Scope of power of Court u/s 9 of Arbitration & Conciliation Act is not limited to parties to arbitration agreement & interim directions can be issued against third party: P&H HC

Read Order: M/s Beri Udyog Private Limited v. Jingansu World Agriculture Machinery Co. Limited and others

Monika Rahar

Chandigarh, January 11, 2022: In an arbitration matter where interim relief was sought against the party breaching an exclusivity clause of an agreement, the Punjab and Haryana High Court has held that the scope of power of a Court under Section 9 of the Arbitration and Conciliation Act, 1996 is not limited to parties to an arbitration agreement and interim directions can be issued against a third party, as well. 

The Bench of Justice Lisa Gill made this observation when two out of seven respondents argued for dismissal of the petition qua them on the ground that there was no privity of contract between the parties.

The petitioner, an Indian company manufacturing and distributing agricultural machinery, entered into an agreement dated December 15, 2016 with the first respondent, an agricultural machinery manufacturer Chinese company.

Under the said agreement, the petitioner was appointed as the exclusive distributor to import and sell Combine Harvester machines manufactured by first respondent in India. A breach of agreement was discovered by the petitioner and thus a notice of termination was issued in 2019. The matter was amicably resolved and MOU dated November 2, 2019 was executed withdrawing the termination. However, further continued breach was alleged by the petitioner. Hence, this petitioner under Section 9 of the Arbitration and Conciliation Act, 1996 was filed seeking injunction against respondents. 

The petitioner’s counsel argued that there was an exclusivity arrangement arrived at between the petitioner and the first respondent, at the time of execution of the Agreement. It was also submitted that owing to this breach, first respondent agreed to release Rs. 2.5 crore as damages in terms of the MOU. It was submitted that admission of the first breach by the first respondent was itself sufficient to indicate the first respondent’s mala fide intention. It was contended that all the other respondent entities were either incorporated for the purpose of procuring and facilitating the breach. It was also argued that with the execution of the MOU, term of the Agreement also extended. 

Addressing all these submissions the Court observed that a bare reading of the MOU revealed that the Agreement stood revived and the tenure of the Agreement was not extended. Further, that the terms and conditions of the Agreement would continue to subsist for its tenure subject to terms and modifications agreed as per the MOU. It was noted that the MOU was agreed to subsist at the option of the petitioner till the compensation was paid in its entirety and even beyond the tenure of the Agreement. The Court also observed that the petitioner started complaining of breach of MOU from March,2020 but the present petition was filed in September,2021 in which notice of motion was issued by a Coordinate Bench but ex parte interim relief was not afforded at that stage though notice regarding stay was issued. 

About Section 9, the Court said,“Doubtlessly, petitioner has a right to approach under Section 9 of the Arbitration Act, seeking interim measures, but for seeking injunctive relief, it is incumbent upon the petitioner to prove that a prima-facie case is made out in the petitioner’s favour and that irreparable loss or damage would be caused, in case, injunction is not granted and moreover balance of convenience is in favour of the petitioner.”

The petitioner’s counsel sought to explain this delay by submitting that it took it long to collect all the needed material and documents for proving the delay. This was not found to be plausible by the High Court.

The Bench opined that the petitioner was not entitled to the injunctive relief because after the MOU was entered into, the alleged breach was admittedly brought to first respondent’s notice by the petitioner in March,2020 at the first instance. 

Further, it was not denied that the petitioner did not take any steps from March,2020 till the filing of this petition in September,2021 for the relief as sought. Tenure of the agreement came to an end on December 15, 2016. 

The Court observed further that prayer in the present petition was not for injuncting first respondent from appointing any dealer, distributor or stockiest etc., in terms of Clause 2.4 of the agreement but for restraining first respondent from supplying of the combine harvesters or any other form of agricultural equipment to any other person, dealer or distributor. 

“Relief under Section 9 of the Arbitration Act, is admittedly a discretionary relief to be guided by the principles of the Specific Relief Act”, said the Bench. 

Therefore, inordinate delay on the part of the petitioner was found to be indeed fatal to its cause as even the period of two years after the expiry of agreement dated December 15, 2016, would be over on December 15, 2021.

The respondent also argued regarding the petition not being accompanied with the statement of truth in terms of the Commercial Courts Act. The Court noted in this respect that even if a petition under Section 9 of the Arbitration Act, is ultimately held to be governed by the said provisions, it would only be a curable defect and an opportunity can always be afforded to the party to cure the same in a given situation.

Thus, the petition was dismissed.