Arbitration Dispute Over Hotel Business: Supreme Court Limits High Court’s Jurisdiction
The case of Dalpat Singh Naruka & Anr. vs. Karuna Bansal & Ors. arose from a dispute over the ownership and management of Hotel Grand Uniara in Jaipur. The conflict escalated into arbitration proceedings, with allegations of forgery and fraudulent business takeover. The Supreme Court had to determine whether the Rajasthan High Court overstepped its jurisdiction under Section 37 of the Arbitration and Conciliation Act, 1996 while issuing interim orders.
At the heart of the case was a disagreement between business partners regarding a Supplementary Partnership Deed. The respondents alleged that this document was antedated to deprive them of their rightful claims in the partnership. The case also involved multiple FIRs and criminal investigations, which were drawn into the arbitration dispute.
Background of the Case
The dispute began when the respondents, former business partners of the appellants, challenged the legitimacy of certain transactions related to Hotel Grand Uniara. They filed an application under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim relief from the Commercial Court, Jaipur. However, on February 11, 2021, the Commercial Court dismissed their request.
The respondents then appealed to the Rajasthan High Court under Section 37 of the Arbitration Act. The High Court issued multiple interim orders:
- February 24, 2022: Directed the investigating agency to submit a status report on an FIR related to the disputed partnership deed.
- March 11, 2022: Summoned the Investigating Officer handling the criminal case.
- March 29, 2022: Transferred the criminal investigation to the Special Operation Group (SOG), Jaipur.
The appellants, led by Dalpat Singh Naruka, challenged these orders in the Supreme Court, arguing that the High Court exceeded its jurisdiction by intervening in criminal proceedings while deciding an arbitration appeal.
Petitioners’ Arguments
Senior Advocate Mr. Sidharth Luthra, representing the appellants, argued that the High Court went beyond the scope of its authority under Section 37 of the Arbitration Act. He contended:
“The High Court’s role in an appeal under Section 37 is limited to reviewing the correctness of the Commercial Court’s decision on interim relief. Instead, the High Court ventured into criminal investigation matters, which are beyond its jurisdiction in an arbitration appeal.”
He further emphasized:
- The High Court was only supposed to review the Commercial Court’s order dated February 11, 2021.
- Instead, the High Court called for police case diaries and transferred investigations to the SOG.
- The respondents had already sought interim relief under Section 17 before the arbitral tribunal, making their appeal under Section 37 infructuous.
Respondents’ Arguments
The respondents, represented by Mr. Sidharth Luthra, defended the High Court’s intervention. They argued:
“The appellants have used fraudulent means to deprive the respondents of their rightful stake in the business. The High Court acted within its powers to ensure a fair investigation into these fraudulent activities.”
Key points raised by the respondents:
- The appellants had executed a fraudulent Supplementary Partnership Deed to remove them from the business.
- A separate FIR, No. 293/2021, was registered to investigate these allegations.
- The High Court’s intervention was necessary as the investigation was not progressing impartially.
Supreme Court’s Observations
The Supreme Court, led by a bench comprising N.V. Ramana, Krishna Murari, and Hima Kohli, ruled in favor of the appellants, holding that the High Court had exceeded its jurisdiction. The Court stated:
“The High Court’s intervention in the investigation of FIR No. 293/2021 was wholly unjustified in an appeal arising under Section 37 of the 1996 Act. The limited role of the appellate court in such matters cannot be stretched to supervising criminal investigations.”
The Supreme Court emphasized that arbitration proceedings should remain distinct from criminal investigations and held:
“If the respondents believe the investigation is unfair, they must seek appropriate relief before a criminal court. An arbitration appeal cannot be converted into a platform for criminal inquiries.”
Final Ruling
The Supreme Court set aside the High Court’s orders dated February 24, 2022, March 11, 2022, and March 29, 2022. However, the Court allowed the February 26, 2021 order, which restrained the appellants from alienating the property, to remain in force.
The Court directed the High Court to reconsider the respondents’ Section 37 appeal strictly within the legal parameters of the Arbitration Act.
Conclusion
This judgment reinforces the principle that arbitration-related appeals must remain within the scope of the Arbitration and Conciliation Act. The ruling highlights the importance of keeping civil and criminal proceedings distinct, preventing judicial overreach into matters that fall outside the scope of an arbitration dispute.
Petitioner Name: Dalpat Singh Naruka & Anr..Respondent Name: Karuna Bansal & Ors..Judgment By: Justice N.V. Ramana, Justice Krishna Murari, Justice Hima Kohli.Place Of Incident: Jaipur, Rajasthan.Judgment Date: 21-04-2022.
Don’t miss out on the full details! Download the complete judgment in PDF format below and gain valuable insights instantly!
Download Judgment: dalpat-singh-naruka-vs-karuna-bansal-&-ors.-supreme-court-of-india-judgment-dated-21-04-2022.pdf
Directly Download Judgment: Directly download this Judgment
See all petitions in Arbitration Act
See all petitions in Dispute Resolution Mechanisms
See all petitions in Institutional Arbitration
See all petitions in Judgment by N.V. Ramana
See all petitions in Judgment by Krishna Murari
See all petitions in Judgment by Hima Kohli
See all petitions in allowed
See all petitions in Quashed
See all petitions in supreme court of India judgments April 2022
See all petitions in 2022 judgments
See all posts in Arbitration and Alternate Dispute Resolution Category
See all allowed petitions in Arbitration and Alternate Dispute Resolution Category
See all Dismissed petitions in Arbitration and Alternate Dispute Resolution Category
See all partially allowed petitions in Arbitration and Alternate Dispute Resolution Category
