The Delhi High Court has held that a petition under Article 227 of the Constitution challenging an order passed in a first appeal under Section 37(2)(b) of the Arbitration and Conciliation Act, 1996 is maintainable, as the supervisory jurisdiction is distinct from an appellate remedy and remains unaffected by the bar on second appeals under Section 37(3). However, the Court declined to interfere on merits, finding that the appellate court's modification of the arbitrator's interim direction - limiting disclosure of business transactions to the period before invocation of arbitration - was a plausible exercise of appellate jurisdiction and did not suffer from patent lack of jurisdiction or error apparent on the face of the record.
Background & Facts
The Dispute
The petitioner, Dayanand Pal, and respondents no. 1 and 2, Dharmendra Kumar Bhati and another, entered into a partnership agreement dated 05.04.2013 for manufacturing and trading of human and animal health-related goods under the firm name M/s Alwin DMD Pharmaceuticals. Respondent no. 3 subsequently joined the partnership through a supplementary partnership deed dated 11.07.2017. The respondents alleged that the petitioner misappropriated Rs. 38,00,000 from the firm and started a competing proprietorship, M/s Jai Maa Pharma, on 23.08.2016. They further claimed the petitioner sought to retire from the partnership vide notice dated 21.12.2017. The petitioner contested these allegations, asserting that the respondents illegally expelled him through a forged letter dated 09.02.2018, and that he neither resigned nor was validly expelled.
Key Facts
- Partnership agreement executed on 05.04.2013 between petitioner and respondents no. 1 & 2
- Supplementary partnership deed adding respondent no. 3 executed on 11.07.2017
- Petitioner allegedly started competing firm M/s Jai Maa Pharma on 23.08.2016
- Respondents allege petitioner sought retirement via notice dated 21.12.2017
- Petitioner alleges illegal expulsion via forged letter dated 09.02.2018
- Petitioner invoked arbitration clauses (Clause 19 of partnership deed, Clauses 17 and 22 of supplementary deed) vide notice dated 05.04.2019
- Respondents replied to arbitration notice on 24.04.2019
- Petitioner filed Section 11(6) application for appointment of arbitrator (ARBP No. 632/2019), allowed vide order dated 29.11.2019
- Statement of claim filed on 28.01.2020 seeking permanent injunction, declaration of illegal expulsion, dissolution, and rendition of accounts with 18% interest per annum
- Written statement filed by respondents on 22.02.2020
- Petitioner filed Section 17 application for ad-interim ex-parte injunction before the Sole Arbitrator
Procedural History
- 06.09.2022: Sole Arbitrator disposed of Section 17 application, declined interim injunction but directed respondents no. 1 & 2 to file monthly affidavits of business transactions and profits from 14.11.2017 onwards till disposal of arbitration
- 28.10.2024: District Judge (Commercial Court-02), Patiala House Courts, in OMP (COMM.) No. 18/2024 partially allowed respondents' appeal under Section 37(2)(b); upheld direction for period up to 05.04.2019 (date of arbitration invocation), set aside direction for period from 06.04.2019 onwards
- 29.10.2026: Present petition under Article 227 decided by Delhi High Court
Relief Sought
The petitioner sought quashing of the impugned order dated 28.10.2024 to the extent it set aside the arbitrator's direction for disclosure of business transactions from 06.04.2019 onwards, and restoration of the arbitrator's order dated 06.09.2022 in full.
The Legal Issue
The central questions were: (1) Whether a petition under Article 227 of the Constitution challenging an order passed in a first appeal under Section 37(2)(b) of the Arbitration Act is maintainable, given the bar on second appeals under Section 37(3); and (2) Whether the appellate court exceeded its jurisdiction or committed an error apparent on the face of the record in modifying the arbitrator's interim direction under Section 17 to limit disclosure of business transactions to the period preceding invocation of arbitration.
Arguments Presented
For the Petitioner
Counsel for the petitioner submitted that the appellate court erred in holding that the arbitrator's direction for disclosure of business transactions from 06.04.2019 onwards exceeded its jurisdiction. The petitioner had categorically sought rendition of accounts and production of account books through prayers (f) and (g) of the statement of claim dated 28.01.2020, which covered accounts of firms created after 14.11.2017. Reliance was placed on Dinesh Gupta and Ors. v. Anand Gupta and Ors. (2020 SCC OnLine Del 2099), where this Court held that appellate courts exercising jurisdiction under Section 37 do not ordinarily disturb interim measures granted by arbitral tribunals in exercise of discretionary powers under Section 17. Further reliance was placed on Bluefire Infotax Consultancy Pvt. Ltd. v. ANS Infratech Pvt. Ltd. (2025:DHC:1571), Databit Technologies Pvt. Ltd. v. Red Fort Capital Finance Company Pvt. Ltd. (2026 SCC OnLine Del 284), and AMR-BBB Consortium v. Bharat Coking Coal Ltd. (2024:DHC:8538) to argue that judicial interference with Section 17 orders is permissible only where the order is completely perverse. The petitioner also invoked Deep Industries Ltd. v. ONGC ((2020) 15 SCC 706), where the Supreme Court held that Article 227 petitions against Section 37 orders cannot be dismissed on maintainability alone, though interference must be restricted to orders patently lacking inherent jurisdiction.
For the Respondents
Counsel for respondents no. 1 & 2 contended that the petition is not maintainable as the Arbitration Act is a self-contained code where Section 5 and Section 37(3) bar a second appeal. The supervisory jurisdiction under Article 227 should not be invoked where an effective alternative remedy exists, and interference is warranted only where the impugned order is demonstrably perverse, patently without jurisdiction, or offends the basic structure of the Constitution. Reliance was placed on SBP & Co. v. Patel Engineering Ltd. ((2005) 8 SCC 618), Bhaven Construction v. Executive Engineer ((2022) 1 SCC 75), and Lalit Kumar v. Sanghavi ((2014) 7 SCC 255). In Bhaven Construction, the Supreme Court observed that High Courts should not interject in arbitral proceedings at an interlocutory stage, and that Article 227 should be exercised in exceptional rarity where a party is left remediless or bad faith is shown.
