Muthoot APT Ceramics Ltd v Global Impex & Sai Enterprises, Arb.Appeal No.66/2017, High Court of Kerala

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM & THE HONOURABLE MR. JUSTICE K.P.JYOTHINDRANATH** **THURSDAY, THE 16TH DAY OF NOVEMBER 2017/25TH KARTHIKA, 1939** **Arb.A.No. 66 of 2017 ()** **------------------------** **( AGAINST ORDER DATED 21.8.2017 IN I.A.NO.5825/2016 IN O.P. (ARBITRATION) NO.745/2016 BEFORE THE COURT OF ADDITIONAL DISTRICT JUDGE V, ERNAKULAM)** **APPELLANT/2ND RESPONDENT:** **------------** **M/S.MUTHOOT APT CERAMICS LTD HAVING ITS REGISTERED OFFICE AT MUTHOOT TOWERS, M.G.ROAD, ERNAKULAM – 682 035 REP. BY ITS AUTHORISED SIGNATORY MR.K.V.SUBRAMANIAN** **BY ADVS.SRI.MATHEWS K.UTHUPPACHAN SRI.B.J.JOHN PRAKASH** **RESPONDENTS/PETITIONER & 1ST RESPONDENT :** **--------------** **1. GLOBAL IMPEX, HAVING ITS OFFICE AT MORYA HOUSE, A- 201 2ND FLOOR, NEW LINK ROAD BEHIND CRYSTAL PLAZA, ANDHERI (W) MUMBAI – 400 053 REP. BY ITS PROPRIETOR SRI.BASHIR SHAIK AGED 54 YEARS S/O YASIN AHMED SHAIKH RESIDING AT B/401 POSEIDON, OPP. RATNAKAR, VERSOVA ANDHERI (W) MUMBAI – 400 061 2. SRI.SAI ENTERPRISES HAVING ITS OFFICE AT 139/2 TRICHY ROAD C.R.R. SCHOOL STREET ONDIPUDUR, COIMBATORE – 641 016 REP. BY ITS PROPRIETOR SRI.ANAND PILLAY, RESIDING AT FORTUNA APARTMENTS, H.142, 1ST FLOOR CANARA BANK LAYOUT, SAHAKAR NAGAR BANGALORE – 560 092** **R1 BY ADV.SRI.K.V.VINOD** **THIS ARBITRATION APPEALS HAVING BEEN FINALLY HEARD ON 16-11-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **C.K.ABDUL REHIM & K.P.JYOTHINDRANATH, JJ.** - - - - - - - - - - - - - - - - - - - - - ## **Arbitration Appeal No.66 OF 2017** - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 16[th] day of November, 2017 ## **JUDGMENT** ## Abdul Rehim, J. In this appeal, filed under Section 37 (1) of the Arbitration and Conciliation Act, 1996 ( hereinafter 'the Act' for short) the challenge is against an order passed by the Additional District Judge V, Ernakulam in I.A.No.5825/2016 in O.P.(Arb) No.745/2016. The 2[nd] respondent before the court below is the appellant herein. The 1[st] respondent is the petitioner and the 2[nd] respondent is the 1[st] respondent before the lower court. The parties are referred to hereinafter in this judgment in their order before the court below. 2. We take note of the fact that service against the 1[st] respondent is remaining incomplete because the notice sent was returned as 'unclaimed'. But we take note of the fact that the 1[st] Arb.Appeal No.66/2017 2 respondent remained ex-parte before the court below. Hence, in view of the order proposed to be passed hereunder, we are disposing the appeal without completing service against the 1[st] respondent. 3. O.P.(Arb) No.745/2016 was filed invoking Section 9(1) of the Act, seeking attachment of certain movables. The averment in the original petition in brief is that, the petitioner entered into an agreement with the 1[st] respondent on 29.04.2016 for purchase of certain machinery, equipments and other articles, situated in a factory premises owned by the 2[nd] respondent, allegedly based on an assurance made by the 1[st] respondent that they had already entered into an agreement with the 2[nd] respondent on 15.03.2014, by virtue of which the articles in question were agreemented for sale by the 2[nd] respondent to the 1[st] respondent. The articles agreemented for sale to the petitioner, which forms 50% of the articles contained in the agreement executed between the respondents 1 and 2, were more particularly described as B Arb.Appeal No.66/2017 3 schedule in the agreement dated 29.4.2016. It was contended that, the 2[nd] respondent, by virtue of a letter issued on 29.04.2016, had agreed for the sale of the above mentioned articles to the petitioner. The consideration for the sale as agreed upon by virtue of the agreement dated 29.04.2016 was Rs.1,25,00,000/-. The petitioner had paid an advance of Rs.50 lakhs through demand drafts drawn in favour of the 2[nd] respondent. But it is alleged that, despite such payment made, in violation of the terms of the agreement dated 29.04.2016, the petitioner was not permitted to remove the articles. On an enquiry it was realized that, the 2[nd] respondent had executed another agreement with a different person, on 27.05.2016, for the sale of the very same articles. According to the petitioner, the 2[nd] respondent had entered into such an agreement with full knowledge about the agreement executed between the petitioner and the 1[st] respondent and only after issuing the letter dated 29.04.2016. It was contended that, the 2[nd] respondent was not legally entitled to enter into any such Arb.Appeal No.66/2017 4 agreement with any other person, with respect to the same articles, unless the agreement between the petitioner and the 1[st] respondent is duly terminated. It was also contended that the act in this respect on the part of the 2[nd] respondent will amount to a clear cheating. It was averred in the petition that, in view