Section 9 Of Arbitration Act Limited To Interim Protection, Not Merits: Kerala High Court

The Kerala High Court on 26 May held that courts exercising jurisdiction under Section 9 of the Arbitration and Conciliation Act, 1996 cannot adjudicate the merits of the underlying dispute while granting interim protection pending arbitration, as their power is confined to preserving the subject matter and granting protective relief.

Justice S. Manu allowed the appeal and set aside the order passed by the Vacation Court, holding that it had exceeded the limits of Section 9 jurisdiction by effectively deciding issues that fall within the arbitrator's domain. He held:

“The object of conferring jurisdiction on civil courts under Section 9 is for passing appropriate interim orders and to take interim measures of protection for the purposes mentioned under Section 9 including securing the amount in dispute in the arbitration.”

The dispute arose from a commercial arrangement relating to the disbursal of the final bill amount for construction of an overhead reservoir for the Kerala Water Authority (KWA). The appellant, M.J. Thomas, claimed that he and V.P. Abdul Azeez had entered into a partnership agreement for execution of the work, with an understanding to share profits equally and operate a joint account for receiving payments from KWA.

Thomas further contended that while earlier payments were deposited into the joint account, Azeez later instructed KWA to credit the final bill amount of Rs.1.97 crore into his personal account, prompting apprehension of misappropriation.

He therefore approached the Commercial Court under Section 9 of the Act seeking interim protection, following which an order was initially passed restraining KWA from releasing the amount. Azeez disputed the existence and genuineness of the partnership agreement, asserting that Thomas was only a financier and had no entitlement over the contract proceeds.

During vacation sitting, the Additional District Judge modified the interim order and permitted release of 50% of the final bill amount to Azeez, which Thomas challenged before the High Court on the ground that the Vacation Court had travelled beyond the scope of Section 9 jurisdiction.

Azeez defended the order, arguing that the alleged partnership agreement lacked validity and that the modification was made in the interest of justice within the scope of interim powers under Section 9.

Allowing the appeal, the High Court held that the Vacation Court had transgressed the limits of Section 9 by effectively stepping into the merits of the dispute. It observed that the impugned order had the effect of permitting payment of 50% of the final bill amount to Azeez. Justice Manu held:

“In my view by permitting release of 50% of the final bill amount to the 1st respondent, the learned Judge slipped into the realm of adjudication of the dispute on merits reserved for the arbitrator. The said order can be considered only as one passed exceeding the jurisdiction under Section 9 of the Act.”

Accordingly, the High Court set aside the impugned order and directed expeditious consideration of the pending application for vacating the interim order.

For Appellant: Senior Advocate Elvin Peter PJ and Advocate K.R Ganesh

For Respondents: Advocates K.C Santhoshkumar, George Johny, Sujith Mathew Jose and K.K Chandralekha