Delhi High Court: In a case wherein, the petition was filed under Section 9 of the Arbitration and Conciliation Act, 1996 (‘A&C Act’), Yashwant Verma J.* opined that the interim payout which was sought went beyond the contours of the power conferred under Section 9 of the A&C Act and the prayer for mandatory injunction requiring the respondent to pay certain sums to the petitioner was beyond the Court’s obligation to secure the amount in dispute, as it formed the subject matter of the arbitration. Thus, the Court dismissed the petition and opined that since the Arbitral Tribunal had already been constituted, it was open for the parties to proceed before the Arbitral Tribunal.
Background
In the instant case, the petitioner was an educator with more than seventeen years of experience and a well-known authority in the Preventive and Social Medicine (‘PSM’). The petitioner was engaged in the creation of educational videos with topics related to National Eligibility Entrance Test-Post Graduation (‘NEET-PG’), Foreign Medical Graduate Examination and Institute of National Importance Combined Entrance Test.
Further, the respondent, PrepLadder Private Limited, in its portal posted study materials, tutorials, reading content, instructional videos and examinations preparatory materials. The respondent also provided a mobile application which could be used by aspirants and subscribers.
On 03-08-2020, the petitioner and the respondent entered into a License Agreement (‘the Agreement’), according to which the petitioner was required to create and curate content in the form of educational videos which could then be placed on the portal of PrepLadder.
The petitioner stated that the respondent started raising various disputes on or about May 2022, when the petitioner refused to extend the Agreement and a dispute arose between the parties with respect to a shift to a revenue sharing model as opposed to a fixed fee. Further, in October 2022, the respondents refused to pay the Special Retention Bonus which led to the further breakdown in the relationship between the parties. Disputes further arose between the parties, when the respondent asked to revise the content as per the Statement of Work (‘SoW’) and the petitioner asserted that the content was in accordance with the terms of the Agreement.
Meanwhile, the petitioner along with the other educators launched ‘Cerebellum Academy’ which constituted an offline mode of education for students proposing to take Post Graduate Medical Entrance Examinations.
Thereafter, on 12-11-2022, the respondent addressed an e-mail alleging that the petitioner had breached its contractual obligations by launching a platform similar to the ‘PrepLadder’. The petitioner however, asserted that he had launched an offline institute named ‘Cerebellum Academy’ and the same did not constitute a breach of the Agreement.
The respondent alleged that the petitioner had continually and intentionally breached its obligations and failed to develop and deliver content in accordance with the stipulated SoW. It was also alleged that the petitioner had uploaded various posts across numerous social media platforms seeking to promote Cerebellum Academy in direct competition with PrepLadder, conducting lives sessions and uploading videos in respect of matters which formed part of the Agreement.
On 26-11-2022, the respondent issued a cease-and-desist notice against the petitioner. Thereafter, the petitioner filed a present petition in December 2022 and by a letter dated 16-02-2023, the respondent proceeded to terminate the Agreement dated 03-10-2020.
Further on a separate petition under Section 11 of the Act, an arbitrator was appointed under Section 11 of the A&C Act, therefore the present petition was confined to the petitioner essentially seeking an interim measure in the form of mandatory injunction requiring the respondent to deposit the entire amount payable towards the license fee.
Analysis, Law, and Decision
The Court observed that in the present case the dispute was related to the petitioner’s claim, that the respondent was required to deposit the amount payable towards license fee. However, the respondent questioned such claim based on the deficiency of work, the content being non-compliant with the SoW and also the breach of exclusivity obligations of the Agreement.
The Court noted that as per the Agreement, the respondent asserted a right to withhold and also deduct the amounts claimed by the petitioner, if the content was found to be not in accordance with the SoW or the petitioner failed to update the content periodically as per the terms of the Agreement.
The Court relied on Sanghi Industries Limited v. Ravin Cables Ltd., 2022 SCC OnLine 1329 and opined that the direction of attachment before judgment was guided and informed by clear foundation in the pleadings of parties supported by cogent evidence that there existed a strong prima facie case and the Court was convinced that the party was engaging in activities such as removal or dissipation of assets. However, in the present case the petitioner had not built any such edifice in the entire petition.
The Court opined that the petitioner had failed to establish that the respondent was likely to dissipate its assets or was in the process of removing the assets to remove any liability that might ultimately came to be raised upon once the Award was rendered.
The Court further opined that since the factors relevant to exercise of power under Order 38 Rule 5 of the Civil Procedure Code, 1908 (‘CPC’) was absent, the Court found no principle which might warrant the issuance of a direction for attachment before the judgment. The Court opined that while the Section 9 of the A&C Act, 1996 might not be strictly bound by the requirements of Order 38 Rule 5 of the CPC, that did not justify the framing of such directions.
The Court opined that the power to frame an interim measure as per Section 9 of the A&C Act was principally concerned with securing the subject matter of the arbitration and as per the provision, an interim measure would be justifiably granted where the Court was called upon to preserve goods or take possession of the goods which formed the subject matter of the arbitration. Further, the Court opined that the provisions of Section 9(1)(ii)(b) of the A&C Act provided that an interim order securing the amount in dispute would be considered on principles similar to those which guide the exercise of power under Order 38 of the CPC.
The Court opined that though the Section 9 of the A&C Act was not confined by the technicalities as contained in the provisions of the CPC, it would not mean that the Court would ignore the fundamental principles which guide an order for attachment before judgment.
The Court further opined that “even the residual clause of Section 9 of the A&C Act, which empowered a Court to frame such interim measure of protection as may be considered just and convenient cannot be read as justifying the framing of an order for attachment before judgment even though the foundational grounds for the issuance of such directions be found to be totally absent.” Thus, the Court opined that there was no justification to require the respondent to deposit or secure the amount as claimed by the petitioner.
The Court opined that the interim payout which was sought went beyond the contours of the power conferred under Section 9 of the A&C Act and the prayer for mandatory injunction requiring the respondent to pay certain sums to the petitioner was beyond the Court’s obligation to secure the amount in dispute, as it formed the subject matter of the arbitration. The Court opined that issuance of a direction to release such royalty sum would involve not only a conclusive and final adjudication on the petitioner’s right to receive such sum but also framing of an interim award and that could not be said to fall within the ambit of Section 9 of the A&C Act.
Thus, the Court dismissed the petition and opined that since the Arbitral Tribunal had already been constituted, it was open for the parties to proceed before the Arbitral Tribunal.
[Vivek Jain v. PrepLadder Pvt. Ltd., 2023 SCC OnLine Del 6370, decided on 09-10-2023]
*Judgment authored by- Justice Yashwant Varma
Advocates who appeared in this case :
For the Petitioner: Jayant Mehta, Senior Advocate with Neil Hildreth, Rahul Jain and Kshitiz Arya, Advocates;
For the Respondent: Dayan Krishnan, Senior Advocate with Aman Nandrajog, Abhishek Thakur, Dhruv Wadhwa, Vishv Vardhan and Sanjeevi Sheshadri, Advocates
Buy Arbitration and Conciliation Act, 1996 HERE
