Bombay High Court
Ultra Deep Subsea Pte Ltd vs Hindustan Oil Exploration ... on 13 December, 2021
Bench: B.P. Colabawalla
CARBP(L)-22272-2021.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMMERCIAL ARBITRATION PETITION (L) NO. 22272 OF
2021
Ultra Deep Subsea Pte Ltd. .. Petitioner
Vs.
Hindustan Oil Exploration Company Ltd. & Anr. .. Respondents
Mr. Zarir Bharucha a/w. Mr. Vimal Rajshekhar, Chandrashekhar and Rohan
Pajnigar i/b. ZBA & Associates for the Petitioner.
Mr. Zal Andhyarujina, Sr.Counsel a/w. Dr. Abhinav Chandrachud, Mr. Sunil
Mathur and Varnali Mishra for Respondent No.1.
CORAM :- B.P.COLABAWALLA, J.
DATE :- 13th DECEMBER, 2021.
P. C.:
1. The above Petition is filed under Section 9 of the
Arbitration and Conciliation Act, 1996 (for short the "Indian
Arbitration Act") seeking the following reliefs:
"A. To direct Respondent No. 2, the bank in which the Respondent
No. 1 holds an account (bearing account number -
918020084515885) to freeze/suspend payments from the bank
account of the Respondent No.1 up to an amount of USD
6,212,831.67 or its INR equivalent; and/or
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B. To direct the Respondent No.1 to deposit a sum of USD 6,
212,831,67 with this Hon'ble Court as security for the
arbitration proceedings which will be commenced by the
Petitioner against the Respondent No.1; and/or
C. To direct the Respondent No.1 to submit an irrevocable bank
guarantee in favour of the Prothonotary, Bombay High Court for
the Petitioner's claim of USD 6,212,831.67 along with interest
and costs to be kept alive until an award is passed in the
arbitration proceedings to be instituted by the Petitioner;
and/or.
D. To direct the Respondent No.1 to submit an affidavit giving full
details and particulars of its assets, including all bank account
details and bank statements, the details of charges if any; and
provide the requisite information as per the format at Exhibit
DDDD; and/or
E. To direct and order that Respondent No.1 ensures and retains
an amount of the INR equivalent of USD 6,212,831.67 pending
the outcome of the proposed arbitration by the Petitioner
against the Respondent No.1;"
2. The Petitioner is a company incorporated in Singapore. It is
a company engaged in design, construction and operation of ultra-deep
diving heavy construction vessels in the offshore industry. The
Petitioner also gives its vessels on time charters for deep water diving
operations. Respondent No.1 is a company engaged in oil exploration
activities including drilling of oil wells and processing of the oil and
natural gas produced from the said wells. Respondent No.2 is a banking
company. The Petitioner has no claims against Respondent No.2 in the
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present Petition. Respondent No.2 is impleaded because Respondent
No.1 maintains a bank account with Respondent No.2. Since one of the
reliefs sought in the Petition is for freezing/attaching the bank account
of Respondent No.1 with Respondent No.2, it has been joined as a
proforma party.
3. The present Petition is preferred seeking urgent interim
reliefs inter-alia to secure the amounts payable by Respondent No.1 to
the Petitioner. The amount in question is approximately USD
6,212,831.67. According to the Petitioner, not only is the 1st Respondent
mandated to pay this amount under the contract in a time bound
manner but it has time and again admitted its liability to the Petitioner.
It is the case of the Petitioner that there is really no dispute with
reference to the amounts payable by the 1st Respondent to the Petitioner
and the Petitioner has a great chance of success in the proposed
arbitration. This would warrant an order of deposit against the 1st
Respondent, is the case of the Petitioner.
4. The brief facts giving rise to the controversy are this. The
Government of India, from time to time, issue offers for development of
discovered oil fields. Companies, either by themselves, or through
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consortiums and/or join ventures, bid for the development and
monetization of these oil fields. A successful bidder inter-alia carries
out- (i) exploration of these fields; (ii) development of the oil fields such
as drilling wells; and (iii) bringing the field "on stream" i.e. extracting
the oil or gas from the field.
5. Respondent No.1 formed a 50:50 joint venture with
another entity, Adbhoot Estates, and successfully bid for the B-80 block
in the Discovered Small Field Round 1 held by the Directorate General
of Hydrocarbons, India. Respondent No.1 completed a two well drilling
campaign in B-80 in April 2020 and commenced operations to bring the
oil field "on stream" in 2021. In order to do so, Respondent No.1 was in
search of a specialized company with the experience and expertise to
successfully complete the same. Since the Petitioner was offering Diving
Supports Vessels (for short "DSV") on charter, Respondent No.1
approached the Petitioner for chartering a DSV. I must mention that
DSVs play a major role in the maintenance of Offshore installations and
under water wells/pipelines and are sophisticated vessels which contain
a Dynamic Positioning (for short "DP") system allowing them to
maintain the same position in the high seas. Apart from this, the DSVs
also contain modern equipment allowing divers to descend to great
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depths in the oceans for extended periods of time and also facilitate
deployment of Remote Operated Vehicles (for short "ROV") for
carrying out offshore maintenance activities.
6. Accordingly, the Petitioner and Respondent No.1 entered
into a Charter Party for chartering the Vessel - DSV Lichtenstein (IMO
No. 9758296) [for short "the said Vessel"]. The letter of award and
the Charter Party dated 28th January, 2021 are annexed at Exhibit "C" to
the Petition. The Charter Party contemplated that the said Vessel would
be delivered to the 1st Respondent at outer anchorage, Mumbai Port.
Under clause 1(a) read with Box 9 of the Charter Party, the said Vessel
was time chartered to Respondent No.1 for an initial period of 30 days.
The said Vessel was delivered to the 1st Respondent on 7th March, 2021
and therefore the Time Charter Party was due to expire on 6th April,
2021. The Charter Party also gave the option to the Charterer, i.e.
Respondent No.1, to extend the same by giving notice of two days prior
to the expiry of the Charter Party. It is not in dispute that Respondent
No.1 extended the period of the Charter Party ten times (as
contemplated under clause 1(b) read with Box 10 thereof) until 26th
May, 2021. Ultimately, the said Vessel was delivered back to the
Petitioner on 28th May, 2021. The extensions of the Charter Party are all
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annexed at Exhibit "F1" to "F10" of the Petition.
7. Under the aforesaid Charter Party, the Petitioner
periodically raised invoices on Respondent No.1 in respect of
mobilization fees; charter day rate of the Vessel; equipment rental; meal
charges for persons on board the Vessel; reimbursement of expenses
incurred by the Petitioner; FB invoice; bunkers on re-delivery; lube oil &
hydraulic oil expenses; and the demobilization fees. These invoices are
all annexed at Exhibit "I-1" to "I-41" of the Petition. The Petitioner also
periodically sent statements of account to Respondent No.1
consolidating the invoices raised and indicating the amount due and
payable by Respondent No.1. The copies of these statements are also
annexed at Exhibits "J" to "M" of the Petition.
8. It is the case of the Petitioner that despite receiving these
invoices and the statements of account, and despite the 1st Respondent
admitting its liability time and again, it has not made payment to the
Petitioner. It is in these circumstances that the present Petition is filed
under Section 9 of the Indian Arbitration Act seeking various reliefs
more particularly set out earlier. The Charter Party has an arbitration
clause which contemplates that the Charter Party shall be governed by
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and construed in accordance with English Law and any dispute arising
out of or in connection with the Charter Party shall be referred to
arbitration in London in accordance with the Arbitration Act, 1996 (For
short the "English Arbitration Act") or any statutory modification or
re-enactment thereof save to the extent necessary to give effect to the
provisions of the said clause. The clause further contemplates that the
arbitration shall be conducted in accordance with the London Maritime
Arbitrators Association Terms, 2021 (for short the "LMAA Terms")
current at the time when the arbitration proceedings are commenced.
How the arbitration is to proceed is also thereafter laid down in clause
37.
9. In this factual backdrop, Mr. Bharucha, the learned
advocate appearing on behalf of the Petitioner, submitted that
Respondent No.1 has repeatedly and unequivocally admitted its liability
to pay the unpaid amounts due under the Charter Party to the
Petitioner. He submitted that despite these admissions, the Petitioner
has failed and neglected to make payment. According to Mr. Bharucha,
the 1st Respondent's lack of commercial morality and bad faith warrants
immediate judicial interference inter-alia in the form of an order for
deposit of the admitted amounts pending arbitration in London as
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contemplated by the Charter Party dated 28th January, 2021. Mr.
