Bombay High Court
Valentine Maritime Ltd vs Kreuz Subsea Pte Ltd. And Another on 22 January, 2021
Bench: R.D. Dhanuka, Virendrasingh Gyansingh Bisht
ppn 1 comapl-7013.20 wt 8386.20 (J).doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMMERCIAL APPEAL (L) NO.7013 OF 2020
IN
COMM. ARBITRATION PETITION (L) NO.6973 OF 2020
ALONG WITH
INTERIM APPLICATION (L) NO.7017 OF 2020
Valentine Maritime Ltd,
a company incorporated under the
laws of Liberia, and having its
registered office at 80, Borad Street,
Monravia, Liberia and branch office
at P.O. Box No. 53905 Abu Dhabi,
UAE. ... Appellant
Versus
1. Kreuz Subsea Pte Limited
A company incorporated under the
laws of Singapore, having its office
address at 10 Science Centre Road
#01-12 Block 1 Bestway Centre,
Singapore 609 079.
2. Oil and Natural Gas Corporation
Ltd., Mumbai Region, Offshore
Engineering Services, 4th floor, 11-
High, Bandra Station-Link Road,
Mumbai-400017,
India. ... Respondents
AND
COMMERCIAL APPEAL (L) NO.8386 OF 2020
IN
COMM. ARBITRATION PETITION (L) NO.6973 OF 2020
ALONG WITH
INTERIM APPLICATION (L) NO.8389 OF 2020
Oil and Natural Gas Corporation
Ltd., Mumbai Region, Offshore
ppn 2 comapl-7013.20 wt 8386.20 (J).doc
Engineering Services, 4th floor, 11-
High, Bandra Station-Link Road,
Mumbai-400017,India. ... Appellant
Versus
1. Kreuz Subsea Pte Limited
A company incorporated under the
laws of Singapore, having its office
address at 10 Science Centre Road
#01-12 Block 1 Bestway Centre,
Singapore 609 079.
2. Valentine Maritime Ltd,
a company incorporated under the
laws of Liberia, and having its
registered office at 80, Borad Street,
Monravia, Liberia and branch office
at P.O. Box No. 53905 Abu Dhabi,
UAE. ... Respondents
******
Mr. Rahul Narichania, Senior Advocate a/w. Mr. Prathamesh Kamat,
Mr.Shivkumar Iyer, Ms.Ankita Sen and Ms. Aditi Maheshwari i/by
M/s.Ganesh and Co., for the Appellant in Commercial Appeal (L)
No.7013/2020 and Respondent No.2 in Commercial Appeal (L)
No.8386/2020 and Applicant in IAL/7013/2020.
Mr. J. P. Cama, Senior Advocate a/w. Ms. Rajalakshmy Mohandas,
Ms.Pratibha Mehta i/by M/s. Rajalakshmy Associates for the Appellant in
Commercial Appeal (L) No.8386/2020 and Respondent No.2 in
Commercial Appeal (L) No. 7013/2020 and Applicant in IAL/8389/2020.
Mr. Aspi Chinoy, Senior Advocate a/w. Mr. Prasad Shenoy, Mr. Prashant
Asher, Ms. Bulbul Singh Rajpurohit, Mr. Nirav Shroff i/b M/s. Crawford
Bayley & Co. for Respondent No.1 in both the Appeals.
******
CORAM: R. D. DHANUKA AND
V. G. BISHT, JJ.
RESERVE DATE : 13th JANUARY, 2021.
PRONOUNCE DATE : 22nd JANUARY, 2021.
ppn 3 comapl-7013.20 wt 8386.20 (J).doc
Judgment (Per R.D. Dhanuka, J.) :-
. By these two appeal filed under Section 37 of the Arbitration
and Conciliation Act, 1996 (for short "the Arbitration Act"), both these
appellants (original respondent no.1 and respondent no.2 respectively)
have impugned the order passed by the learned Single Judge granting
interim measures in favour of the respondent no.1 (original petitioner)
under Section 9 of the Arbitration Act.
2. The appellant in Commercial Appeal (L) No.7013 of 2020
has impugned the entire order passed by the learned Single Judge
whereas the appellant in Commercial Appeal (L) No.8386 of 2020 has
impugned the directions issued by the learned Single Judge in paragraph
42(e)(i) to (vi) of the order dated 11th November 2020. By consent of
parties, both these appeals were heard together and are being disposed of
by common order. Some of the relevant facts for the purpose of deciding
these two appeals are as under :-
3. On 21st August 2019, Oil and Natural Gas Corporation
Limited (hereinafter referred to as "ONGC") entered into a contract with
the appellant i.e. Valentine Maritime Limited (hereinafter referred to as
"VML") for laying of 165.77 kms. subsea pipeline spread in 23 segments
including associated subsea activities, Installation of 27 nos. riser,
Modification of 18 nos. topside and Demolition of 86 nos. riser
(redundant and replacement). On 30th October 2019, ONGC issued a
Letter of Award in favour of VML. On 30 th October 2019, VML issued a
Letter of Acceptance appointing Kreuz Subsea Pte Limited (hereinafter
ppn 4 comapl-7013.20 wt 8386.20 (J).doc
referred to as "KSS") as a Sub-contractor for subsea installation work
associated with the pipeline replacement project of ONGC i.e. part of the
work under ONGC-VML contract.
4. It is the case of KSS that VML failed to establish letter of
credit for 20% of the Sub Contract value i.e. US$ 5.4 million during
the period between October 2019 and March 2020. Only in the month of
February 2020, VML issued a conditional Letter of Credit for US $ 2
million. The KSS therefore did not issue performance bank guarantee
(PBG) of 12.2% i.e. US$ 2.9 million. It is the case of KSS that KSS
repeatedly offered/reiterated that on the VML establishing a contractually
compliant irrevocable and unconditional Letter of Credit for US $ 5.4
million, they will immediately issue a contractually compliant PBG for
US $ 2.9 million.
5. It is the case of KSS that till the end of 2020, there was no
dispute between KSS and VML. The KSS had received the amount of
their invoice approximately US $ 12.118 Million. However, after 24 th
March 2020, progress of the work was affected by the Nation Wide
Lockdown. There was also delay by the VML in timely delivery/supply
of materials. The KSS however preserved and almost managed to
maintain the pace of the work. By letter dated 14th May 2020, VML
recorded its appreciation for KSS. In the month of May 2020, the KSS
submitted invoices for US $ 4765570 duly supported by completion
certificates signed/issued by ONGC. It is the case of the KSS that VML
did not raise any dispute within the five day period as stipulated.
ppn 5 comapl-7013.20 wt 8386.20 (J).doc
6. By letter dated 27th May 2020, the VML alleged that
there had been one weeks' delay by KSS in mobilisation of the Barge in
February 2020 under Clause 11.2(a) and further it was entitled to
provisionally withhold as liquidated damages an amount of 10% of the
Contract value under Clause 11.2 (b) i.e. USD 2,567,346 until the KSS
remobilised its marine spread and completed the same. entitled to
provisionally withhold as liquidated damages an amount of 10% of the
Contract value under Clause 11.2 (b) i.e. USD 2,567,346 until the KSS
remobilised its marine spread and completed the same. In the said letter,
it was alleged by VML that as the KSS had failed to furnish a
Performance Bank Guarantee for 12.20%, the VML was entitled to
withhold 12.20% of the contract value i.e. US $ 2,972,900. The VML
further alleged that it was not liable to make payment of the April
invoices of US $ 4.765 Million.
7. It is the case of the KSS that during the period between
May 2020 and June 2020, disputes were ongoing between the parties
regarding the VML's failure to make payment of amounts regrading
another contract which had constrained the KSS to adopt proceedings
in respect thereof against the VML. The VML was required to make
payment of US $ 1.2 Million to KSS by order dated 8 th May 2020 to
secure release of their vessel DLB 1600. The VML failed to make
payment under three awards of May 2018, requiring the KSS to adopt
execution proceedings against the VML. By an order dated 26 th June
2020, the VML agreed/undertook to pay US $ 5.50 Million in
installments between July 2020 and February 2021 to KSS.
ppn 6 comapl-7013.20 wt 8386.20 (J).doc
8. It is the case of the KSS that in respect of those arbitrations,
the KSS was constrained to initiate proceedings against VML in 2017
under Section 9 of the Arbitration Act. Various interim measures were
granted by the Court in favour of KSS by order dated 25th July 2017
similar to those sought in these proceedings requiring the KSS to deposit
or provide bank guarantee for the amounts involved.