The Court's Analysis
The Court first addressed the maintainability objection. Examining Section 37(3), which bars a second appeal but preserves the right to a Special Leave Petition under Article 136, the Court held that a petition under Article 227 does not partake the character of a second appeal. The supervisory jurisdiction under Article 227 is constitutional in nature, distinct in scope from an appellate remedy - it does not involve reappreciation of evidence or substitution of the Court's own view, but is confined to examining whether the court below acted within the bounds of its authority under Section 37(2)(b).
The Court found the procedural posture identical to Deep Industries (Supra), where the Supreme Court acknowledged the legislative intent behind Section 5 and Section 37(3) but held that Article 227 remains unaffected, and petitions against Section 37 orders cannot be dismissed on maintainability alone. The objection raised by respondents conflated maintainability (existence of jurisdiction) with entertainability (circumstances for exercise of jurisdiction). The judgments relied upon by respondents - Patel Engineering, Bhaven Construction, and Lalit Kumar - were distinguished as they involved direct challenges to arbitral tribunal orders under Article 226/227 without availing statutory remedies, unlike the present case where the arbitrator's order was appealed under Section 37(2)(b) and the appellate court's order is under challenge.
On merits, the Court examined the arbitrator's order dated 06.09.2022 and the appellate court's modification. The petitioner's Section 17 application sought restraint on respondents from manufacturing/selling products in the firm's name and using its goodwill till disposal of arbitration. It did not contain any prayer for rendition of accounts or disclosure of business transactions during the pendency of arbitral proceedings. The appellate court sustained the direction for the period up to 05.04.2019 (date of arbitration invocation) but set aside the direction for the period from 06.04.2019 onwards, reasoning that such a direction travelled beyond the relief sought. Additionally, the appellate court noted that the petitioner's status as a partner remained disputed and had been kept open as a triable issue by the arbitrator, so the period for rendition of accounts ought not to extend beyond the disputed dates of purported expulsion/retirement or the arbitration invocation notice.
The Court held that while the discretion exercised by an arbitral tribunal under Section 17 is ordinarily not to be interfered with in appeal (per Dinesh Gupta), the appellate court here did not substitute its own discretion. It merely examined whether the direction was traceable to the relief sought - an enquiry well within the bounds of appellate jurisdiction under Section 37. The view taken was plausible, and even if another view were possible, that alone would not furnish a ground for interference under Article 227, as held in Deep Industries. The impugned order is reasoned, passed after hearing both parties, and the petitioner failed to demonstrate patent lack of jurisdiction or error apparent on the face of the record.
"The impugned order dated 28.10.2024 is a reasoned order, passed after affording sufficient opportunity of hearing to the petitioner as well as respondents no. 1 & 2. The petitioner has not been able to demonstrate that the learned Appellate Court lacked jurisdiction, or that the impugned order suffers from any error apparent on the face of the record."
The Verdict
The petitioner's Article 227 petition was dismissed. The Court upheld the maintainability of the petition but found no ground for interference on merits. The impugned order dated 28.10.2024 passed by the District Judge (Commercial Court-02) in OMP (COMM.) No. 18/2024 under Section 37(2)(b) was affirmed. The Court clarified that this affirmation does not curtail substantive rights of any aggrieved party to avail appellate remedies under the Arbitration Act, and observations are confined to the controversy in the present petition, leaving all rights and contentions open for adjudication before the Sole Arbitrator. Pending applications, if any, stand dismissed.
What This Means For Similar Cases
Article 227 Petitions Against Section 37 Orders Are Maintainable
- The bar on second appeals under Section 37(3) does not extinguish the High Court's constitutional supervisory jurisdiction under Article 227
- Maintainability (jurisdiction to entertain) is distinct from entertainability (whether to exercise jurisdiction on merits)
- Practitioners can file Article 227 petitions against Section 37(2)(b) orders without fear of dismissal on maintainability grounds alone
Interference Under Article 227 Remains Highly Circumscribed
- The Court will interfere only where the order suffers from: (a) patent lack of inherent jurisdiction, (b) excess of jurisdiction vested in the court below, or (c) error apparent on the face of the record
- A plausible view taken by the appellate court, even if another view is possible, does not constitute perversity warranting Article 227 interference
- The Deep Industries standard - "extremely circumspect" interference - continues to govern
Appellate Review of Section 17 Orders: Scope of "Traceable to Relief Sought"
- Appellate courts under Section 37(2)(b) may examine whether an arbitrator's interim direction is traceable to the reliefs claimed in the application/statement of claim
- Directions that travel beyond the specific prayers made - such as ordering ongoing disclosure of accounts during arbitration when only a final rendition of accounts was prayed - are vulnerable to being set aside
- The disputed status of a party's partnership/entitlement is a relevant factor in limiting the temporal scope of interim disclosure directions
Practical Takeaways for Arbitration Practitioners
- Draft Section 17 applications with precise, time-bound prayers that align with the interim relief sought; avoid open-ended disclosure directions that extend beyond the arbitration invocation date
- When challenging Section 17 orders under Section 37(2)(b), focus on whether the direction exceeds the relief claimed - this is a legitimate appellate enquiry, not an impermissible substitution of discretion
- For Article 227 petitions, frame grounds specifically around jurisdictional error or patent perversity; mere disagreement with the appellate court's reasoning is insufficient
- The final award remains challengeable under Section 34; Article 227 is not a substitute for the statutory appellate scheme
