Central Depositories Services (India) Limited v. Ketan Lalit Shah

12) Mr. Dwarkadas, learned Senior Counsel for the Petitioner submitted as under: i. Since Arbitral proceedings were terminated, no remedy was available to the Petitioner under the provisions of the Act and hence, the Petition is maintainable under Article 226 of the Constitution of India. ii. Tribunals cannot be equated with Courts of law and they do not have plenary powers. Procedural provisions cannot trump substantive law. An Arbitral Tribunal not being a Court of law does not have general jurisdiction and does exist in perpetuity. Section 19 of the Act does not confer jurisdiction on the Arbitral Tribunal to override the provisions of Section 32(2)(a) read with Section 32(3) of the Act which are substantive in nature. iii.The operative part of the impugned order results in termination of mandate of the Arbitral Tribunal and would therefore, override the liberty purported to have been reserved in the impugned order. iv. An Arbitral Tribunal assumes jurisdiction as per the provisions of the Act and terminates either with passing of the final award under Section 32(1) of the Act or by an order of the Arbitral Tribunal under Section 32(2) of the Act. Thus, the jurisdiction of the Tribunal is coterminus with the life of the arbitral proceedings. v. The Arbitral Tribunal could have only passed an order permitting withdrawal of the claim and thereafter, the Arbitrator is rendered functus officio, thus, has no jurisdiction to grant liberty to file fresh proceedings. vi. Even assuming while denying that principles underlying Order 23 of the Civil Procedure Code, 1908 (‘CPC’) could be invoked, the Civil Court would not have jurisdiction to grant liberty to institute a fresh suit on the grounds mentioned in the impugned order. vii. The impugned order to the extent that it grants liberty to file fresh arbitral proceedings causes irreparable injury and prejudice to the Petitioner. The Petitioner has a legitimate interest in obtaining a final settlement of the dispute.

13) Mr. Dwarkadas relied upon the following citations in support of his arguments: a) Anuptech Equipments Private Ltd. v. Ganpati Cooperative Housing Society Limited & Ors.[1] b) Ganpati Co-operative Housing Society Limited v. Anuptech Equipments Private Ltd. & Ors.[2] c) Vimal Madhukar Wasnik (Dr.), Nagpur v. Sole Arbitrator[3] d) Dowell Leasing & Finance Ltd. v. Radheshyam B. Khandelwal & Ors.[4] e) S.K. and Associates and Anr. v. Indian Farmer and Fertilizers Co-operative Ltd., Allahabad & Anr.[5] f) Union of India v. Indian Agro Marketing Co-operative

Ltd.[6] g) Harinarayan G. Bajaj v. Sharedeal Financial Consultants Pvt. Ltd. & Anr.[7] h) MS Vag Educational Services v. Aakash Educational i) Hyderabad Metropolitan Development Authority, Rep. By its Metropolitan Commissioner and Anr. v. Ramky Elsamex Hyderabad ring Road Limited, rep. By its j) Maharashtra State Electricity Board v. Datar Switchgear Ltd.10 k) K.S.Bhoopathy & Ors. v. Kokila & Ors.11 l) V. Rajendran & Anr. v. Annasamy Pandian (Dead) Thr. LR Karthyayani Natchiar12 m) HPCL Bio-Fuels Ltd. v. Shahaji Bhanudas Bhad13 n) Taj Ahmad v. State of U.P. Thru Secy & Ors.14

11 (2000) 5 Supreme Court Cases 458 12 (2017) 5 Supreme Court Cases 63 o) Awaneesh Chandra Jha v. Anil Prasad Nanda15 p) Paira Ram & Anr. v. Ganesh Dass & Ors.16 q) R.S. Jiwani (M/S.), Mumbai v. Ircon International Ltd., Mumbai17 r) Sewpujanrai Indrasanrai Ltd. v. Collector of Customs and Ors.18 s) R. Jeevaratnam v. State of Madras19 t) Gajendra Prasad Saxena v. State of U.P. & Ors.20 u) Kamal K. Singh v. Union of India, Through the Ministry of Corporate Affairs & Ors.21 v) Roger Shashoua & Ors. v. Mukesh Sharma & Ors.22 w) Union Bank of India v. Rajat Infrastructure Private Limited & Ors. And Sunview Assets Private Limited23 14) Mr. Tamboly, learned counsel for the Respondent/s- Claimant/s submitted as under:

I. The Petitions are not maintainable. Interference of the High Court under Article 226/227 of the Constitution of India is permissible only in exceptionally rare cases.

