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TMI Blog2023 (7) TMI 1564X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.10,51,99,624/-, the total amount under the claims. Since both the appeals arise out of a common order and the issues involved are inextricably linked, they are being decided by a common judgment. 2. The learned Arbitrator is in seisin of disputes between the parties with respect to First Agreement dated 13.09.2012 for import of gold/silver bars, coins etc. (Bullion) on behalf of HHEC, which is a Government company within the meaning of Section 617 of Companies Act, 1956 and was engaged in the field of export of handicraft and handloom products, jewellery etc. and was nominated by the Government of India as an agency to import gold/silver/platinum under the Foreign Trade Policy. As per the Agreement, subject to satisfaction of the conditions precedent, SMC was to place an indent on HHEC alongwith requisite security amount for import of Bullion on consignment stock basis and/or letter of credit, stand-by letter of credit, buyer's credit indicating purity of Bullion, quantity, delivery date, premium, provisional CIF price etc. On satisfaction of the indent, HHEC was to place an order on the foreign supplier and obtain a proforma invoice. 3. SMC was required to deposit with HHEC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dged amount of Rs.2.48 Crores alongwith interest @ 18% p.a. commencing from the date of approval i.e. 31.03.2014, SMC sent a legal notice to HHEC on 11.01.2020. Getting no response, SMC filed a civil suit for recovery, being CS(COMM) 276/2020 in July, 2020, which was dismissed as not maintainable vide order dated 29.07.2020, granting liberty to SMC to avail the remedy of arbitration. SMC, thereafter preferred a writ petition on 03.09.2020 being W.P.(C) 6152/2020 seeking a writ of mandamus directing HHEC to refund the admitted security deposit. SMC states that in the counter affidavit filed in the writ petition, HHEC admitted all documents of acknowledgement of payment. 8. On 27.01.2021, HHEC invoked the Arbitration Agreement and unilaterally appointed an Arbitrator, however, the learned Arbitrator recused herself by a letter dated 01.02.2021 and the proceedings did not progress. Thereafter, on 16.03.2021, the Union Cabinet issued a Notification granting approval for closure of HHEC and as per the information posted on HHEC's website, the employees have been given VRS and liabilities of contractor stand settled. 9. Once again on 24.05.2021, HHEC invoked Arbitration Agreement and u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also directed that if requested, the hearing shall be through VC and the link shall be shared with the opposite party by counsel for SMC. 13. On 06.02.2023, HHEC sent an e-mail through its counsel to the learned Arbitrator with copy to counsel for SMC, informing that HHEC was not consenting to the arbitration proceedings, as fraud had been committed by SMC and the order dated 09.12.2022 appointing the Arbitrator had been challenged by filing an LPA before this Court. It was also stated that the Advocate appearing in the High Court was not given approval for contesting the arbitration proceedings. On 07.02.2023, second hearing was conducted through VC and link was shared with HHEC for 4:00 PM. The order records that the learned Arbitrator waited till 4:20 PM but no one joined on behalf of HHEC. The Arbitrator noted that an e-mail forwarded by Senior Consultant of HHEC was received that morning which indicated that notice of hearing had been duly received. By this e-mail, the Arbitrator was informed of the filing of an LPA against the order of appointment of the sole Arbitrator and that HHEC did not consent to the arbitration proceedings. The order further records that no one ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not get favourable orders in the suit and the writ petition, recourse was taken to arbitration proceedings. 17. Arbitration proceedings continued on 12.01.2023 and 07.02.2023, despite requests to the learned Arbitrator via e-mails to defer the hearings as HHEC had filed an appeal in this Court, challenging the appointment of learned Arbitrator as matters involving fraud are not arbitrable. Even before the hearing on 02.03.2023, counsel for HHEC sent an email on 01.03.2023 to the learned Arbitrator requesting deferment of the hearing on Section 17 application as the appeal [FAO(OS)], was likely to be listed on 03.03.2023, but the learned Arbitrator went ahead with the hearing and granted interim relief to SMC directing HHEC to preserve a sum of Rs.5 Crores in the name of SMC, in complete violation of principles of natural justice. 18. In Godrej Properties Ltd. v. Goldbricks Infrastructure Pvt. Ltd., 2021 SCC OnLine Bom 3448, the Bombay High Court has held that Arbitral Tribunal must give proper and fair opportunity to the parties at all stages of arbitral proceedings to present their case, which would include an ad-interim order. It was held that it is unknown to law and peculiar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot secured the proceedings would stand frustrated. The Supreme Court in Evergreen Land Mark Private Limited v. John Tinson and Company Private Limited and Another, (2022) 7 SCC 757, set aside the order of this Court whereby 100% deposit of the claim amount was directed, holding that this was a drastic measure going by the principles laid down under Order XXXVIII Rule 5 CPC. 21. SMC has not placed on record any evidence to show that assets of HHEC are depleting and per contra the balance sheet of HHEC for the financial year 2020-21, which is in public domain, shows that it has retained assets worth almost 300 Crores and liabilities have gone down. The investigation by CBI is still pending and transactions for the period 2010-14 are being looked into and keeping this in mind as well as the fact that HHEC would not fetter away its assets, the impugned order ought not have been passed. HHEC is a secured organization as the entire funding is by the Ministry of Textiles, Government of India and in case SMC succeeds in the arbitration proceedings, HHEC has the financial capacity to honour the award, if finally upheld. 