Shrey Fatterpekar
Counsel, Bombay High Court
Arbitration proceedings in India are governed by the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). Under Section 17 of the Arbitration Act, the Arbitral Tribunal is empowered to pass orders for interim protection. Orders passed under Section 17 of the Arbitration Act are appealable under Section 37(2). The Arbitration Act contains no provision which empowers the Arbitral Tribunal to review or recall its own order.[i] The Delhi High Court in Sona Corporation India Pvt. Ltd. v. Ingram Micro India Pvt. Ltd. and Anr.[ii] however upheld an order passed by an Arbitral Tribunal recalling an earlier order passed by it under Section 17 of the Arbitration Act. This article examines the decision passed by the Delhi High Court in Sona Corporation.
Brief Facts:
The disputes between the parties arose under two registered lease deeds both dated 18th June 2013. The Appellant (lessor) terminated the lease deeds and alleged several violations of the lease deed on part of the Respondent (lessee) who in turn denied such violations and consequentially disputed the termination of the lease deeds. The disputes were referred to arbitration and in the course of the arbitration proceedings, the Respondent filed an application under Section 17 of the Arbitration Act praying for refund of a security deposit under the lease deeds (“First Application”). The First Application was disposed of by the Arbitral Tribunal by an order dated 11th December 2018 on the basis of an undertaking of the Appellant that in order to secure the refund of the security deposit, it shall not dispose of the property forming the subject matter of the two lease deeds (“First Interim Order”).
Thereafter, the Respondent filed another application under Section 17 of the Arbitration Act praying for a fresh order on the basis that the property in respect of which an undertaking was given by the Appellant was found to have been mortgaged by the Appellant (“Second Application”). In this Application, the Arbitral Tribunal passed an order dated 26th February 2019 recalling the First Interim Order and directed the Appellant to either furnish a bank guarantee or deposit the amount of security deposit in a fixed deposit which would payable as per the tribunal’s directions only (“Second Interim Order”). The Second Interim Order was challenged by the Appellant before the Delhi High Court in an appeal filed under Section 37(2) of the Arbitration Act.
Findings:
One of the principal grounds urged by the Appellant in the appeal was that the Arbitral Tribunal having rejected the allegations raised by the Respondent ought not to have modified the First Interim Order. The Respondent had filed the Second Application inter alia on the basis that the property in respect of which the Appellant had given an undertaking was subsequently found to have been mortgaged. The Appellant resisted this contention before the Arbitral Tribunal on the ground that the Respondent was aware of the mortgage in question when the First Interim Order was passed and accordingly, there was no reason for the Arbitral Tribunal to consider the Second Application. The Arbitral Tribunal upheld the Appellant’s contention that the Respondent was, in fact, aware of the mortgage prior to the First Interim Order being passed. The Arbitral Tribunal, however, noticed that the Appellant had not disclosed the mortgage to the Tribunal. In view of the same, the Arbitral Tribunal passed the Second Interim Order whereby it recalled the First Interim Order accepting the Appellant’s undertaking and directed the Appellant to provide fresh security.
The Court after hearing the parties at length confirmed the Arbitral Tribunal’s finding that the mortgage on the property forming the subject matter of the Appellant’s undertaking was to the Respondent’s knowledge before the First Interim Order was passed. However, the Court observed that the Arbitral Tribunal’s decision to accept the Appellant’s undertaking was to secure the amount that would be payable to the Respondent if it was successful in the arbitration proceedings. At the time when it passed the First Interim Order, the Arbitral Tribunal was of the opinion that the undertaking as offered was sufficient and solvent security. However, when the fact of the mortgage was brought before the Arbitral Tribunal after the First Interim Order, it may be of the opinion that the property offered as a part of the undertaking was not solvent security. The Court observed that had the fact of the mortgage been pleaded before the Arbitral Tribunal initially, it may have never accepted the undertaking offered by the Appellant.
The Court thereafter whilst placing reliance on a decision of the Bombay High Court held that the scope of the Arbitral Tribunal’s power under the amended Section 17 is similar to that of a court’s under Section 9 of the Arbitration Act.[iii] That being the case, the Court held that in an appeal filed under Section 37(2), it could interfere with the Second Interim Order only if the discretion exercised by the Arbitral Tribunal was found to be perverse or contrary to law. The Court also held that the scope of judicial review under Section 37 was limited. In view of these findings, the Court came to a finding that there was no infirmity in the exercise of discretion by the Arbitral Tribunal and accordingly dismissed the appeal.
Conclusion:
This decision now operates as an exception to the general principle that an Arbitral Tribunal has no power to review or recall its own decision. It is pertinent that the Delhi High Court did not directly decide a contention raised by the Appellant that the Arbitral Tribunal does not have any power under the Arbitration Act to review or recall its own decision. However, by dismissing the appeal against the Second Interim Order, the Delhi High Court has upheld the proposition that an Arbitral Tribunal may review or recall its decision under Section 17 of the Arbitration Act when the circumstances warrant such review or recall.
REFERENCES:
[i] Please see State of Arunachal Pradesh v. Damini Construction Co. [(2007) 10 SCC 742] for a discussion on the scope of Section 33 of the Arbitration Act; also see Srei Infrastructure Finance Limited v. Tuff Drilling Private Limited [(2018) 1 SCC 470] on recall of order passed under Section 25(a) of the Arbitration Act.
[ii] Order dated 20th January 2020 passed in Arb. A. Comm. 4 of 2019; also available at 2020 SCC OnLine Del 300.
[iii] Shakti International Private Limited v. Excel Metal Processors [(2017) 3 AIR Bom R 388].