9. On 1st June 2020, the KSS by its letter pointed out that the
claim of VML to withhold payment of US $ 2.567 Million as liquidated
damages was unreasonable, as the balance work was only of three new
risers and the demobilisation of 11 risers which at 10% value would
not exceed 302,000 US $. The ONGC did not make any claim for
liquidated damages upon VML and had in fact paid VML in full. The
KSS reiterated their willingness to provide the PBG for US $ 2.9 Million
as per the Contractual Format, subject to the VML furnishing Letter of
Credit for US $ 5.4 Million as per the Contractual Format.
10. By letter dated 7th June 2020, the VML alleged that the
furnishing of the PBG of US $ 2.9 Million by KSS could not be linked
to VML's obligation to furnish the requisite Letter of Credit for US $ 5.4
Million. It was further alleged by VML that they had in February 2020
established an Letter of Credit for US $ 2 Million. On 4 th June 2020,
the KSS submitted further invoices 16 and 17 for US $ 2.4 Million for
the work done in May 2020 duly supported by Completion certificates
signed/issued by ONGC.
11. It is the case of the KSS that those invoices were submitted
ppn 7 comapl-7013.20 wt 8386.20 (J).doc
after making alterations to the draft invoices as required by the VML.
No dispute was raised by VML within the stipulated period of 5 days in
terms of Clause 6.1.2(c) of the Letter of Award. The VML did not inform
the KSS about receipt of amount from ONGC nor made any payment
thereof to KSS. On 4th July 2020, the KSS filed a petition under
Section 9 of the Arbitration Act against VML and ONGC in this Court.
ONGC as well as VML filed affidavit-in-reply in the said writ petition
opposing the grant of interim measures.
12. On 11th November 2020, the learned Single Judge disposed
of the said Commercial Arbitration Petition (L) No.6973 of 2020 filed
by the KSS. Learned Single Judge directed the VML to deposit with
Prothonotary and Senior Master an amount of US $ 2,403,073 or the
rupee equivalent at the then prevailing exchange rate, being the value of
the invoices dated 2nd June 2020 by 4th December 2020 and further
directed the Prothonotary and Senior Master to invest the said amount
for a period of no more than four weeks initially. Learned Single Judge
directed that the KSS must invoke arbitration before 1 st December 2020
and thereafter take all steps to have the arbitral tribunal constituted as
soon as the ICC Rules permit. It was made clear that if the KSS fail to
invoke arbitration on or before 1 st December 2020, the said order will
cease to operate and the amount deposited is to be returned with any
accrued interest to VML.
13. It was further provided in the said order that if VML fails to
make the deposit within the time prescribed, the ONGC will deposit that
amount out of the amounts, if any, due from it to VML by 11 th December
ppn 8 comapl-7013.20 wt 8386.20 (J).doc
2020 under the PRP-VI contract between ONGC and VML without
prejudice to the rights of ONGC vis-a-vis VML and the making of that
deposit by ONGC and a consequent reduction in the payment or
payments by ONGC to VML will not, by virtue of compliance of the
said order by ONGC, be claimed by VML in any forum or any
proceeding to be breach of the PRP-VI contract.
14. Learned Single Judge made it clear that ONGC is required
to make the deposit only if there were amounts due from it to VML after
the date of the said order under PRP-VI contract between ONGC and
VML. This Court further directed the ONGC to withold the amount of
US $ 2,403,073 in whole or in parts/tranches until 1 st December 2020 to
be able to effect payment into Court under the said order to ensure the
compliance of the said order. It was made clear that any such retention
by ONGC will not affect VML's financial liabilities, if any, under the
Sub-Contract with KSS. It was directed that if no amount is due from
ONGC to VML between date of the said order and 11 th December 2020
under the PRP-VI contract between ONGC and VML, ONGC will file
an affidavit no later than by 11th December 2020 confirming that position.
15. This Court directed that upon the deposit being made either
by VML or ONGC, as the case may be, and further conditional upon
KSS invoking arbitration as required in the said order, the amount will
be held by the Prothonotary and Senior Master in investment pending a
decision/award by the arbitral tribunal. Neither side is precluded, by
virtue only of the said order, from applying to the arbitral tribunal for
relief in respect of the said deposit. Any such application will be decided
ppn 9 comapl-7013.20 wt 8386.20 (J).doc
on its own merits uninfluenced by the said order. This Court also made
it clear that all observations were prima facie and only for the purposes
of the said order.
16. Mr.Narichania, learned senior counsel for the appellant
(VML) invited our attention to some of the correspondence annexed to
the compilation of documents and pleadings and would submit that till
March 2020, there was no dispute between VML and KSS in respect of
the invoices issued by KSS. All monies due and payable to KSS were
paid by VML till then.
17. Learned senior counsel invited our attention to the
averments made by KSS in arbitration petition filed under Section 9 in
paragraph 4.7 and would submit that admittedly the KSS did not make
any claim under April invoice in the said petition filed under Section 9.
He submits that the contract between the VML and the KSS was not
back to back contract i.e. contract awarded to VML by ONGC and in
turn, by VML to KSS. He submits that KSS did not submit the PBG of
12.20 % and thus his client was withholding the amount of US $ 2.9
Million. The VML was also entitled to recover liquidated damages from
KSS in view of the KSS not completing the mandatory scope of work
within the time stipulated in Clause 7.0 which attracted liquidated
damages up to US $ 2.5 Million.
18. It is submitted that the VML was also entitled to withhold a
further amount of US $ 300,000 towards prorata discount against Kreuz
Supporter as per the Letter of Award. The amount thus claimed by VML
ppn 10 comapl-7013.20 wt 8386.20 (J).doc
exceeded the April 2020 invoice raised by the KSS on the VML by
approximately US $ 1,074,677. The VML even otherwise was entitled
to withhold sum of US $ 1,074,677 in the next invoice for the month of
May 2020. He submits that the KSS had in fact abandoned the entire
contract and thus the VML was entitled to perform the abandoned scope
of work at the cost and risk of KSS as per Clause 13 of the Letter of
Award. The VML was entitled to recover liquidated damages of 0.5%
of the contract value per week (with maximum of 10% of the contract
value) from KSS.
19. It is submitted by the learned senior counsel that even
though the ONGC had already released the payment in respect of the
work done to VML, since there was no back to back contract between
the VML and the KSS and since the VML was entitled to recover
substantial sum from KSS, the VML was not required to pay any
amount to KSS for the said invoices of May 2020. He submits that
though there was no dispute about the quantum of invoice in the month
of May 2020, the VML is entitled to adjust the amount against invoices
of KSS in respect of the claim of VML towards the liquidated damages
in respect of PBG not submitted by the KSS and also in respect of
prorata discount of US $ 300,000 against Kreuz Supporter.
20. Learned senior counsel placed reliance on Clause 17 of the
Letter of Award dated 30th October 2019 issued by his client and would
submit that the said Letter of Acceptance/sub-contract has to be
interpreted, governed, construed and executed in accordance with laws
of England and Wales. He also placed reliance on Clause 20 of Letter of
ppn 11 comapl-7013.20 wt 8386.20 (J).doc
Acceptance and would submit that though it was clearly agreed under
the said clause that notwithstanding any dispute or difference and unless
the contract shall be terminated, both the parties were under an obligation
to continue with the due performance of said contract, the KSS refused
to perform their part of obligation under the contract and abandoned the
contract. He submits that under English Law, the VML was not required
to prove the actual loss suffered for making claim for liquidated damages.
21. It is submitted by the learned senior counsel that there would
be a counter claim for substantial amount against KSS by his client in the
arbitral proceedings and thus the learned Single Judge on that ground
itself could not have passed an order in the nature of an order for
attachment before judgment by directing his clients to deposit the entire
amount under May invoice. In support of his submission that the VML
was not required to prove liquidated damages under English Law, learned
senior counsel placed reliance on the judgment of Supreme Court in case
of Oil & Natural Gas Corporation Ltd. v/s. Saw Pipes Ltd., (2003) 5
SCC 705 and in particular paragraph 51 and would submit that the
Supreme Court has clearly culled out a distinction between Indian Law
and English Law insofar as the requirement of proof of loss for recovery
of liquidated damages is concerned. There is a clear departure under
English Common Law from Indian Law on the issue of proof of
liquidated damages in case of a claim for issue of liquidated damages.
The VML was entitled to recover and/or appropriate the amount payable
to KSS under May invoice by merely showing that the KSS has
committed breach of its obligation under the contract between KSS and
VML. The learned Single Judge however did not consider this crucial
ppn 12 comapl-7013.20 wt 8386.20 (J).doc
aspect in the matter in the impugned order.
