Decided on September 02,2003

BABU THOMAS Respondents


Koshy, J. - (1.) SCOPE of Sec. 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the 1996 Act') and power of the court to issue interim orders especially with reference to appointment of a receiver as an interim measure of protection pending arbitration proceedings are considered in this case. We may refer to the brief facts of this case.
(2.) APPELLANT in this case is a partner of a firm called 'dahlia Tourist Home'. The above partnership firm is carrying on business of running a bar attached hotel at Pampady near Kottayam under the name and style as 'dahlia Tourist Home'. After the reconstitution of the partnership on 3-11-199 8 , petitioner/appellant was holding 20% of the shares. First Respondent is the brother-in-law of the petitioner who is holding 20% shares. He is the joint Managing Partner of the firm. Second respondent is holding 40% shares and he is also a joint Managing Partner of the firm. Third respondent like the petitioner is holding 20% of the shares. Investment of the petitioner as well as third respondents in the firm is Rs. 3, 21,700/ -. There is overdraft facility of Rs. 15 lakhs for the firm. For facilitating the same, properties of respondents 1 to 3 are hypothecated. Contention of the petitioner is that accounts are not properly maintained in the firm for the year 2000-2001 and actual income and express reflected in the accounts books are not correct. Funds of the firm are misappropriated by respondents 1 to 3. So petitioner wants to ascertain his share of profit for the for period 2000-2001. It is not disputed that petitioner has requested for arbitration of the above dispute and that was accepted by the respondents. According to him Rs. 45 lakhs is due to him as his share of profit for the year 2000-2001. He also stated that there is loss of trust reposed on the managing partners and, therefore a Receiver should be appointed. He further stated that as his share of profit for the year 2000-2001, he was given only Rs. 50,000/-for the full year. If he is appointed as the Receiver, he is willing to pay Rs. 50,000/- per month to the persona who is having 40% shares and Rs. 25,000/- each to the other respondents irrespective of the profits earned by the petitioner. He also pointed out that the accounts of the year 2000-2001 forwarded to him show that the firm purchased liquor costing Rs. 16,487,667-89 whereas income from the sale of liquor is Rs. 19,656,733/- and the purchase price from the bewerages Corporation and the bills issued by the hotel during the relevant period would show that much more amount would have been received under this account alone and, therefore, there is a prima facie case that there is misappropriation. Therefore, in the interest of justice, a Receiver should be appointed. The prayer portion is as follows: "therefore, it is most respectfully prayed that this hon'ble Court may be pleased to appoint a Receiver for the conduct and management of the business of the firm 'dahlia Tourist Home' at Pampady in kottayam district till the dispute is resolved by arbitral proceedings. " The contention of the respondents is that the allegations regarding misappropriation is not proved. Their accounts are audited accounts. Excise officials are supervising the purchase and sale of liquor. Petitions has no dispute regarding the accounts for the year 1998-99 and 1999-2000 and more amount of profit was given during 2000-2001 and 2002-2003 to the petitioner by the firm and the profit was only increasing year by year. All these disputes were raised because of the personal enmity regarding non-removal of an employee. It is further stated that when the application for renewal of licence was made by the firm, that was objected and petitioner has requested the Excise Commissioner to cancel the bar licence. That shows that there is no bonafides in the case of the petitioner as he has no intention to protect the interest of the firm or running the business incidentally, it was also pointed out that Arbitrators were already appointed. Petitioner can also visit the office and inspect the accounts and there is no necessarily to appoint a Receiver. After detailed consideration, the District court found that no case has been made out for the appointment of a Receiver and application for appointment of a Receiver under Sec. 9 as an interim measure of protection was dismissed. Sec. 9 of the 1996 Act is as follows: "9. Interim measures etc. by Court: - A party may, before, or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Sec. 36, apply to a court- (i) for the appointment if a guardian for a minor or person of unsound mind for the purpose of arbitral proceedings; or (ii) for an interim measure of protection in respect of any of the following matters, namely:- (a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement; (b) securing the amount in dispute in the arbitration; (c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorizing for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party or authorizing any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; (d) interim injunction or the appointment of a Receiver; (e) such other interim measure of protection as may appear