measures: -

A) Kapani Resorts, Virendra and Vaibhav shall jointly or severally deposit an Indian Rupee equivalent of USD 1 million (valued at the US Dollar-Indian Rupee exchange rate applicable as of the respective dates of their remittance by Manmohan) along with interest at the statutory interest rate of 12% per annum (on the INR equivalent of USD 350,000 from the expiry of 75 days after February 11, 2022; and on the INR equivalent of USD 650,000 from the expiry of 75 days after February 22, 2022, until the date of deposit) with the Registry of this Court, which deposit shall be made no later than two weeks from the date on which this Order is uploaded on the website of this Court;

B) Kapani Resorts, Virendra and Vaibhav shall forthwith be prohibited from directly or indirectly, selling, mortgaging, alienating or creating any third- party interest or encumbrance of any nature whatsoever over any and every property of Kapani Resorts;

C) Virendra and Vaibhav shall forthwith be prohibited from directly or indirectly selling, mortgaging, alienating or creating any third-party interest or encumbrance of any nature whatsoever over the Greater Kailash Property;

D) If Kapani Resorts, Virendra and Vaibhav jointly or severally comply with the direction to deposit funds as directed above, they shall have leave to approach this Court seeking removal of the restraint imposed on Virendra and Vaibhav in relation to alienating any interest in the Greater Kailash Property. Towards this end, Kapani Resorts, Virendra and Vaibhav are given leave to mention the matter before the Court showing evidence of having complied with the direction to deposit funds, and upon consideration of the same, this Court may pass appropriate orders. If no such deposit is made, Manmohan shall have liberty to mention the matter and seek appointment of a Court Receiver in respect of all the properties of Kapani Resorts and the Greater Kailash Property.”

3. Learned Single Judge ordered that the aforesaid interim reliefs shall hold the field until completion of the arbitration proceedings. It was held that the Arbitral Tribunal shall be entitled to further vary, modify the interim protective measures once it has had occasion to consider the merits and takes an informed decision on the need to effect such variation.

4. Mr. Nirman Sharma, learned counsel for the Appellants in challenge to the impugned order of the learned Single Judge placed the following facts for our consideration. Appellant Nos.2 and 3 herein (respondent Nos.2 and 3 before the learned Single Judge) and the respondent herein are the share-holders of the appellant No.1-Kapani Resorts Private Limited having 19%, 51% and 13% shareholding each of the issued and paid up capital of appellant No.1-Kapani Resorts. The respondent (referred to as ‘Manmohan’ hereinafter) was allotted 13% of the share-holding of Kapani Resorts on 26.05.2021, being 8,53,416 shares at the face value of INR 30/- per share.

5. On 11.02.2022, the parties herein signed Share Subscription and Shareholders Agreement dated 11.02.2022 (‘the Agreement’ for short) in terms of which (Clause 2), Manmohan was to infuse a sum of INR 7,50,00,000/- (equivalent to USD 1 million at that time) into Kapani Resorts in two tranches, and for which he was to be issued 51,72,412 Class B equity shares in two tranches in Kapani Resorts, thus increasing his share holding fr