Arbitration: Explains Maintainability, Cause of Action & Relief Sought Under Section 9

Cause Title : M/s Suryapushpa Distributors vs Rail Land Development Authority, Delhi High Court, O.M.P.(I) (COMM.) 213/2022 and I.A. No. 14394/2022

Date of Judgment/Order : 13.01.2023

Corum : Hon’ble Mr. Justice Chandra Dhari Singh

Citied: 

1. M/S Inter Ads Exhibition Pvt Ltd vs. Busworld International Cooperatieve Vennotschap Met Beperkte Anasprakelijkheid, 2020 SCC Online Del 2485
2. Firm Ashok Traders vs. Gurumukh Das Saluja, (2004) 3 SCC 155
3. Hindustan Construction Co. Ltd. vs. Union of India, (2020) 17 SCC 324
4. Adhunik Steels Ltd. vs. Orissa Manganese and Minerals (P) Ltd., (2007) 7 SCC 125
5. Arcelormittal Nippon Steel (India) Ltd. vs. Essar Bulk Terminal Ltd., (2022) 1 SCC 712

Background

The respondent, being a statutory authority under the Ministry of Railways, is responsible for creating assets for the Indian Railways by developing vacant railway land for commercial use. For the said purpose, the respondent issued a Request for Proposal Notice for grant of lease for the purposes of commercial development on railway land admeasuring 35,127 sq. mtrs. The petitioners bid for the grant of lease for the commercial development of the said railway land and succeeded in their bid. The petitioners made a payment of Rs. 1,00,00,000/- as bid security to the respondent and were liable to pay a sum of Rs. 23,76,26,303/- to the respondent as the first installment of the Lease Premium, within 60 days from the issuance of the LoA. The Petitioners claimed that they found encroachers on the land and requested the respondent that, since the title of the land in question was not clarified and the same remains encroached, status quo may be maintained with respect to the LoA and an extension of 120 days may be granted to them for the payment of the first installment towards Lease Premium.

The respondent reiterated that the petitioners had to make the payment of the first installment on or before 8th July 2022, failing which the LoA would be cancelled and security would be forfeited.

Subsequently, the Petitioners filed an application under Section 9 of the Arbitration and Conciliation Act, 1996, to inter-alia restrain the Respondents from terminating the LOA till the Respondent make available the land under reference, free of all encumbrances.

Judgment

The question before the High Court was whether the instant suit is maintainable under Section 9 of the Arbitration Act  which turned upon the following considerations:-

I. Whether the dispute there arose any cause of action till the filing of the instant petition.

II. Whether the relief sought may be granted under Section 9 Arbitration Act proceedings.

On the issue of cause of action, the High Court observed that it is pertinent to see that the petitioners have filed the instant petition on the basis of a Notice/reply dated 1st July 2022, whereby the respondent had intimated the petitioners that upon failing to furnish the payment of the first installment towards the Lease Premium, on or before 8th July 2022, as decided amongst the parties, the LoA may be terminated and the bid security amount paid shall be forfeited. At this stage, there were only communications that were flowing between the parties regarding the alleged encroachment and the payment of the first installment. None of the party took any steps towards the performance of the agreement or the LoA.

However, apart from the Notice/reply by the respondent there was nothing to substantiate the apprehension of the petitioners, neither anything in derogation or contravention of the LoA was done by the respondent. The communication made by the respondent was a mere reminder to the fact that the petitioners were liable to make the payment of the installment of the Lease Premium within the stipulated time failing which the action in accordance with the terms of the LoA would be taken.

Based on the above  arguments, the High Court held that at this stage, no cause of action has actually and substantially arisen between the parties which could have given effect to the reliefs sought by the petitioner. An anticipation of an action does not give rise to sufficient cause of action to grant the reliefs that have been sought by the petitioners. Till the time of filing of the instant pleadings, there was no dispute of arbitrable nature that could have given rise to the right/claim under Section 9 of the Arbitration Act.

On the issue of maintainability, the High Court referring to the judgment in Firm Ashok Trader (supra) observed that as per law, while an application under Section 9 seeking interim relief is maintainable even before commencement of arbitral proceedings, the party invoking Section 9 must be able to satisfy the court that the arbitral proceedings are actually contemplated or manifestly intended. and are positively going to commence within a reasonable time. What is a reasonable time will depend on the facts and circumstances of each case and the nature of interim relief sought for would itself give an indication thereof. The distance of time must not be such as would destroy the proximity of relationship of the two events between which it exists and elapses. In the instant case, the petitioners served two notices upon the respondent whereby they conveyed their inability to make the payment of Lease Premium within the stipulated time. However, in none of the communications the petitioners conveyed their intention to invoke arbitral proceedings against the respondent. In fact, there were no disputes that were amenable to be adjudicated by way of arbitration proceedings under the Arbitration Act.

On the issue of interim relief, the High Court opined that the key word used in the provision is “interim”, the literal meaning of which is “in the intervening time” or “provisional”. Interim relief is granted in aid of final relief. The object is to ensure protection of the property being the subject-matter of arbitration and/or otherwise ensure that the arbitration proceedings do not become infructuous and the arbitral award does not become an award on paper, of no real value. Therefore, the primary consideration while passing the order is to see whether irreparable harm is likely to be caused to the party seeking the relief, while bearing in mind that granting such relief shall not render the final relief or the entire proceedings infructuous. Such a measure can certainly not be granted beyond the scope and mandate of Section 9 and in the nature of a final order/relief.

In view of the above, the High Court decided that the prayer (a) sought by the petitioners, is not found fit to be granted under Section 9 of the Arbitration Act, since the prayer that the respondent shall be restrained from taking any action in terms of their Notice/reply dated 1st July 2022 is a relief in the nature of permanent injunction/relief and hence, beyond the scope of Section 9 of the Arbitration Act.