II. The order terminating arbitral proceedings under

Section 32 of the Act can be challenged before a Court of competent jurisdiction under Section 14 of the Act. III.The Indian Evidence Act, 1872 and the Code of Civil Procedure, 1908 are applicable to arbitral proceedings. In any case, under Section 19 of the Act, the Arbitral Tribunal can lay down its own procedure.

15) He placed reliance on the following judgments: a) Bhaven Construction through Authorised Signatory Premjibhai K. Shah v. Executive Engineer, Sardar Sarovar Narmada Nigam Limited and Anr.24 b) IDFC First Bank Limited v. Hitachi MGRM Net 24 (2022) 1 Supreme Court Cases 75 c) Akash Automobiles v. Mahindra & Mahindra Ltd.26 d) Deep Industries Limited v. Oil and Natural Gas Corporation Limited & Anr.27 e) Hindustan Petroleum Corporation Limited, Through its Authorized Representative Gangandeep Singh Sodhi v. Om Construction, Through its Sole Proprietor Satya Pal Yadav & Ors.28 f) SBP & Co. v. Patel Engineering Ltd. & Anr.29 g) Tagus Engineering Private Limited & Ors. v. Reserve Bank of India & Ors.30 h) Lalitkumar V. Sanghavi (Dead) Through Lrs Neeta Lalit Kumar Sanghavi & Anr. v. Dharamdas V. Sanghavi & Ors.31 i) Prime Interglobe Private Limited v. Super Milk j) Rashmi Housing Private Limited v. Pan India

29 (2005) 8 Supreme Court Cases 618 30 (2022) 1 HCC (Bom) 115 k) HPCL Bio-Fuels Ltd. (Supra) l) Serosoft Solutions Pvt. Ltd. v. Dexter Capital Advisors Pvt. Ltd.34 m)Chandrakant Pandurang Shingade & Anr. v. Walchand Gulabchand Bora & Anr.35 n) Mario Shaw v. Martin Fernandez & Anr.36 o) M. S. Sanjay v. Indian Bank & Ors.37 p) Revajeetu Builders and Developers v. Narayanaswamy & Sons and Ors.38 q) Heeralal v. Kalyan & Ors.39 r) State of Goa v. Praveen Enterprises40

16) At this stage, the Petitioner brought to our notice that there was a prayer for amending the Petition in terms of the 'Draft Amendment' placed on record by the Petitioner, but the same has not been considered till date. By way of the 'Draft Amendment', the Petitioner essentially sought to amend original prayer (a) in the

Petition to add the words 'to the extent that it grants liberty to the Respondents to invoke fresh arbitration proceedings.’ Similarly, the Petitioner sought to delete prayer (b). The Petitioner thus, sought to amend pleadings corresponding to the prayers to the proposed amendment to the prayers. The original prayer was a challenge to the impugned order in its entirety and also seeking alternate relief in terms of directing the Arbitral Tribunal to hear and decide the arbitral proceedings on the basis of existing pleadings and the records as it stands on date. Mr. Tamboly objected to the amendments being allowed.

17) Heard the parties and perused the record with their assistance.

18) In so far as question (a) raised in paragraph number 3 herein is concerned, the law is well settled. In IDFC First Bank Limited (Supra), the Delhi High Court has enumerated certain circumstances wherein such type of petitions can be entertained. The relevant portion of the judgment reads as thus; “24. While there is no doubt that a remedy under Articles 226 and 227 are available against the orders passed by the Arbitral Tribunal, such challenges are not to be entertained in each and every case and the court has to be "extremely circumspect".

25. Recently, in Surender Kumar Singhal v. Arun Kumar Bhalotia, this Court, after considering all the decisions, of the Supreme Court has laid down circumstances in which such petitions ought to be entertained. The relevant portion of the said judgment reads as under:

(i) An Arbitral Tribunal is a tribunal against which a petition under Articles 226/227 would be maintainable.

(ii) The non obstante clause in Section 5 of the Act does not apply in respect of exercise of powers under Article 227 which is a constitutional provision.

(iii) For interference under Articles 226/227, there have to be 'exceptional circumstances’.

(iv) Though interference is permissible, unless and until the order is so perverse that it is patently lacking in inherent jurisdiction, the writ court would not interfere.

(v) Interference is permissible only if the order is completely perverse i.e. that the perversity must stare in the face.