Bharucha submitted that the admissions by the 1st Respondent are
clearly reflected in the emails dated 24th March, 2021 (Exhibit "O"), 26th
March, 2021 (Exhibit "Q"), 6th April, 2021 (Exhibit "S"), 21st April, 2021
(Exhibit "W"), 26th April, 2021 (Exhibit "Z"), 4th May, 2021 (Exhibit
"GG"), 4th May, 2021 (Exhibit "HH"), 7th May, 2021 (Exhibit "KK"), 10th
May, 2021 (Exhibit "LL"), 12th May, 2021 (Exhibit "OO") , 19th May,
2021 (Exhibit "SS"), 27th May, 2021, (Exhibit "WW"), 31st May, 2021
(Exhibit "ZZ"), 8th June, 2021 (Exhibit "CCC"), 14th June, 2021 (Exhibit
"GGG") and 21st June, 2021 (Exhibit "LLL"). Mr. Bharucha took me
through these documents and contended that all these documents
clearly establish that Respondent No.1, has time and again, admitted its
liability to the Petitioner in relation to the invoices raised by the
Petitioner on the 1st Respondent. In the alternative, Mr. Bharucha
submitted that even if one were not to construe the aforesaid emails as a
clear and unequivocal admission, it is clear that all through out, no
grievance was ever made by the 1st Respondent against the Petitioner
either with reference to the DSV, or its equipment, personnel or service
and no dispute was ever raised with reference to the monies payable
under all the invoices raised by the Petitioner on the 1st Respondent. A
dispute was raised for the first time only after the Petitioner served on
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the 1st Respondent a legal notice dated 26th June, 2021 calling upon the
1st Respondent to make payment or face legal action. It is in reply to this
notice, and for the first time, that the 1st Respondent, by its letters dated
30th June, 2021 and 10th August, 2021 raised false and frivolous disputes
to somehow avoid paying the legitimate dues of the Petitioner. Mr.
Bharucha submitted that this itself would clearly go to show that the
Petitioner has a very good chance of succeeding in the proposed
arbitration against the 1st Respondent. This would entitle the Petitioner
to seek an order of deposit of the monies due under the aforesaid
invoices (Exhibits "I-1" to "I-41") amounting to USD 6,212,831.67, was
the submission of Mr. Bharucha. In support of this proposition, Mr.
Bharucha relied upon the following decisions:
(i) Jagdish Ahuja Vs. Cupino Limited [2020 SCC OnLine Bom
849];
(ii) Valentine Maritime Ltd. Vs. Kreuz Subsea Pte Limited and
another [2021 SCC OnLine Bom 75];
(iii) Kotak Mahindra Bank Ltd. Vs. Williamson Magor & Co. Ltd.
& Anr. [2021 SCC OnLine Bom 305: (2021) 3 Bom. C. R. 336].
10. Mr. Bharucha submitted that this does not stop here. He
brought to my attention clause 12(e) of the Charter Party and contended
that if the 1st Respondent reasonably believed that an incorrect invoice
has been issued or there was any dispute regarding any invoice raised by
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the Petitioner, the same had to be notified by the 1st Respondent to the
Petitioner promptly and in no event not later than the due date,
specifying the reason for disputing the invoice. He submitted that as
stipulated in the Charter Party [under Box 22 read with Box 24], the 1st
Respondent had to dispute the invoice within 7 days from the receipt
thereof, failing which payment had to be made. Mr. Bharucha,
submitted that never were any of the invoices disputed by the 1st
Respondent until a legal notice was issued to the 1st Respondent to make
payments to the Petitioner under the aforesaid invoices. Mr. Bharucha
submitted that the so-called dispute raised for the first time by
Respondent No.1 vide its reply to the legal notice of the Petitioner was
clearly only an afterthought to somehow avoid making payments to the
Petitioner of their legitimate dues. He submitted that the conduct of the
1st Respondent itself would indicate that the so called disputes raised by
them were only an afterthought. He submitted that in any event, under
clause 12 (e) of the Charter Party, if any invoice was not disputed within
7 days of the receipt of the said invoice, then the 1st Respondent had to
make payment thereunder immediately and if they had any claim
against the Petitioner, they could raise those claims subsequently. In
other words, he submitted that this clause contemplated of making
payment first and disputing later. He submitted that this clause 12 (e) is
CARBP(L)-22272-2021.doc
incorporated in line with commercial common sense. This is to ensure
that there is proper cash flow for the owner of the ship. He submitted
that cash flow is a matter of considerable and sometimes crucial
importance to the owner of the ship. It is for this very reason why such a
clause is incorporated in the Charter Party so as to ensure that timely
payment is made to the owner of the ship so that cash flows are not
affected. To substantiate this argument, Mr. Bharucha relied upon an
English decision in the case of Boskalis Offshore Marine Contracting BV vs.
Atlantic Marine and Aviation LLP (The "Atlantic Tonjer") [2020 Volume (I)
LLOYD's Law Reports 171]. For all the aforesaid reasons, Mr. Bharucha
submitted that the 1st Respondent be directed to deposit in this Court a
sum of USD 6,212,831.67 to secure the claim of the Petitioner in the
proposed arbitration proceedings, or at the very least, the 1st
Respondent be directed to furnish an unconditional bank guarantee in
favour of the Prothonotary and Senior Master of this Court for the said
amount, with interest and costs, and which should be kept alive until an
Award is passed in the arbitration proceedings proposed to be instituted
by the Petitioner.
11. On the other hand, Mr. Andhyarujina, the learned senior
counsel appearing on behalf of the 1st Respondent, took a preliminary
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objection for this Court to entertain the above Section 9 Petition on the
issue of jurisdiction. Mr. Andhyarujina submitted that the Charter Party
was executed between the Petitioner (a Non-Resident Foreign
Company) registered under the Laws of Singapore and the 1st
Respondent (a Resident Indian Company) registered under the
Companies Act, 1956 in accordance with the internationally followed
and accepted BIMCO Supplytime 2017 format. He submitted that the
parties, of their own free will, selected and agreed upon a neutral venue
and a foreign seat of arbitration to decide the disputes and differences
between the Petitioner and the Respondent. Mr. Andhyarujina
submitted that the arbitration clause between the parties stipulates that
the arbitration was to take place in London in accordance with the
English Arbitration Act and the arbitration was to be conducted in
accordance with the LMAA Terms. He submitted that the applicable
substantive law was also English Law and considering that the seat of
arbitration was in London, the applicable curial law would also be the
English Arbitration Act. It is this law that would govern the entire
Charter Party as well as the disputes arising therefrom. Mr.
Andhyarujina submitted that considering that this is a foreign seated
arbitration, where the substantive law and the curial law is not the law
of India, the applicability of the Part I of the Indian Arbitration Act, is
CARBP(L)-22272-2021.doc
impliedly excluded as held by a series of decisions of the Supreme Court,
starting from Bharat Aluminium Co. vs. Kaiser Aluminium
Technical Services Inc. [(2012) 9 SCC 552] (for short "BALCO").
To be fair to Mr. Andhyarujina, he also brought to my attention the
proviso to Section 2(2) of the Indian Arbitration Act, which stipulates
that subject to an agreement to the contrary, the provisions of Section 9,
Section 27, Section 37 (1) (a) and Section 37 (3) shall also apply to
International Commercial Arbitrations, even if the place of arbitration is
outside India and an Arbitral Award made or to be made in such place is
enforceable and recognized under the provisions of Part II of the Indian
Arbitration Act. Mr. Andhyarujina however submitted that in the facts
of the present case, on a holistic reading of the arbitration clause as well
as the LMAA Terms, it was clear that the parties had agreed that the
provisions of Section 9 would not apply to a foreign seated arbitration.
In other words, Mr. Andhyarujina submitted that there was an
"agreement to the contrary" between the parties as contemplated in the
proviso to Section 2(2) of the Indian Arbitration Act. To substantiate
this argument, Mr. Andhyarujina submitted that the LMAA Terms
clearly contemplate that the law applicable to the Arbitration Agreement
will be English Law and the seat of the arbitration will be London,
England. These Terms further contemplate that the Arbitral
CARBP(L)-22272-2021.doc
proceedings and the rights and obligations of the parties shall, in all
respects be governed by the English Arbitration Act save to the extent
that the provisions of the English Arbitration Act are varied, modified or
supplemented by the LMAA Terms. He submitted that by virtue of these
Terms, and since the English Arbitration Act is applicable, the
Petitioner, under Section 44 of the said Act, can apply for interim reliefs
before the English Courts. This being the position, it is apparent that the
parties had agreed to the ouster of Part I of the Indian Arbitration Act. If
this be the case, then, this Court would have no jurisdiction to entertain
the above Section 9 Petition, was the submission of Mr. Andhyarujina.