22. Learned senior counsel placed reliance on a passage from the
commentary on law of contract by Anson in support of the submission
that the VML was not required to prove damages for claiming liquidated
damages. The VML was entitled to recover the stipulated sum of
compensation from KSS and thus there was a clear entitlement of VML
to recover/withhold the said amount due and payable, if any to KSS in
any of the invoices. Learned senior counsel for VML submitted a
statement showing the calculation which according to his client is entitled
to recover a sum of US $ 3642023.5 after adjusting the amount due and
payable to KSS under April invoices and May invoices. In view of such
serious dispute raised by his client in the correspondence, the learned
Single Judge could not have passed any order in the nature of
attachment before judgment under Order 38 Rule 5 of the Code of Civil
Procedure, 1908 in the petition filed by KSS under Section 9 of the
Arbitration Act.
23. Learned senior counsel for VML made an attempt to
distinguish the judgment delivered by a Single Judge of this Court, one of
us R. D. Dhanuka, J. in case of Baker Huge Singapore Pte v/s. Shiv Vani
Oil and Gas Exploration, 2014 SCC Online Bom 1663. He invited our
attention to paragraphs 53 to 58 and 62 of the said judgment and would
submit that the facts before this Court in the said matter were totally
different. That was not the case of contract where English Common Law
was agreed to be applied by virtue of which one of the party entitled to
recover liquidated damages without proving any actual loss or damage. In
ppn 13 comapl-7013.20 wt 8386.20 (J).doc
that case, the claimant had made out a case for grant of relief of securing
claim.
24. Learned senior counsel invited our attention to the averments
made in paragraphs 5.5, 5.6, 5.7 and would submit that no case was made
out by KSS for seeking relief in the nature of attachment before
judgment. The learned Single Judge could not have converted an
unsecured claim of KSS into a secured claim by directing his client to
deposit the entire amount under May invoice and in the alternative
against ONGC to deposit the said amount out of the amount due and
payable by ONGC to his client.
25. Learned senior counsel strongly placed reliance on the
judgment of Supreme Court in case of Raman Tech. & Process Engg.
Co. and Anr. v/s. Solanki Traders, (2008) 2 SCC 302 and in particular
paragraph 4 in support of his submission that even if KSS had just or
valid claim or made out a prima-facie case, that would not be sufficient to
seek a relief in the nature of an order of attachment before judgment
unless KSS would have established that VML was attempting to remove
or dispose of its assets with the intention of defeating the decree that may
be passed. He submits that no strong prima-facie case was made out by
KSS against VML for grant of such drastic order before the learned
Single Judge.
26. Learned senior counsel for VML placed reliance on the
judgment of a Division Bench of this Court in case of National Shipping
Company of Saudi Arabia v/s. Sentrans Industries Limited, Mumbai,
ppn 14 comapl-7013.20 wt 8386.20 (J).doc
2004 (2) Mh.L.J. 696 and in particular paragraph 14 in support of his
submission that since the KSS had failed to even remotedly indicate that
VML by its acts was intending to defeat the claim of the KSS, no interim
protection could be granted by the learned Single Judge.
27. Learned senior counsel for VML strongly placed reliance on
the judgment delivered by the learned Single Judge of this Court in case
of Yusufkhan @ Dilip Kumar v/s. Prajita Developers Pvt. Ltd. and Anr.
in Arbitration Petition No. 1012 of 2018, delivered on 25 th March, 2019
and in particular paragraphs 25, 32 to 34 and would submit that the
judgment delivered by R. D. Dhanuka, J. in case of Baker Huge
Singapore Pte (supra), relied upon by the learned Single Judge has been
clearly distinguished by the another learned Single Judge in the said
judgment and has taken a different view.
28. Learned senior counsel for VML also relied upon the
judgment delivered by a Division Bench of this Court in case of Nimbus
Communications Ltd. v/s. Board of Control for Cricket in India,
2013(1) Mh.L.J. 39 and in particular paragraphs 20 to 24 and would
submit that this Court after adverting to the judgment of Division Bench
of this Court in case of National Shipping Company of Saudi Arabia
(supra) and judgment of Supreme Court in case of Adhunik Steel (supra)
has held that a power under Section 9 is not totally independent of
principles governing the grant of interim injunction. The powers of Court
under Section 9 are acted by the underlying principles which govern the
exercise of an analogous power in the Code of Civil Procedure 1908.
ppn 15 comapl-7013.20 wt 8386.20 (J).doc
29. Learned Senior Counsel for the VML relied upon the
Judgment of Delhi High Court in the case of Uppal Eng. Co. (P) Ltd. Vs.
Cimmco Birla Ltd., ILR (2005) II Delhi 604 and in particular paragraphs
13 and 14 and would submit that since the KSS has failed to establish in
the proceedings filed under Section 9 of the Arbitration Act that the VML
is likely to dispose of whole or any part of his property with intent to
obstruct or delay the execution of the award if passed in favour of the
KSS, the order of an attachment before Judgment being a drastic remedy,
no such order could be passed by the learned Single Judge. The counter-
claims proposed to be made by VML against KSS are yet to be
adjudicated upon in the arbitral proceeding and thus no such order in the
nature of attachment before Judgment could be passed by the learned
Single Judge.
30. Learned Senior Counsel for VML made an attempt to
distinguish the Judgment of this Court delivered by a Division Bench of
this Court in the case of Jagdish Ahuja & Anr. Vs. Cupino Ltd. in
Comap/12/2020 with IA/1/2020 decided on 3rd August, 2020 on the
ground that the facts before the Division Bench of this Court were totally
different. The Respondents therein had though deducted the 'tax
deducted at source' from the amount payable to original Petitioner did not
deposit the said amount with the Government.
Submissions of the Appellant in Commercial Appeal (L) 8386/20
filed by ONGC
31. Mr. J. P. Cama, learned Senior Counsel for the ONGC
(Appellant in Commercial Appeal (L) No. 8386/20) invited our attention
ppn 16 comapl-7013.20 wt 8386.20 (J).doc
to the operative part of the impugned order and more particularly
paragraphs 42 (e)(i) to (vi) and would submit that there was no arbitration
agreement between ONGC and KSS. At the first instance the ONGC
could not have been impleaded as a party-Respondent in the Petition filed
by KSS under Section 9 of the Arbitration Act in view of there being no
privity of contract between ONGC and KSS. Even otherwise no order in
the nature of garnishee could be passed against ONGC by the learned
Single Judge and that also at the interlocutory stage. No final arbitral
award has been admittedly rendered by the Arbitral Tribunal allowing the
claims made by the KSS against the VML. He submits that no order
under Section 9 of the Arbitration Act could have been passed by the
learned Single Judge against the ONGC.
32. In support of these submissions, learned Senior Counsel
placed reliance on the following Judgments:
(i) Judgment of Madras High Court in the case of Kris Heavy
Engineering Vs. PNHB Lanco Khec, 2013 SCC OnLine MAD
1419;
(ii) Judgment of Supreme Court in the case of Essar Oil Ltd. Vs.
Hindustan Shipyard Ltd. & Ors., (2015) 10 SCC 642.
(iii) Judgment of this Court in the case of Jai Neptune Co-op. Housing
Society Ltd. Vs. Lotus Logistics & Developers Pvt. Ltd. & Anr.,
2015 (6) Bom C.R. 106;
(iv) Judgment of this Court in the case of Rakesh S. Kathotia & Anr.
Vs. Milton Global Ltd. & Ors., 2014 (4) Bom C.R. 512.
33. It is submitted by the learned Senior Counsel that even
ppn 17 comapl-7013.20 wt 8386.20 (J).doc
otherwise since there was no irreparable injury caused to the KSS, no
such drastic order of deposit against the ONGC by way of garnishee
could be made by the learned Single Judge in the proceeding under
Section 9 of the Arbitration Act. No notice was issued to ONGC by KSS
in the nature of garnishee before filing Petition under Section 9 of the
Arbitration Act. The learned Single Judge could have passed an order of
interim measures only against the parties to the arbitration agreement.
No case was made out by the KSS for passing such order in the nature of
garnishee order.
34. In is submitted by the learned Senior Counsel that the ONGC
was not claiming through VML who was party to the sub-contract
between VML and KSS. It is submitted that since the Arbitral Tribunal
itself could not have passed any interim order or final order against the
ONGC in the proceeding between KSS and VML, no interim measures
could have been granted by the learned Single Judge in the Petition filed
under Section 9 of the Arbitration Act. Interim reliefs are in the aid of
final reliefs. The entire order passed by the learned Single Judge against
the ONGC was thus without jurisdiction.