to the Court to be just convenient; and the Court shall have the same power for making orders as it has for the purpose of and in relation to, any proceedings before it. " Sec. 9 is essentially based on Article 9 of the UNCITRAL model. Analogous provision under the Arbitration Act, 1940 Act is Sec. 41 (b)read with Second Schedule to the said Act. But, the powers of the court under the 1996 Act are wider. Under the 1940 Act, pendency of the court proceedings was a condition precedent of the court proceedings was a condition precedent for exercise of power. (See: Sant Ram and company v. State of Rajasthan and others (AIR 1997 SC 2557 ). Sec. 9 is an independent power and pendency of a court proceedings was not necessary to attract jurisdiction under Sec. 9 of the 1996 act. Being an independent statutory power, by agreement between the parties, power of the court cannot be restricted; but under Sec. 17, power of the arbitrator to take interim measure of protection can be restricted by agreement between the parties as Sec. 17 begins with the words "unless otherwise agreed by the parties. " Courts have no power to adjudicate or merits of the case in the guise of passing orders under Sec. 9. The list of interim measures or protection given in clauses (a) to (d) of Sec. 9 (ii) is not exhaustive. Clause (e) indicates that other interim measures for protection also can be granted by the court at its discretion, if it appears to the court just and convenient. Therefore, power under Sec. 9 is wider than Sec. 44 (3) of the old Act and power of the arbitrator under Sec. 17 of the 1996 Act. Power of the court under Sec. 9 is a statutory power and not emanating from the arbitration agreement.
(3.) THE first question to be considered is whether Sec. 9 can be invoked as arbitration proceedings were not started in this case. It was held by the Apex Court in Sundaram Finance ltd. V. NEPC Ltd. (AIR 1999 SC 565)that an interim order under Sec. 9 can be passed even before the commencement of arbitration proceedings. If it is after receipt of notice under Sec. 21 of the act provided there is an agreement for arbitration. Apex Court held as follows: "14. Under the 1996 Act the Court can pass interim orders under Sec. 9 Arbitral proceedings, as we have seen, commence only when the request to refer the dispute is received by the respondent as per Sec. 21 of the Act. THE material words occurring in Sec. 9 are "before or during the arbitral proceedings. " This clearly contemplates two stages when the Court can pass interim orders, i. e. , during the arbitral proceedings or before the arbitral proceedings. THEre is no reason as to why Sec. 9 of the 1996 Act should not be literally construed. Meaning has to be given to the word "before" is occurring in the said section. THE only interpretation that can be given is that the Court can pass interim orders before the commencement of arbitral proceedings. Any other interpretation, like the one given by the High Court, will have the effect of rendering the word "before" in Sec. 9 as redundant. This is clearly not permissible. Not only does the language warrants such an interpretation by it was necessary have such a provision in the interest of justice. But for such a provision no party would have a right to apply for interim measure before notice under Sec. 21 is received by the respondent. It is not unknown when it becomes difficult to serve the respondents. It was therefore, necessary that provision was made in the Act which could enable a party to get interim relief urgently in order to protect it's interest. Reading the section as a whole it appears to us that the court has jurisdiction to entertain an application under Sec. 9 either before arbitral proceedings or during arbitral proceedings or after the making of the arbitral award but before it is enforced in accordance with Sec. 36 of the act. " In this case, arbitrators were appointed and both parties have agreed for arbitration. THErefore, Sec. 9 is applicable. The power of the court to make orders under Sec. 9 during arbitral proceedings is similar to the power for the purpose and in relation to any proceedings before it. This shows that the provisions are equivalent to the powers of the court in granting interim orders under the Code of Civil Procedure. It is a discretionary remedy. The power of the court to issue interim orders like appointment of receiver under Sec. 9 is discretionary and equitable in nature. The court should be satisfied that there is a prima facie case for the claimant and bonafides of the petitioner who seeks interim order also should be considered. Sec. 9 of the Act does not confer the powers on the Court to appoint receiver as an interim measure in every case as a matter of course in every case; but; only enables the court to grant relief in a 'fit' case. Power under Sec. 9 shall be exercised judiciously and cautiously. Prima facie case, balance of convenience, injury that is cased, likelihood of destruction etc. have to be considered before interim orders are issued under Sec. 9. Courts will be very slow in appointing a receiver in a going concern unless a very strong prima facie case is made out.;

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