The doctrine of Lis Pendens a well-known legal doctrine, enshrined in the Transfer of Property Act, 1886 (hereinafter ‘The Act’) is derived from the legal maxim ‘ut lite pendente nihil innovetur’ which translates to, ‘During a litigation nothing new should be introduced’. The doctrine is aimed at avoiding endless litigation, protecting either party to the suit against the acts of others and abuse of legal process. 

‘Lis Pendens’ literally means a ‘pending suit’, however in its practical sense it means that any action taken by either of the parties during the pendency of a suit is subject to the Court’s order.  This principle of Lis Pendens is incorporated in Section 52[i] of The Act. Accordingly, the rights and liabilities of any purchaser of an immovable property (which is the subject matter of the lis) during the pendency of a suit is subject to the final decision in the pending Lis. 

ELEMENTS OF LIS PENDENS

Important elements as to what constitutes of Lis Pendens was laid down by the Supreme Court in the case of Amit Kumar Shaw v. Farida Khatoon[ii].

 To constitute a lis pendens, the following ingredients must be present:

•    There should be a suit or proceeding pending in any Court

•    The suit or proceeding should not be collusive.

•    The litigation should be directly and specifically relate to the immovable property in question.

•    There should be a transfer /sale or any other dealing with the disputed property by any of parties to the lis.

•    Such dealing with property must affect the rights of the other party to the litigation as may be eventually determined in a decree.

Contrary to what it might appear on a plain reading of the text of Section 52, the provision does not prohibit dealing with the property during the pendency of the suit but makes such a dealing subject to the final decision of the Court.  Accordingly, the actions of either party to the litigation cannot affect the rights of the opponent.  The transferee would have the same legal rights and obligations as that of the transferor/vendor as may be finally determined by the Court in the pending Lis.

The aforementioned is a settled legal position that has been reiterated by the Hon’ble Supreme Court in a number of judgments[iii]. Therefore, any transfer of property during the pendency of suit shall not become void by virtue of Section 52 of The Act and remains a valid transfer, merely subject to the result of the suit. 

IMPLEADMENT OF THE TRANSFEREE PENDETE LITE

In this background, the natural question arises as to how the rights of the transferee in respect of a property which he chooses to purchase pending Lis is protected?  

As mentioned before the transferee has the same rights and obligations as that of that transferor which are finally determined by the Court in pending Lis.  Accordingly, he naturally becomes an interested party in the pending Lis pertaining to that property at any stage of litigation i.e. at the suit stage or further appeal stage. 

Once such a transferee has purchased a property, he obviously is required to safeguard his own interest viz-a-viz the property in question and the legal provisions should give him a right to do so especially in a case where transferor/vendor is either not interested in pursuing the Lis up to its conclusion or the plaintiffs and defendants act in collusion.  This issue of impleadment of transferee pendente lite was engaging the attention of Courts for quite a long time. There exists a series of judgment on the issue and Courts have decided the cases primarily considering three legal provisions which are listed below:

·      Order I Rule 10 (2) of the Code of Civil Procedure, 1908.

·      Order XXII Rule 10 of the Code of Civil Procedure, 1908.

·      Section 146 of the Code of Civil Procedure, 1908.

One of the early decisions of the Hon’ble Supreme Court on the issue of impleadement of the transferee pendente lite is of Smt Saila Bala Dassi v. Smt. Nirmala Sundari Dassi[iv]. In the said case the Hon’ble Court considered the case wherein the purchaser purchased the property after the lower court gave its decision in the suit but before the appeal was filed against the order.  In the said case, the Hon’ble Court has held that transferee pendente lite cannot be arrayed as a party under order XXII Rule 10 of the Code of Civil Procedure, 1908 (hereinafter ‘CPC’). The primary reason for not allowing such application under Order XXII lies in the fact that the transfer was completed before the appeal was filed and not during the pendency of the suit/litigation. The Hon’ble Apex Court was of the view that such an application for impleadment may be entertained once the appeal is filed under Section 146 of CPC, since an appeal for all purposes of the section is a proceeding before a court.

Another leading judgment in this regard is that of Khemchand Shankar Choudhary Vishnu Hari Patil & Ors[v]. In the said case, the Hon’ble Supreme Court recognized the position that the transferee is a representative in the interest of the party from whom he has acquired the property. The Apex court further held that Order XXII Rule 10 recognizes the right of such a transferee to be impleaded and be heard before the court. If such a transferee does not choose to be impleaded, he runs a risk of suffering consequence of any order passed by the court. However, if he requests the court to allow him the opportunity to be heard and get himself impleaded, he has to be so impleaded and heard.