35. Learned Senior Counsel for the ONGC submits that if
ONGC is required to deposit the amount due and payable to VML under
the ongoing contract between the ONGC and VML, the VML may sue to
perform the agreement under the said contract which would jeopardize
the said contract entered into between the ONGC and VML. The ONGC
may be permitted to retain the said amount with it which is due and
payable by VML to KSS out of the amount payable by ONGC to VML.
ppn 18 comapl-7013.20 wt 8386.20 (J).doc
Submissions of KSS in response to submissions
made by VML and ONGC through their respective Senior Counsel
36. Mr. Chinoy, learned Senior Counsel for the KSS tendered list
of dates and events. He invited our attention to the Clauses 6.1 and
6.2(a), 6.1.2(b) and (c) and would submit that his client was required to
issue invoice to VML at the end of each month of all progress earned
based on completion certificate signed by ONGC and furnished by sub-
contractor. The VML was to effect payment to KSS within 7 days after
receipt of payment from ONGC by VML. The VML was required to
inform KSS in writing once the payment was received by VML from
ONGC. If VML wanted to raise any dispute in respect of invoice, such
dispute was required to be notified by VML to KSS within 5 days after
receipt of such invoices failing which the VML shall be deemed to have
irrevocably accepted the invoice as correct and the amount stated therein
was due in owing to KSS.
37. It is submitted that in this case no dispute of any nature
whatsoever was raised by VML for the invoices submitted by KSS for the
month of May, 2019. The VML had already received payment from
ONGC in respect of that part of work done by KSS however did not
make the payment to KSS by raising frivolous objections subsequently
and not within the period of 5 days from the date of receipt of invoice
issued by KSS upon VML. He submits that those invoices for the month
of May, 2019 were issued by KSS based on completion certification
signed by ONGC and furnished by KSS. Such amount under the invoices
for the month of May, 2019 payable by VML to KSS thus could not have
ppn 19 comapl-7013.20 wt 8386.20 (J).doc
been withheld by raising any dispute subsequently by VML. He submits
that even otherwise so called dispute raised by VML so as to illegally
withheld the amount payable to KSS by VML under the invoices for the
month of May, 2019 are totally frivolous and untenable.
38. It is submitted by the learned Senior Counsel that under
Clause 6.1.3 the VML was required to provide KSS an irrevocable Letter
of Credit with amount 20% of Sub-Contract value as per terms in
attachment Annexure VI so as to secure payment to KSS under the Letter
of Acceptance issued to KSS. The KSS was to furnish a performance
bank guarantee for 12.2% for Sub-Contract valued to VML within 14
days of the issuance of Letter of Acceptance. The VML however did not
furnish any such irrevocably Letter of Credit for the amount equal to 20%
of the Sub-Contract as per terms in Annexure VI to KSS. The VML only
issued a conditional Letter of Credit for US $ 2 million in the month of
February, 2020 with additional conditions which were not in accordance
with contractual format i.e.Annexure VI as against the contractual
stipulation of US $ 5.4 million. The KSS accordingly did not issue the
performance bank guarantee of 12.2% i.e. US $ 2.9 million. The KSS
had repeatedly offered to furnish performance bank guarantee on the
VML establishing a contractual compliance irrevocably and
unconditionally Letter of Credit for US $ 5.4 million immediately.
39. It is submitted by the learned Senior Counsel that till the end
of March, 2020, there were no disputes between the parties. His client
had duly received the amount of their invoice approximately US $ 12.118
million. Only after 24th March 2020 the progress of the work was affected
ppn 20 comapl-7013.20 wt 8386.20 (J).doc
by the nationwide lockdown. There was delay on the part of VML in
timely delivering materials to KSS. However the KSS almost managed
to maintain the pace of work. He relied upon the letter dated 14 th May,
2020 addressed by VML to KSS regarding its appreciation of work
carried out by KSS.
40. Learned Senior Counsel for KSS submits that for the work
done in the month of April, the KSS submitted invoice in the month of
May, 2020 in US $ 4765570 duly supported by completion certificate
issued of ONGC. No dispute of any nature whatsoever was raised by
VML even in respect of said invoice within stipulated period of 5 days.
The VML though received payment from ONGC for the said work
carried out by KSS, VML wrongfully withheld the said payment due and
payable to KSS by VML. Learned Senior Counsel invited our attention
to letter dated 27th May, 2020 addressed by VML alleging one week's
delay by KSS in mobilization of Barge in February, 2020 under Clause
11.1(a). For the first time the VML alleged that since the KSS had failed
to complete the minimum mandatory scope of work, it was entitled
provisionally to withhold as liquidated damage of amount 10% of
contract value under Clause 11.2(b) i.e. US $ 2567346. In the said letter
the VML alleged that the KSS had failed to furnish the performance bank
guarantee of 12.2% and thus the VML was alleged to be entitled to
withhold 12.2% of the contract value i.e. US $ 2972900.
41. The VML further alleged in the said letter that it was not
liable to make payment of April invoice of US $ 4.765 million. It is
submitted by the learned Senior Counsel that during the period between
ppn 21 comapl-7013.20 wt 8386.20 (J).doc
May and June, 2020 the disputes were already going on between the
parties regarding the failure of VML to make payment of amount in
another contract between the same parties in respect of which the KSS
was required to adopt proceeding against VML. By an order dated 8 th
May 2020 the VML was required to make payment @ US $ 1.2 million to
KSS to secure the release of their vessel US $ 1600. The VML had also
failed to make payment under those arbitration cases in May, 2018. The
KSS was thus required to adopt execution proceeding against VML.
42. On 26th June, 2020 the VML agreed and undertook to pay US
$ 5.50 million in installments between July, 2020 and February, 2021 as
recorded in the said order dated 26th June, 2020. In those arbitration
proceedings also the KSS had also constrained to initiate Section 9
proceeding against the VML in 2017. This Court had passed orders dated
25th July, 2017 similar to those sought by the KSS against the VML
thereby requiring the VML to deposit or provide a bank guarantee in
respect of amount involved and required the ONGC to encash one of the
bank guarantee of VML to the extent of claim and to deposit the amount
in Court.
43. Learned Senior Counsel invited our attention to letter dated
1st June, 2020 addressed by KSS to VML disputing the demand of VML
to withhold the payment of US $ 2.567 million as liquidated damages was
unreasonable. The balance work was only of 3 new Rises and de-
mobilization of 11 Rises which had 10% value would not exceed US $
302,000. He submits that ONGC did not make any demand for liquidated
damages and had paid VML in full. The KSS raised an objection in
ppn 22 comapl-7013.20 wt 8386.20 (J).doc
respect of amount withheld by the VML.
44. Learned Senior Counsel submits that even if the false claim
of liquidated damages made by the VML would be considered, the VML
could utmost withhold US $ 2567346 and was still liable to pay US $ 2.2
million to KSS against their invoice of US $ 4765570 for April, 2020.
The learned Senior Counsel for the KSS submits that even in the
affidavit-in-reply filed by VML in the month of August, 2020 before the
learned Single Judge, the VML has categorically admitted that there was
no dispute that the VML had received invoice for May, 2020 from the
KSS and there was no dispute with regard to the said invoice. In the said
affidavit the VML also clarified that the VML had not withheld the
amount under the invoice for the month of May, 2020 on account of
dispute under the said invoice.
45. It is submitted that the VML even otherwise illegally
withheld the amount payable under May invoices i.e. Invoices 16 and 17
dated 4th June, 2019 for US $ 2.4 million against its alleged claim for
liquidated damages in the tune of US $ 2.567 million which were also
claimed on the basis of which it had withheld the payment of invoice of
April of US $ 7.16 million i.e. US $ 4.76 + US $ 2.40 against their
alleged maximum claim of liquidated damages in US $ 2.567 million
which claim of liquidated damages is strongly disputed by KSS. Even if
the said amount was adjusted, the VML has illegally withheld the sum of
US $ 4.59 million. He submits that the said amount of US $ 7.16 million
was covered by bills certified by ONGC which payment had already
received by VML from ONGC but illegally withheld the amount of US $
ppn 23 comapl-7013.20 wt 8386.20 (J).doc
4.59 million without any basis.
46. It is submitted by the learned Senior Counsel that the order
passed by the learned Single Judge directing the VML to deposit US $ 2.4
million in Court by 4th December, 2020 constitutes part of US $ 7.1
million which have been already received by VML from ONGC for work
done by the KSS and which US $ 2.4 million along with further sum of
US $ 2 million from the invoice for the month of April, 2019 illegally
withheld by VML without any basis.
