Calcutta High Court Rules LLP And Its Partners Cannot File Separate Appeals Under Section 37 Of Arbitration Act

Calcutta High Court Rules LLP And Its Partners Cannot File Separate Appeals Under Section 37 Of Arbitration Act

In a recent decision, Justice Sabyasachi Battacharyya of the Calcutta High Court, has addressed the issue of whether an LLP and its individual partners can file separate appeals under Section 37 of the Arbitration and Conciliation Act. The Court ruled that the principle of res judicata applies, preventing individual partners from raising the same issues in separate appeals if a previous appeal filed in the name of the LLP was dismissed.

The arbitration in question was initiated by Gaurav Churiwal (Mr. Gaurav), a partner in Concrete Developers LLP (LLP), against the other partners (Appellants). One claim sought Mr. Gaurav’s induction as a partner, which became moot as he was already made a partner before the final award. Another claim challenged the financial statements for 2019-2020 and 2020-2021, which allegedly failed to account for the shares of Mr. Gaurav’s deceased father. The Arbitrator issued an interim order under Section 17 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), directing the Appellants to set aside ₹6,41,73,413 in a separate account until the arbitration's final adjudication.

The Appellants filed two separate appeals under Section 37 before the Calcutta High Court—one by the LLP and the other by the individual Appellants. The LLP's appeal was dismissed on November 24, 2023. The Appellants argued that this dismissal did not bar them from challenging the interim order, claiming that the LLP and the individual partners were distinct entities. They contended that the dismissal did not preclude them from raising all grounds in their challenge and alleged that the Arbitrator erred in not considering the LLP's liabilities and in directing the setting aside of assets without full examination of the Balance Sheet.

Mr. Gaurav countered by arguing that Section 37 should be interpreted in the context of Section 34 and that the interim order was justified given the risk of asset misappropriation. He maintained that the Arbitrator's decision was within the permissible scope of Section 37 and that the High Court should not substitute its own view for that of the Arbitrator.

The High Court examined whether the parameters of Section 34 of the Arbitration Act applied to Section 37. Mr. Gaurav argued that since Section 34 represents a final challenge to an award, an interim challenge under Section 37 should not exceed this scope. However, the Court rejected this argument, referencing GLS Foils Products Pvt Ltd. v. FWS Turnit Logistic Park LLP, which emphasized that the Court should be cautious in interfering with well-reasoned interim measures granted by an arbitral tribunal.

The High Court held that challenges under Section 37 need not mirror those under Section 34, noting that Section 37 deals with a variety of orders and is governed by the limitations of Section 17 for interim orders, and Section 34 for final awards. Challenges under Section 37 are generally more limited and focused on cases of clear error or perversity.

The Court also addressed whether the dismissal of the LLP’s previous appeal barred further appeals by the individual Appellants. Despite the LLP being a separate legal entity, the Court found that the Appellants were bound by the earlier decision because they had been given the opportunity to argue their case. The principle of res judicata applied, preventing the Appellants from reopening the same issues in a new appeal.

Consequently, the High Court decided not to delve into the merits of the appeal, given that the issues had already been conclusively addressed in the prior appeal. The Court dismissed the appeal and ordered no costs.