The Hon’ble Court also pointed out that the position of the transferee pendente lite is strikingly similar to that of an heir of a person who dies during the pendency of the litigation or proceedings, or to an official receiver who takes over the control of the property in case of insolvency. If such a person applies to the court to be impleaded as a party, his request cannot be turned down. Therefore, any such heir or an official receiver or a Pendent Lite transferee may participate in the execution proceedings even though their names may not yet appear in any decree, preliminary or final.

However, it must be noted that being impleaded in the suit is not a matter of right for the transferee pendete lite. It has been clarified by the Hon’ble Supreme Court in Bibi Zubaida Khatoon v. Nabi Hassan Saheb[vi] that the grant of such permission to join the lis depends on the facts of each individual case, and thus there exists no absolute rule that allows the transferee pendente lite to join  and contest the pending litigation without leave of the court. In the aforementioned case, the Court was of the opinion that since prima facie the actions of transferee does not appear to be bona fide, he should not be allowed to join the lis as a party. 

Following such dictum, the Hon’ble Supreme Court has on multiple occasions taken different decisions on the issue depending on the factual position of each case.  Primarily the Court’s opinion about bonafide nature of transaction (entered during pendency of Lis) influenced the verdict. 

Another landmark judgment in this regard is the case of Raj Kumar v Sardari Lal[vii]. In this case the even though, the application was made under Order XXII Rule 10 of CPC after passing the decree still, the Supreme Court had decided the matter in the interest of justice realizing that transferee pendente lite was not aware of the pending suit and were misguided by the vendor who stated in the sale deed that property was not a subject matter of any litigation. The Hon’ble Court found a solution to allow impleadment of the transferee by taking recourse to Section 146 of CPC. 

In Amit Kumar Shaw v. Farida Khatoon[viii], the Court clarified the contours of parameters to be taken into consideration while allowing/refusing the application of impleadment of transferee purchaser by observing that under Order XXII, Rule 10, no detailed inquiry at the stage of granting leave to join lis is contemplated. That Court’s prima facie satisfaction is good enough to exercise its discretion in granting leave for impleadment in the suit of the person who has acquired the interest in lis property by assignment/ devolution or purchase. However, such interest of the pendente lite transferee must be Substantial and not peripheral. The vital question relating to the existence and/or validity of the assignment, devolution or purchase can be gone into at the final hearing of the proceedings and therefore not necessary to be determined at the stage of granting the request of impleadment.

This form of liberal approach could also be observed in cases such as Nawab John & Ors v. V. N. Subramaniyam^[ix], wherein the court observed that the courts’ discretion should be judicially and liberally exercised to enable the transferee to protect his interests.

CONSOLIDATION OF BROAD PRINCIPLES

The Hon’ble Supreme Court again had an opportunity to consider this issue in the case of Vidur Impex and Traders (P) Ltd. v. Tosh Apartments (P) Ltd.^[x] (Vidur Impex Case). In this case, the Supreme Court considered all prior landmark judgments on the issue and taking note of earlier cases, laid down practical principles governing the disposal of applications for impleadment in case of transferee pendente lite.  The court held that the broad principles which should govern the disposal of an application for impleadment as under:

•    The Court in its discretion, either on an application made by the parties or otherwise, direct impleadment of any person as a party, whose presence before the Court is necessary for effective and complete adjudication of the issues involved in the suit. Such directions can be passed at any stage of the proceedings.

•    A necessary party is a natural or legal person whose presence court considers necessary for passing an effective decree.

•    A proper party is a person whose presence is felt imperative to completely, effectively and properly adjudicate upon all matters and issues, though he may not be a person in original lis.

•    If a person is not considered as a proper or necessary party, the Court does not have discretion to order his impleadment against the wishes of the plaintiff.

•    In a suit for specific performance, the Court can order impleadment of a bona fide purchaser if he files an application for being joined as a party within a reasonable time after coming to know about the pending litigation.

•    The applicant should not be allowed to be impleaded as a party if he is guilty of contumacious conduct or is beneficiary of a clandestine transaction or a transaction is made by the owner of the suit property despite restraint order passed by the Court or the application itself is unduly delayed.

After laying down guidelines as above, it was expected that Courts would dispose-off cases on this issue keeping in mind these guidelines, however such was not the case.

