Kerala High Court reversed an interim injunction in a partnership dispute, emphasizing the requirement of a clear and demonstrable "manifest intention" to arbitrate for pre-arbitration relief.

The matter assailed before the Hon’ble Kerala High Court involves the order (Ext. P 11) passed by the Additional District Court-IV, Thodupuzha, which dismissed an application seeking a stay of the interim injunction order passed by the Commercial Court, Kattappana, under Section 9 of the Arbitration and Conciliation Act, 1996.

The High Court overturned an interim injunction that had been granted to respondents 1 and 2, who had sought to prevent their removal as managing partners of the D' Heavenly Mist partnership. The court determined that respondents 1 and 2, while applying for interim measures under Section 9 of the Arbitration Act, failed to demonstrate a "manifest intention" to arbitrate the dispute, as this demonstration is essential for pre-arbitration relief under the Arbitration and Conciliation Act, 1996.

Background of the Partnership Dispute:
A dispute arose among the partners of a registered partnership firm known as D' Heavenly Mist. The firm was established via a partnership deed executed on August 12, 2016, and later restructured on June 24, 2022. Respondent 1, James George, initially held the position of managing partner.

On June 12, 2023, a majority of the partners convened a meeting and decided to remove James George from his role as managing partner, alleging that his conduct breached the partnership agreement and harmed the business's interests. Following his removal, Respondent 7, Sabu George, assumed the responsibilities of managing partner on June 13, 2023.

Disputing their removal, respondents 1 through 4 (James George, Varughese Mathew, George Joseph, and Sigy Mathew) brought the matter before the Commercial Court, Kattappana. They filed an application under Section 9 of the Arbitration Act, seeking a temporary injunction to prevent Sabu George from acting as managing partner and to restrain the other respondents from obstructing James George's continuation in that role. The Commercial Court issued the requested injunction. This decision was then appealed by the petitioners and respondents 7 through 11 in the Commercial Appellate Court.

The issue on which the High Court made its observation pertains to the intention of the parties to arbitrate under Section 9 of the Arbitration Act. The Court relied on the Sundaram Finance Ltd. case, wherein the Supreme Court ruled that when an application under Section 9 is filed before arbitral proceedings commence, the applicant must demonstrate a clear intention to pursue arbitration.
This requirement is essential if arbitration proceedings have not yet begun under Section 21 of the Arbitration Act at the time of filing. Only when the court is satisfied with the applicant's manifest intention to arbitrate can it grant interim protection under Section 9, based on the circumstances and facts of the case. Without such satisfaction, the court cannot legally issue any interim protection orders.

Arbitration Requirements in Partnership Dispute:
The court found that respondents 1 and 2 failed to express a “manifest intention” to arbitrate the partnership dispute regarding the removal of the managing partner. This lack of clear intention to arbitrate was a key factor in the court’s decision to overturn the interim order.

The Court observed that when a party applies for interim measures under Section 9 of the Arbitration Act before arbitration proceedings have begun, "it should be preceded by the expression of manifest intention on the part of the applicant to go for arbitration.” This intention should be evident both in the application itself and in the applicant's subsequent actions. The court cited the cases of Sundaram Finance Ltd. v. NEPC India Ltd. and Board of Trustees of Port of Cochin v. Jaisu Shipping Company Private Ltd. to support this interpretation of Section 9.

In this particular case, respondents 1 and 2 failed to clearly state their intention to arbitrate in their initial application. The court rejected their attempt to use a letter predating the application as evidence of their intent, pointing out that the letter neither mentioned arbitration nor met the requirements of Section 21 of the Arbitration Act. Therefore, the court concluded that respondents 1 and 2 did not meet the necessary conditions to obtain interim relief under Section 9 of the Arbitration Act.

Another interesting question of law whether the appellate power under Section 13 of the Commercial Courts Act must be exercised only by a Principal District Judge of the district concerned and not the Additional District Judge?
In answer to this, the Court observed that "Additional District Court can entertain a petition filed under Section 34 of the Arbitration Act, a Division Bench of this Court in Kasim V.K v. M.Ashraf (2021 KHC 266), referring to Sections 2, 3 and 4 of the said act as well as Section 4(2) of the Civil Courts Act, held that when Additional District Courts are established and Additional District Judges are appointed, sub-section (2) of Section 4 of the Civil Courts Act empowers the Additional District Judge so appointed with powers to discharge all the functions of the District Judges and hence there is no jurisdictional error in Additional District Judges hearing petitions filed under The Arbitration and Conciliation Act, 1996."

Thus, the Hon'ble High Court held that the Commercial Court granted the interim order without being satisfied with respondents 1 and 2's manifest intention to arbitrate, which was unjustified. The Commercial Appellate Court also overlooked this crucial fact when dismissing the stay application, rendering the intrim protection (Ext.P11) order unsustainable. As a result, the court deemed the interim order invalid and allowed the appeal, thereby overturning the earlier decision.

CORAM: Honorable Dr. Justice Kauser Edappagath
Dated: 26-06-2024
Between: Joshy Francis Vs James George in OP(C) No. 794 Of 2024