TMI Blog2020 (6) TMI 772X X X X Extracts X X X X X X X X Extracts X X X X ..... ount deposited pursuant to an order passed by a Court in India under Section 9 (as stated at C above) can be invoked/withdrawn by an Indian party in the eventuality, it succeeds in a foreign seated arbitration in satisfaction of the Award, even though the foreign entity may not have any assets in India. Tt is clear that for grant of the relief as prayed for by the petitioner, the petitioner has to show that; (a) it has a prima facie case and balance of convenience in its favour and shall succeed in the arbitration proceedings and (b) that the respondent is acting in a manner as to defeat the realization of the future award that may ultimately be passed. It follows that orders, as sought by the petitioner cannot be passed mechanically on its asking, as the exercise of power under Order XXXVIII Rule 5 CPC, is drastic and extraordinary. There exists disputed facts which cannot be decided in this petition. It has to be decided by the Arbitral Tribunal. Further, it is found that the averments in the petition. The plea in support of the reliefs primarily is that in view of COVID-19, the petitioner is unable to meet the timelines for invoking the Arbitration and there is an appreh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and in turn the respondent was to make the delivery of the Coal to the petitioner upon receipt of such payment. 5. It is the case of the petitioner and admitted by the respondent that in terms of Clause 12 of the Contract, the petitioner established an irrevocable Letter of Credit bearing number 027LC01200720007 drawn on HDFC Bank, New Delhi ('Letter of Credit', for short) for the entirety of the cargo value. Against the said Letter of Credit, full payment amounting to a sum of USD 1,182,735 was remitted to the respondent's designated bank account held with Wells Fargo Bank, N.A., New York International Branch on April 21, 2020. Pursuant to the establishment of the aforesaid Letter of Credit, the respondent shipped to the petitioner 13,500MT of Coal on board the vessel MV Berge Toubkal from Console Marine Terminal, Baltimore, Maryland on March 22, 2020. The Commercial Invoice dated March 27, 2020 issued by the respondent ('Commercial Invoice', for short) inter alia records that the payment under the aforesaid Letter of Credit was due at sight. The payment under the said Letter of Credit was subsequently realized by respondent on April 21, 2020. 6. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... committed within 5 days in terms of Clause 21, failing which it was stated that the Contract shall be deemed to be terminated and that the legal proceedings shall be initiated against the respondent. Since there was no response to the Notice of Default by the respondent, the petitioner terminated the Contract vide Letter of Termination dated May 19, 2020 ('Letter of Termination'). Respondent, however responded to the Letter of Termination, denying the grounds for termination, directing petitioner take discharge of Coal failing which the same shall be discharged by the respondent itself on the basis of the Contract, at the expense of the petitioner. 11. It is further the case of the petitioner that the vessel agent of the respondent, communicated to the petitioner vide an e-mail dated May 22, 2020, intimating that petitioner's Coal was ready for discharge at Kandla Port and the requisite documents were submitted for filing of Import General Manifest ('IGM', for short) and the petitioner reverted to this communication vide an e-mail, on the same day, stating that the Contract stood terminated on May 19, 2020 and the petitioner does not have any responsibility ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r such measures or for the implementation of any such measures ordered by an arbitral tribunal shall not be deemed to be an infringement or a waiver of the arbitration agreement and shall not affect the relevant powers reserved to the arbitral tribunal. Any such application and any measures taken by the judicial authority must be notified without delay to the Secretariat. The Secretariat shall inform the arbitral tribunal thereof XXX XXX XX 29.7. The Emergency Arbitrator Provisions are not intended to prevent any party from seeking urgent interim or conservatory measures from a competent judicial authority at any time prior to making an application for such measures and in appropriate circumstances even thereafter, pursuant to the Rules. Any application for such measures from a competent judicial authority shall not be deemed to be an infringement or a waiver of the arbitration agreement. Any such application and any measures taken by the judicial authority must be notified without delay to the Secretariat. 15. In support of his submission that there is no bar either in law or in Contract to the invocation of jurisdiction of this Court, he has placed reliance on a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 9 with regard to an arbitration proceedings under ICC Rules, directed the respondent therein, a foreign company, to deposit a sum of USD 152.85 Million by relying upon a Division Bench judgment of the Hon'ble Bombay High Court in National Shipping Company of Saudi Arabia v. Sentrans Industries Limited, (2004) 106(2) BomLR 695, and further went on to hold that the powers conferred on a Court under Section 9 are wider than a civil court and is not fettered by the text of the Order XXXVIII. 