DEVIATIONS BY THE COURT

The deviation stands in the form of cases such as Thomson Press (India) Ltd. v. Nanak Builders and Investors P. Ltd.^[xi] where the Hon’ble Supreme Court itself diluted the guidelines and virtually negated the principle contained in Sub-Para 6 (relating to transactions made despite subsisting restraint order) of Paragraph 36 of the Vidur Impex case. Even though it was beyond dispute, that sale of suit property in favor of applicant was made in breach of specific order of injunction passed by the trial Court and that the pendency of suit claim and order of injunction passed by trial Court was in the knowledge of transferee, still the Hon’ble Court finally ordered that since the appellant has purchased the entire estate that forms the subject matter of the suit, the transferee is entitled to be added as a party defendant to the suit and accordingly shall be entitled to raise and pursue defenses limited to defenses as were available and taken by the original defendants and none other.  

Since the Court in its wisdom, and contrary to its prior opinion has held that transfer of property which is in violation of an order passed by the Court which is in the knowledge of transferee would not disentitle such a transferee to claim impleadment in the pending Lis, it yet again becomes a matter of controversy and ambiguity on the issue of the rights of a pendente lite transferee.

The second deviation stands in the form of a recent Jharkhand High Court Case of Anita Soni v. Smt. Mina Devi[xii] where the court observed, that the subsequent purchaser pendente lite has no right to get impleaded in partition suit.  The Hon’ble Court observed that the courts must be cautious and vigilant, in permitting, impleadment of a stranger in the partition suit and that impeadment should be for substantial cause and a purchaser pendent lite even if allowed to be impleaded in a partition suit, he enjoys a very limited right. Even though the Courts have admitted at various instances that the interest of the transferee in the property must be substantial and not peripheral, it in no way should be construed to mean that the impleadment must happen only for a substantial cause. The cases cited before the Jharkand High Court merely stated that the interest of the transferee in the suit property must be substantial, however, these cases also stated that the exercise of discretion of the courts based on the reasons given by the pendente lite transferee must be given a liberal approach.

The Hon’ble Court also observed that the courts must be cautious and vigilant, in permitting, impleadment of a stranger in the partition suit and that impeadment even if allowed the applicant enjoys a very limited right. This limited right of a purchaser from a co-sharer is not a transferrable right and accordingly the limited right of a purchaser to get equities worked out in his favor in the final decree proceedings to the extent his vendor (who is a co-sharer gets his share in the property), cannot be transferred to the “subsequent” purchaser pendent lite. The limited right of a purchaser pendent lite, or the first purchaser, get exhausted with his impleadment in the suit and a further alienation of the same property by the purchaser pendente lite does not create fresh equity or right to get impleaded by the second purchaser.

Following the above principle, it was held that a purchaser pendente lite, who has purchased the suit property or a share of said property from another pendente lite purchaser, has no legal right to be impleaded in a partition suit. This part of the judgment also runs contrary and in defiance to the dictum of the Supreme Court which lays down a far more liberal approach, and allows the transferee to be impleaded if he has substantial interest in the property. 

Nonetheless, the controversy in this issue is far from over, the correctness of the view of the Jharkhand Court in relation to Substantial Cause for Impleadment and rights of the Subsequent Pendente lite transferee still remains in grave doubt in view of judgments of Hon’ble Supreme Court in case of A. Nawab John & Ors v. V. N. Subramaniyam[xiii] and Amit Kumar Shaw v. Farida Khatoon[xiv] wherein the Hon’ble Supreme Court has held that pendente lite purchasers’ application for impleadment should normally be allowed or considered liberally even without any detailed inquiry.

SUGGESTIONS AND CONCLUSION

Even though the Apex Court has decided to have a more liberal approach towards impleadment, it might lead to frivolous litigation and undue delay, a way to solve such a problem would be to make it incumbent upon the plaintiff to get registered the fact of pending suit with the registrar having jurisdiction over the place of property.  This would avoid the suppression of information by vendors about pendency of Lis. Incidentally, the Law Commission of India in its 157th Report submitted in April 1998 made a similar suggestion. Another, more aggressive approach could be to make the impleadment subject to a condition, that a small specified amount (up to 10% of the value of the interest in property) will be deposited at the time of impleadment, and if it is held that such an applicant had no substantial cause or no bona fides to be impleaded in the suit, then entire deposit shall be forfeited. This would desist the parties from making a frivolous application for joining the lis with an intention to delay/derail the suit proceedings. It could also be provided, that a certain portion of the deposited amount can be transferred by the Court to the opposite party for the trouble of fighting a case against a party which did not have sufficient cause to be impleaded in the suit.

