High Court of Delhi holds that ex-parte disposal of petitions under Section 9 of Arbitration Act violates principles of natural justice

Brief Facts

New Morning Star Travels (“Petitioner”), being a bus service, purchased 16 vehicles under loancum-hypothecation agreements with Volkswagen Finance Private Limited (“Respondent”), and defaulted on the repayment of certain instalments of the loan due to COVID-19 adversely affecting the Petitioner’s business. Thereafter, the Petitioner came to know that 16 petitions under Section 9 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) were filed by the Respondent with a prayer for ex-parte relief. The trial court passed 16 identical ex-parte orders (“Orders”) wherein loan recall notices were issued by the Respondent and the Petitioner was called upon to pay the total outstanding of INR 7,139,808/-. Moreover, on the ground that the Petitioner did not pay the said amount and expressing an apprehension that the vehicles may be disposed of, the trial court appointed a receiver to take possession of the vehicles. In this manner, the main petition under Section 9 of the Arbitration Act was disposed of without notice calling upon the Petitioner to file a reply or be present at the hearing. Therefore, the Petitioner filed a writ petition before the High Court of Delhi (“High Court”) challenging the Orders passed by the trial court.

Issue

Whether a Court may pass ex-parte ad-interim orders disposing of Section 9 petitions?

Judgment

The Court, upon perusal of the Orders, held that Section 9 petitions cannot be disposed of exparte
without giving notice to the respondent therein, especially when coercive orders are being
passed. It was clarified that the power to pass ad-interim orders under Section 9 of the Arbitration
Act is not in doubt. However, disposal of the petitions, without issuing notice and hearing the
respondent as well as directing coercive orders of possession would amount to violation of the
principles of natural justice.

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