47. It is submitted by the learned Senior Counsel that the claim
made by the KSS upon VML is based on undisputed invoices whereas
claims made by the VML are based on claims for damages which claims
are seriously disputed by KSS. There is no dispute at least in respect of
US $ 4.6 million payable by VML to KSS. The Court has to consider the
special circumstances while granting relief under Section 9 of the
Arbitration Act and also the conduct of the parties with a view to do
equitable justice. The VML had taken the ships out of jurisdiction of this
Court.
48. Learned Senior Counsel relied upon various averments made
in the Petition filed under Section 9 of the Arbitration Act by his client
and would submit that the KSS had clearly made out case for securing
the undisputed claims of his client by issuing appropriate directions in
that regard to VML and in the alternative against ONGC. No order in the
nature of garnishee has been passed by the learned Single Judge against
ONGC. Learned Senior Counsel for KSS relied upon the Judgment
ppn 24 comapl-7013.20 wt 8386.20 (J).doc
delivered by the Division Bench of this Court on 15 th October, 1992 in
Appeal No. 704 of 1992 filed by Triangle Drilling Ltd. & Anr. Vs.
Jagson International Ltd. & Anr. passed by Bombay High Court in
Appeal No. 704 of 1992 dated 15th October, 1992 and would submit that
the power of Court under Section 9 of the Arbitration Act to grant interim
measures are wider than powers of Civil Court.
49. It is submitted by the learned Senior Counsel that the said
Judgment of Division Bench in the case of Triangle Drilling Ltd. (supra)
has been followed in another Judgment by a Division Bench of this Court
in the case of La-Fin Financial Services Pvt. Ltd. Vs. IL & FS
Financial Services Pvt. Ltd. 2015 SCC Online Bom 4794 in particularly
paragraphs 19, 40, 42, 43 to 47. It is submitted that in any event powers
to grant interim injunction against VML and ONGC by the Court under
Section 9 cannot be disputed.
50. Insofar as the Appeal filed by ONGC against the impugned
order is concerned, it is submitted by the learned Senior Counsel that
there is no order for payment made by the learned Single Judge against
the ONGC. If the amount as directed by the learned Single Judge is
deposited in this Court, there will be full discharge against the ONGC
from making payment of that part of the amount to VML. He submits
that ONGC cannot refuse to deposit the amount which is admittedly
payable by ONGC to VML under the contract entered into between
ONGC and VML on the ground that the VML may refuse to perform their
obligation under the contract entered into between the ONGC and VML.
If any breaches are committed by the VML or their obligations to ONGC,
ppn 25 comapl-7013.20 wt 8386.20 (J).doc
the bank guarantee of about Rs.120 crores furnished by VML in favour of
the ONGC may be encashed by ONGC at any point of time. In case of
such breaches, the ONGC would not be without a remedy in law against
VML.
51. Learned Senior Counsel distinguished the Judgment in the
case of Essar Oil Ltd. (supra) relied upon by Mr. Cama, learned Senior
Counsel for the ONGC on the ground that in the said matter, ONGC was
directed to pay the amount directly to Essar though there was dispute in
respect of said payment between ONGC and another party Hindustan
Shipyard Ltd. His client has not made any claim against the ONGC. He
submits that this Court has been passing the orders day in day out by
exercising powers under Section 9 of the Arbitration Act against the third
party. He gave an illustration in case of injunction sought by party from
encashing bank guarantee against the third party bank who is not a party
to the arbitration agreement.
52. Learned Senior Counsel for KSS invited our attention to
various prima facie observations made by the learned Single Judge in the
impugned order and would submit that after considering the submission
of both the parties in great detail and the pleadings, the learned Single
Judge has passed a reasonable and equitable order under Section 9 of the
Arbitration Act. The powers of Appellate Court under Section 37 of the
Arbitration Act to interfere with prima facie observations made by the
learned Single Judge in interlocutory order are very limited. No case is
made out by ONGC or by VML to interfere with the impugned order
passed by the learned Single Judge.
ppn 26 comapl-7013.20 wt 8386.20 (J).doc
53. Mr. Narichania, learned Senior Counsel for the Appellant-
VML in his rejoinder argument submits that the invoices for the month of
April, 2019 were not the subject matter of the Petition filed by KSS under
Section 9 of the Arbitration Act before the learned Single Judge. No
argument based on the invoices for the month of April, 2019 can be
advanced by the KSS before this Court in this Appeal. There was no
abandonment of contract as on 27th May, 2020. He invited our attention
to letter dated 31st May, 2020 from KSS to VML and would submit that
the KSS had requested for waiver of liquidated damanges to VML. KSS
had admitted delay of 45 days on their behalf. On 31 st May, 2020 VML
had asked KSS to mobilize the Barge which KSS refused to mobilize. He
submits that the Clauses 11 and 2(a) would thus apply to the claims made
by VML on 7th June, 2020. The VML had already called upon to KSS for
compliance on their part and made it clear that VML would engage a new
contractor. Similar letters were addressed by the VML to KSS on 7 th
April, 2020, 20th July, 2020 and 12th July, 2020. Since the KSS
abandoned the contract, the VML is entitled to 10% liquidated damages
against the KSS. He submits that subsequent correspondence after the
month of May, 2020 would also entitle VML to make their claim against
KSS.
54. It is submitted by the learned Senior Counsel that
performance bank guarantee was to be submitted by the KSS to VML
within the time limit prescribed under Clause 6.2 i.e. within 14 days
whereas for submitting Letter of Acceptance, no time limit was
prescribed for VML. The KSS however imposed condition against the
VML to submit irrevocable Letters of Credit simultaneously with KSS
ppn 27 comapl-7013.20 wt 8386.20 (J).doc
submitting performance bank guarantee to VML. He submits that KSS
was fully aware that VML was a foreign company and still entered into a
contract with VML and thus KSS could not have applied for such drastic
relief against the VML on that ground.
55. Mr. Chinoy, learned Senior Counsel for KSS submits that
when his client was issued invoice for the month of May, 2019, no claim
was raised by VML under Clause 11.2(a) of the Contract. Such claims
was raised only for the month of July, 2020 and not earlier.
REASONS AND CONCLUSION :-
56. The questions that arise for consideration of this Court in this
Appeal filed under Section 37 of the Arbitration Act by VML and ONGC
(original respondent nos.1 and 2 respectively) are (a) whether ONGC
could have been impleaded as a party respondent to the petition filed
under Section 9 of the Arbitration Act by KSS (original petitioner) though
there was no Arbitration Agreement between KSS and ONGC; (b)
whether the learned Single Judge could have passed any order of interim
measures against ONGC including an order of deposit of the amount due
and payable by ONGC to VML under PRP-VI contract between ONGC
and VML so as to secure the claims in arbitration proposed to be made by
KSS against VML by way of garnishee order; (c) whether KSS had made
out a case for grant of interim measures against VML as well as ONGC
or any of them to secure the claims proposed to be made by KSS against
VML or not.
57. We shall first decide the issue whether ONGC could be
ppn 28 comapl-7013.20 wt 8386.20 (J).doc
impleaded as a party respondent to the arbitration agreement between
KSS and ONGC.
58. It is not in dispute that a contract was entered into between
ONGC and VML on 21st August, 2019 for laying of 165.77 kms subsei
pipeline spread in 23 segments including associated subsei activities and
various other works. On 30th October, 2019 the VML had executed a
Letter of Award in respect of the said work in favour of KSS. A perusal
of the prayers in the arbitration petition filed by KSS against VML and
ONGC indicates that the KSS had prayed for an order of deposit of a sum
of US $ 2403073 towards payment of the principal sum under the
undisputed invoices dated 2nd June, 2020 for the month of May 2020
issued by KSS. The KSS had also prayed for an order and direction
against ONGC to deposit the amount due and payable to VML to the
extent of US $ 2403073 in this Court. In the alternative to prayer clause
(b), KSS had also prayed for an order and direction against ONGC to
invoke and encash the bank guarantees furnished by VML in favour of
ONGC to the extent of US $ 2403073 and to deposit the said amount in
this Court. The KSS had prayed for injunction against VML from dealing
with, assigning, discounting, encumbering, securitizing, disposing of,
transferring and/or distributing the amounts received from ONGC and for
other interim measures.
59. The averments made in the arbitration petition filed by KSS
were that the KSS apprehend that VML was likely to immediately
siphoned of the amount due and payable to KSS received from ONGC.