(vi) High Courts ought to discourage litigation which necessarily interfere with the arbitral process.

(vii) Excessive judicial interference in the arbitral process is not encouraged.

(viii) It is prudent not to exercise jurisdiction under Articles

226/227.

(ix) The power should be exercised in 'exceptional rarity'

(x) Efficiency of the arbitral process ought not to be allowed to diminish and hence interdicting the arbitral process should be completely avoided."

19) A perusal of the above would show that it is only under exceptional circumstances or when there is bad faith or perversity that writ petitions ought to be entertained.

20) In Bhaven Construction (Supra), the Supreme Court held that the Arbitration Act is a code in itself and the phrase is not merely perfunctory, but has definite legal consequences. Section 5 of the Act is one such consequence, which limits the extent of judicial intervention in matters governed by Part I of the Act. The framework of the Act clearly portrays an intention to address most of the issues within the ambit of the Act itself, without there being scope for any extra statutory mechanism to provide just and fair solution. The use of term "only" as occurring under the provision serves two purposes of making the enactment a complete code and lay down the procedure. Further, paragraph 18 of the decision reads as thus;

21) The Delhi High Court has followed the same principles of law expounded in IDFC First Bank Limited (Supra) in Kelvin Air Conditioning & Ventilation System Private Limited v. Triumph Reality In its recent decision, in the matter of Serosoft Solutions Pvt. Ltd. (Supra), the Supreme Court has also considered the issue regarding the circumstances in which the High Court can correctly exercise its supervisory jurisdiction under Article 227 of the

Constitution of India. The Supreme Court while not finding any justification for interference by the High Court in the order passed by the Arbitral Tribunal in that case, reiterated the conditions for exercising jurisdiction under Articles 226/227 of the Constitution of India. The Supreme Court has in fact stressed on Conditions 5 and 6 of the decision in Kelvin Air Conditioning (Supra), which reads as thus: “(v) Interference is permissible only if the order is completely perverse i.e. that the perversity must stare in the face.

(vi) High Courts ought to discourage litigation which necessarily interfere with the arbitral process.

(vii) Excessive judicial interference in the arbitral process is not encouraged.

(viii) It is prudent not to exercise jurisdiction under Articles

226/227.

(ix) The power should be exercised in ‘exceptional rarity’ or if there is ‘bad faith’ which is shown.

(x) Efficiency of the arbitral process ought not to be allowed to diminish and hence interdicting the arbitral process should be completely avoided.” Thus, the Supreme Court has reaffirmed the law that interference under Articles 226/227 is 'permissible only if the order is completely perverse i.e. the perversity must stare in the face'. Conditions (vi) to (x) underscore the reason why the High Courts ought not to interfere with orders passed by the Arbitral Tribunal for more than one reason.

22) We looked into the impugned order to see if in fact there is any perversity in the decision of the Tribunal and hence, raised question (a) herein above. The claim/s were that of the Respondents herein. Pursuant to a view taken by the Arbitral Tribunal to disallow an amendment to the claim/s on the ground that the time for passing of the award was ending in May 2024, the Arbitral Tribunal offered two options to the claimant/s therein. The same is reflected in paragraph number 4 of the order dated 20th March 2024 passed by the Arbitral Tribunal. The Respondent/s-Claimant/s chose the option to withdraw the present claim and file a fresh claim instead of continuing with the existing claim. Obviously, the Respondent/s-Claimant/s would not have sought withdrawal simplicitor and it was only on the option offered by the Arbitral Tribunal that the Respondent/s-Claimant/s sought withdrawal of its claim with liberty to file afresh.

23) Per contra, the Petitioner has harped upon Section 32(2)(a) of the Act to say that the Arbitral proceedings shall be terminated where the claimant withdraws his claim, unless the Respondent to the proceeding objects the order of withdrawal and the Arbitral Tribunal recognizes the legitimate interest on its part on obtaining a final settlement of the dispute. A plain reading of the impugned order itself does not indicate any such recognition of a 'legitimate interest' of the Petitioner herein, sufficient to reject the request of the Respondent/s- Claimant/s to withdraw the claim. Section 32 of the Act declaring the termination of mandate of an Arbitral Tribunal is a consequence of withdrawal of a claim and is not a ground on which an objection to withdraw a claim can be sustained. In fact, paragraph A of the Speaking Order impugned herein, itself reveals clearly that the Arbitral Tribunal was alive to its mandate being terminated on withdrawal of the claim as the Tribunal notes that the Respondent/s-Claimant/s shall have to give a fresh notice of invocation of arbitration. In fact, we are informed that pursuant to the said order, Ketan Shah has already addressed a letter to the Arbitral Secretary and CDSL seeking to file fresh arbitration proceedings in terms of the liberty granted by the impugned order. Thus, the Respondent/s-Claimant/s have already invoked the arbitration clause as contemplated under Section 21 of the Act. In response, the CDSL has conveyed to Ketan Shah that since the present petition was sub judice appointing Arbitral Tribunal afresh would render the present Petitions infructuous and hence has not acted any further on the invocation.

