Delhi High Court States That Petition Under Section 9 Arbitration Act Cannot Be Dismissed Ex-Parte, Especially When Coercive Orders Were Passed

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The Delhi High Court heard a petition under Section 9 of the Arbitration and Conciliation Act, 1996. The High Court had held that it cannot be dismissed ex-parte, especially when coercive orders were being passed These observations were made in the matter of New Morning Star Travels v. Volkswagen Finance.

Brief Facts

A petition under Article 227 of the Constitution of India was heard by the Court. It was challenging the Trial Court orders (impugned orders) dissolving 16 petitions. This petition was filed by Volkswagen Finance Pvt Ltd (respondent). Section 9 of the Arbitration Act was taken into consideration in this case. The Petitioner in the matter was New Morning Star Travels.

The very first day of hearing had the petitions disposed of. This was done without any issuance of notice to the Petitioner. The impugned orders provided requisite permission to the Respondent. This was regarding the possession of the vehicles of the Petitioner. The dispute was between the parties began due to a loan-cum-hypothecation agreement. 

The said agreement contained an arbitration clause. Section 9 petitions were filed by the party following a default. This default was allegedly by the Petitioners in payment of certain instalments of the loan to the Respondent. 

Contentions

The Petitioner had put forth a primary grievance. It was that Section 9 petitions were dismissed without any notice. Further, it was argued that coercive orders of possession were passed ex-parte. 

Court’s Observations

A Single Judge Bench of Justice Prathiba M Singh heard the arguments. The judgment read that the power to pass ad-interim orders under Section 9 of the (Arbitration) Act were not in doubt. Disposal of the petitions would be violative of the principles of natural justice. This was because no notice was issued to the concerned party. 

During the hearing, the Respondent also directed coercive orders of possession. The court perused the impugned orders. The Bench stated that Section 9 petitions could not be disposed of ex-parte without giving notice to the other party. This was especially when coercive orders were being passed. 

The Court said that the standards to be adopted for grant of interim measures under Section 9 were similar to the standards that were applied for grant of interim injunction. This was to be referred to, under Order XXXIX, Rules 1 and 2 of the Code of Civil Procedure (CPC). Appointment of a Receiver was specified under Order XL CPC. 

The judgment provided information regarding the grant of ex-parte injunctions, ex-parte interim measures or appointment of Receivers at the ex-parte stage. It further stated that it would be governed by principles akin to Order XL CPC. The Bench mentioned that there had to be a grave and imminent apprehension that the property would be irretrievable. This was if notice was issued. The appointment of Receivers ought to have satisfied the test of imminent threat. This was applicable at the ex-parte stage in matters such as vehicle loans.

The detailed guidelines issued for the seizure of vehicles under Section 9 petitions were recorded by the Court. The Madras High Court in Cholamandalam DBS Finance Ltd. v. Sudheesh Kumar had mentioned this. Luxury buses were the vehicles that were involved in the present case. The Trial Court ought not to have presumed that the Petitioner would not be willing to make the payment.   

Court’s Decision

The Court held that the Trial Court should have notified the Petitioner. Then the appropriate orders ought to have been passed per the law. The Court set aside the impugned orders. The Court stated that the matters would be heard on merits. This was after the pleading was completed, and the Petitioner was heard. If any other instalments were due under the loan agreement, the Ld. District Judge was directed to pass orders.  

The Court broadly stated that the guidelines set out in Cholamandalam (by Madras High Court) might be followed.  

Click here to read the judgment.


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