19. He also relied on Adhunik Steel Ltd. v. Orissa Manganese and Minerals Ltd., (2007) 7 SCC 125, to contend that reliefs under Section 9 are to be guided by well-established principles of grant of injunction such as prima facie case, balance of convenience, etc. However, the power under Section 9 is not limited or curtailed to the letter and language of Order XXXVIII or XXXIX of CPC but is to be exercised to safeguard the interests of the party. 20. Mr. Manish Panda, learned counsel appearing on behalf of the respondent, as taken a preliminary objection as to the maintainability of the present petition under Section 9. He submitted that the arbitration under the Contract is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluding the applicability of Part-I, there were few areas which were problematic, the primary one being, cases where the assets of a party are located in India and since there is likelihood that such parties will dissipate its assets in the near future, the other party will lack an efficacious remedy. According to him, it was to give a leeway for an effective remedy that Law Commission recommended the insertion of the proviso to Section 2(2) as a pre-enforcement measure to the foreign party to seek a protective order from an Indian Court against a party whose assets are in India, so that enforcement of award against the Indian party who has assets in India does not become unenforceable for the reason that the assets which are in India have been dissipated by the Indian party during the course of arbitral proceedings in the foreign seated arbitration. 23. He further submitted that by no stretch of imagination, it can be said that the power vested under the proviso to Section 2(2) of the Act was meant for proceeding against a party in a foreign seated arbitration where such party (i.e. the respondent) is neither amenable to court's personal jurisdiction nor has any assets i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Panda further stated that the petitioner has appropriate and effective alternate remedies of appointing an Emergency Arbitrator under the ICC Rules of Arbitration whereby an Emergency Arbitrator will be appointed within 2 days of an application and an Order will be made within 15 days of application being forwarded to the Emergency Arbitrator or the petitioner can invoke the jurisdiction of New York Courts, as the seat of Arbitration is New York. He, while conceding that availability of such measure does not bar jurisdiction of courts, vehemently contested that it goes on to show that the petitioner intentionally chose to come to this court even though the relief is exclusively claimed against a US party in a US seated arbitration only because it knows that attending to such action will be not be convenient for the respondent. He went on to submit that, such interim relief if granted by the Emergency Arbitrator under Article 29 of the ICC Rules, will be easily enforceable as seat of arbitration is New York, USA and the respondent, carrying out business in the US and has its assets there. Therefore, this Court ought not to interfere in the present matter due to being a forum non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Contract, was bad in terms of Clause 21, which stipulates designating a date of termination in the written notice seeking termination after the expiry of the initial cure period as per Clause 21(c), which was not the procedure followed in the present case. 31. He also submitted that it is settled now that the party claiming relief under Section 9(1)(ii)(b) of the Act should a) establish a prima facie case, and b) demonstrate by putting on record adequate material leading to a definite conclusion that the other party is likely to render the entire arbitration proceedings infructuous by frittering away the properties or funds either before or during the pendency of arbitration proceedings and has also failed to demonstrate how the principles of Order XXXVIII Rule 5 of CPC is satisfied for issuance of a direction under Section 9(1)(ii)(b) to the respondent. In support, he has relied upon the Bombay High Court judgment in Nimbus Communication Ltd. vs. Board of Control for Cricket in India and Another., which relied upon the Apex Court judgment Adhunik Steels Ltd. (supra), wherein it is held that has held that the underlying principles of Order XXXVIII Rule 5, and the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has failed to establish that the present case is worthy enough for this Court to exercise its discretion. 34. Mr. Panda contended that in view of the law laid down by the Supreme Court in Raman Tech (supra), wherein it was held the purpose of Order XXXVIII Rule 5 of CPC is not to convert an unsecured debt into a secured debt and any attempt by a party to utilize the provisions of Order XXXVIII Rule 5 as leverage for coercing the other party to settle the suit/claim should be discouraged; and the petitioner's entire case seeking the refund on the termination of the Contract is a money claim and the claim of the petitioner is in the nature of an unsecured debt, and vide this present petition no leverage should be granted to the petitioner, as the intention of the petitioner is to force the defendant into an out of court settlement or forcefully make the respondent reduce the rate of Coal to USD 67.50 per MT from USD 87.50 per MT. 35. Mr. Panada also contended that the petitioner is guilty of concealing and suppressing material facts, as the stand taken by the petitioner that it has no relation/connection with M/s. Kalyani is wrong in as much as the entire negotiations an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fs are sought being registered in USA, which does not have any assets in India, this Court cannot exercise its jurisdiction. In other words, he stated that the jurisdiction vested in an Indian Court under proviso to Section 2(2) of the Act is an asset based jurisdiction, only when the asset(s) of the counter party against which, the order is sought to be enforced are situated in India, then can an Indian Court exercise its jurisdiction. 