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Case Reviews, The Law

Avantha Holdings Ltd V. Vistra ITCL India Ltd

Section 9 of the ACA gives the Court broad powers to grant interim orders before, during, or even after arbitration proceedings (but before the award is enforced).

By: Shivani Kharai, 4th year BBA LL.B (hons), CMR University, School of Legal Studies, Bangalore.

CASE NO: O.M.P. (I) (COMM.) 177/2020

BENCH: Hon’ble Mr. Justice C. Hari Shankar

COURT: High Court of Delhi

PETITIONER: Avantha Holdings Limited

RESPONDENT: Vistra ITCL India Limited

DATE OF JUDGMENT: 14 August, 2020

FACTS OF THE CASE

  • Avantha Holdings borrowed INR 1265 crores from a consortium of lenders (KKR, L & T, and BOI). Against the borrowing, it issued non-convertible debentures. To secure certain debentures, Avantha had pledged equity shares held by it in companies called CGP and BILT.
  • The respondent was the Debenture Trustee.

The dispute related to the invocation of the pledge and the consequent sale of the debentures by Vistra on the ground that Avantha committed numerous defaults.

  • The shares of CGIP were sold in the open market between July to November 2019. Some shares of BILT were sold on 15 July 2020 and some of it remained to be sold when the matter was heard. The sold shares were purchased by KKR and L&T.
  • Avantha filed an application under Section 9 Arbitration & Conciliation Act, 1996 for the grant of interim measures before the commencement of the arbitration proceedings. 
  • Among the grounds on which the reliefs were based included that, under an oral agreement, Avantha had been negotiating an extension of time for repayment of the debentures. Also, there was a conspiracy amongst Vistra, KKR, and others as a result of which the share prices were artificially depressed and then purchased.

ISSUE

  • Whether the Court under Section 9, at a pre-arbitration stage, can assume the jurisdiction of the arbitral tribunal?

RULES

Section 9, Arbitration & Conciliation Act, 1996

Interim measures, etc by Court, A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court:

(i) For the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or

(ii) For an interim measure of protection in respect of any of the following matters, namely:—

(a) The preservation, interim custody, or sale of any goods which are the subject-matter of the arbitration agreement;

(b) Securing the amount in dispute in the arbitration;

(c) the detention, preservation, or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorizing for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party or authorizing any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

(d) Interim injunction or the appointment of a receiver;

 (e) such other interim measure of protection as may appear to the court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.

JUDGMENT

The Court observed that while passing orders under Section 9, the Court is required to satisfy itself that: the applicant, before it, manifestly intends to initiate arbitral proceedings, the criteria for grant of interim injunction, which apply to Order 39 of the CPC, stands satisfied, and circumstances also exist, which renders the requirement of ordering interim measures an emergent necessity, which cannot await a Section 17 proceeding, before the arbitrator, or arbitral tribunal. 

It was further added that the court while exercising jurisdiction under Section 9, even at a pre-arbitration stage, cannot take over the jurisdiction of the Arbitral Tribunal.

CASE REFERRED

  • Khoobsurat Infra Pvt. Ltd. v. IDBI Trusteeship Services Ltd, July 3, 2020
  • Tindrel Financial Services Pvt. Ltd. v. Nemedy Leasing and Finance Ltd, 3 April, 2018

REFERENCES

  1. Arbitration and Conciliation Act, 1996
  2. Tariq Khan, 35 recent judgments passed by Indian Courts on Arbitration, BAR AND BENCH, (August 27, 2020, 5:46 PM), https://www.barandbench.com/columns/35-recent-judgments-passed-by-indian-courts-on-arbitration

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