2020 (6) TMI 772 - HC - Indian Laws

Direction to furnish adequate security in the form of a bank guarantee issued by a nationalized bank in India or such other security that shall cover the entire sum in dispute between the parties - direction to deposit amount which is equivalent to the amount paid by the Petitioner herein to the Respondent as consideration under the Contract dated 10.03.2020 - amount so deposited by the Respondent be kept in an interest-bearing fixed deposit until the conclusion of the arbitration proceedings. HELD THAT - The thought process, which weighed for incorporating proviso to Section 2(2) of the Act is the difficulty faced by both the Indian and the foreign party in seeking orders/interim measures in India in a foreign seated arbitration. So, it follows that proviso to Section 2(2) was incorporated to facilitate the parties to move the Court in India, even though the arbitration is seated outside India - it is clear that, passing of orders/granting interim-measures under Section 9 does not presuppose existence of asset(s) in India. The bank guarantee, which is furnished/amount deposited pursuant to an order passed by a Court in India under Section 9 (as stated at C above) can be invoked/withdrawn by an Indian party in the eventuality, it succeeds in a foreign seated arbitration in satisfaction of the Award, even though the foreign entity may not have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 apprehension that the respondent may make attempts to obstruct the satisfaction of the decree, which may be awarded in favor of the petitioner in the arbitration proceedings. Petition dismissed.

Summary

Issues Involved:
1. Maintainability of the petition under Section 9 of the Arbitration and Conciliation Act, 1996.
2. Grant of interim relief as prayed by the petitioner.

Issue-wise Detailed Analysis:

1. Maintainability of the Petition under Section 9 of the Arbitration and Conciliation Act, 1996:

The respondent argued that the petition is not maintainable because the arbitration is an International Commercial Arbitration seated in New York, governed by New York law, and the respondent has no assets in India. The jurisdiction under the proviso to Section 2(2) of the Act is asset-based, meaning it applies only when the counterparty’s assets are in India. The petitioner, however, contended that the contract does not exclude the applicability of Part-I of the Act and relied on ICC Rules (Articles 28.2 and 29.7), which allow parties to seek interim measures from competent judicial authorities.

The court analyzed Section 2(2) and Section 9 of the Act, noting that the proviso to Section 2(2) makes Sections 9, 27, 37(1)(a), and 37(3) applicable to foreign-seated arbitration. The court referenced the judgment in *Raffles Design International India Pvt. Ltd.* and the Supreme Court judgment in *BCCI vs. Kochi Cricket Pvt. Ltd.*, which support the applicability of Section 9 to foreign-seated arbitration.

The court rejected the respondent's argument that the petition under Section 9 cannot be maintained against a foreign party without assets in India. It clarified that Section 9 allows for interim measures without presupposing the existence of assets in India and that interim measures can be sought to secure the amount in dispute, irrespective of asset location. Thus, the petition under Section 9 was held to be maintainable.

2. Grant of Interim Relief as Prayed by the Petitioner:

The petitioner argued that it has a prima facie case, having fulfilled its contractual obligations, and that the respondent’s refusal to discharge the coal constitutes a breach. The petitioner also expressed concerns about the depreciation in coal prices and sought interim relief to secure the disputed amount. The respondent countered that the contract was a CIF contract, which concluded upon loading the goods and receiving payment. The respondent argued that the petitioner failed to establish any breach of material obligations and that the termination of the contract was invalid.

The court emphasized that the grant of interim relief under Section 9 should be guided by principles akin to those under Order XXXVIII Rule 5 of CPC, requiring a prima facie case and evidence that the respondent is likely to act in a manner that would defeat the realization of a future award. The court referred to several judgments, including *Adhunik Steel Ltd. v. Orissa Manganese and Minerals Ltd.*, which underscored the need for caution and the presence of exceptional circumstances to grant such relief.

The court found that the petitioner’s allegations were bald and unsupported by evidence. The court noted that the disputed facts regarding the contract’s execution and termination must be decided by the Arbitral Tribunal. The court concluded that the petitioner failed to demonstrate that the respondent was likely to render the arbitration proceedings infructuous by dissipating assets. Consequently, the court refused to exercise its discretion to grant interim relief and dismissed the petition.

Conclusion:

The court held that the petition under Section 9 of the Arbitration and Conciliation Act, 1996, is maintainable even for a foreign-seated arbitration without assets in India. However, the petitioner failed to establish a prima facie case or demonstrate that the respondent was likely to defeat the realization of a future award. Therefore, the court dismissed the petition for interim relief.