39. On the second issue, he stated that the discretion of the Court to grant interim relief under Section 9 of the Act has to be exercised sparingly and in appropriate cases where there is adequate material on record leading to definite conclusion that the respondent is likely to render the entire arbitration proceedings infructuous by frittering away the properties or funds either before or during the pendency of the arbitration proceedings. 40. On the first issue, Mr. Tripathi, learned Sr. Counsel appearing for the petitioner has stated that there is nothing in the Contract, which excludes the applicability of Part-I of the Act. He also relies upon the ICC Rules more specifically Articles 28.2 and 29.7 (as produced in paragraph 14 above) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs 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 subsection (1), unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious. 42. It is a conceded position that vide The Arbitration and Conciliation (Amendment) Act, 2015 effective from October 23, 2015, the proviso was added to Section 2(2) of the Act. The effect of the proviso is that it makes applicable Sections 9, 27, 37(1)(a) and 37(3) of the Act to foreign seated arbitration. I may state here, it is not the case of Mr. Panda that there is any stipulation in the Contract between the parties, which restricts the applicability of Section 9 of the Act. In fact, Mr. Tripathi is justified in relying upon Articles 28.2 and 29.7 (as produced in paragraph 14 above), which are part of the ICC Rules and which bind the parties. 43. Having said that, the aforesaid proviso to Section 2(2) of the Act was dealt with by this Court in the judgment of Raffles Design International India Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding for preservation, interim custody or sale of goods, securing the amount in disputes, detention, preservation or inspection of any property, interim injunction etc. If provision of Section 9 is not made applicable to International Commercial arbitration where seat of arbitration is not in India, a party may be out of remedy if the assets and property are in India. In cases of international arbitration where the seat of arbitration is outside India, a serious controversy has arisen in the Indian Courts. These are cases where interim measures could not be granted by Indian courts under Section 9 to an Indian national before commencement of arbitration (or after the award) against property of a foreign party. By the time the Indian party takes steps to move the courts in the country in which the seat of arbitration is located, the property may have been removed or transferred. 88. The Law Commission of India in its 246th Report also proposed amendments to Section 2 (2) of the Act (as quoted herein before) as it felt that the same were necessary. The reasons for such amendments were explained, as under:- (i) Where the assets of a party are located in India, and there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 9, starts with the words 'A party', which denotes, any party can file an application under the said Section. (ii) Section 9 is for order/interim measure, in either case not an Award required to be enforced against any asset in India. In other words, for the purpose of passing an order/interim measure, the availability of asset in India is irrelevant. (iii) The order/interim measure under Section 9 includes (a) the appointment of a guardian for a minor for which the availability of asset in India is inconsequential; (b) an interim measure for preservation, interim custody or sale of any goods, which are subject matter of the arbitration agreement for example dispute between a foreign party and an Indian party with regard to an agreement for sale of textiles to an Indian party this Court would be within its right, to pass an order for its preservation, interim custody or its sale and with a direction to secure the proceeds received thereof, such an order does not presuppose existence of asset(s) of a foreign party in India; (c) securing the amount in dispute in arbitration like directing the foreign party to furnish a bank guarantee in favour of the Indian party; di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing an executed contract, there was no scope for the petitioner to terminate the Contract; the petitioner has claimed the termination of the Contract on breach of material obligations but has miserably failed to point out in terms of the Contract, the obligations which the respondent is in breach of; the ground of termination as stated in the Letter of Termination, is delay in discharge of the cargo and Clause 13 of the Contract does not stipulate any time period for discharging the cargo/coal at the discharge port and even assuming that the discharge of cargo was a material obligation and there was a delay in discharge, nothing suggests that the respondent is responsible for the same; the