22. The learned Arbitrator has also erred by including interest facto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived. Even today the stand of HHEC in the rejoinder is that HHEC is not shying away from the claim of SMC but the amount has been withheld pending CBI inquiry, which shows that the matter is under consideration and alive and thus limitation has not even commenced. Be that as it may, this issue cannot be decided in this Appeal and will be decided by the learned Arbitrator, if and when raised by HHEC, at the appropriate stage. In any case, having chosen to stay away from the arbitral proceedings, HHEC has not even raised this objection and cannot fault the Arbitrator for not having decided the issue of claims being allegedly stale. 27. It is wrong for HHEC to contend that it was not given opportunity for presenting its case. Record shows that the lawyers engaged by HHEC were completely aware of all the dates of hearing and consciously and deliberately chose to keep away from the proceedings on the frivolous ground that HHEC had not consented to the Arbitrator appointed and had filed an appeal challenging the order. The purpose of seeking interim relief would be defeated if the matter is prolonged and adjourned at the convenience of one party. In the order dated 07.02.2023, the Arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise of discretion by the Single Judge. In such appeals, the appellate court will not interfere with the exercise of discretion of the Court of first instance and substitute its own discretion except where the discretion has been shown to have been exercised arbitrarily, or capriciously or perversely or where the Court had ignored the settled principles of law regulating grant or refusal of interlocutory injunctions. An appeal against exercise of discretion is said to be an appeal on principle. Appellate court will not reassess the material and seek to reach a conclusion different from the one reached by the Court below if the one reached by that court was reasonably possible on the material. The appellate court would normally not be justified in interfering with the exercise of discretion under appeal solely on the ground that if it had considered the matter at the trial stage it would have come to a contrary conclusion. If the discretion has been exercised by the trial court reasonably and in a judicial manner the fact that the appellate court would have taken a different view may not justify interference with the trial court's exercise of discretion. After referring to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unless it is shown that the discretion so exercised is perverse in any manner or contrary to the law. In the present case, no such exception has been made out by the appellant." 32. In Ascot Hotels and Resorts Pvt. Ltd. and Another v. Connaught Plaza Restaurants Pvt. Ltd., 2018 SCC OnLine Del 7940, this Court reiterated the above principles. In Bakshi Speedways v. Hindustan Petroleum Corporation, 2009 SCC OnLine Del 2476, Court observed that the principles applicable to an appeal under Section 37(2)(b) of the 1996 Act ought to be the same as principles in an appeal against an order passed under Order XXXIX Rules 1 and 2 CPC i.e. unless the discretion exercised by the Court against whose order the appeal is preferred is found to have been exercised perversely and contrary to law, the Appellate Court ought not to interfere merely because the Appellate Court would have exercised its discretion otherwise. This position of law was recognised by this Court in Shiningkart Ecommerce Pvt. Ltd. v. Jiayun Data Limited, 2019 SCC OnLine Del 11464 and Sona Corporation India Pvt. Ltd. v. Ingram Micro India Pvt. Ltd. and Another, 2020 SCC OnLine Del 300. 33. In Dinesh Gupta and Others v. Anand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt for the reasons explicitly set out in the body of the 1996 Act, is, ordinarily, immune from judicial interference. xxxx xxxx xxxx 66. In my opinion, this principle has to guide, strongly, the approach of this Court, while dealing with a challenge such as the present, which is directed against an order which, at an interlocutory stage, merely directing furnishing of security, by one of the parties to the dispute. The power, of the learned Sole Arbitrator, to direct furnishing of security, is not under question; indeed, in view of sub-clause (b) of Section 17(1)(ii) of the 1996 Act, it cannot. The arbitrator is, under the said sub-clause, entirely within his jurisdiction in securing the amount in dispute in the arbitration. Whether, in exercising such jurisdiction, the arbitrator has acted in accordance with law, or not, can, of course, always be questioned. While examining such a challenge, however, the Court has to be mindful of its limitations, in interfering with the decision of the arbitrator, especially a decision taken at the discretionary level, and at an interlocutory