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State Bank Of India v. Ericsson India Private Limited And Others
Factual and Procedural Background
An arbitration dispute arose between unsecured creditors (claimants) and debtors. The Arbitral Tribunal, acting under Section 17 of the Arbitration and Conciliation Act, 1996, issued an interim order restraining the claimants and their heirs from alienating, encumbering, or transferring any of the debtors’ assets without the Tribunal’s permission, citing balance of convenience and irreparable injury. This interim measure was upheld by the Bombay High Court under Section 37 of the same Act (2018 SCC OnLine Bom 550). Secured creditors, who were not parties to the arbitration, challenged these orders before the Supreme Court, leading to the present decision.
Legal Issues Presented
- Whether an Arbitral Tribunal can, through an interim order under Section 17 of the Arbitration and Conciliation Act, 1996, restrain third-party secured creditors who are not parties to the arbitration from exercising their statutory remedies.
- Whether the impugned interim order, purportedly analogous to an attachment under Order 38 Rule 5 of the Civil Procedure Code, 1908, satisfied the procedural requirements of Order 38 Rules 5 and 10 CPC.
Arguments of the Parties
Appellants (Secured Creditors)
- They were not parties before the Arbitral Tribunal, yet the interim order purported to bind them.
- The order, akin to one under Order 38 Rule 5 CPC, was issued without complying with the mandatory conditions of Order 38 Rules 5 and 10 CPC.
- The Tribunal’s order impermissibly curtailed their statutory rights as secured creditors to proceed against the debtors’ assets.
Respondents (Unsecured Creditors / Claimants)
- Supported the impugned orders and contended that any sale by secured creditors must be conducted strictly in accordance with law.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| 2018 SCC OnLine Bom 550 | High Court’s confirmation of the Arbitral Tribunal’s Section 17 order. | The Supreme Court reviewed and set aside this decision on the ground that the Tribunal lacked jurisdiction over third-party secured creditors and had not complied with Order 38 CPC. |
Court's Reasoning and Analysis
The Court held that an Arbitral Tribunal “has no jurisdiction to affect the rights and remedies of third-party secured creditors” while adjudicating disputes between unsecured creditors and debtors. It emphasized that, even if the Tribunal’s order were treated as analogous to an attachment under Order 38 Rule 5 CPC, the mandatory safeguards of Order 38 Rules 5 and 10—such as giving the affected party an opportunity to furnish security—had not been observed. Because the procedural prerequisites were unmet and the Tribunal lacked authority over non-parties, the interim measure could not stand. Consequently, both the Tribunal’s order and the High Court’s affirming judgment were set aside.
Holding and Implications
APPEALS DISPOSED OF; IMPUGNED ORDERS SET ASIDE.
Immediate Effect: Secured creditors may proceed against the debtors’ assets “in accordance with law,” unimpeded by the Arbitral Tribunal’s prior restraint. The Supreme Court expressly limited its decision to the validity of the interim order, leaving all other remedies of the parties intact. The judgment clarifies that arbitral interim measures cannot encroach upon the statutory rights of non-party secured creditors absent compliance with procedural safeguards.
Order
1. Leave granted. We have heard the learned counsel for the parties.
2. An arbitration dispute is pending between the unsecured creditors and the debtors. The Arbitral Tribunal passed an order under Section 17 of the Arbitration and Conciliation Act, 1996 restraining the claimants and its heirs from alienating, encumbering, transferring any of its assets without permission of the Arbitral Tribunal. The reason given for passing the order is balance of convenience and irreparable injury. The said order has been confirmed 2018 SCC OnLine Bom 550 by the High Court under Section 37 of the Arbitration and Conciliation Act, 1996.
3. The principal contention of the secured creditor(s), appellant(s) herein is that neither they are party before the arbitrator nor the order which purports to be akin to Order 38 Rule 5 of the Civil Procedure Code has been passed by complying with the conditions under Order 38 Rules 5 and 10 CPC. It is also submitted that the secured creditors cannot be deprived of their statutory rights against the assets by the Arbitral Tribunal.
4. The learned counsel for the respondents have supported the impugned orders 2018 SCC OnLine Bom 550 by submitting that the sale by the secured creditors is to be in accordance with law.
5. There can be no dispute that the Arbitral Tribunal has no jurisdiction to affect the rights and remedies of the third party-secured creditors in the course of determining disputes pending before it. Moreover, the impugned order does not comply with the mandate of Rules 5 and 10 of Order 38 CPC. Thus, the impugned orders cannot be sustained and are accordingly set aside. It is, however, made clear that the secured creditors will proceed against the asset(s) of the debtor(s) in accordance with law. This order will not affect any of the remedies of either of the parties. We have not gone into any other issue except the validity of the impugned order.
6. The appeals are disposed of as above.
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