petitioner showed inclination to receive cargo at Kandla Port, provided no details of any arrangements and in fact has unilaterally rejected the notice of readiness that was issued by the vessel agent on May 06, 2020; the petitioner has failed to establish/satisfy this Court that the respondent is attempting to remove or dispose of the assets with the intention of defeating the decree that may be passed in its favour. He also relied upon the judgments in Arvind Constructions (supra), Nimbus Commu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicability of the principles underlying Order 38 Rule 5 CPC while making an interim order. The Court after considering several judgments on this issue, has observed as under:- 25. Interestingly, in a previous decision, Firm Ashok Traders Anr. v. Gurumukh Das Saluja Ors. (2004) SCC 155, the Supreme Court observed that: 13. ..The Relief sought for in an application under Section 9 of the A C Act is neither in a suit nor a right arising from a contract. The right arising from the partnership deed or conferred by the Partnership Act is being enforced in the Arbitral Tribunal; the court under Section 9 is only formulating interim measures so as to protect the right under adjudication before the Arbitral Tribunal from being frustrated ..... 26. Though apparently, there seem to be two divergent strands of thought, in judicial thinking, this court is of the opinion that the matter is one of the weight to be given to the materials on record, a fact dependent exercise, rather than of principle. That Section 9 grants wide powers to the courts in fashioning an appropriate interim order, is apparent from its text. Nevertheless, what the authorities stress is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thholding the injunction. 26. Similarly, in the case of Huawei Technologies Company Ltd. Vs. Sterlite Technologies Ltd., this Court held as under:- As far as finding arrived by the Division Bench in C.V. Rao case [ (2015) 218 DLT 200] is concerned, this Court totally agrees that the said relief can only be granted in the exceptional cases when there is adequate material on record leading to a definite conclusion that the respondent is likely to render the entire arbitration proceeding infructuous if the award is passed against them. I agree that the discretion should be exercised in those exceptional cases when there is adequate material on record leading to a definite conclusion that the respondent is likely to render the entire arbitration proceedings infructuous or there is an admitted liability. 27. A careful analysis of the judgment in Ajay Singh (supra), reveals that in the said case, the Division Bench has held that Section 9 of the Act grants wide powers to the Court in fashioning an appropriate interim order. It has also been held that Court should not find itself unduly bound by the text of those provisions and should rather follow the underlying p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Specific Relief Act, 1963. The Court, consequently would be obligated to consider as to whether there exists a prima facie case, the balance of convenience and irreparable injury in deciding whether it would be just and convenient to grant an order of injunction. Section 9, specifically provides in sub-clause (d) of clause (ii) for the grant of an interim injunction or the appointment of a receiver. As regards sub-clause (b) of clause (ii) the interim measure of protection is to secure the amount in dispute in the arbitration. The underlying object of Order 38 Rule 5 is to confer upon the Court an enabling power to require a defendant to provide security of an extent and value as may be sufficient to satisfy the decree that may be passed in favour of the plaintiff. The exercise of the power to order that security should be furnished is, however, preconditioned by the requirement of the satisfaction of the Court that the defendant is about to alienate the property or remove it beyond the limits of the Court with an intent to obstruct or delay execution of the decree that may be passed against him. In view of the decisions of the Supreme Court both in Arvind Constructions and Adhunik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is thus no perceptible difference in the views expressed by the Division Bench as sought to be highlighted by Mr. Krishnan. An order for securing the amount claimed prior to an arbitral award is certainly comparable to the nature of relief provided for under Order 38 Rule 5, CPC. Keeping the well-known principles in mind, I am of the view that it is necessary that Petitioner No. 1 satisfies the Court that (a) Petitioners have a reasonably strong prima facie case for succeeding in the arbitration proceedings and (b) that the Respondent is acting in a manner so as to defeat the realization of the future award that may ultimately be passed. Such orders cannot be passed mechanically as the exercise of power in the nature of Order 38 Rule 5, CPC is a drastic and extraordinary power. There is no doubt in my mind that the underlying basis of Order 38 Rule 5, CPC has to be borne in mind while deciding an application under Section 9 (ii) (b) of the Act. 55. Noting the aforesaid conclusion, with which I concur, it is clear that for grant of the relief as prayed for by the petitioner, the petitioner has to show that; (a) it has a prima facie case and balance of convenience in i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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