24) Order 23 of the CPC provides for withdrawal and adjustment of suits and under Sub-rule (3) the Court has discretion to permit the plaintiff to withdraw a suit or part of a plaint in the suit with liberty to institute a fresh suit in respect of the subject matter of such suits or part of the claim. Similarly, section 19 of the Act provides for determination of rules of procedure. The Arbitral Tribunal undoubtedly is not bound by the CPC or the Indian Evidence Act, however, failing any agreement on the procedure to be followed in conduct of the proceeding, the Arbitral Tribunal has the power to determine conduct of the proceeding in the manner it considers appropriate. The Tribunal has observed in paragraph 7 of the impugned order that in view of the massive fraud committed by Anugrah and to ascertain the exact amount of securities lost by the Respondent/s-Claimant/s it would be fair to allow them to withdraw the existing arbitration applications with a liberty to file fresh proceedings. Furthermore, the Respondents' (Petitioner herein) contentions to raise objections regarding limitation, res judicata, etc. are left open to be agitated in case such fresh arbitral proceedings are invoked. In these circumstances, there is no glaring perversity, least of all of a kind which 'stares in the face' in the order impugned herein, to justify any interference in the impugned order. In any case, there is no counter claim of the Petitioner herein in the arbitral proceedings and the Petitioner has no legitimate interest to claim a final award. As such, the impugned order does not cause any prejudice or irreparable damage to the Petitioner.

25) We have also gone through the decisions cited on behalf of the Petitioner. We agree with the ratios laid down in those decisions. There can be no dispute that the powers of the High Court to issue Writs under Articles 226/227 of the Constitution of India is a basic feature of the Constitution and it cannot be curtailed by parliamentary legislation, in this case, Section 5 of the Act, however, this power is to be exercised in exceptional rarity where one party is left remedy less or clear bad faith is shown by one of the parties. We are satisfied that the facts in the present case do not comprise such 'exceptional rarity' to justify any interference. There is also no doubt that once the proceedings are terminated, the Arbitral Tribunal is rendered functus officio and has no jurisdiction to continue with the proceedings. We have perused the decisions relied upon by the Petitioner on this point also. In this regard, we note that the Arbitral Tribunal itself has declared that the Respondent/s-Claimant/s shall have to give a fresh notice of invocation of arbitration if the claimant decides to initiate fresh proceedings after withdrawal. Thus, the Arbitral Tribunal is under no misconception of enjoying a continued mandate and to remain seized of the arbitral proceedings even after withdrawal of the claim. Section 32 of the Act as canvassed by the Petitioner, is a consequence of termination of mandate and not a restriction on the power of the Arbitrator to permit withdrawal of claim. In this view of the matter, the decisions cited by the Petitioner do not carry the case of the Petitioner any forward.

26) In view of the foregoing discussion, question (a) is answered accordingly. We do not find any perversity in the impugned order to warrant interference in the same, in exercise of our jurisdiction Articles 226/227 of the Constitution of India. The order does not depict any bad faith and no case of extreme rarity seems to exist either. In this view of the matter, the need to determine question (b) does not arise.

27) Therefore, we do not find any reason to interfere with the impugned order. The Petitions are dismissed.

28) Rule is accordingly discharged. In view of the same, the draft amendment is rendered infructuous and accordingly disposed.

29) All parties to act on an authenticated copy of this Judgment. (DR.

NEELA GOKHALE, J.) (REVATI MOHITE DERE, J.)

1) At this stage, after the Judgment is pronounced, Mr. Dwarkadas, learned Senior Counsel for the Petitioner, seeks stay of this Judgment.

2) For the reasons that we have recorded, the request is rejected. (DR.

NEELA GOKHALE, J.) (REVATI MOHITE DERE, J.)