Court Empowered To Grant Money Claim Under Section 9 Of A&C Act On Basis Of Admitted Claim: Bombay High Court

The Bombay High Court has stated once more that the rules of the Code of Civil Procedure, 1908 do not have the same scope of authority as Section 9 of the Arbitration and Conciliation Act, 1996 (A&C Act), which gives courts the authority to award temporary protective orders (CPC). It decided that in deciding an application under Section 9 of the A&C Act, procedural provisions listed in the CPC could not be used to overturn the award of temporary relief.

The bench of Justice Bharti Dangre determined that the Court has the authority to grant the applicants relief under Section 9 of the A&C Act based on an admitted claim or acknowledged liability. It was recognized that the Court is not constrained by the provisions of Order 38 Rule 5 of the CPC when contemplating a relief under Section 9.

For the redevelopment of his property, the respondent, Naseem Qureshi, hired the petitioner firm, JP Parekh & Son, as an architect. Letters of Appointment were then issued in favour of the petitioner.

Under Section 9 of the A&C Act, the petitioner filed a case before the Bombay High Court asking for a directive to the respondents to pay the fees due under the Letters of Appointment after the respondents failed to pay the petitioner's bills and terminated its services by appointing a new Architect.

Petitioner claims 

The petitioner, JP Parekh & Sons, asserted before the High Court that the respondents had violated the terms and circumstances of the Agreement while relying on the arbitration clause found in the Letter of Appointment. The petitioner's appointment as an architect was terminated by the respondents, it was stated, to get out of paying the petitioner's professional expenses.

The petitioner argued that temporary measures could also be granted by the Court specifically to secure the amount in dispute by citing Section 9(1)(ii)(b) of the A&C Act.

The petitioner claimed that there were strong odds of winning the arbitration proceedings because the respondent had acknowledged the amount due and payable under the bills it had issued. Therefore, it stated that even while no case was strictly formed within the scope of Rules Order 38, Rules 1 and 2 of the CPC, the same warranted the grant of interim measures pending the arbitration processes.

The petitioner's claim in the Section 9 application was in the form of a financial claim, according to the respondent Naseem Quresh, who argued that there was a contract between the nature of a service contract and the claim. It further stated that the Court could not order a particular performance because the parties' agreement could be determined.

The High Court concluded that the guiding principles for the use of an equivalent power under the Code of Civil Procedure must apply to the power to award interim remedies under Section 9 of the A&C Act (CPC). The Court further stated that it was improper to disregard the fundamental rules of procedural law outlined in the CPC when using the authority granted by Section 9. However, it decided that while determining an application under Section 9 of the A&C Act, procedural provisions listed in the CPC could not be used to overturn the grant of interim relief.

The bench further concluded that the Court must determine the applicant's clear intent to use the arbitral procedures at the time the Section 9 application is filed to exercise its authority to issue interim measures. It further stated that the applicant's obvious purpose to submit the matter to arbitration might be determined from the relevant circumstances, including the issue of the notification under the Act.

The High Court further stated that the authority granted to the Court under Section 9 is not unrestricted and is subject to several limitations; firstly, it can be used by the Court in the same way and to the same degree as it could about any prior proceedings. Second, the use of this power to create temporary arrangements should not conflict with any other authority that may be granted to the arbitral tribunal.

Cases 

The bench cited the Bombay High Court's ruling in Jagdish Ahuja & Anr. v. Cupino Ltd. (2020), which said that the court is not strictly bound by the rules of Order 38, Rule 5 of the CPC when deciding whether to grant relief under Section 9 of the A&C Act.

The Court also noted that the Bombay High Court's Division Bench had ruled in Valentine Maritime Ltd. v. Kreuz Subsea Pte Limited & Anr. (2021) that the arbitral tribunal had the authority to issue a temporary award granting money damages based on the other party's admitted claim and/or acknowledged liability.

The bench observed that the provisions of Sections 9 and 17 of the A&C Act are meant for protecting the subject matter of the dispute, until the arbitral proceedings result in an Award, noting that the power of the Court under Section 9 of the A&C Act is wider than the power under the provisions of CPC. It further stated that the Court is allowed to take into account whether denying such an order would seriously harm the parties who are requesting it.

The petitioner claimed that the respondents were, by their admission, spending their assets, which may make an award in the petitioner's favour a paper Award in the Section 9 application, which the court cited. The petitioner further argued that the respondents had agreed to pay the invoices it had submitted by the Letter of Appointment for its professional fees and other costs.

The bench determined that the petitioner's concerns were adequate to support its claim by using Order 38 Rule 5 of CPC because the respondents had not specifically contested the claims made by the petitioner regarding the amounts owed to it under the agreement.

Before the High Court, the respondent, Naseem Quresh, argued that while the party using section 9 need not have started the arbitration, it must be able to demonstrate to the Court that the arbitration was truly envisaged and was going to start within a reasonable amount of time.

The respondent contended that even though a year had passed between the time the termination notice was issued and the Section 9 application was submitted, the petitioner had not started any arbitration proceedings. Therefore, it contended that the relief under Section 9 could not be given since there was no evidence that the arbitral procedures were truly contemplated or intended.

The Court rejected the respondent's arguments, finding that Section 9 (2) of the A&C Act, as added by the 2015 Amendment Act, is a statute in and of itself that contemplates the beginning of arbitration proceedings within 90 days of the date of an order granting interim measures, or within such other period as the Court may determine.

The Court ordered the respondents to deposit the sum requested by the petitioner while maintaining that the power under Section 9 of the A&C Act is independent of the guidelines guiding the award of an injunction under CPC.

Analysis by court

"Thus, from the pleadings in the Petition, which are not traversed, it is clear that there is practically no defense payability ability of the amount, and since Respondent Nos.1 and 2 have already appointed new Developer through whom work is likely to be carried out, and on being satisfied that the prima-facie case exists in favour of the Petitioners and balance of convenience also lies in their favour, and irreparable loss would be caused to them if the amount is not placed, In the absence of any argument that the sum is not payable, I believe it is fair to give relief pending the start of the arbitration proceedings, which are scheduled to begin within 90 days of today."