12. The second argument canvassed by Mr. Andhyarujina is
that before any order of deposit can be ordered by this Court, the Court
must be satisfied that the principles laid down under Order 38 Rules, 1,
2 & 5 of the Code of Civil Procedure, 1908 (for short "CPC") have been
complied with. He submitted that even assuming for the sake of
argument, that there is any admission made by the 1st Respondent, and
which according to him there is none, the Court cannot order the 1st
Respondent to deposit the disputed amount in Court before first
satisfying itself that the Petitioner has complied with the underlying
principles of Order 38 Rules 1, 2 and/or 5, as the case may be. As far as
CARBP(L)-22272-2021.doc
the admissions are concerned, and which I have adverted to earlier, Mr.
Andhyarujina took me through the said emails from Exhibit "O" to
Exhibit "LLL" and contended that in none of these emails, is there any
clear and/or unequivocal admission on the part of the 1st Respondent.
He, therefore, submitted that it is totally incorrect on the part of the
Petitioner to contend that because of the so-called admissions on the
part of the 1st Respondent, it would entitle the Petitioner to an order of
deposit as sought for in the Petition.
13. The last argument canvassed by Mr. Andhyarujina was that
far from any admission being made by the 1st Respondent in relation to
the alleged dues of the Petitioner, the invoices raised by the Petitioner
on the 1st Respondent have in fact been seriously disputed by the 1st
Respondent vide its letters dated 10th August, 2021 and 2nd October,
2021 respectively. He, therefore, submitted that there is a genuine and
bonafide dispute in relation to the monies that are claimed by the
Petitioner. Hence, there is no question of directing the 1st Respondent to
deposit any amount in this Court to secure the alleged claim of the
Petitioner. For all the aforesaid reasons, Mr. Andhyarujina submitted
that the above Petition ought to be dismissed with costs.
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14. I have heard both the learned counsel at great length and I
have perused the papers and proceedings in the above Petition. The first
argument canvassed by Mr. Andhyarujina is in relation to the
jurisdiction of this Court. In a nutshell, Mr. Andhyarujina submitted
that by virtue of the fact that the parties have agreed to go to arbitration
in London and submit themselves to English Law, Part I of the Indian
Arbitration Act, is ousted. He submitted that even in terms of the
proviso to Section 2(2) of the Indian Arbitration Act, all that a party
would be required to show is that the parties to the Arbitration
Agreement agreed that Part I of the Indian Arbitration Act (under which
Section 9 appears) would not be applicable to the parties hereto. To
understand this argument, it would be necessary to understand the
relevant provisions of Section 2(2) of the Indian Arbitration Act, which
read thus:
"2(2) This Part shall apply where the place of arbitration is in India:
Provided that subject to an agreement to the contrary, the
provisions of section 9, 27, and clause (a) of sub-section (1)
and sub-section (3) of section 37 shall also apply to
international commercial arbitration, even if the place of
arbitration is outside India, and an arbitral award made or to
be made in such place is enforceable and recognised under
the provisions of Part II of this Act."
15. I must mention that the proviso to Section 2(2) was
brought on the statute book by way of an amendment w.r.e.f. 23rd
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October, 2015. As correctly submitted by Mr. Andhyarujina, prior to the
amendment, and by virtue of the decision of the Supreme Court in
BALCO, once the seat of the arbitration was outside India, Part I (in its
entirety) of the Indian Arbitration Act, automatically stood excluded. In
other words, prior to the amendment, by virtue of the decision in
BALCO, no party to a foreign seated arbitration could seek any interim
relief in India under Section 9 of the Indian Arbitration Act. It is to get
over this anomaly that the Legislature stepped in and inserted the
proviso to Section 2(2). The proviso clearly stipulates that subject to an
agreement to the contrary, the provisions of Section 9, Section 27,
Section 37 (1) (a) and Section 37 (3) shall also apply to an International
Commercial Arbitration, even if the place of the arbitration is outside
India and an Arbitral Award made or to be made in such a place is
enforceable and recognized under the provisions of Part II of the Indian
Arbitration Act. In other words, what the said proviso stipulates is that
if there is no agreement to the contrary, Sections 9, 27, 37(1)(a) and
37(3) of the Indian Arbitration Act shall apply even to a foreign seated
arbitration.
16. As mentioned earlier, to substantiate that there is an
"agreement to the contrary" [as contemplated in the proviso to Section
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2(2)] between the Petitioner and the 1st Respondent, Mr. Andhyarujina
relied upon the arbitration clause as well as the LMAA Terms. I have
gone through the arbitration clause as well the LMAA Terms. All that
the arbitration clause and the LMAA Terms provide is that when the
arbitration is initiated by any of the parties under the said Terms, the
law applicable to the Arbitration Agreement will be English Law and the
seat of the arbitration shall be in England. It follows therefrom, that if
the Petitioner wants to apply for any interim reliefs against the 1st
Respondent, it can do so even under the provisions of the English
Arbitration Act. This, however, by itself, without anything more, cannot
be construed as an "agreement to the contrary" to oust the jurisdiction
of this Court under Section 9 of the Indian Arbitration Act. For Section 9
to be excluded, there must be a specific agreement between the parties,
ousting the jurisdiction of this Court under Section 9. Simply put, there
must be something more than an Arbitration Agreement being governed
by foreign law and with a foreign seat. The Agreement must indicate in
clear and express terms that the parties intended to exclude the
operation of Part I of the Indian Arbitration Act. Merely because an
Arbitration Agreement is governed by foreign law or the seat of the
arbitration is outside India, without anything more, cannot be construed
to mean that the parties agreed to exclude the application of Section 9 of
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the Indian Arbitration Act and thereby close the gates to a party to
approach this court thereunder. If I was to accept the submission of Mr.
Andhyarujina, namely, that because the Arbitration Agreement is
governed by foreign law and the seat of arbitration is outside India, the
same would amount to an "agreement to the contrary" as contemplated
under the proviso to Section 2(2) of the Indian Arbitration Act, it would
effectively mean that in all foreign seated arbitrations, Part I of the
Indian Arbitration Act would stand excluded. This would effectively
mean that the proviso to Section 2(2) would be a dead letter. In fact, the
interpretation of Mr. Andhyarujina would defeat the very purpose for
which the proviso was brought on the statute book i.e. to permit parties
to an arbitration to be held outside India to approach the Courts in
India inter alia under Section 9 of the Indian Arbitration Act and seek
interim relief, pending the said foreign seated arbitration. In fact, the
reason why the aforesaid provision was brought on the statute book can
be discerned from the discussion on this subject by the Law Commission
in its 246th Report. The relevant portion of this Report reads as under:-
"While the decision in BALCO is a step in the right direction
and would drastically reduce judicial intervention in foreign
arbitrations, the Commission feels that there are still a few
areas that are likely to be problematic.
(i) Where the assets of a party are located in India, and
there is a likelihood that that party will dissipate its
assets in the near future, the other party will lack an
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efficacious remedy if the seat of the arbitration is
abroad. The latter party will have two possible
remedies, but neither will be efficacious. First, the
latter party can obtain an interim order from a foreign
Court or the arbitral tribunal itself and file a civil suit to
enforce the right created by the interim order. The
interim order would not be enforceable directly by
filing an execution petition as it would not qualify as a
"judgment" or "decree" for the purposes of sections
13 and 44A of the Code of Civil Procedure (which
provide a mechanism for enforcing foreign judgments).
Secondly, in the event that the former party does not
adhere to the terms of the foreign Order, the latter
party can initiate proceedings for contempt in the
foreign Court and enforce the judgment of the foreign
Court under sections 13 and 44A of the Code of Civil
Procedure. Neither of these remedies is likely to
provide a practical remedy to the party seeking to
enforce the interim relief obtained by it. That being the
case, it is a distinct possibility that a foreign party
would obtain an arbitral award in its favour only to
realize that the entity against which it has to enforce
the award has been stripped of its assets and has been
converted into a shell company.
(ii) While the decision in BALCO was made prospective to
ensure that hotly negotiated bargains are not
overturned overnight, it results in a situation where
Courts, despite knowing that the decision in Bhatia is
no longer good law, are forced to apply it whenever
they are faced with a case arising from an arbitration
agreement executed pre-BALCO."
