2022 (10) TMI 50 - SC - Indian Laws

Direction to deposit the amount of performance bank guarantees pertaining to purchase order Nos. 01, 02 and 03 - Section 9 of the Arbitration and Conciliation Act, 1996 - HELD THAT - When the bank guarantees were already invoked and the amounts under the respective bank guarantees were already paid by the bank much prior to the Commercial Court passed the order under Section 9 of the Arbitration Act, 1996 and looking to the tenor of the order passed by the Commercial Court, it appears that the Commercial Court had passed the order under Section 9(ii)(e) of the Arbitration Act, 1996 to secure the amount in dispute, it is opined that unless and until the preconditions under Order XXXVIII Rule 5 of the CPC are satisfied and unless there are specific allegations with cogent material and unless primafacie the Court is satisfied that the appellant is likely to defeat the decree/award that may be passed by the arbitrator by disposing of the properties and/or in any other manner, the Commercial Court could not have passed such an order in exercise of powers under Section 9 of the Arbitration Act, 1996. The order(s) which may be passed by the Commercial Court in an application under Section 9 of the Arbitration Act, 1996 is basically and mainly by way of interim measure. It may be true that in a given case if all the conditions of Order XXXVIII Rule 5 of the CPC are satisfied and the Commercial Court is satisfied on the conduct of opposite/opponent party that the opponent party is trying to sell its properties to defeat the award that may be passed and/or any other conduct on the part of the opposite/opponent party which may tantamount to any attempt on the part of the opponent/opposite party to defeat the award that may be passed in the arbitral proceedings, the Commercial Court may pass an appropriate order including the restrain order and/or any other appropriate order to secure the interest of the parties. The impugned judgment and order passed by the High Court and that of the order dated 13.10.2021 passed by the Commercial Court in an application under Section 9(ii)(e) of the Arbitration Act, 1996 directing appellant to deposit the amount of performance bank guarantees pertaining to purchase order Nos. 01, 02 and 03 already invoked by the appellant herein, are hereby quashed and set aside - appeal allowed.

Summary

Issues:
1. Dismissal of appeal by High Court regarding deposit of performance bank guarantees.
2. Validity of order under Section 9 of the Arbitration Act, 1996.
3. Conditions for passing orders under Order XXXVIII Rule 5 of the CPC.

Issue 1 - Dismissal of Appeal by High Court:
The appellant appealed against the High Court's decision confirming the Commercial Court's order to deposit performance bank guarantees. The dispute arose from three purchase orders where the appellant claimed a loss due to defective cables supplied by the respondent. The respondent, in turn, claimed outstanding payment. The appellant invoked bank guarantees, leading to arbitration. The Commercial Court directed the appellant to deposit the guarantees, which had already been paid by the bank. The High Court upheld this decision, prompting the present appeal.

Issue 2 - Validity of Order under Section 9 of the Arbitration Act, 1996:
The Supreme Court found that the Commercial Court's order under Section 9 of the Arbitration Act, 1996 was not justified. The Court stated that unless specific conditions under Order XXXVIII Rule 5 of the CPC were met, such orders should not have been passed. The purpose of such orders is to secure the disputed amount, especially if there is a risk of defeating a future decree or award. In this case, the Court noted serious disputes on the claimed amounts, which should be resolved through arbitration.

Issue 3 - Conditions for Passing Orders under Order XXXVIII Rule 5 of the CPC:
The Court emphasized that orders under Section 9 of the Arbitration Act, 1996 are interim measures. They should only be passed if all conditions of Order XXXVIII Rule 5 of the CPC are satisfied, and there is evidence that one party may try to defeat a future award. In this case, the Commercial Court's order was deemed premature as the preconditions were not met. The Court quashed the High Court and Commercial Court's orders but directed the appellant to provide an undertaking to honor any future award.

In conclusion, the Supreme Court allowed the appeal, setting aside the previous orders. The Court stressed the importance of meeting legal preconditions before passing such interim orders, highlighting the temporary nature of measures under Section 9 of the Arbitration Act, 1996.