Section 17 Security In Tribunal Domain, Courts To Interfere Only On Perversity: Calcutta High Court

The Calcutta High Court on 1 April, held that courts can interfere with interim measures granted by an Arbitral Tribunal under Section 17 of the Arbitration and Conciliation Act, 1996 only in cases of perversity or arbitrariness and affirmed that the Tribunal retains discretion to determine the quantum of security.

A Bench of Justice Gaurang Kanth dismissed the appeal filed by Saltee Infrastructure Limited and upheld the Arbitrator's order dated 16 May 2025 directing furnishing of security, finding no perversity or arbitrariness in the exercise of discretion. It observed:

“The determination of the quantum of security to be furnished, in the context of an application under Section 17 of the Arbitration and Conciliation Act, 1996, squarely falls within the domain and discretion of the Arbitral Tribunal.”

Saltee filed an appeal under Section 37 of the Arbitration and Conciliation Act challenging the interim order dated 16 May 2025 passed by the Arbitrator in its dispute with Shivam Industrial Parks and Estates Ltd. (Shivam).

The parties had entered into a Development Agreement dated 7 April 2014 under which Saltee acted as developer of Shivam's land. Disputes arose and Shivam issued a termination notice on 21 December 2022. Prior to arbitration, Shivam obtained interim protection under Section 9, where the Court permitted sale of flats with Shivam as a confirming party and directed that it would receive 40% of sale proceeds.

The Arbitrator subsequently modified the interim arrangement, restraining Saltee from creating third-party rights or encumbrances over the unsold flats and title deeds. He also directed Saltee to deposit Rs. 11,54,09,382 in a nationalised bank as security pending adjudication. Saltee challenged this order dated 26 February 2024 before the Commercial Court under Section 37, but the Court dismissed the appeal.

Thereafter, the Arbitrator appointed a Receiver to manage and dispose of unsold flats and distribute proceeds under the Development Agreement. The Receiver authorised Shivam to sell certain units worth Rs. 6,61,01,000. Saltee filed an application seeking modification of the security direction on account of subsequent developments. The Arbitrator rejected the application by order dated 16 May 2025, which led to the present appeal.

Saltee argued that the Arbitrator failed to consider subsequent developments and contended that Shivam's claim already stood sufficiently secured. It submitted that the Statement of Claim quantified the claim at Rs. 14,73,58,358 and that the cumulative security, including receivables and assets, exceeded the claim amount. Saltee argued that the additional direction of Rs. 11,54,09,382 resulted in excessive security.

Shivam argued that the Statement of Claim reflected only a provisional quantification and that it later revised its claim to Rs. 20,39,25,591 based on further material. Shivam also submitted that Saltee repeatedly failed to comply with arbitral directions, creating apprehension regarding enforcement of the award. It contended that the impugned order reflected a discretionary interim measure under Section 17 and did not warrant interference unless shown to be arbitrary or perverse.

The Court observed that interim protection under Section 17 serves a protective function and must maintain a reasonable nexus with the claim. It held:

“The power under Section 17 is not intended to operate as a penal measure, nor to direct security beyond what is reasonably necessary to safeguard the claim pending adjudication.”

The Bench further noted that determination of the final claim amount falls within the Arbitrator's jurisdiction at the stage of final adjudication. It observed that the secured amount would remain deposited in a nationalised bank pending conclusion of the arbitral proceedings.

The judges found that the Arbitrator exercised discretion within permissible limits and did not act arbitrarily or perversely.

Accordingly, the High Court dismissed the appeal.