 The controversy related to impleadment of pendente lite transferee would, in my humble opinion may continue in the near foreseeable future. Any appeal to the Supreme Court from the recent Jharkhand High Court case would surely be exciting, it may either just add another layer of controversy or bring about a finality to this already complex matter.

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“An ounce of mediation is worth a pound of arbitration and a ton of litigation!”

— Joseph Grynbaum

The purpose of this article is to discuss and analyze the provisions related to Interim measures under The Arbitration and Conciliation Act, 1996 (herein after referred to as ‘The Act’). The relevance and importance of Arbitration and Conciliation in the Indian Legal scenario in the past two decades is undisputed, an ever evolving field, arbitration even after decades remain a riveting subject to discuss and deliberate upon.

While many people understand the concept of Arbitration and Conciliation and realize that it ultimately leads to an Arbitral Award, only a certain few, who are students of law, are aware that certain interim measures may be adopted by the Tribunal or the Court themselves to meet the ends of justice.

Interim measures by Court and Tribunal are given in The Act under Section 9 and Section 17 respectively. Such relief becomes necessary in certain situations where the party may suffer irreparable harm or damage if some immediate actions are not taken. The language of these sections is simple enough however the courts have laid down a set of principles governing them or has construed them in such a manner to limit their scope.

Section 9 of The Act is reproduced below:

9. Interim measures etc. by Court.—

[(1)] A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a Court-
(i)  for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
(ii)  for an interim measure of protection in respect of any of the following matters, namely:-
(a)  the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;
(b)  securing the amount in dispute in the arbitration;
(c)  the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
(d)  interim injunction or the appointment of a receiver;
(e)  such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.

1[(2) Where, before the commencement of the arbitral proceedings, a Court passes an order for any interim measure of protection under sub- section (1), the arbitral proceedings shall be commenced within a period of ninety days from the date of such order or within such further time as the Court may determine.

(3) Once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious.][1]

Section 9 uses the term ‘A party’ which has been defined under Section 2(1)(h) of The Act, where “party” means a party to an arbitration agreement. Therefore, the qualification which the person invoking jurisdiction of the Court under Section 9 must possess is of being a ‘party’ to an arbitration agreement, A person not party to an arbitration agreement cannot enter the Court for protection under Section 9[2].

Section 9 continues to state that a party may ‘before… arbitral proceedings… apply to court’, however in order to give full effect to the words “before or during arbitral proceedings” occurring in Section 9 the courts have held that it would not be necessary that a notice invoking the arbitration clause must be issued to the opposite party before an application under Section 9 is filed. The issuance of a notice may, in a given case, be sufficient to establish the manifest intention to have the dispute referred to arbitral tribunal, but a situation may so demand that a party may choose to apply under Section 9 for an interim measure even before issuing a notice contemplated by Section 21 of the said Act. If an application is so made the Court will first have to be satisfied that there exists a valid arbitration agreement and the applicant intends to take the dispute to arbitration.[3] Thus the courts must be satisfied that exists a valid arbitration clause, the party is willing to be bound by it and also that the applicant is willing to start the process of arbitration.

As previously mentioned, the courts have discussed, at length the general principles regarding the exercise of discretionary power in granting interim measures under Section 9 of The Act. Order XXXVIII Rule 5 and Order XXXIX Rule 1 & 2 of The Code of Civil Procedure, 1908 relates to furnishing security for the disputed amount and granting of injunctions, similar reliefs which may be granted under this section. The courts have held that, at the highest what could be said is that the provisions of XXXVIII Rule 5 would serve as the guiding principle for the Court to exercise its discretion while dealing with a petition requiring the respondent to furnish security for the amount in dispute. Since the letter of the law per se is not applicable, the requirements set out in XXXVIII Rule 5 need not strictly be satisfied, and so long as the ingredients of the said provision are generally present, the Court would not be unjustified in exercising its jurisdiction to require the respondent to furnish security.[4]

In another Supreme Court case, the Hon’ble court was inclined to the view that exercise of power under Section 9 of The Act must be based on well recognized principles governing the grant of interim injunctions and other orders of interim protection or the appointment of a receiver.[5]

Thus, it would not be correct to say that the power under Section 9 of The Act is totally independent of the well-known principles governing the grant of an interim injunction that generally govern the courts in this connection[6]

Section 17, prima facie appears to be a similar provision to Section 9 with the Arbitration tribunal being the authority granting the interim measure, however it has been construed in a more strict manner as compared to Section 9.

