Bombay High Court Grants Interim Relief To Aggrieved Partner Under A&C Act Due To Detrimental Conduct Of Business Partner

Bombay High Court Grants Interim Relief To Aggrieved Partner Under A&C Act Due To Detrimental Conduct Of Business Partner

In a recent ruling, the Bombay High Court addressed disputes between partners of a construction firm, focusing on adherence to a status quo order and the need for interim measures.

The case involved rival petitions before Justice Arif S. Doctor, filed by a petitioner and respondents 1 and 2 against respondent 3, a construction company (Firm). The petitioner alleged that respondents 1 and 2 were mismanaging the firm's business to his detriment. The parties had referred their dispute to arbitration per their partnership deed, leading to the appointment of a sole arbitrator by the court. A status quo order was issued, effective until the arbitration's final decision. The petitioner violated this order by commencing construction at the firm's property, prompting the court to dismiss his petition. Conversely, the respondent's petition for appointing a court receiver to protect the firm's property was granted.

The petitions arose from the same order and involved common parties and issues. The first petition, Commercial Arbitration Petition (L) No. 33385 of 2023, was filed under Section 9 of the Arbitration and Conciliation Act, 1996 (Act), seeking the appointment of a Court Receiver. The second, arbitration petition No. 100 of 2024, was filed under Section 37 of the Act.

The petitioner had initially invoked arbitration under their partnership deed and later sought a court receiver under Section 9 of the Act and an arbitrator under Section 11. The Court appointed a sole arbitrator in 2020, issuing a status quo order requiring respondent 1 to adhere to the partnership deed until the final award. Despite this, respondent 1 proceeded with construction activities at a Virar property, violating the order. This led the petitioner to apply for a court receiver.

The Court emphasized the scope of judicial interference under Section 37(2)(b) of the Act, citing precedents such as Elster Instromet B.V. v. Mrunal Gandhi and others. It stated that:

• Judicial interference is limited to instances where the Tribunal acts arbitrarily or violates legal principles.

• The Court cannot reassess materials or micromanage Tribunal proceedings if the Tribunal has acted judiciously and reasonably.

Upon reviewing the Tribunal’s order, the Court found that the Tribunal had made a plausible decision based on the evidence, and there was no basis for reassessing the material.

The Court also noted that allowing respondent 1 to continue construction on the Virar property would violate the partnership deed and previous statements. Respondent 1 had failed to justify his actions or the development agreement for the property.

Thus, the Court dismissed Arbitration Petition No. 100 of 2024. However, it allowed Commercial Arbitration Petition (L) No. 33385 of 2023, granting the appointment of a Court Receiver to safeguard the Virar property due to respondent 1's disregard of the Tribunal's order. This decision aligns with the Supreme Court's ruling in Arcelormittal Nippon Steel (India) Ltd. v. Essar Bulk Terminal Ltd., which supports interim relief when no adequate remedy is available under Section 17 of the Act.

The Court appointed the High Court, Bombay, as the receiver for the Virar property, ensuring its protection until further orders.