Whether Arbitrator has jurisdiction to affect rights and remedies of third party?

There can be no dispute that the Arbitral Tribunal has no jurisdiction to affect the rights and remedies of the third party-secured creditors in the course of determining disputes pending before it. Moreover, the impugned order does not comply with the mandate of Rules 5 and 10 of Order XXXVIII Code of Civil Procedure. Thus, the impugned orders cannot be sustained and are accordingly set aside.

IN THE SUPREME COURT OF INDIA

C.A. Nos. 3613-3615 of 2018 

Decided On: 05.04.2018

 State Bank of India Vs. Ericsson India Private Limited and Ors.

Hon'ble Judges/Coram:

A.K. Goel and Rohinton Fali Nariman, JJ.

Citation: (2018) 16 SCC 617

1. Leave granted. We have heard learned Counsel for the parties.

2. An arbitration dispute is pending between the unsecured creditors and the debtors. The Arbitral Tribunal passed an order Under Section 17 of the Arbitration And Conciliation Act, 1996 restraining the claimants and its heirs from alienating, encumbering, transferring any of its assets without permission of the Arbitral Tribunal. The reason given for passing the order is balance of convenience and irreparable injury. The said order has been confirmed by the High Court Under Section 37 of the Arbitration and Conciliation Act, 1996.

3. Principal contention of the secured creditor(s)-Appellant(s) herein is that neither they are party before the arbitrator nor the order which purports to be akin to Order XXXVIII Rule 5 of the Code of Civil Procedure has been passed by complying with the conditions under Order XXXVIII Rules 5 and 10 Code of Civil Procedure. It is also submitted that the secured creditors cannot be deprived of their statutory rights against the assets by the Arbitral Tribunal.

4. Learned Counsel for the Respondents have supported the impugned orders by submitting that the sale by the secured creditors is to be in accordance with law.

5. There can be no dispute that the Arbitral Tribunal has no jurisdiction to affect the rights and remedies of the third party-secured creditors in the course of determining disputes pending before it. Moreover, the impugned order does not comply with the mandate of Rules 5 and 10 of Order XXXVIII Code of Civil Procedure. Thus, the impugned orders cannot be sustained and are accordingly set aside.

6. It is, however, made clear that the secured creditors will proceed against the asset(s) of the debtor(s) in accordance with law.

7. This order will not affect any of the remedies of either of the parties.

8. We have not gone into any other issue except the validity of the impugned order. The appeals are disposed of as above.

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