(emphasis supplied)
17. It is for this very reason that I have opined that merely
because an Arbitration Agreement is governed by foreign law and the
seat of arbitration is outside India, without anything more, cannot
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amount to an "agreement to the contrary" as contemplated under the
proviso to Section 2(2) of the Indian Arbitration Act.
18. In the view that I take, I am supported by a decision of a
Division Bench of this Court in the case of Heligo Charters Private
Limited v/s. Aircon Feibars FZE [2018 SCC OnLine Bom
1388]. After adverting to the provisions of Section 2(2) as well as the
246th report of the Law Commission, the Division Bench held as under:
"15. Heard learned Counsel appearing for the respective
parties. We agree with the submissions advanced by the
Counsel appearing for the respondents. The amended
provisions of Section 2(2) clearly stipulates that subject to an
agreement to the contrary, the provisions of Section 9 shall
apply to international commercial arbitration even if the
place of arbitration is outside India. The contention that
unless the award is put to execution in accordance with
provisions of Section 48, a party is not entitled to seek
interim-relief is not sustainable. There is no such embargo or
restriction placed for seeking recourse to interim measures
even if the award is foreign-seated one. The amendment was
brought into effect after the Law Commission submitted its
report consequent to judgment in the case of BALCO (cited
supra). Paragraph 194 of the judgment reads as under:
"194. In view of the above discussion, we are of the considered
opinion that the Arbitration Act, 1996 has accepted the
territoriality principle which has been adopted in the
UNCITRAL Model Law, Section 2(2) makes a declaration that
Part I of the Arbitration Act, 1996 shall apply to all
arbitrations which take place within India. We are of the
considered opinion that Part I of the Arbitration Act, 1996
would have no application to international commercial
arbitration held outside India. Therefore, such awards would
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only be subject to the jurisdiction of the Indian courts when the
same are sought to be enforced in India in accordance with the
provisions contained in Part II of the Arbitration Act, 1996. In
our opinion, the provisions contained in the Arbitration Act,
1996 make it crystal clear that there can be no overlapping or
intermingling of the provisions contained in Part I with the
provisions contained in Part II of the Arbitration Act, 1996."
16. We are, therefore, not inclined to accept the contentions
of the appellant on that ground. In view of the amended
provisions and facts, we are of the view that operation of
provisions of Section 9 cannot be excluded in absence of a
specific agreement to the contrary. The judgment in BALCO
was pronounced on 6th September, 2012. The dispute
between the parties was referred on 8th April, 2015. The
arbitration agreement was executed between the parties on
9th September, 2014. Whereas the Act was amended on
23rd October, 2015.
*********************
19. In Paragraph-11 of the impugned order dated 28th April,
2017, the learned Single Judge quoted the extract of Report
No. 246 of the Law Commission of India which reads as
under:--
"While the decision in BALCO is a step in the right direction
and would drastically reduce judicial intervention in foreign
arbitrations, the Commission feels that there are still a few
areas that are likely to be problematic.
(i) Where the assets of a party are located in India, and
there is a likelihood that that party will dissipate its
assets in the near future, the other party will lack an
efficacious remedy if the seat of the arbitration is
abroad. The latter party will have two possible
remedies, but neither will be efficacious. First, the
latter party can obtain an interim order from a foreign
Court or the arbitral tribunal itself and file a civil suit
to enforce the right created by the interim order. The
interim order would not be enforceable directly by
filing an execution petition as it would not qualify as a
"judgment" or "decree" for the purposes of sections 13
and 44A of the Code of Civil Procedure (which provide
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a mechanism for enforcing foreign judgments).
Secondly, in the event that the former party does not
adhere to the terms of the foreign Order, the latter
party can initiate proceedings for contempt in the
foreign Court and enforce the judgment of the foreign
Court under sections 13 and 44A of the Code of Civil
Procedure. Neither of these remedies is likely to
provide a practical remedy to the party seeking to
enforce the interim relief obtained by it. That being the
case, it is a distinct possibility that a foreign party
would obtain an arbitral award in its favour only to
realize that the entity against which it has to enforce the
award has been stripped of its assets and has been
converted into a shell company.
(ii) While the decision in BALCO was made prospective to
ensure that hotly negotiated bargains are not
overturned overnight, it results in a situation where
Courts, despite knowing that the decision in Bhatia is
no longer good law, are forced to apply it whenever
they are faced with a case arising from an arbitration
agreement executed pre-BALCO."
20. In Paragraph-18 the learned Single Judge observed as
under:--
"18. On the question of whether such an order ought to be
made on merits, Mr. Nankani says that Heligo is good for the
money. Given that this is about a helicopter, he succumbs to
temptation in describing his client as being "not a fly-by-night
operator". If that is so, Mr. Nankani's client's option is simple:
his client must make available by a deposit in Court sufficient
money or security to secure a potential enforcement of the
foreign award that has been rendered against it. If not, I see no
reason why a limited injunction of the nature that I have
described, i.e. subject to a prior claim by a secured creditor
ought not to be made. Certainly, I am not able to see any
prejudice being caused to the Respondent. On the other hand,
as I have noted, if an injunction is refused, there is every
possibility of irreparable prejudice to Aircon. In my view, there
is not only prima-facie case, but the balance of convenience
also favours the Petitioner."
21. The Award was passed on 25th January, 2017. The learned
Single Judge has rightly dealt with the issue and has reached
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reasonable and proper conclusion. We do not find any error
or perversity in the view adopted by the learned Single
Judge. In the facts, we do not notice any prejudice being
caused to the appellant. If the injunction is refused, there is
every possibility of irreparable loss being caused to the
respondent. The respondent has made out a strong prima-
facie case and balance of convenience is also in favour of
respondent-original petitioner. We, therefore, find no merit
in the Appeal. It stands dismissed. No order as to costs."
(emphasis supplied)
19. I must mention that the aforesaid decision of the Division
Bench of this Court, was thereafter followed by a learned single Judge of
the Calcutta High Court in the case of Medima LLC vs. Balasore
Alloys Limited (AP/267/2021, decided on 3rd August, 2021).
The relevant portion of this decision, reads thus:
"13. The caveat to the application of section 9 to international
commercial arbitrations with a place outside India and an arbitral
award made in such place is 'an agreement to the contrary'. This
means that the contracting parties must evince and articulate an
intention not to subject the arbitration agreement to the application
of section 9 of the Act. The application of section 9 to an arbitration
agreement and an award which is under Part II of the Act is a fallout of
the Supreme Court decision in Bhatia which was prospectively
overruled in BALCO only to be reinstated by the recommendations of
the Law Commission in August 2014 thereafter culminating in the
insertion of the proviso to 2(2) with effect from 23rd October, 2015.
14. The 1996 Act asserts party autonomy at all levels. A party's
control over the proceedings is evident from plain affirmation- " The
parties are free to determine.." or "..agree" (sections 10,11,13,20,22)-
to creating exceptions in the form of "Unless otherwise agreed by the
parties" (sections 21,24,25,26,29,31,33). It is clear however that the
parties must articulate an intention to do-or not to do-that which
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follows in the particular provision. A good example would be section
31(3)(a) where the obvious requirement of an award containing
reasons can only be circumvented if the parties agree otherwise. The
important aspect is that none of these provisions contain words such
as 'express' or "only" etc. to lend weight to the plain meaning of the
provision.
15. The argument that the deletion of the word 'express' in relation to
'agreement to the contrary', as recommended by the Law Commission
to the proviso to 2(2) would indicate that an implied agreement is
included in the proviso has to be seen through the same prism as the
other sections of the Act which contemplate an agreement by the
parties. In other words, dropping the word 'express' in the final cut
means little; the structure of the proviso as it exists today is that
there must be a clear, unequivocal and unambiguous articulation by
the parties to exclude the application of section 9 from the
arbitration which is to take place outside India. Simply put, there
must be something more to an arbitration agreement governed by a
foreign law and with a foreign seat; the agreement must indicate in
clear and express terms that the parties intend to exclude the
operation of section 9 from the purview of the said arbitration
agreement (underlined for emphasis). Hence, an arbitration
agreement which merely chooses the law governing the underlying
agreement, the arbitration and the conduct thereof without anything
more cannot be seen as excluding the application of Section 9 by
implication and closing the gates to Section 9 or the scope of the
proviso to Section 2(2) of the Act."