stage. xxxx xxxx xxxx 68. It is, no doubt, possible to argue that the intent, of Section 5, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nality offered by it." (Emphasis supplied) 34. In both Augmont Gold Private Limited v. One97 Communication Limited, 2021 SCC OnLine Del 4484 and Sanjay Arora v. Rajan Chadha, 2021 SCC OnLine Del 4619, this Court observed that only where the order of the Tribunal under Section 17 suffers from patent illegality or perversity that the Court under Section 37(2)(b) would interfere. In Sanjay Arora (supra), it was observed that unlike appeals under other statute, appeals against orders of Arbitral Tribunal are subject to overarching limitation contained in Section 5 of the 1996 Act. Subsequently, in Manish Aggarwal (supra), the Court again held that viewed from the settled perspective of guarded and sparing use of powers under Section 37(2)(b), it is only in exceptional circumstances that this Court would interfere in the order passed by the Tribunal. Reference may also be made in this context to a recent judgment of this Court in Supreme Panvel Indapur Tollways Private Limited v. National Highways Authority of India, 2022 SCC OnLine Del 4491. 35. From a conspectus of the aforesaid judgments, it is explicitly and luminously clear that while exercising power under Section 37(2)(b), th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in Baker Hughes Singapore Pte. v. Shiv-Vani Oil and Gas Exploration Services Ltd. (supra) took a broader view (at paragraphs 40, 50-51) of the arbitral tribunals powers under Section 17 of the 1996 Act. This Court also distinguished the Judgment in the case of Intertoll (supra). This Court held, in Baker Hughes (supra), that an arbitral tribunal can, in a given case, make an appropriate order of security. 50. A perusal of these decisions is helpful because it brings into focus the reason why Section 17 as amended, was enacted. 51. Under the 1940 Act, the position was, as stated by the Hon'ble Supreme Court in MD, Army Welfare Housing Organization (supra), that an arbitral tribunal is not a Court of law and its orders are not judicial orders and its functions are not judicial functions. 52. This position changed under the 1996 Act, but in relation to Section 17 of the 1996 Act, the same Judgment of Army Welfare (supra), says that the power is a limited one, and that the arbitral tribunal has no power to enforce its own order nor is it made judicially enforceable. 53. Even though different Courts may have taken different views on the scope of the powers under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well. Section 9(3) of the Amended Act states that, "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."" 37. In Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd., (2007) 7 SCC 125 albeit in the context of Section 9, Supreme Court held as follows: "11. It is true that Section 9 of the Act speaks of the Court by way of an interim measure passing an order for protection, for the preservation, interim custody or sale of any goods, which are the subject-matter of the arbitration agreement and such interim measure of protection as may appear to the Court to be just and convenient. The grant of an interim prohibitory injunction or an interim mandatory injunction are governed by well-known rules and it is difficult to imagine that the legislature while enacting Section 9 of the Act intended to make a provision which was dehors the accepted principles that governed the grant of an interim injunction. Same is the position regarding the appointment of a receiver since the section itself bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or was appointed by this Court under Section 11(6) of the 1996 Act vide order dated 09.12.2022. The Arbitrator sent declaration under Section 12 on 23.12.2022 and on the same date the email was acknowledged by the counsel for HHEC, who had appeared before Court when the petition under Section 11(6) was disposed of. SMC filed its Statement of Claim on 10.01.2023 and a copy was served both by email and physically on HHEC. On 11.01.2023, counsel for HHEC through email communicated that an LPA had been preferred against the order appointing the Arbitrator on the same day. During the hearing on 12.01.2023, there was no appearance on behalf of HHEC. On contacting the counsel who had appeared in this Court when the Arbitrator was appointed, it was learnt that the counsel had withdrawn his vakalatnama. Since the e-mail had been received from third party, the learned Arbitrator did not take cognizance of the same and to ensure that HHEC was duly represented, directed issuance of notice by all modes to HHEC at the addresses mentioned in the petition indicating the next date i.e. 07.02.2023 and the time of hearing. 41. On 06.02.2023, again one day before the next hearing on 07.02.2023, an em ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity means that each party must have notice that the hearing is to take place and should be given an opportunity to be present at the hearing. However, if after having proper notice, a party chooses not to appear, law does not mandate that the Arbitral Tribunal should put the proceedings in abeyance or adjourn them indefinitely, waiting for one party. Principles of natural justice cannot be put in a straitjacket formula and violation thereof depends upon facts and circumstances of each case. Party has no absolute right to insist on his convenience being consulted in every respect and the matter is within the discretion of the Arbitrator and Court will intervene only in the event of positive abuse. 