The KSS will not be able to secure the payment of its invoices from
ppn 29 comapl-7013.20 wt 8386.20 (J).doc
respondent no.1. The KSS had also averred in the petition that KSS had
filed an Execution Application (LD-VC-GSP-3 of 2020) against VML
and had impleaded ONGC as party respondent in the said Execution
Application. ONGC had filed an affidavit in the said Execution
Application on 22nd June, 2020 stating that ONGC had from time to time
released the amounts as per invoices issued by VML in respect of the
work done. It was the case of the KSS in the said petition under Section 9
before the learned Single Judge that though ONGC released payment to
VML in respect of the work done, no corresponding payment were made
to KSS qua the May invoice nor VML had provided any update to the
KSS regarding the same as contemplated in the Letter of Award.
60. The impugned order passed by the learned Single Judge
indicates that the invoices submitted by the KSS including the invoices
for the month of May 2020 were backed with ONGC signed completion
certificate. Under Clause 6.1.2 (c), the VML had agreed to notify KSS in
writing of the VML submitting an invoice to ONGC and thereafter in
writing of the invoice processing progress and all communications
between VML and ONGC related to the invoice submitted. The VML had
also agreed to immediately inform KSS in writing once the payment was
received from ONGC by VML. Under Clause 6.1.2, the KSS was
required to submit invoices at the end of each month, for all progress
earned by KSS based on completion certificate signed by ONGC
furnished by KSS. The VML was required to effect the payments, by wire
transfer or as otherwise may be instructed by KSS in writing within 7
days after receipt by VML of payment from ONGC. It is not in dispute
that ONGC was not a party to the sub-contract awarded by VML to KSS.
ppn 30 comapl-7013.20 wt 8386.20 (J).doc
61. The Division Bench of this Court in case of Girish
Mulchand Mehta and Anr. v/s. Mahesh S. Mehta and Anr., (2010) 1
Bom CR 31 adverted to the judgment of Supreme Court in case of Firm
Ashok Traders and Anr. v/s. Gurmukhdas Saluja and Ors., AIR 2004
SC 1433 in which judgment the Supreme Court had considered the
scheme of Section 9 of the Arbitration Act. The Supreme Court observed
that the right conferred by Section 9 is on a party to an Arbitration
Agreement. Section 9 has relevance to locus-standi as an applicant. A
person not party to an Arbitration Agreement cannot enter the Court for
protection under Section 9 of the Arbitration Act. The party to an
Arbitration Agreement can invoke that jurisdiction under Section 9 of the
Arbitration Act for securing relief which the Court has power to grant
before, during or after arbitral proceedings by virtue of Section 9. This
Court held that reliefs sought in Application under Section 9 is neither a
suit nor a right arising from a contract. The Court under Section 9 only
formulates interim measures so as to protect the right under adjudication
before Arbitral Tribunal from being frustrated.
62. This Court in the said judgment held that the power of the
Court under Section 9 is very wide and is not controlled by the provisions
of the Code of Civil Procedure. The Court however has to be guided by
the equitable consideration keeping in mind that the award to be passed
by the Arbitral Tribunal is capable of enforcement. In paragraph 12 of the
said judgment, this Court held that jurisdiction under Section 9 can be
invoked only by a party to the Arbitration Agreement, Section 9 however
does not limit the jurisdiction of the Court to pass order of interim
measures only against party to an Arbitration Agreement or Arbitration
ppn 31 comapl-7013.20 wt 8386.20 (J).doc
proceedings whereas the Court is free to exercise same powers in making
appropriate order against the party to petition under Section 9 of the Act
as any proceedings before it. The fact that the order would affect the
person who is not party to an Arbitration Agreement or Arbitration
Proceedings does not affect the jurisdiction of the Court under Section 9
of the Act which is intended to pass interim measures of protection or
preservation of the subject matter of the Arbitration Agreement.
63. The Division Bench of this Court held that Section 9 can be
invoked even against a third party who is not a party to an Arbitration
Agreement or Arbitration Proceedings, if he were to be person claiming
under the party to the Arbitration Agreement and likely to be affected by
the interim measures. This Court held that Court would certainly have
jurisdiction to pass appropriate orders by way of interim measures even
against the party, irrespective of the fact that they are not party to the
arbitration agreement or arbitration proceedings. The Division Bench of
this Court also adverted to Rule 803-E of the (Original Side) Rules which
provides that notice of filing application to persons likely to be affected
under the Arbitration and Conciliation Act, 1996 has to be issued to
show-cause within the time specified in the notice as to why reliefs
sought in the arbitration petition should not be granted. The third parties
were accordingly impleaded i.e. party to the proceedings under Section 9
of the Act which was necessitated by virtue of Rule 803-E of the
(Original Side) Rules.
64. The Division Bench of this Court in the said judgment had
also considered powers of Court under Section 9(1)(ii)(d) and (e) which
ppn 32 comapl-7013.20 wt 8386.20 (J).doc
provides that Court has power to grant interim injunction or appoint a
receiver and to pass such other interim measures of protection as may
appear to the Court to be just and convenient. The Court shall have same
power for making powers as it has for the purpose of, and in relation to,
any proceeding before it. This Court considered the said provision and
held that it is also open to the Court to confer upon the receiver of such
powers for realization, management, protection, preservation and
improvement of the property, collection of the rent and profits thereof or
such other powers as the Court thinks fit on the satisfaction of the Court
that it is just and convenient to do so. The interim measures can be for
management, protection, preservation and improvement of the property
which is the subject matter of Arbitration Agreement.
65. A perusal of Section 9(1)(ii)(c) clearly indicates that the
Court may authorize any person to enter upon any land or building in the
possession of the any party, authorizing any samples to be taken or any
observation to be made or experiment to be tried, which may be
necessary or expedient for the purpose of obtaining full information or
evidence for the purpose of detention, preservation or inspection of any
property which is subject matter of the dispute in Arbitration. For
granting such relief under Section 9(1)(ii)(c), third parties who are not
parties to the Arbitration Agreement may be affected. Such third parties
who want to seek any interim measures under Section 9 would not be
entitled to invoke the said provision for seeking interim measures against
a party to the Arbitration Agreement. However, there is no bar against the
Court from granting interim measures under Section 9 of the Arbitration
Act against a party who is not a party to the Arbitration Agreement, if
ppn 33 comapl-7013.20 wt 8386.20 (J).doc
those reliefs fall under any of the reliefs provided in Section 9(1)(i), (ii)
(a) to (e) of the Arbitration Act.
66. This Court has been passing order day in day out against
banks from releasing any payment under bank guarantees issued by banks
in favour of one of the party to the Arbitration Agreement though such
banks may not be a party to the Arbitration Agreement between the two
parties including the beneficiary of such bank guarantee or at whose
instance such bank guarantee has been issued by such bank. In addition to
the specific interim measures prescribed under Section 9(1)(i),(ii)(a) to
(d), Court has also power to grant such other interim measures and
protection as may appear to the Court to be just and convenient. In our
view, there is thus no substance in the submission made by Mr. J. P.
Cama, learned senior counsel for ONGC that ONGC could not have been
impleaded as a party respondent to the petition under Section 9 of the
Arbitration Act filed by KSS on the ground that there was no privity of
contract between KSS and ONGC or on the ground that ONGC was not a
party to the Arbitration Agreement between KSS and VML or that no
interim measures can be granted against a third party.
67. Since, in this case, the KSS (original petitioner) wanted to
seek interim measures so as to secure the claims of KSS against VML
who was entitled to receive certain payments from ONGC, KSS had
rightly impleaded ONGC as respondent no.2 in the said petition filed
under Section 9 of the Arbitration Act before the learned Single Judge.
Since ONGC was likely to be affected by the said order, ONGC had been
rightly impleaded as a party respondent. In view of the principles laid
ppn 34 comapl-7013.20 wt 8386.20 (J).doc
down by Division Bench of this Court in case of Girish Mulchand
Mehta and Anr. (supra), impleadment of the ONGC was necessitated by
virtue of Rule 803-E of the (Original Side) Rules. The principles laid
down by the Division Bench of this Court in case of Girish Mulchand
Mehta and Anr. (supra) apply to the facts of this case. Though ONGC
was not a party to the Arbitration Agreement between KSS and VML, to
secure the claim of the KSS against VML under Section 9(1)(ii)(b) of the
Arbitration Act, it was necessary for the original petitioner i.e. KSS to
implead ONGC as a respondent to the said petition under Section 9.