(emphasis supplied)
20. As can be seen from these decisions, to oust the jurisdiction
of this Court under Section 9, there must be a specific Agreement
between the parties which would indicate a clear intention to oust the
jurisdiction of this Court to grant relief under Section 9 of the Indian
Arbitration Act. In the facts of the present case, I have already opined
that merely because the parties agreed that the arbitration would be
CARBP(L)-22272-2021.doc
conducted in London and would be governed by the English Law, would
not amount to an "agreement to the contrary" as contemplated in the
proviso to Section 2(2) of the Indian Arbitration Act. In this view of the
matter, I find no substance in the first argument canvassed by Mr.
Andhyarujina and the same is accordingly rejected.
21. The second argument canvassed by Mr. Andhyarujina was
that before any order of deposit is made, the principles underlying the
provisions of Order 38 Rules 1, 2 & 5 must be complied with by the
Petitioner. He submitted that in the facts of the present case, there is
nothing on record to show that the Petitioner has complied with the
aforesaid provisions and therefore the Petitioner is not entitled to an
order of deposit. I do not think that this argument holds any substance.
It is true that the broad principles of Order 38 ought to be kept in mind
whilst passing an order under Section 9 for securing the amount in
dispute in the proposed arbitration. As far as Section 9 of Indian
Arbitration Act is concerned, whilst considering a relief thereunder, it
cannot be said that the Court is strictly bound by the provisions of Order
38 Rules 1, 2 and/or 5. The scope of Section 9 of the Act is very broad
and the Court has the discretion to grant thereunder a wide range of
interim measures of protection as may appear to the Court to be just
CARBP(L)-22272-2021.doc
and convenient. Of course, the discretion to be exercised by the Court
under Section 9 has to be judicious and not arbitrary. Though, for
considering interim measures, the Court would be guided by the
principles which the Civil Courts ordinarily employ for considering
grant or refusal of interim relief, particularly Order 39 Rules 1 & 2 and
Order 38 Rule 5, the Court, however, is not unduly bound by their texts.
Whilst exercising its power under Section 9, the Court must have due
regard to the underlying purpose of the conferment of the power in the
Court which is to promote the efficacy of arbitration as a form of dispute
resolution. In an appropriate case, where the Court is of the view that
there is practically no defense to the payability of the amount and where
it is in the interest of justice to secure the amount, which forms part of
the subject matter of the proposed arbitration reference, even if no case
strictly within the letter of Order 38 Rules 1 or 2 is made out, though
there are serious allegations concerning such a case, it is certainly
within the power of the Court to order a suitable interim measure of
protection. There is no requirement that for a relief of deposit, an
ironclad case under Order 38 Rule 5 must be made out. The provisions
of Order 38 are guides to a Section 9 Court and not fetters upon its
discretion. To my mind, the position in law, is that, when there is a clear
and unequivocal admission of liability or there is no real dispute with
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reference to the amounts payable, then in such a case an order of
deposit may not only be made, but in the interest of justice, ought to be
made. Where the defense raised is prima facie untenable and the
Petitioner has a good chance of success, an order of deposit to secure the
claim can and indeed should be made under Section 9.
22. In the view that I take, I am supported by several decisions
of this Court. A Division Bench of this Court, in the case of Jagdish
Ahuja and Anr. Vs. Cupino Limited [2020 SCC OnLine Bom
849] held as under:-
"6. As far as Section 9 of the Act is concerned, it cannot be
said that this court, while considering a relief thereunder, is
strictly bound by the provisions of Order 38 Rule 5. As held by
our Courts, the scope of Section 9 of the Act is very broad; the
court has a discretion to grant thereunder a wide range of
interim measures of protection "as may appear to the court
to be just and convenient", though such discretion has to be
exercised judiciously and not arbitrarily. The court is, no
doubt, guided by the principles which civil courts ordinarily
employ for considering interim relief, particularly, Order 39
Rules 1 and 2 and Order 38 Rule 5; the court, however, is not
unduly bound by their texts. As this court held in Nimbus
Communications Limited v. Board of Control for Cricket in India
[decided on 27 February 2012] (Per D.Y. Chandrachud J, as the
learned Judge then was), the court, whilst exercising power
under Section 9, "must have due regard to the underlying
purpose of the conferment of the power under the court
which is to promote the efficacy of arbitration as a form of
dispute resolution." The learned Judge further observed as
follows:
CARBP(L)-22272-2021.doc
"Just as on the one hand the exercise of the power
under Section 9 cannot be carried out in an uncharted
territory ignoring the basic principles of procedural law
contained in the Code of Civil Procedure 1908, the
rigors of every procedural provision in the Code of Civil
Procedure 1908 cannot be put into place to defeat the
grant of relief which would subserve the paramount
interests of justice. A balance has to be drawn between
the two considerations in the facts of each case."
7. In an appropriate case, where the court is of the view that
there is practically no defence to the payability of the amount
and where it is in the interest of justice to secure the amount,
which forms part of the subject matter of the proposed
arbitration reference, even if no case strictly within the letter
of Order 38 Rule 1 or 2 is made out, though there are serious
allegations concerning such case, it is certainly within the
power of the court to order a suitable interim measure of
protection. As we have noted above, the amount is either to
be deposited into the treasury in accordance with the
agreement between the parties or if, for any reason, it is not
payable to the revenue towards the Respondent's tax liability,
as is the case of the Appellants here, it is to be paid to the
Respondent itself as part of the price of debentures. In fact,
when these two options were posed by the learned Single
Judge to the Appellants' counsel, in fairness both conceded
that there was no third option."
(emphasis supplied)
23. The aforesaid decision was thereafter once again followed
by another Division Bench Judgement of this Court in the case of
Valentine Maritime Ltd. Vs. Kruez Subsea Pte Limited and
Anr. [2021 SCC OnLine Bom 75]. The relevant portion of this
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decision, reads thus:
"95. Insofar as judgment of this Court delivered by the
Division Bench of this court in case of Nimbus
Communications Limited v. Board of Control for Cricket in
India (supra) relied upon by the learned senior counsel for
the VML is concerned, this Court adverted to the judgment of
Hon'ble Supreme Court in case of Adhunik Steels Ltd. v. Orissa
Manganese and Minerals (P) Ltd., (2007) 7 SCC 125 and held
that in view of the decision of the Supreme Court in case
of Adhunik Steels Ltd., (supra) the view of the Division Bench
in case of National Shipping Company of Saudi Arabia (supra)
that the exercise of power under section 9(ii)(b) is not
controlled by the provisions of the Code of Civil Procedure,
1908 cannot stand. This court in the said judgment of Nimbus
Communications Limited (supra) held that the exercise of the
power under section 9 of the Arbitration Act cannot be
totally independent of the basic principles governing grant of
interim injunction by the civil Court, at the same time, the
Court when it decides the petition under section 9, must
have due regard to the underlying purpose of the
conferment of the power upon the Court which is to
promote the efficacy of arbitration as a form of dispute
resolution.
96. This court held that just as on the one hand the exercise
of the power under Section 9 cannot be carried out in an
uncharted territory ignoring the basic principles of
procedural law contained in the Code of Civil Procedure,
1908, the rigors of every procedural provision in the Code of
Civil Procedure, 1908 cannot be put into place to defeat the
grant of relief which would sub-serve the paramount
interests of justice. A balance has to be drawn between the
two considerations in the facts of each case. The principles
laid down in the Code of Civil Procedure, 1908 for the grant
of interlocutory remedies must furnish a guide to the Court
when it determines an application under Section 9 of the
Arbitration and Concilliation Act, 1996. The underlying basis
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of Order 38 Rule 5 therefore has to be borne in mind while
deciding an application under Section 9(ii)(b) of the
Arbitration Act.
97. In the said Judgment, the Division bench of this court in
the appeal arising out of the order passed by the learned
Single Judge in the arbitration petition filed under section 9
of the Arbitration Act directing the appellant to furnish
security in respect of the claim of the original petitioner in
the amount of Rs. 305 Crores was modified by directing the
appellant to furnish solvent security in the form of bank
guarantee of the nationalized bank of the said amount to the
satisfaction of the Prothonotary and Senior Master of this
court. In our view, the said judgment of the Division Bench in
case of Nimbus Communications Limited(supra) would assist
the case of the KSS and not VML.
