Rajiv Sahai Endlaw, J.— IA No. 8776/2007 (of the respondent u/s. 9 of the Arbitration Act, 1996) in OMP No. 10/2007 (U/s. 34 of the Arbitration Act, 1996)
1. Mr. Pradeep Jain, Director of the petitioner company is present in compliance to the directions on the last date. The objection of the counsel for the petitioner that the application under Section 9 ought to have been filed by way of an independent OMP has already been rejected on the last date. The counsel for the parties have been heard.
2. The petitioner has preferred this petition under Section 34 of the Act with respect to a unanimous arbitral award dated 28th September, 2006 of a arbitral tribunal comprising of nominees of each of the parties and the third arbitrator appointed by this court vide order dated 12th December, 2002 in an application under Section 11 (6) of the Act. It is not in dispute that under the said award as on the date of filing of this application, a sum of approximately Rs. 60 lacs is due from the petitioner to the respondent.
3. The respondent has filed this application seeking interim measures during the pendency of this petition and till the award is enforced. It is contended that the petitioner is a closely held Private Limited Company; that the share holders and Directors of the petitioner company, with a view to defeat the award against them, have set up another company namely M/s. Bio Veda Research Laboratory Private Limited and have been siphoning off the business of the petitioner company to the said other company, to in the event of the petition being decided against the petitioner, making the execution of the award as a decree a virtual impossibility. It is contended by the respondent that if the petitioner succeeds in its designs, even in the event of the respondent succeeding in these proceedings would be left with a paper award or decree.
4. The petitioner has filed a reply to this application. Though it is not disputed therein that the share holders and Directors of the petitioner company are also the share holders and Directors and in control of the other company namely M/s. Bio Veda Research Laboratory Pvt. Ltd. but it is denied that any case of siphoning off the assets is made out. It is contended that the other company was incorporated as far back as in July, 1999 and it is not as if the other company was incorporated after the arbitral award.
5. The counsel for the petitioner has today urged that the respondent has not been able to make out any case of diversion of funds/siphoning off assets. It is also urged that an application under Section 9 of the Act is generally filed before the making of the award and ought not to be entertained at this stage. It is next contended that for the respondent to be entitled to any interim measures, it has to pass the same tests as under Order 39 Rules 1 and 2 of the CPC, i.e of prima facie case, irreparable injury and balance of convenience. It is urged that the respondent has no prima facie case; the arbitral award allows escalation to the respondent inspite of there being no clause for the same in the agreement; it is stated that the arbitrators have allowed other claims which were not certified by the architect and which was prerequisite for the said claims being entertained/allowed. The counsel for the petitioner has in this regard relied upon Maharwal Khewaji Trust (Regd.), Faridkot v. Baldev Dass, AIR 2005 Supreme Court 104, Adhunik Steels Limited v. Orissa Manganese and Minerals Private Limited, AIR 2007 Supreme Court 2563 and Transmission Corporation of A.P Limited v. Lanco Kondapalli Power (Private) Limited, (2006) 1 SCC 540.
6. As far as Maharwal Khewaji Trust (Regd.), Faridkot is concerned, that was a case of interim orders in appeal. The Supreme Court therein inter alia held that without a case of irreparable loss being made out, injunction could not be granted merely on the ground of the legal proceedings likely to take a long time. In Adhunik Steels Limited, the principal laid down is of applicability of the principles of order 39 rules 1 and 2 cpc to an application under Section 9 of the Act. Transmission Corporation of A.P Limited also holds that an applicant to a petition under Section 9 of the Act must show a prima facie case irreparable injury and balance of convenience in his favour.
7. There can be no doubt as to the proposition of the touch stone on which the interim measures under Section 9 of the Act can be granted. However, in the present case, as far as ingredient of the prima facie case is concerned, once an arbitral tribunal has found a case in favour of the respondent by a unanimous award, inspite of the constitution aforesaid of the arbitral tribunal, two members whereof were technical persons and the third a retired Judge of this court, that is deemed to be sufficient for the purpose of prima facie case. The counsel for the respondent has rightly contended in this regard that the scope of interference under Section 34 of the Act is limited.
8. As far as the ingredient of irreparable injury is concerned, it is the averment of the respondent in its application that the business of the petitioner company was of the volume of Rs. 43,66,000/- for the year ending 31st March 2004 and has fallen to Rs. 5,78,000/- for the year ending 31st March 2005. The same is a substantial fall in business. No explanation whatsoever is given in the reply filed or even today for the same. On inquiry, the counsel for the petitioner on instructions from the Director of the petitioner present in the court has stated that the business of the two companies i.e the petitioner and the other company is to a certain extent parallel with both dealing in same goods/business. Once that is the position, and considering that the disposal of petitions under Section 34 of the Act takes considerable time owing to huge pendency in this court, the apprehensions of the respondent of the petitioner in the interregnum managing its affairs in a manner to reduce the award/decree to be a paper one only, cannot be said to be unfounded. The petitioner is a closely held company. Once it is admitted that the persons behind the petitioner are carrying on the same business under the cloak of the other company also, it cannot be said that in the event of the petitioner s business being reduced to minimal, the respondent will not suffer any irreparable injury. The respondent in such case even after succeeding before the arbitral tribunal and in the event of succeeding before this court would be unable to recover its monies. It is also the contention of the respondent that with the aforesaid motives the business of the other company is multiplying by leaps and bounds. I have inquired from the counsel for the petitioner the figures of the business of the other company for the previous years. The counsel or the Director of the petitioner present in court are unable to give the same.
9. In the circumstances even though the contention of the petitioner is correct that the other company does not appear to have been incorporated for the purposes of siphoning of the business and appears to have been in existence since about one year after the award of contract from which disputes have arisen, still a case of irreparable injury is made out.
10. The last ingredient is of balance of convenience. During the course of hearing, it has transpired that the petitioner had awarded to the respondent the contract of construction of its factory premises at D-97, 98, 105 and 106 Noida, UP. On inquiry the counsel for the petitioner after obtaining instructions states that the said factory premises continues to be in the name of the petitioner and is unencumbered. In my view the balance of convenience is in directing interim measures securing the monies if ultimately found due to the respondent out of the said properties. Nothing has been pointed out that the petitioner will suffer any injury if such interim measures are directed.
11. The counsel for the petitioner has lastly relied upon National Aluminium Co. Ltd. v. Pressteel and Fabrications (P) Limited, (2004) 1 SCC 540 to contend that no condition can be imposed while issuing notice of the application under Section 34 of the Act and also in support of the proposition that merely because petition under Section 34 of the Act remains pending in long is no ground for such interim measures to be ordered.
12. This court is not imposing any condition (on the petitioner) to the maintainability of petition under Section 34. Only on finding a case in favour of the respondent under Section 9 of the Act is the order being made.
13. The language of Section 9 is clear in this regard and allows the court to make interim measures even after the making of the award and till it is enforced. The counsel has drawn attention to Para 10 of National Aluminium Co. (Supra). However the same is also in the context of imposing conditions on the maintainability of petition under Section 34 and not in the context of Section 9 of the Act.
14. In the aforesaid circumstances, this application is disposed of by restraining the petitioner from alienating, encumbering or parting with possession of its aforesaid factory premises. It is informed that the petitioner is as of today in possession and control of the said premises. However considering that the value of the said premises may be much more than the award amount and the petitioner may be required to give security of the same for other purposes, the petitioner is given liberty to apply to this court for variation of this order in the event of such requirement.
The application is allowed in above terms.
GMP No. 10/2007
Pleadings are complete. Arbitral record has been received.
List in the category of Finals as per its turn.