68. In so far as the judgment of this Court in the case of Jai
Neptune Co-operative Housing Society Ltd. Vs.Lotus Logistics &
Developers Pvt. Ltd. (supra) relied upon by the learned Senior Counsel
for ONGC is concerned, the learned Single Judge of this court in the
said judgment has held that under Section 9 of the Arbitration Act, this
Court has no power to quash and set aside the sanctions granted by the
Town Planning Authority. The Town Planning Authority was not a party
to the development agreement entered into between the petitioner and the
respondent no.1. The petitioner may have an independent remedy
available in law against the Town Planning Authority for impugning the
order and sanctions granted by the Town Planning Authority who was
impleaded as a party respondent no.2 to the said arbitration petition filed
under Section 9 by one of the parties to the arbitration agreement. In
this case, there is no such issue involved as was raised in the matter
before the learned Single Judge of this Court in the said judgment. The
KSS (original petitioner) has not sought any adjudication of claims of
the ONGC against VML or the claim of KSS against ONGC under the
ppn 35 comapl-7013.20 wt 8386.20 (J).doc
contract entered into between the ONGC and VML. The said judgment
was thus not at all applicable to this case.
69. In so far as the judgment of this Court in the case of Rakesh
S. Kathotia & Anr. Vs. Miltone Global Ltd. and Ors. (supra) delivered
by the learned Single Judge of this Court is concerned, the learned Single
Judge in the said judgment has adverted to the judgment of a Division
Bench of this Court in the case of Girish Mulchand Mehta and Anr. v/s.
Mahesh S. Mehta and Anr.(supra) in which it has been held by the
Division Bench that Section 9 can be invoked even against a third party
if he were to be person claiming under the party to the arbitration
agreement and likely to be affected by the interim measures. The said
judgment would assist the case of the KSS and not the ONGC.
70. In so far as the judgment of the Hon'ble Supreme Court in
the case of Essar Oil Ltd. Vs. Hindustan Shipyard Ltd. & Ors. (supra)
relied upon by the learned senior counsel for the ONGC is concerned, it
is held by the Supreme Court that simply because some payments were
made by the ONGC to Essar Oil Ltd. i.e. one of the parties to the
arbitration agreement, it would not be established that there was a privity
of contract between the ONGC and the Essar Oil Ltd. and only for that
reason, the ONGC cannot be saddled with a liability to pay the amount
payable to the said Essar Oil Ltd. by Hindustan Shipyard Ltd. The
proceedings before the Hon'ble Supreme Court were arising out of the
order passed by the High Court of Andhra Pradesh by which the Andhra
Pradesh High Court had set aside the arbitral award and the order passed
by the Principal District Judge, Visakhapatnam dismissing the petition
ppn 36 comapl-7013.20 wt 8386.20 (J).doc
challenging the arbitral award. The arbitral tribunal had rejected the
contention of the original claimant that the ONGC was liable to make
payment to the original claimant on behalf of the respondent who was
awarded the contract by the ONGC.
71. In that context, the Hon'ble Supreme Court held that though
the ONGC had made payment to the sub-contractor directly on several
occasions, it could not be established that there was a privity of contract
between the ONGC and the Sub-Contractor. The facts before this Court
are totally different. The KSS had not prayed for any order and direction
against the ONGC to make payment to the appellant but had prayed for
an order and direction against the ONGC to deposit the amount in
Court in the event of the VML not depositing the amount as prayed in
the arbitration petition under one of the invoices. The said proceedings
were not arising out of the order passed under Section 9 of the
Arbitration Act. There was no issue before the Hon'ble Supreme Court
in the said judgment whether the ONGC could be impleaded as a party
before the arbitral tribunal or before the learned Principal District Judge
or in the High Court. The said judgment is not even remotedly applicable
to the facts of this case and would not assist the case of ONGC.
72. We shall now decide the issue whether the KSS has made
out a case for order of deposit against the VML and in the alternative,
against the ONGC so as to secure the claims of the KSS against the
VML or not. We shall also decide the issue whether under Section 9 of
the Arbitration Act, the learned Single Judge could have passed an order
directing the VML at the first instance to deposit an amount of US $
ppn 37 comapl-7013.20 wt 8386.20 (J).doc
2,403,073 or the rupee equivalent at the then prevailing exchange rate
and in case of the VML failing to make the said deposit by the date
prescribed, could direct the ONGC to deposit the said amount out of
the amount, if any, due from the ONGC to VML by 11 th December 2020
under the PRP-VI contract between ONGC and VML or not.
73. A perusal of Clause 6.1.1 of the Letter of Award dated 30 th
October 2019 issued by the VML to the KSS indicates that the VML
had undertaken to make all payments in timely manner as per annexure-
VII to the said Letter of Award. The KSS was under an obligation to
invoice the VML at the end of each month, for all progress earned by
the KSS based on completion certificates signed by the ONGC
furnished by the KSS. The VML was under an obligation to effect
payments, by wire transfer or otherwise as may be instructed by the KSS
in writing within 7 days after receipt by VML of payment from ONGC.
It was also an obligation of VML to notify the KSS in writing of the day
the VML submitting an invoice to the ONGC, thereafter the KSS in
writing of invoice processing progress and all communications between
the VML and the ONGC related to the invoice submitted.
74. Under clause 6.1.1 of the Letter of Award, it is provided that
for just cause and good faith, the VML was permitted to dispute an item
invoiced, however, the VML shall within 5 days after receipt of the
invoice, notify the KSS of the amount disputed and specify the reason
therefor, failing which, the VML shall be deemed to have irrevocably
accepted the invoice as correct and that the amount stated therein as due
and owning to the KSS. The said clause further provides that in the event
ppn 38 comapl-7013.20 wt 8386.20 (J).doc
an amount is disputed, notwithstanding such dispute, the VML shall pay
the KSS undisputed amount within the time limit applicable to the
relevant invoice.
75. A perusal of the record, prima facie, indicates that till the
end of March 2020, there were no disputes between the KSS and the
VML. The KSS had duly received the amount of their invoice
approximately US $ 12.118 Million at the end of March 2020. In the
month of May 2020, the KSS had submitted the invoices for the work
done for the month of April 2020 of US $ 4765570 duly supported by
completion certificates signed/issued by ONGC. The VML, however,
did not raise any dispute in respect of the said invoice for the month of
April 2020 within the five day period as stipulated under Clause 6.1.2(c)
of the Letter of Award.
76. The alleged delay on the part of the KSS in mobilization of
the Barge in February 2020 under Clause 11.2(a) was raised on 27 th May
2020. The alleged entitlement of VML to provisionally withhold as
liquidated damages an amount of 10% of the Contract value under Clause
11.2 (b) i.e. USD 2,567,346 until the KSS remobilised its marine spread
and completed the same was also raised only on 27th May 2020. By the
said letter, the VML alleged that it was not liable to make payment of
the April invoices of US $ 4.765 Million. On 4 th June 2020, the KSS had
submitted further invoices 16 and 17 for US $ 2.4 Million for the work
done in May 2020 duly supported by Completion certificates signed/
issued by ONGC. It is the case of the KSS that those invoices were
submitted after making alterations to the draft invoices as required by
ppn 39 comapl-7013.20 wt 8386.20 (J).doc
the VML. It is not in dispute that the VML did not raise any dispute in
respect of the invoice for the month of May 2020 within the stipulated
period of 5 days as contemplated under Clause 6.1.2(c) of the Letter of
Award.
77. The KSS had prayed for various interim measures in the
said petition filed under Section 9 of the Arbitration Act against the VML
and the ONGC in respect of the invoice for the month of May 2020
which were for US $ 2,403,073 and did not press for deposit of amount
in respect of the invoices for the month of April 2020. In our view,
under Clause 6.1.2(b), the VML was under an obligation to effect the
payment to the KSS within 7 days after receipt by VML of payment
from ONGC. It is not disputed by the VML that it had received payment
in respect of the said invoices submitted by the KSS upon VML for the
month of May 2020. The submission made across the bar by the learned
senior counsel for the VML that though the payment for the work done
by the KSS covered by the invoices by May 2020 was received by the
VML from ONGC, since the contract between the KSS and the VML
was not on back to back basis, the VML was not liable to make payment
to the KSS is totally untenable.