98. Insofar as judgment of Delhi High Court in case of Uppal
Eng. Co. (P) Ltd. (supra) relied upon by the learned senior
counsel for the VML is concerned, Delhi High Court held that
the Court must act with utmost circumspection before
issuing an order of attachment and unless it is clearly
established that the defendant, with intent to obstruct or
delay the execution of the decree that may be passed
against him, is about to dispose of whole or any part of his
property. In this case, we are of the prima facie view that the
VML has no defence to the invoices issued by the KSS for the
month of May 2020. The VML also has admitted in the
affidavit in reply that there is no dispute about the said
invoice however made an attempt to adjust the disputed
claim against the undisputed invoice for the month of May
2020 issued by the KSS. In our prima facie view, the KSS has
good chances of succeeding in the arbitral proceedings in
respect of the said invoices for the month of May 2020 which
are not disputed by the VML. The judgment of Delhi High
Court in case of Uppal Eng. Co. (P) Ltd. (supra) would even
otherwise is clearly distinguishable and would not advance
the case of the VML.
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99. Learned senior counsel for the VML could not distinguish
the judgment of the Division Bench of this Court in case
of Jagdish Ahuja (supra). The Division Bench of this Court in
the said judgment has clearly held that in an appropriate
case, where the Court is of the view that there is practically
no defence to the payability of the amount and where it is in
the interest of justice to secure the amount, which forms
part of the subject matter of the proposed arbitration
reference, even if no case strictly within the letter of Order
38 Rule 1 or 2 is made out, though there are serious
allegations concerning such case, it is certainly within the
power of the Court to order a suitable interim measure of
protection. The principles laid down by this Court in the said
judgment applies to the fact of this case.
100. Learned senior counsel for the VML made an attempt to
distinguish the judgment delivered by the learned Single
Judge of this court in case of Baker Hughes Singapore
Pte. (supra) on the ground that the facts before the learned
Single Judge in the said matter were totally different. This
court in the said judgment after adverting to the judgment of
the Supreme Court in case of Adhunik Steels Ltd. (supra),
judgment of the Division Bench of this court in case
of Nimbus Communications Limited (supra) and considered
similar clause in the contract requiring the respondent to pay
undisputed invoices within 60 days from the date of
submission of such invoices to the contractor. Even in that
matter, none of the invoices were disputed by the
respondent in the correspondence exchanged between the
parties. This Court in the said judgment held that even if the
counter claim made by the respondent was higher than the
claim made by the petitioner, the fact remains that the said
counter claim was for damages whereas the claim made by
the Petitioner therein was under undisputed invoices which
claim was admitted and liability was acknowledged. This
Court accordingly held that the arbitral tribunal could not
have compared the claim made by the petitioner under
undisputed invoices with the counter claim for damages.
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101. This Court held that since the arbitral tribunal is also
empowered to make an interim award and to grant money
claim on the basis of the admitted claim and/or acknowledge
liability, the arbitral tribunal has also power to grant interim
measures so as to secure the claim which is the subject
matter of the dispute before the arbitral tribunal if such case
is made out by the applicant. The provisions under sections 9
and 17 of the Arbitration and Concilliation Act are meant for
the purpose of protecting the subject matter of the dispute
till the arbitration proceedings culminates into an award.
This Court also held that the Court also considers 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 material consideration. In our view, the
principles laid down by this court in the said judgment in
case of Baker Hughes Singapore Pte. (supra) would apply to
the facts of this case. We do not propose to take a different
view than the view taken by the learned Single Judge of this
court in the said judgment in case of Baker Hughes Singapore
Pte. (supra)."
(emphasis supplied)
24. I must mention that the aforesaid decision of the Division
Bench in Valentine Maritime (supra) was challenged before the
Hon'ble Supreme Court without any success. The SLP No(s).5083-
5084/2021 filed by Valentine Maritime Ltd. was dismissed on 26th
March, 2021. The said order reads thus:-
"Heard learned counsel for the parties.
We find no grounds to interfere with the impugned order of the
Division Bench affirming the order of the Single Bench by way of
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an interim measure of protection, under Section 9 of the
Arbitration and Conciliation Act, 1996.
Section 9(1) (ii) (b) of the Arbitration and Conciliation Act, 1996
enables the Court to pass orders securing the amount in dispute
in arbitration.
The Special Leave Petition is, accordingly, dismissed.
Needless to say that the money shall lie in deposit with the
Court, until the disputes actually get resolved.
Pending applications, if any, stand disposed of."
25. Thereafter, another decision of a Division Bench of this
Court, in Essar House Private Limited V/s. Arcellor Mittal
Nippon Steel India Limited [2021 SCC OnLine Bom 149],
considered the Judgments passed in Jagdish Ahuja (supra) and
Valentine Maritime (supra) and held as under:-
"34. This Court in case of Valentine Maritime Ltd. (supra) after
adverting to the judgment of the Hon'ble Supreme Court in
case of Raman Tech. & Process Engg. Co. v. Solanki Traders (2008)
2 SCC 302, a judgment of the Division Bench in case in case
of National Shipping Company of Saudi Arabia v. Sentrans
Industries Limited, Mumbai, (2004) 2 Mah LJ 696, a judgment of
the Division Bench of this Court Nimbus Communications
Ltd. v. Board of Control for Cricket in India (2013) 1 Mah LJ 39, a
judgment of the Hon'ble Supreme Court in the case of Adhunik
Steels Ltd. v. Orissa Manganese & Minerals (P) Ltd. (2007) 7 SCC
125, a judgment delivered by the learned single Judge of this
Court in case of Baker Huge Singapore Pte v. Shiv Vani Oil and
Gas Exploration, 2014 SCC OnLine Bom 1663 has held that
under section 9(i)(ii)(b) of the Arbitration Act, the Court is
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empowered to pass interim measure to secure the amount in
dispute in arbitration which may be in the form of bank
guarantee or deposit of money in Court. Such powers of Court
can be exercised not only in the hands of the parties to
arbitration but also in the hands of third party who has to
admittedly pay any amount to the party to the arbitration
agreement by directing such third party to deposit the amount
on behalf of a party to arbitration agreement in Court.
35. This Court has distinguished the judgment of the Hon'ble
Supreme Court Raman Tech. & Process Engg. Co. (supra) on the
ground that the Supreme Court had dealt the powers of Court
under Order 38 Rule 5 of the Code of Civil Procedure, 1908 in a
suit and not in a petition filed under section 9 of the
Arbitration Act.
36. This Court has already held in the aforesaid judgments
that exercise of the power under section 9 of the Arbitration
Act cannot be totally independent of the basic principles
governing grant of interim injunction by the Civil Court, at the
same time the Court that had decided the petition under
section 9 must have due regard to the underlying purpose of
the conferment of the power upon the Court which is to
promote the efficacy of arbitration as a form of dispute
resolution. The rigors of every procedural provision in the
Code of Civil Procedure, 1908 cannot be put into place to
defeat the grant of relief which would sub-serve the
paramount interests of justice. A balance has to be drawn
between the two considerations in the facts of each case.
37. In our view since the Arbitral Tribunal is also empowered
to make interim injunction and grant money claim on the basis
of the admitted claim or in case there being no valid defence
at all of the claim made by the claimant, the Court has to grant
interim measure so as to secure the claim which would be
subject matter of the dispute before the Arbitral Tribunal. The
provisions under sections 9 and 17of the Arbitration Act are
meant for the purpose of protecting the subject matter of the
dispute till the arbitration proceedings culminates into an
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award. The obstructive conduct of the party against whom
such a direction is sought is also regarded as a material
consideration."
(emphasis supplied)
26. Lastly, a learned single Judge of this Court in the case of
Kotak Mahindra Bank Ltd. vs. Williamson Magor & Co. Ltd. &
Anr. [2021 SCC OnLine Bom 305] considered the entire law on the
subject and thereafter opined that where the defense is prima facie
untenable and the Petitioner has a good chance of succeeding in the
arbitration, an order of deposit to secure the claim can indeed and
should be made under Section 9. The relevant portion of this decision,
reads as under:
"31. Lest it be argued either here or in any other forum that
no case has been made out under Order 38 Rule 5 of the Code
of Civil Procedure, 1908 ("CPC"), which seems to me more or
less the habitual and automatic chanting of every respondent
in a Section 9 Petition, this needs to be stated : that is not the
law. The recent decision of the Division Bench of this Court
(RD Dhanuka and VG Bhisht JJ) in Essar House Private
Limited v. Arcellor Mittal Nippon Steel India Ltd. [2021 SCC
OnLine Bom 149] makes it clear that there is no requirement
that for such relief an iron-clad case under Order 38 Rule 5 of
the Code of Civil Procedure, 1908 ("CPC") must be made out
(or, if not argued, that the Court must hunt for it). The Division
Bench reaffirmed the principle that has long been settled, and
restated repeatedly, but which seem to be reagitated in the
wrong way again and again. The Division Bench said in the
clearest terms that the principles of the CPC, including
especially Order 38 Rule 5, are guides to a Section 9 Court and
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the order it makes under that Section. They are not fetters
upon the Section 9 Court's discretion. On my reading of the
Division Bench order, the position in law is that in such a case
an order of deposit not only can be made, but ought to be
made. In Valentine Maritime Ltd. v. Kreuz Subsea Pte Ltd.
