2020 (9) TMI 1204 - HC - Indian Laws

Seeking an interim direction, to Respondent No. 1, to furnish a bank guarantee - discontinuance of payment of running accounts bills submitted by the petitioner, consequent breach, by Respondent No.1, of Clause 3.3 of the sub-contract agreement and discontinuance of the allocation of work to the petitioner - Section 9 of the the Arbitration and Conciliation Act, 1996 - HELD THAT - While Section 9(1)(ii)(b) of the 1996 Act unquestionably empowers the court to secure the amount in dispute in the arbitration, any such direction has, in principle, to conform to the discipline of Signature Not Verified Digitally Signed. Order XXXVIII Rule 5 of the Code of Civil Procedure, 1908. Further, it is not enough for the petitioner to establish a prima facie case, balance of convenience and irreparable loss; additionally, the petitioner would have to establish, on facts, that, were security not to be directed as prayed, the arbitral proceedings were likely to be frustrated. Section 9 is not intended to operate as an alternative to Section 17. Prima facie, the concern expressed by Mr. Ravi Ranjan is purely in the realm of apprehension and conjecture at present. It Signature Not Verified Digitally Signed hinges on several imponderables, with no supportive material forthcoming from the record - that apart, the mere perceived difficulty in the enforcement of a possible arbitral award, which might ensue in favour of a party, cannot, prima facie, be a ground to direct the furnishing of security, in a proceeding under Section 9 of the 1996 Act. Various notices to be issued - Renotify on 19th November, 2020.

Summary

Issues:
1. Maintainability of the petition under Section 9 of the Arbitration and Conciliation Act, 1996.
2. Validity of the email dated 7th November, 2019, issued by the petitioner.
3. Prayer for interim directions including furnishing a bank guarantee and restraint against clearing bills.
4. Request for a direction to file an affidavit disclosing assets.
5. Territorial jurisdiction of the court.

Issue 1: Maintainability of the petition under Section 9 of the Arbitration and Conciliation Act, 1996:
The petition under Section 9 of the Arbitration and Conciliation Act, 1996, pertains to a sub-contract agreement for civil works. The petitioner raised grievances regarding payment discontinuation and work allocation by Respondent No. 1. Despite the settlement of bills and release of bank guarantees, the petitioner claims the email of contract termination was under duress. The court emphasized that Section 9 is an emergency provision to prevent arbitration frustration, not an alternative to Section 17. The petitioner failed to demonstrate imminent urgency for interim relief, and the concern over enforcement of an arbitral award alone is insufficient to warrant security directions.

Issue 2: Validity of the email dated 7th November, 2019, issued by the petitioner:
The petitioner alleged the email of contract closure was issued under duress, while Respondent's counsel argued against the maintainability of the petition post-settlement. The court found the petitioner's concerns speculative and lacking supporting evidence. The mere difficulty in enforcing a potential arbitral award cannot justify security directions under Section 9. The court emphasized the need for concrete grounds beyond apprehensions for such relief.

Issue 3: Prayer for interim directions including furnishing a bank guarantee and restraint against clearing bills:
The petitioner sought interim directions for a bank guarantee and a restraint on clearing bills. The court highlighted the need for a strong case beyond mere outstanding payments to warrant such relief. It rejected the prayer for restraint against clearing bills, emphasizing that any entitlement to payments should be addressed in arbitral proceedings, not through Section 9 petitions.

Issue 4: Request for a direction to file an affidavit disclosing assets:
The petitioner requested a direction for respondents to file an affidavit disclosing assets, which the court deemed inappropriate under Section 9 of the Act. Such a prayer was rejected as it did not align with the purpose and scope of Section 9 provisions for interim protection in arbitration matters.

Issue 5: Territorial jurisdiction of the court:
Respondent's counsel challenged the territorial jurisdiction of the court, arguing against the inclusion of Respondent No. 2 in the proceedings. The court acknowledged this challenge and scheduled further examination of this aspect during the hearing. The issue of territorial jurisdiction will be revisited in subsequent proceedings to determine the validity of including Respondent No. 2 in the petition.