A Single Judge Bench of Justice Prathiba M Singh of Delhi High Court has held that a petition under S 9 Arbitration and Conciliation Act, 1996 cannot be disposed of ex-parte, especially when coercive orders are being passed and observed,
“The power to pass ad-interim orders under Section 9 of the (Arbitration) Act are not in doubt. However, disposal of the petitions, without issuing notice and hearing the respondent as well as directing coercive orders of possession would be violative of the principles of natural justice.”
Case Background
The Court was dealing with a petition under Article 227 of the Constitution of India, challenging the trial court orders (impugned orders) disposing of 16 petitions filed by Volkswagen Finance Pvt Ltd (respondent) under Section 9 of Arbitration Act against New Morning Star Travels (petitioner).
These petitions were disposed of on the very first day of hearing, without notice being issued to the petitioner. The impugned orders also permitted the respondent to take possession of the vehicles of the petitioner.
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The dispute between the two parties arose out of a loan-cum-hypothecation agreement which contained an arbitration clause. Section 9 petitions over coercive orders were filed following a default by the petitioners in payment of certain installments of the loan to the respondent.
The primary grievance of the petitioner was the Section 9 petitions were disposed of without notice and coercive orders of possession were passed ex parte.
After perusing the impugned orders, the Court stated that Section 9 petitions cannot be disposed of ex-parte, without giving notice to the other party, especially when coercive orders are being passed.
The Court said that the standards to be adopted for grant of interim measures over coercive orders under Section 9 are akin to the standards that are applied for grant of interim injunction under Order XXXIX, Rules 1 and 2 of the Code of Civil Procedure (CPC) and for appointment of a Receiver under Order XL CPC. The judgment reads,
“..the grant of ex-parte injunctions, ex-parte interim measures or appointment of Receivers at the ex-parte stage would be governed by principles akin to Order XL CPC wherein there has to be a grave and imminent apprehension that the property would not be able to be retrieved if notice is issued. The appointment of Receivers at the ex-parte stage in matters such as vehicle loans ought to satisfy the test of imminent threat…”
The Court also recorded the detailed guidelines issued for seizure of vehicles under Section 9 petitions by the Madras High Court in Cholamandalam DBS Finance Ltd. v. Sudheesh Kumar.
Considering that the vehicles involved in the present case were luxury buses and that the trial court could not have presumed that the petitioner would not be willing to make the payment, the Court held that the trial court ought to have issued notice to the petitioner, afforded a hearing, and then passed appropriate orders in accordance with law.
“The matters shall be heard on merits, after completion of pleadings. If any other instalments are due under the loan agreement, the ld. District Judge shall pass orders, in accordance with law after hearing the petitioner. Broadly speaking, the guidelines set out in Cholamandalam (supra) [by Madras High Court] may be followed in case of Section 9 petitions relating to vehicle loans“, the Court said.
The impugned orders were thus set aside by the Court.