[2021 SCC OnLine Bom 75], the Division Bench of this Court
reiterated this position regarding Order 38 Rule 5 and also
held that in appropriate case, where the defence is prima
facie untenable, the Petitioner has a chance of success, and
the defence is moonshine, an order of deposit to secure the
claim can and indeed should be made under Section 9. This
was also the view of another Division Bench of this Court
in Jagdish Ahuja v. Cupino Ltd. [2020 SCC OnLine Bom 849]. All
three decisions referenced and explained the previous
Division Bench decision in Nimbus Communications
Ltd. v. Board of Control for Cricket in India [2013 (1) Mah L.J.
39] and the Supreme Court decision in Adhunik Steels
Ltd. v. Orissa Manganese & Minerals (P) Ltd.[(2007) 7 SCC
125]. I followed the Division Bench decisions (referencing this
law) in Parle Agro Pvt. Ltd. v. Shree Aqua Purifier Pvt.
Ltd. and IIFL Finance Ltd. v. Shrenik Dhirajmal Sirqya.
32. Williamson Magor has no defence at all. Khaitan's defence
is untenable and, in view of the settled law on the subject, is
unstatable and probably the most complete moonshine.
There is a contract with a clear and unequivocal obligation
cast on the Respondents. The Petitioner has an excellent
chance of success. Accordingly, the Respondents are required
to deposit with the Prothonotary and Senior Master an
amount of Rs. 14.88 crores by 31st March 2021. I have
rounded off the amount of deposit."
(emphasis supplied)
27. What can be culled out from the ratio of all these decisions
is that though the Court must keep in mind the underlying principles of
Order 38, in a case where there is no real dispute with reference to the
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amounts payable or the amounts payable are admitted, the Court always
has the power, in the interest of justice, to secure the amount by
directing the Respondent to deposit the said monies in Court. I
therefore do not think that Mr. Andhyarujina is right in contending that
merely because no case is strictly made out under the provisions of
Order 38 Rules 1, 2 and/or 5, it would disentitle the Petitioner from
seeking an order of deposit under Section 9 of the Indian Arbitration
Act.
28. This now only leaves me to consider whether there are any
admissions or there is any real dispute which would disentitle the
Petitioner from seeking the aforesaid relief. When one goes through the
emails annexed at Exhibits "O" to Exhibits "LLL", prima facie, not only
do I find that there are several admissions in those emails, but, at the
very least, clearly, no dispute has been raised at any time whatsoever. A
dispute was raised for the first time by Respondent No.1 only on 10th
August, 2021 and which was only after a legal notice was issued by the
Petitioner to the 1st Respondent calling upon it to pay the amounts
mentioned therein or face legal action. What is important to note is that
even in the letter dated 10th August, 2021, and under which disputes
were sought to be raised for the first time, no dispute was raised with
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reference to the invoices per se. The disputes were with reference to the
alleged inadequate capability of the said Vessel and the skill of the crew
being inadequate and unsatisfactory, which, in turn, had allegedly
caused unavoidable delays and adverse financial and other losses to the
1st Respondent. It is rather surprising that this dispute is raised for the
first time on 10th August, 2021 even though the said Vessel was in the
custody of the 1st Respondent from 7th March, 2021 till 28th May, 2021
and was carrying out its operations as required by the 1st Respondent.
Despite this, during the aforesaid period, or even thereafter, not a single
letter or email was addressed by the 1st Respondent to the Petitioner
alleging any inadequacies either qua the said Vessel or its crew. These
disputes were raised for the first time only after a legal notice was
served upon the 1st Respondent calling upon them to pay the amounts
due under various invoices or face legal action. What is also important
to note is that the Charter Party under which the 1st Respondent took the
said Vessel on a time charter from the Petitioner, was extended by the 1st
Respondent on 10 different occasions. If there was any merit in this
dispute, no prudent person would have continued to extend the Charter
Party and continue to charter an incapable Vessel or its crew, at least
without informing the owner of the Vessel about the so-called
inadequacies. All this material, at least prima facie, goes to show that
CARBP(L)-22272-2021.doc
the disputes raised in the letter dated 10th August, 2021 appear to be
only as an afterthought to somehow avoid making payment of the
legitimate dues of the Petitioner. I must also mention that each
individual invoice has also thereafter been disputed by the 1st
Respondent vide its letter dated 2nd October, 2021. However, this, at
least to my mind, would not carry the case of the 1st Respondent any
further. The dispute in relation to the invoices has been raised for the
first time not only after the 1st Respondent was served with a legal
notice, but after the filing of the present Petition itself. Raising a dispute
with reference to each individual invoice after the filing of the present
Petition is of little assistance to the 1st Respondent to resist the claim of
the Petitioner.
29. This apart, I also cannot lose sight of the fact that clause
12(e) of the Charter Party clearly enjoins upon the 1st Respondent to
dispute each invoice within seven days from the receipt thereof, failing
which it must make payment thereunder. clause 12(e) reads as under:
"12. Hire and Payments
(a) ...............
(b) ...............
(c) ...............
(d) ..............
(e) Payments - Payments of hire, fuel invoices and
disbursements for the Charterers' account shall be received within
CARBP(L)-22272-2021.doc
the number of days stated in Box 24 from the date of receipt of the
invoice. Payment shall be received in the currency stated in Box 20(i)
in full without discount or set-off to the account stated in Box 23.
However, any advances for disbursements made on behalf of and
approved by the Owners may be deducted from hire due. If the
payment is not received by the Owners within five (5) Banking Days
following the due date the Owners are entitled to charge interest at
the rate stated in Box 25 on the amount outstanding from and
including the due date until payment is received.
If the Charterers reasonably believe an incorrect invoice has been
issued, they shall notify the Owners promptly, but in no event no
later than the due date, specifying the reason for disputing the
invoice. The Charterers shall pay the undisputed portion of the
invoice but shall be entitled to withhold payment of the disputed
amount. The Owners shall be entitled to charge interest at the rate
stated in Box 25 on such disputed amounts where resolved in favour
of the Owners. The balance payment (together with any applicable
interest) shall be received by the Owners within five (5) Banking
Days after the dispute is resolved. Should the Charterers' claim be
valid, a corrected invoice shall be issued by the Owners."
(emphasis supplied)
30. On a plain reading of this clause, it is clear that if the 1st
Respondent does not dispute an invoice raised by the Petitioner within
the time frame set out in Box 24 (i.e. within seven days from the receipt
of the concerned invoice), it has to make payment thereunder. This does
not mean that the 1st Respondent is for all times to come, precluded
from disputing the invoice/s. It only means that the 1st Respondent
would have to make the payment first and thereafter if it finds that the
invoice is incorrectly issued or there is any dispute with reference to the
same, it can make a claim on the Petitioner. This clause is a salutary
CARBP(L)-22272-2021.doc
clause because it ensures that there is a proper cash flow for the owner
of the Vessel and is in line with commercial common sense. A party
cannot be heard to say that I will breach this term and thereafter ask the
party who has invoked it to wait till the outcome of the dispute between
the parties. To my mind, that would be adding premium to dishonesty
and cannot be permitted. Incidentally, this very clause [clause 12(e)],
came up for consideration before a Queen's Bench Division in the case
of Boskalis Offshore Marine Contracting BV vs. Atlantic
Marine and Aviation LLP (The "Atlantic Tonjer") [2020
Volume (I) LLOYD's Law Reports 171]. The English Court whilst
interpreting the said clause, inter-alia opined that if the Charterers
reasonably believe that there is an error in the invoice, they can
withhold the payment of the disputed amount by notifying the owners
under the clause within the period they have agreed in the contract. The
Court opined that clause 12(e) is not analogous to a time bar clause or
any other type of clause limiting or excluding liability and nothing of the
sort is implied into the clause. It is just that the Charterers are required
by clause 12(e) to act in a certain way if they dispute an invoice and wish
to withhold payment. This type of clause is to be construed in
accordance with the same principles as any other clause. The Court was
of the opinion that this clause [clause 12(e)], if properly construed,
CARBP(L)-22272-2021.doc
would mean that within 21 days of receipt of the invoice, the Charterer
must form a view about it and if they reasonably believe it is incorrect,
they do not have to pay but they must give the requisite notice. The
Court felt that this interpretation of clause 12(e) is in line with
commercial common sense for the simple reason that cash flow is a
matter of considerable and sometimes crucial importance to the owners
of the Vessel. There is nothing uncommercial if the Charterer is obliged
to raise bonafide disputes in a time bound manner and considering that
the parties agreed to such a bargain. The relevant portion of this English
decision, reads thus:
"31. In my view clause 12 (e) is clear and unambiguous. A
reasonable person with the background knowledge available to
the parties at the time of the contract would understand that
invoices had to be paid within 21 days of their being received
(With invoices being issued in arrears that meant a maximum 35
days after the invoiced expenses were incurred). The language
that payment "shall be received within the number of days stated
in Box 24 from the date of receipt of the invoice" is precisely
equivalent, as McNair J put it in Metalimex Foreign Trade
Corporation v Eugenie Maritime Co Ltd (1962) 1 Lloyd's Rep 378,
to what might be equally stated in a negative form, namely, that
charterers are barred from disputing the payment of invoices
unless done within the 21 days referred to in the contract.
