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IN THE HIGH COURT OF DELHI AT NEW DELHI
C. HARI SHANKAR, J.
L & T Finance Limited - Appellant
Versus
DM South India Hospitality Private Limited and Ors. - Respondents
Arb. A. (Comm.) 14 of 2020 & I.As. 4736-40 of 2020, I.A. 11490 of 2020
Decided On : 08-11-2021
Arbitration and Conciliation Act, 1996 - Section 37(2)(b) - Contract Act - Section 176 - Interim Order passed by Arbitrator - Issue of default interest- Loan Agreements and four Pledge Agreements - Respondent contending that even if the entire amount is paid, it cannot release the immovable properties or personal/corporate guarantees until the present arbitration matter is over, because it claims that it is entitled to hold onto the securities until the account is close - Scope of judicial review by Court exercising Section 37(2)(b).
Finding of the Court: For any court, exercising appellate jurisdiction under Section 37(2)(b) over an interlocutory order of an arbitral tribunal, especially one rendered under Section 17, to be conscious of the peripheries of the jurisdiction of the arbitral tribunal, as well as of the appellate court under Section 37(2)(b) - It is hazardous, therefore, for an arbitral tribunal exercising jurisdiction under Section 17, to embark on a detailed analysis of the clauses of the contract. This would amount to a pre-trial determination of the issues in controversy and would also be inimical to the concept of a dispassionate arbitral process - scope of judicial review by Court exercising Section 37(2)(b) jurisdiction cannot not, therefore, be likened to appellate jurisdiction in the classical sense.
Result: Appeal dismissed.
JUDGMENT :
1. This appeal, under Section 37(2)(b) of the Arbitration and Conciliation Act, 1996, assails order dated 8th June, 2020, passed by the learned Arbitrator, in two cases pending before him. The claimants before the learned Arbitrator are the respondents in the present appeal, and the respondent before the learned Arbitrator is the appellant herein.
2. Respondents 2 to 5 are directors of Respondent 1, and signatories to the Pledge Agreements dated 31st March, 2017 and 12th June, 2017, executed with the appellant.
Facts
3. The Contractual Documents:
3.1 The contractual relationship between the parties to the present appeal revolves around two Loan Agreements and four Pledge Agreements, dated 31st March, 2017 and 12th June, 2017, and an Escrow Agreement dated 31st May, 2017. The two Loan Agreements were between the appellant and Respondent 1, the four Pledge Agreements were between the appellant and Respondents 2 to 5, each agreement being executed between the appellant and one of the respondents. The Escrow Agreement was between the appellant, Respondent 1 and M/s IndusInd Bank Ltd. (“the Bank”), which was the Escrow Agent.
3.2 Respondent 1 is the owner of the Radisson Hotel in Mysore and the “Mall of Mysore”. Under the two Loan Agreements dated 31st March, 2017, the appellant lent, to Respondent 1, facility amounts/loans of Rs. 100 crores and Rs. 85 crores respectively.
3.3 The Loan Agreements:
3.3.1 The Loan Agreements were identical. Clause 2.2 of the Loan Agreements required Respondent 1 to repay the appellant, as per payment schedule in Schedule II to the Loan Agreements. Clause 2.3 dealt with the interest payable by Respondent 1 to the appellant. Sub-Clauses (i) and (ii) of Clause 2.3 dealt with normal interest payable by Respondent 1 on the loan advanced by the appellant. Sub-Clause (iv) required Respondent 1, in the case of default in payment of any amount, under the Loan Agreements, on the respective due dates, to further pay interest at the stipulated default rate.
3.3.2 Clause 2.13 of each Loan Agreement required Respondent 1 to provide securities, to secure the loans advanced by the appellant, as described in Schedule III to the concerned Loan Agreements, and also to comply with the escrow mechanism stipulated in Schedule IV. The clause reads thus:
3.3.3 Schedule III required the following securities to be provided by Respondent 1:
(a) the hotel and mall located at Mysore and
(b) a farmhouse located at Delhi,
(ii) hypothecation, to the appellant, of
(a) all revenue generated at the mall,
(b) all revenue generated at the hotel,
(c) present and future current assets and movable fixed assets located at the hotel and the mall and
(d) escrow account of the hotel and the mall,
(iii) collateral security of the following nature:
(a) pledge over
(i) Category I listed shares of minimum Rs. 120 crores,
(ii) shares of ZF Steering Gear (India) Ltd. of Rs. 40 crores,
(iii) 62.02% shares of Respondent 1, held by M/s Respondent 1G Finance & Investments Pvt. Ltd., and Respondent 2 and his family, and
(iv) 100% shares of BDS Developers Pvt. Ltd
(b) personal guarantees of the persons named in the Schedule,
(c) corporate guarantees by the entities named in the Schedule,
(d) Shortfall undertaking, and
(e) a demand promissory note by Respondent 1.
3.3.4 The “Escrow Mechanism for Receipt of Mall and Hotel Revenue” in the Loan Agreements required Respondent 1 to open, establish and maintain two Escrow Accounts with a Bank acceptable to the appellant and to deposit all revenues generated from the mall and the hotel in the Escrow Account.
3.3.5 The Schedule further provided, i
An arbitral tribunal, while adjudicating an application for interim protection under Section 17, does not determine the lis between the parties.
The arbitral tribunal has broad powers to issue interim measures under the Arbitration and Conciliation Act, ensuring protection of claims during ongoing proceedings.
The court may exercise jurisdiction under Section 9 of the Arbitration and Conciliation Act if the remedy under Section 17 is found to be inefficacious, particularly regarding third parties not party....
The court established that while Section 9 allows for court intervention in arbitration matters, it can only do so if the remedy under Section 17 is found to be ineffective, particularly when third p....
The main legal point established in the judgment is that the order passed by the Arbitrator under section 17(1)(ii)(b) of the Arbitration and Conciliation Act, 1996 was a proper exercise of jurisdict....
The discretionary power under section 17 of the A&C Act should be exercised sparingly and not to convert indeterminate and unsecured counter-claims into secure claims.
Principle of minimum judicial intervention is one of fundamental tenets of arbitration law.
An Arbitral Tribunal under the Arbitration and Conciliation Act cannot grant interim orders that effectively render final decisions on substantive claims, as this exceeds its jurisdiction.
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