of the default occurred, the petitioner is not interested in proceeding further with the sale and that they are entitled to get back the money along with interest and damages, for which the petitioner had caused a lawyer notice. It was specifically contended that, the petitioner and the respondents are bound by the terms of both the agreements, dated 15.03.2014 and 29.04.2016. It was pointed out that, the terms of both the said agreements provide for arbitration for resolution of disputes and therefore the petitioner is taking steps to refer the dispute for arbitration. According to the petitioner, the 2[nd] respondent is taking hasty steps to dispose of and to take away the articles covered by the agreement entered into between the petitioner and the 1[st] respondent; and unless the 2[nd] respondent is Arb.Appeal No.66/2017 5 injuncted from such activities and unless the articles are preserved till the full and final settlement of the dispute by way of arbitration, irreparable hardship and injury will be caused to the petitioner. Hence the petitioner sought for attachment of the scheduled movable properties. 4. Along with the original petition, the petitioner had filed I.A.No.15825/2016 seeking interim attachment. The 1[st] respondent remained ex parte before the court below. The 2[nd] respondent filed detailed counter affidavit before the District Court, inter alia contending that, the petitioner had filed the original petition in collusion with the 1[st] respondent only to defeat the interest of the 2[nd] respondent. It was contended that, the 1[st] respondent failed to comply with the terms and conditions of the agreement dated 15.03.2014 and therefore the articles in question were sold to another person. It was alleged that the present attempt is only to see that the removal of the articles is stopped in any manner. It was specifically contended that, there is no agreement Arb.Appeal No.66/2017 6 between the petitioner and the 2[nd] respondent with respect to the scheduled articles and there was no intention on the part of the 2[nd] respondent to sell the articles to the petitioner, nor had it entered into any agreement for sale of the articles to the petitioner. According to the 2[nd] respondent, they were unaware about the transactions between the petitioner and the 1[st] respondent. It was denied that, payment of Rs.50 lakhs was made pursuant to the agreement dated 15.03.2014. The 2[nd] respondent contended that the petitioner had no right to claim anything against the 2[nd] respondent under the agreement dated 15.3.2014 or under the agreement dated 29.04.2016. Apart from disputing the factual aspects, the 2[nd] respondent took a specific contention that, the petitioner is not entitled to compel the 2[nd] respondent to submit itself for an arbitration in the matter. In other words, it was contended that, there is no cause of action for the petitioner against the second respondent and therefore the original petition is liable to be dismissed. Arb.Appeal No.66/2017 7 5. After evaluating the rival contentions and on perusing the documents produced, the learned Additional District Judge had arrived at a conclusion that the 2[nd] respondent had admitted receipt of Rs.50 lakhs, on the basis of the letter issued on 29.04.2016. There is an admission on the part of the 2[nd] respondent with respect to the status of the petitioner, who is claiming right under the 1[st] respondent on the strength of the agreement dated 29.04.2016. Therefore it was observed that, all the rights which were vested with the 1[st] respondent was diverted to the petitioner; and the petitioner steps into the shoes of the 1[st] respondent; and that the petitioner has got every right to proceed further based on the agreement dated 29.04.2016. Finding that the petitioner is claiming right under the first respondent and not any independent right, it is entitled to invoke Section 9 of the Act, is the finding. Referring to a decision of this court in **Shoney Sanil v. Coastal Foundations (P) Ltd. ( 2006 KHC 274)** it was observed that, the interim measures under the Act can be initiated not only at the Arb.Appeal No.66/2017 8 instance of a party to an arbitration agreement and it can be against the party or against any person claiming under him. Therefore it was found that, the person who are claiming under the parties to an agreement for arbitration can also seek assistance of the court under Section 9 of the Act. Holding that the 2[nd] respondent had failed to furnish security with respect to the claim made and on finding that it is necessary to protect the articles till the disposal of the arbitration proceedings, an order of attachment was issued through the impugned proceedings. 