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IN THE HIGH COURT OF DELHI
Rajiv Shakdher, Tara Vitasta Ganju, JJ.
Moon Light Propbuild Pvt. Ltd. - Appellant
Versus
Horizon Crest India Real Estate - Respondent
FAO(OS) (COMM) 316 of 2019 & CM Appls. 47888-89 of 2019
Decided On : 01-11-2022
Directors not parties to an arbitration agreement cannot be compelled to disclose personal assets, ensuring procedural fairness in arbitration proceedings.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Appeal against order concerning directors' disclosure - The appellants contended that the directors were not parties to the arbitration agreement; hence, the directions for affidavit submission were unjustified - The respondents conceded to rest with the redaction of these directions for seeking amendment - Directions to excise the impugned order were issued with liberty for amendment by contesting respondents. (Paras 2, 5, 8, 13)
Facts of the case:
The appeal was filed by a company and its director against a prior order mandating the disclosure of their financial assets, arguing that the directors were not part of the arbitration agreement. Changes in shareholding and board composition were disclosed in this appeal, prompting the respondents to seek amendment.
Findings of Court:
The court excised the previous directions and allowed the contesting respondents to amend their Section 9 petition, ensuring the impacted directors can respond appropriately before the learned Single Judge.
Issues: The court addressed whether directors of a company who are not parties to an arbitration agreement can be compelled to file affidavits disclosing assets, and the implications of changing shareholding patterns on prior orders.
Ratio Decidendi: The court held that since the directors were not named in the arbitration claim, directing their asset disclosure breached procedural fairness, thereby legitimizing the appeal to remove those obligations.
Result: Appeal allowed; directions excised.
| Table of Content |
|---|
| 1. appellants involved in legal proceedings. (Para 1 , 2 , 3) |
| 2. arguments regarding director's liability. (Para 4 , 5 , 6 , 7 , 8 , 9 , 10) |
| 3. court's observations on procedural implications. (Para 11 , 12) |
| 4. final directions of the court. (Para 13 , 14) |
JUDGMENT
[Physical Hearing/Hybrid Hearing (as per request)]
Rajiv Shakdher, J. (ORAL):
1. This appeal is directed against the order dated 05.09.2019 passed by the learned Single Judge.
1.1. The two appellants before us are Moon Light Propbuild Pvt. Ltd [appellant no.1], and Mr Amarjit Singh Chatha [appellant no.2].
2. Insofar as appellant no.1[hereafter referred to as "appellant no.1 company"] is concerned, it is aggrieved by the following directions contained in the impugned order:
"...The Directors of other respondent companies (other than those noted above including respondent Nos. l2, 16, 22, 23, 24 and 38) shall also file their affidavits of assets of both moveable and immoveable including the bank accounts, their statements, bonds, and investments etc...."
3. To be noted, there is no dispute, that the appellant no.2 i.e., Mr Amarjit Singh Chatha is one of the directors of appellant no.1 company.
4. It is Mr Krishnendu Datta's contention, who appears on behalf of the appellants, that the directors of appellant no.1 company, including appellant no.2 were not were parties to the arbitration agreement, and hence were not arrayed as parties in the statement of claim filed by the contesting respondents i.e., respondent nos.1 to 6.
5. It is, therefore, Mr Datta's submission, that the award dated 02.07.2019, which is the subject matter of the Section 34 petition filed under Arbitration and Conciliation Act, 1996, before the learned Single Judge, logically, could not have any impact on the directors of the appellant no.1 company, including appellant no.2.
6. Mr Saurabh Agarwal, who appears on behalf of the contesting respondents i.e., respondent nos.1 to 6, on the other hand, says that the said respondents had no clue as regards either the change in the shareholding pattern or the composition of the board of directors.
7. According to Mr Agarwal, the filings referred to by the appellants had been uploaded only in 2018, by which time the arbitration proceedings had almost reached culmination.
8. Be that as it may, Mr Agarwal does concede, that since the change in the shareholding pattern and the composition of the board of directors of appellant no.1 company, got revealed only by way of the instant appeal, the contesting respondents i.e., respondent nos.1 to 6 will, for the moment, rest with the redaction of the directions contained in the impugned order [as noticed in paragraph 2 above] with leave to amend the Section 9 petition, so that necessary foundation is laid to demonstrate that there has been defalcation of funds by the directors of the appellant no.1 company, which includes appellant no.2.
9. Mr Datta, on the other hand, refutes the allegation made by Mr Agarwal in this behalf.
9.1. It is Mr Datta's submission, that as and when amendment is sought, the appellants and those impacted would take steps to have their say in the matter, before the learned Single Judge.
10. We may also note, that it has been brought to our notice by Mr Agarwal, that after the impugned order was passed, at the behest of appellant no.1 company, which is arrayed as respondent no.21 in Section 9 petition, inter alia, the following directions were passed on 5.11.2019:
"...The Directors of the respondent no.21 Company are given liberty to file affidavit(s) in a sealed cover on or before 12th November, 2019..."
11. As is evident, the direction issued on 05.11.2019 was passed on the back of the impugned order dated 05.09.2019. Therefore, if the impugned directions, which are extracted in paragraph 2 above, are excised, logically, the direction issued on 05.11.2019, for the moment, would collapse.
12. This position is not disputed by the counsel for the parties.
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