44. Order sheets reflect that apart from sending emails communicating the filing of LPA/FAO(OS), no one cared to join the proceedings on behalf of HHEC albeit it is clear as day that none of the two remedies chosen by HHEC were legally correct. However, even assuming that HHEC intended to challenge the order of appointment of the Arbitrator under Section 11(6), mere filing of the appeal(s) was not reason enough to abstain from the hearings, particularly, when the order dated 07.02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is a response to an unstarred question before the Rajya Sabha reflecting that no case or inquiry was pending against SMC. On this basis, the learned Arbitrator has come to a prima-facie conclusion that the reason for withholding the payment had no legs to stand. Pertinently, the learned Arbitrator also took note of the fact that Cabinet had approved the closure of HHEC and a Press release was issued to this effect in the year 2021. 47. Taking a holistic view of the cumulative facts viz: approval of closure of HHEC, official documents acknowledging the residual amount from the initial security deposit due to SMC and the factum of there being no inquiry/CBI investigation/criminal case against SMC at any stage, the learned Arbitrator took a conscious decision in its discretion to preserve part of the subject matter of the arbitration agreement. 48. It needs to be noted that by the impugned order, the learned Arbitrator in its discretion has only directed HHEC to preserve a sum of Rs.5 Crores in the form of FDR in the name of SMC and produce a copy of the FDR for record, observing that since the Government of India has taken a decision to close HHEC, it would be necessary to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xxxx xxxx 43. On plain reading of section 17 of the Arbitration and Conciliation Act, 1996, in my view the money claim made by the petitioner in the arbitration proceedings would amount to the 'subject matter of the dispute'. The respondent had in the written statement opposed the said claim. The money claim was thus the subject matter of the dispute based on the invoices issued by the petitioner upon the respondent. 44. Under section 6.1 of the contract, the respondent had agreed to pay the undisputed invoices to the petitioner within 60 days from the date of submission of such invoices. The case of the petitioner before the arbitral tribunal was that none of those invoices were disputed by the respondent in the correspondence exchanged between the parties till the petitioner invoked the arbitration agreement. The respondent had acknowledged the liability from time to time and had promised the petitioner to pay the amount due and payable under the Mud Services Contract to the petitioner from time to time. The respondent had pleaded difficulties in making payment on the ground that the payments of the respondent due from ONGC was held up. The respondent had submitted schedul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s so as to secure the claim which is subject matter of the dispute before the arbtiral tribunal if such case is made out by the applicant. The provisions under sections 9 and 17 of the Arbitration and Conciliation Act are meant for the purpose of protecting the subject matter of the dispute till the arbitration proceedings culminates into an award. 52. Division Bench of this court in case of Nimbus Communication Ltd. (supra) has adverted to the judgment of division bench of this court in case of National Shipping Company of Saudi Arabia v. Sentrans Industries Ltd., (2004) 2 Bom CR 1. The division bench of this court in case of National Shipping company (supra) has held that though the power under section 9(ii)(b) is wide, it has to be governed by the paramount consideration that a party which has a claim adjudicated in its favour ultimately by the arbitrator should be in a position to obtain the fruits of the arbitration while executing the award. Court has to also consider whether a denial of such order would result in a grave injustice to the party seeking a protective order. The obstructive conduct of the party against whom such a direction is sought is also regarded as a mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eserved by the learned Arbitrator. The total claim of SMC is approximately Rs.10 Crores and the learned Arbitrator has directed preservation of 50% of the said amount. The discretion is exercised on laid down parameters and no infirmity can be found with the same. 53. The judgments relied upon by learned counsel for HHEC, in my view, are inapplicable to the facts of the present case. In State of Goa (supra), the Supreme Court has observed that the issue of limitation is not an issue to be decided in an application under Section 11 of the 1996 Act, but in appropriate cases, the Court may consider whether the application was in regard to a claim which on the face of it was so hopelessly barred by time that it is already a dead/stale claim not deserving to be resurrected and referred to arbitration. The judgment clearly has no relevance to the controversy before this Court in the present appeals, particularly, when this plea is not even taken before the learned Arbitrator. Insofar as the judgments in Raman Tech. & Process Engg. Co. and Another (supra) and Manish Aggarwal (supra) are concerned, the propositions of law laid down cannot be disputed. However, in the present case this Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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