6. First of all, we are at a loss to understand why the District Court has not disposed of the original petition itself, when the contesting parties had already filed counter affidavit and arguments were advanced before that court. The course adopted in granting an interim order, after hearing the parties concerned, in an original petition filed under Section 9 of the Act wherein the relief is in the nature of an interim measure pending commencement of the arbitral proceedings, is quiet unusual. In this regard it is Arb.Appeal No.66/2017 9 pertinent to note that, the provisions contained in Section 17 of the Act would enable the parties to seek appropriate interim measures from the arbitral Tribunal on the commencement of the arbitral proceedings and any interim measure allowed by the District Court will have only a limited validity under Section 9(2) of the Act. 7. Coming back to the merits on the issue involved, it is to be noted that, the court below has not specifically looked into the contentions raised by the 2[nd] respondent that it is not a party to the contract by which the petitioner had agreemented for purchase of the articles from the 1[st] respondent. The specific contention that the 2[nd] respondent cannot be compelled to submit to an arbitral proceedings was neither specifically adverted to nor clearly addressed in the impugned order. In this regard we may have to highlight that, the scope of a proceedings under Section 9 of the Act is only to enable a party to approach the District court before initiation of an arbitral proceedings for seeking an interim relief for protecting or preservating any of the goods or the subject Arb.Appeal No.66/2017 10 matter of the dispute. As already observed, going by Section 17 of the Act, the relief contemplated under Section 9 is purely an interim measure to be provided till the commencement of the arbitral proceedings and till the party could able to seek appropriate interim orders from the arbitral Tribunal. Further, under Sub Section 2 of Section 9 it is clear that the arbitral proceedings need to be commenced within 90 days from the date of any order passed by the court under sub section 1 of Section 9. Therefore, it is clear and evident that the powers vested on the court under Section 9(1) of the Act is not at all identical or similar in nature with the powers to issue an order of attachment before judgment in a civil suit. The relevant provisions would make it clear that, for a party to approach the District Court under Section 9(1) before initiation of an arbitral proceedings, the pre-requisite legal conditions to be satisfied is that, there exists a contract between the party who is seeking such relief and the party against whom such relief is sought for; and that there exists a dispute Arb.Appeal No.66/2017 11 arising out of such contract with respect to which the parties have already entered into an agreement for resolution through arbitration. Further, the party seeking such relief should satisfy that steps were already initiated to commence an arbitral proceedings. Only if the above said pre-requisite ingredients are satisfied, the court can exercise jurisdiction vested under Section 9(1). 8. We are of the considered opinion that, in the case at hand, the court below had failed to deal with the matter on the above mentioned perspectives. Since the original petition is still pending before the court below and since the parties have already filed their pleadings and produced documents in support of their contentions, we are of the view that a direction to the court below to dispose of the original petition itself, bearing in mind the above said legal aspects, would suffice to meet the ends of justice. 9. Under the above mentioned circumstances, we direct the Additional District Court V, Ernakulam to take up O.P.(Arb) No.745/2016 and to dispose of the same after affording Arb.Appeal No.66/2017 12 opportunity of hearing to the parties concerned. Needless to mention that the parties shall be permitted to produce additional documents, if any. 10. The appellant had pointed out that, the impugned order had put them to prejudice because they were compelled to pay demurrage of a huge amount on a recurring basis, since the machineries and other articles are now kept in the Cochin Special Economic Zone. We are of the view that a direction for time bound disposal of the case is warranted and justified. Hence we direct the court below to dispose of the original petition at the earliest possible, at any rate, within a period of one week from the date of appearance of the parties. 11. We direct the petitioner and the 2[nd] respondent to appear before the court below on 20.11.2017. The court below shall hear the parties on that date itself or on any other date to which the matter is adjourned. The order of attachment which is impugned herein will continue to be in force till the disposal of the Arb.Appeal No.66/2017 13 matter as directed above. It is made clear that this court has not expressed any conclusive findings on the merits of the disputed contentions and the District Court shall pass appropriate orders untramelled by any of the observations contained herein. **C.K.ABDUL REHIM, JUDGE** **K.P.JYOTHINDRANATH, JUDGE** sv.