Facts of the Case

  • The Parties: The Petitioner, National Agricultural Cooperative Marketing Federation of India (NAFED), is a registered society under the Multi-State Cooperative Societies Act, 2002, established to promote cooperative marketing of agricultural produce. The Respondent No. 1 is a partnership firm operating a cold storage facility, wherein Respondent Nos. 2 and 3 serve as partners.
  • The Agreement: NAFED issued a tender on July 19, 2017, for operating, maintaining, and managing a Multi-Commodity Pack House/Cold Storage facility in Chhindwara, Madhya Pradesh. The Respondents emerged as the successful highest bidders with a financial commitment of Rs. 1,54,250/- per month (totaling Rs. 18,51,000/- per annum plus applicable GST). A formal Lease Agreement was executed on September 14, 2017.
  • The Addendum: On November 28, 2017, an Addendum to the Lease Agreement was signed, handing over 7 motor vehicles and 2 refrigerated vans to the Respondents without extra fees, provided they cleared the road taxes.
  • The Dispute: Following the handover of physical possession on October 6, 2017, disputes escalated regarding the payment of licence fees, electricity bills, and road taxes. NAFED alleged that the Respondents repeatedly reneged on their contractual terms and claimed arbitrary exemptions.
  • Termination and Invocation: NAFED issued a lease termination notice on August 19, 2018, demanding vacant possession. It later invoked arbitration via a notice dated October 1, 2020.
  • Supreme Court Intervention: Since mutual appointment failed, NAFED filed a Section 11 petition before the Delhi High Court, which appointed a Sole Arbitrator on March 4, 2021. Aggrieved by this, the Respondents approached the Hon'ble Supreme Court via a Special Leave Petition (SLP), resulting in an interim order dated September 24, 2021, which stayed the entire arbitration proceedings before the Sole Arbitrator.

Issues Involved

  1. Whether a party can maintain an independent petition for interim protection under Section 9 of the Arbitration and Conciliation Act, 1996, before a High Court when the active arbitration proceedings initiated by a coordinate bench have been explicitly stayed by an interim order of the Hon’ble Supreme Court of India.
  2. Whether the High Court possesses the legal jurisdiction to intervene and grant alternative reliefs (such as directing deposits of outstanding amounts, restraining asset transfer, or ordering eviction) while the underlying validity of the arbitrator’s appointment remains pending adjudication in an SLP before the Supreme Court.

Petitioner’s Arguments

  • Substantial Outstanding Dues: The Petitioner argued that the Respondents committed egregious, continuous financial breaches of the lease terms, resulting in an outstanding principal default of Rs. 78,34,338.10/- plus additional interest and mounting damages.
  • Illegal Possession: NAFED emphasized that because the Lease Agreement stood legally terminated, the Respondents had no lawful right to retain possession of the multi-commodity facility and movable assets; their only residual remedy lay in a claim for damages.
  • Protection of Financial Interests: The Petitioner contended that urgent interim intervention was necessary under Section 9 to direct the Respondents to deposit Rs. 1,60,25,013/- (cumulative rent and contractual penalties) or to restrain them from creating third-party rights over their assets to secure the eventual arbitral award.
  • Tactical Delays: It was further argued that the Respondents were intentionally utilizing procedural tactics and seeking multiple adjournments before the Supreme Court to unduly prolong the operational stay while continuing to enjoy the property without paying dues.

Respondent’s Arguments

  • Note: No appearance was recorded on behalf of the Respondents ("Through: Nemo") at the final stage of this specific Section 9 hearing.
  • However, the record established their foundational stance: they denied the allegations of default via their initial reply dated January 6, 2021, and preferred an appeal before the Hon'ble Supreme Court challenging the foundational validity of the arbitration invocation and the appointment of the Sole Arbitrator, successfully obtaining an interim stay on the arbitration proceedings.

Court Order / Findings

  • Judicial Propriety and Restraint: The Delhi High Court, presided over by Hon'ble Mr. Justice Chandra Dhari Singh, noted that the arbitration process had already been formally initiated by a coordinate bench's order but subsequently put on hold by the Apex Court.
  • Impact of Supreme Court Stay: The Court observed that the stay order granted by the Hon'ble Supreme Court on September 24, 2021, remains an active interim relief, and the main Special Leave Petition is still actively pending resolution.
  • Dismissal for Lack of Merit: The High Court concluded that because the apex judicial body is seized of the core dispute and has directly stayed the arbitral framework, it would be highly improper and legally unwarranted to intervene at this parallel juncture. Finding no cogent reason to entertain the prayers, the High Court dismissed the Section 9 petition and all pending applications as devoid of merit.

Important Clarification

This ruling underscores a crucial boundary in arbitration law: Section 9 cannot be utilized as a backdoor mechanism to bypass an active stay order issued by a higher constitutional court. When the Supreme Court stays arbitration proceedings, that stay eclipses the temporary power of the High Court to issue intermediate dynamic reliefs under Section 9, preventing conflicting judicial orders and preserving the integrity of the pending appellate review.

Section Involved

  • Section 9 of the Arbitration and Conciliation Act, 1996 (Interim measures by Court).
  • Section 11(5) and 11(6) of the Arbitration and Conciliation Act, 1996 (Appointment of Arbitrators).

Link to download the order - https://mytaxexpert.co.in/uploads/1782977562_286compressed.pdf

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