32. Those time periods had been negotiated by two commercial
parties. There was no suggestion that they were not of equal
bargaining power in the shipping market. Consequently, the
hypothetical case of a challenge to an invoice having to be given
in two or three business days has no traction. Even if that had
been the case it would have been the period freely negotiated
and determined by express agreement. In any event, clause 12
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(e) does not preclude charterers from bringing claims (in our case
the counterclaim reference by the tribunal) or withholding
payment (that being subject, of course, to notice being given, so
that if no notice is given a defence to payment cannot be
raised).What clause 12(e) requires is prompt payment or prompt
identification of any issue preventing payment.
33. On this reading of the clause, if charterers reasonably believe
that there is an error in the invoice they can withhold payment of
the disputed amount by notifying the owners under the clause
within the period they have agreed in the contract. They also
have the audit rights under clause 12(g) to reclaim amounts paid
through accounting-type errors (wrong hire rate, wrong number
of meals and so) up to four years ahead. Further, as the tribunal
correctly concluded, the charterers can always bring a
counterclaim if they have paid sums which they later believe
were not properly payable. Counterclaims in this context would
include a claim for breach of contract or one for unjust
enrichment.
34. In other words, clause 12 (e) is not analogous to a time bar
clause or any other type of clause limiting or excluding liability.
Nothing is being implied into the clause. It may be that the
charterers are required by clause 12 (e) to act in a certain way if
they dispute an invoice and wish to withhold payment. But as
Lewison LJ said in the Interactive E-Solutions case, this type of
clause is to be construed in accordance with the same principle
as any other clause. Adopting that approach, the clause properly
construed means that, within 21 days of receipt of an invoice,
charterers have to form a view about it. If they reasonably
believe it is incorrect they do not have to pay, but they must give
the requisite notice.
35. This interpretation of clause 12 (e) is in line with commercial
common sense. In para 46 of its Reasons, the tribunal quoted the
impeccable authority of Robert Goff J in S L Sethia Liners Ltd. v
Naviagro Maritime Corporation (The Kostas Melas) (1981) 1
Lloyd's Rep 18, that cash flow is a matter of considerable,
sometimes crucial, importance to the owners of ships. That
CARBP(L)-22272-2021.doc
dictum has been underlined in later cases and is undisturbed by
anything said in the judgements in Spar Shipping AS v Grand
China Logistics Holding (Group) Co Ltd (The Spar Capella, Spar
Vega and Spar Draco) (2016) 2 Lloyd's Rep 447. In my view there
is nothing uncommercial in the charterers being obliged to raise
bone fide disputes timeously, at a time when the owners have an
opportunity to exercise the rights and remedies they have under
the charter party such as under clause 12 (f).
36. There is nothing in the BIMCO Guidance Notes which
undermines this interpretation. The Notes on clause 12 (e)
explain:
"Sub-clause 12 (e) (Payment) - This subclause requires
payment of hire, fuel and disbursements to be received by
the owners within the specified number of days in Box 24
from the date of receipt of the invoice. Account details
should be described in Box 23. The charterers are not
allowed to make deductions or set-off for claims they may
have, with the exceptions for advances for disbursements
made on behalf of and approved by the owners, and
disputed parts of invoices as per the last paragraph of this
subclause. The charterers should notify owners at the
earliest opportunity, but not later than the due date, if
they reasonably believe that an incorrect invoice has been
issued".
37. If anything this to my mind supports the interpretation
outlined above. There is no hint in the BIMCO Guidance Notes
that charterers need not pay within the time period the parties
agree in the form; need not raise a dispute within that period; or
can avoid the consequences of non-compliance for unstated
reasons. Likewise, there is nothing in Rainey on The Law of Tug
and Tow and Offshore Contracts to support the charterers' case."
31. I am in full agreement with what is stated by the English
Court in the aforesaid paragraphs. In the facts of the present case,
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admittedly, the invoices raised by the Petitioner on the 1st Respondent
were not disputed by the 1st Respondent within seven days from the
receipt thereof. Under the Charter Party [clause 12(e)], the 1st
Respondent was therefore obliged to first make payment under any
invoice it did not dispute within seven days from the receipt thereof and
thereafter raise whatever claims it had by seeking a refund or an
adjustment of the amounts under the invoice which it disputed
subsequently. I therefore find that looking at it from any angle, the
Petitioner has made out a very strong prima facie case seeking an order
of deposit, or at the very least, securing the claim of the Petitioner by
furnishing a bank guarantee of a nationalized bank till the disposal of
the arbitration proceedings. I find that even the balance of convenience
lies in favour of the Petitioner and in the facts of the present case,
serious prejudice would be caused if an order securing the claim of the
Petitioner is not passed.
32. In view of the forgoing discussion, the following order is
passed:
(a) The 1st Respondent shall deposit the sum of USD
6,212,831/- , or its INR equivalent, in this Court within
a period of eight weeks from today. If the deposit is
made in INR, then the exchange rate will be the rate
CARBP(L)-22272-2021.doc
on the date the deposit is made.
(b) I also give the option to the 1st Respondent, if they
choose not to deposit the aforesaid amount, to furnish
a bank guarantee of any nationalized bank in the sum
of USD 6,212,831/- or its INR equivalent, in favour of
the Prothonotary and Senior Master of this Court
wh1ich shall be kept alive until an Award is passed in
the arbitration proceedings proposed to be instituted
by the Petitioner. If the bank guarantee is furnished in
INR, then the exchange rate will be the rate on the
date when the bank guarantee is furnished. This bank
guarantee shall carry interest @ 6% p.a. for the period
it is kept alive. In other words, for the first year, the
bank guarantee shall be for the amount of USD
6,585,600.86 (USD 6,212,831 + USD 372,769.86
towards interest @ 6% p.a.) or its INR equivalent; for
the second year the bank guarantee shall be for an
amount of USD 6,958,370.72 (USD 6,585,600.86 +
USD 372,769.86 towards interest @ 6% p.a.) or its
INR equivalent; for the third year the bank guarantee
shall be for an amount of USD 7,331,140.58 (USD
6,958,370.72 + USD 372,769.86 towards interest @
6% p.a.) or its INR equivalent; and so on.
(c) In the event, the 1st Respondent does not deposit the
aforesaid amount or furnish a bank guarantee as
directed above, the Petitioner shall be entitled to
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execute the above order against the 1st Respondent
under Section 36 of the Civil Procedure Code, 1908 to
ensure that the monies are brought into Court.
33. The above Section 9 Petition is accordingly disposed of.
However, there shall be no order as to costs. It is made clear that all
observations made herein are only prima facie and shall not bind the
Arbitral Tribunal whilst deciding the lis between the Petitioner and the
1st Respondent.
34. All parties to act on a copy of this order digitally signed by
the Personal Assistant /Private Secretary/Associate of this Court.
(B. P. COLABAWALLA, J.)
Digitally
signed by
GANESH
GANESH SUBHASH
SUBHASH LOKHANDE
LOKHANDE Date:
2021.12.13
18:44:22
+0530