Section 17 of The Act is reproduced below:

17. Interim measures ordered by arbitral tribunal.—
(1) A party may, during the arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to the arbitral tribunal
(i)  for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
(ii)  for an interim measure of protection in respect of any of the following matters, namely:—
(a)  the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;
(b)  securing the amount in dispute in the arbitration;
(c)  the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken, or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
(d)  interim injunction or the appointment of a receiver;
(e)  such other interim measure of protection as may appear to the arbitral tribunal to be just and convenient,
and the arbitral tribunal shall have the same power for making orders, as the Court has for the purpose of, and in relation to, any proceedings before it.

(2) Subject to any orders passed in an appeal under section 37, any order issued by the arbitral tribunal under this section shall be deemed to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were an order of the Court.[7]

Similar to Section 9, Section 17 uses the term ‘A party’ which has been defined under Section 2(1)(h) of The Act, where “party” means a party to an arbitration agreement, Therefore even though a third party may be adversely affected if such measure is not granted, he cannot ask for an interim measure, since he is not a party to the arbitration. Moreover under Section 17 of The Act, an interim order must relate to the protection of subject matter of dispute and the order may be addressed only to a party to the arbitration. It cannot be addressed to other parties.[8]

Section 17 provides for Interim Measures, however prior to the Arbitration and Conciliation (Amendment) Act, 2015 remained silent on the enforcement of said measures.

The pre-amendment phase of Section 17 was riddled with enforcement problems, with the courts observing that even though Section 17 gives the arbitral tribunal the power to pass orders the same cannot be enforced as orders of a Court. It is for this reason that Section 9 admittedly gives the Court power to pass interim orders during the arbitration proceedings[9], thus making enforcement of the interim measures a painstaking task for the parties.

Furthermore, in the Army Welfare Case, it was held that “Even under Section 17 of the 1996 Act, no power is conferred upon the Arbitral Tribunal to enforce its order nor does it provide for judicial enforcement thereof”[10].

However, the Arbitration and Conciliation (Amendment) Act, 2015, solved all such issues and now such orders would be deemed to be orders of the Court for all purposes and would be enforced under the Civil Procedure Code, 1908 in the same manner as if they were orders of the Court. [11] Thus, if a party doesn’t follow or comply with order of the tribunal, he may attract the penalty for contempt of court.

The jurisprudence in India relating to the standards to be applied by an arbitral tribunal while granting interim reliefs under Section 17 of The Act is sparse at best. The standards applied by national courts while granting interim measures would have no bearing on arbitral tribunals. [12]

Arbitral tribunals have normally required a party to prove

A.   irreparable harm

B.    urgency; and

C.    no prejudgment of the merits of the case, to award interim measures.

In some cases tribunals have also considered whether the party has established a prima facie case and that the balance of convenience weighed in favour of the party.

In plethora of cases such as Adhunik Steels Ltd. v. Orissa Manganese and Minerals Pvt. Ltd. AIR 2007 SC 2563, Steel Authority of India v AMCI Pty Ltd (2011) 3 Arb LR 502, Delta Construction Systems Ltd., Hyderabad v. M/S Narmada Cement Company Ltd, Mumbai, (2002) 2 BomLR 225, National Shipping Company of Saudi Arabia v. Sentrans Industries Ltd. AIR 2004 Bom136, the Courts have shied away from importing principles contained in Order XXXVII Rule 5 and Order XXXIX Rule 1 & 2 to the grant of interim reliefs under Section 9.

When such principles are not necessarily applicable in proceedings before a court; it is inconceivable for the same to apply to flexible and tailor-made dispute resolution process like arbitration[13].

However, recent developments in this regard are quite intriguing. In a recent Delhi High Court Judgement, the Hon’ble Court held that

“Where even the Court exercising power under Section 9 of The Act has to be guided by the principles of the CPC then a fortiori an interim order by a Tribunal requiring furnishing of security for the monetary amount of claim by one party had to satisfy the requirement of Order XXXVIII Rule 5 CPC.”[14]

The Hon’ble court in simple terms laid down that principles governing grant of relief under Section 9 will also apply to Section 17. This marks a positive development in the growth and development of Arbitral laws in India.

Hon’ble Delhi High Court further held that, the grant of interim relief under Section 17 of The Act was required to be preceded by a determination that the party seeking interim relief has a prima facie case.[15]

A keen understanding of these provisions makes it amply clear that even though an Arbitration was decided upon by the parties to save time and money, however, there may arise certain situations which necessitates immediate interference by the Tribunal or the Court to meet the ends of justice and save a party from irreversible damage.

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