78. In our prima facie view, the VML was liable to pay the said
amount under the invoices within 7 days from the date of receipt of
such payment by the VML from ONGC relating to the invoices submitted
by the KSS to the VML under Clause 6.1.2(c). The VML having failed
to raise any issue within 5 days after receipt of invoices from KSS with
reason or otherwise, in just cause and in good faith, VML cannot be
ppn 40 comapl-7013.20 wt 8386.20 (J).doc
permitted to raise any such dispute subsequently. Even during the course
of arguments, Mr.Narichania, learned senior counsel for the VML did
not dispute the invoices for the month of May 2020 issued by the KSS
upon VML but sought adjustment of various amounts towards the
liquidated damages under Clause 11.2, claim arising out of the KSS not
submitting performance bank guarantee as contemplated under Clause
6.2 of the Letter of Award and US $ 300,000 towards prorata discount
against Kreuz Supporter as per the Letter of Award.
79. The VML having received the payment from ONGC in
respect of the same work which was carried out by the KSS, the VML
could not have withheld the payment after expiry of 5 days from the
date of receipt of invoices from the KSS and more particularly in this
case for the invoice in the month of May 2020. In our prima facie view,
the disputes subsequently raised by the VML are not maintainable. The
claim made by the KSS under the invoices for the month of May 2020
is thus crystallized and could not have been withheld.
80. Mr.Chinoy, learned senior counsel for the KSS is right in
his submission that the VML in its affidavit-in-reply had admitted that
there was no dispute that the VML had received the invoices for the
month of May 2020 from the KSS and there was no dispute with regard
to the said invoices. The VML had sought to withhold the amount
payable under the May invoices i.e. invoices 16 & 17 dated 4 th June for
US $ 2.4 Million against its alleged claim for liquidated damages in the
sum of US $ 2.567 Million and its alleged claim for non furnishing of
the performance bank guarantee in the sum of US $ 2.9 Million and
ppn 41 comapl-7013.20 wt 8386.20 (J).doc
also the invoices for April 2020 in the sum of US $ 4.1 Million also on
the same ground.
81. In so far as the demand raised by the VML that the claim
allegedly arising out of the said performance bank guarantee not
submitted by the KSS as contemplated under Clause 6.2 of the Letter of
Award and the VML not submitting the Letter of Credit as contemplated
under Clause 6.1.3 of the Letter of Award, those allegations will b e tried
in the arbitral proceedings. In our prima facie view, on the basis of such
allegations and counter allegations made by the parties against each other,
the VML could not have withheld any amount due and payable by the
VML to the KSS under a crystallized claim and under undisputed
invoice for the month of May 2020. The demand for adjustment of the
amount alleged to be due to the VML in view of the alleged non
compliance of Clause 6.2 by the KSS was not a crystallized claim or
undisputed amount. The said claim is in the nature of damages payable
depending upon the facts whether the KSS had failed to comply with
the said obligations or not due to reciprocal obligation of the VML not
having been complied with by the VML or not.
82. In so far as the amount under the invoices for the month of
May 2020 sought to be withheld on the ground that the VML is entitled
to recover prorata discount against Kreuz Supporter as per Letter of
Award or not is concerned, the said alleged entitlement of the VML is
also disputed by the KSS and will have to be adjudicated upon by the
arbitral tribunal. In our view, the amount payable to the KSS under
invoice for the month of May 2020 thus could not have been withheld
ppn 42 comapl-7013.20 wt 8386.20 (J).doc
on such ground.
83. In so far as the case of the VML that there was delay on the
part of the KSS in not mobilizing the Barge Kreuz Supporter and in view
of the KSS not completing the mandatory scope of work and thus the
VML is entitled to recover liquidated damages quantified by the VML
at US $ 2,567,346.59 is concerned, a perusal of the Clause 11.2 (b) of
the Letter of Award indicates that the said clause shall not be applicable
in the event of non completion of scope of works due to reasons not
attributable to the KSS. In our prima facie view, whether non completion
of scope of work by the KSS or delay was due to reason not attributable
to the KSS or not or the KSS could not complete the work within the
time specified due to the reason attributable to the VML or not will
have to be decided by the arbitral tribunal finally. The VML admittedly
neither terminated the said contract awarded to KSS nor claimed
liquidated damages issued by the VML within the time contemplated
under the contract. It is the case of the VML that the KSS had
abandoned the contract. All these issues will have to be decided by the
arbitral tribunal.
84. In our view, there is no merit in the submission of
Mr.Narichania, learned senior counsel for the VML that the VML was
not required to prove any actual damages suffered by the VML or not
due to the breaches alleged to have been committed by the KSS but the
VML was only required to show that such breaches were committed by
the KSS. The KSS has seriously disputed the breaches alleged to have
been committed by KSS under any of the provisions of the Letter of
ppn 43 comapl-7013.20 wt 8386.20 (J).doc
Award.
85. Mr.Narichania, learned senior counsel for the VML failed to
demonstrate that under the laws of England and Wales, the VML was
not required to prove any acutal loss due to the breaches alleged to have
been committed by the KSS for making any recovery of the amount
towards liquidated damages against the crystallized claim of the KSS
under undisputed invoices for the month of May 2020. The judgment
of the Supreme Court in the case of Oil & Natural Gas Corporation Ltd.
v/s. Saw Pipes Ltd. (supra) relied upon by the learned senior counsel for
the VML thus would not advance the case of the VML on this issue.
The passage from the commentary from ANSON's Law of Contract on
this issue also would not assist the case of the VML.
86. We shall now decide the issue whether the KSS had made
out a case for grant of any interim measures as allowed by the learned
Single Judge against the VML or ONGC or both.
87. Mr.Narichania, learned senior counsel vehemently urged
that in the arbitration petition filed by the KSS against the VML and
ONGC, there were no averments that the VML has already removed its
assets or is likely to remove its assets with an intent to defeat the claim
of the KSS and if no interim measures as prayed would be granted, the
KSS would be deprived of the fruits of the award. In support of this
submission, learned senior counsel invited our attention to the averments
made in paragraph 5.5 of the arbitration petition. Learned senior counsel
made an attempt to distinguish the judgment delivered by a learned
ppn 44 comapl-7013.20 wt 8386.20 (J).doc
Single Judge of this Court in the case of Baker Huge Singapore Pte v/s.
Shiv Vani Oil and Gas Exploration (supra) and the judgment delivered
by this Court in the case of Jagdish Ahuja & Anr. Vs. Cupino Ltd.
(supra).
88. The Division Bench of this court in case of Tringle Drilling
Limited and Another (supra) has held that the learned Single Judge was
not right in taking the view that he had no power or jurisdiction to grant
the prohibitory reliefs claimed, even assuming that there was no
substance in the defence raised by the 1 st defendant. The order passed by
the trial court refusing to grant interim relief was set aside by the Division
Bench of this court in the said judgment. The Division Bench of this
court in case of La-Fin Financial Services Pvt. Ltd. (supra) adverted to
the said unreported judgment in case of Tringle Drilling Limited and
Another (supra) and held that the grant of relief under Order 38 Rule 5 is
on different considerations from the grant of relief of temporary
injunctions. It is now a well settled legal position, that atleast with
respect to Chartered High Courts, the power to grant temporary
injunctions are not confined to the statutory provisions alone. The
Chartered High Courts had an inherent power under the general equity
jurisdiction to grant temporary injunctions independently of the
provisions of the Code of Civil Procedure, 1908. The principles laid
down by this Court in the case of Tringle Drilling Limited and Another
(supra) and in case of La-Fin Financial Services Pvt. Ltd. (supra) would
apply to the facts of this case and would assist the case of the KSS.
89. A perusal of the averments made by the KSS in the
ppn 45 comapl-7013.20 wt 8386.20 (J).doc
arbitration petition filed under section 9 of the Arbitration Act on this
aspect indicates that it was the case of the KSS that the VML has already
received payment against the invoices raised by its from ONGC for the
work done in the year 2020. VML however avoided making payment
under the invoices for the month of May, 2020 on one ground or the other
after expirty of the time contemplated in the Letter of Award. In respect
of another sub-contract between the same parties, KSS was constrained to
approach this Court under Arbitration Petition (L) Nos. 319 of 2017, 320
of 2017 and 321 of 2017. The parties entered into a settlement agreement
dated 11th February, 2018 under which the KSS agreed to accept an
amount of US $ 12.5 million instead of its claim of US $ 23.13 million.
The VML however failed and avoided making payment of the agreed
amounts on some pretext or the other. KSS was thus required to file
execution application against VML in this Court. VML agreed to make
payment to KSS during the pendency of the said execution application.
VML thereafter undertook to abide by the payment schedule prescribed in
the agreement entered into between the parties in the said execution
application.
90. It is further averred by the KSS in the arbitration petition that
in the month of May 2020, the vessel owned by the VML was the subject
matter of the dispute in the Commercial Admiralty Suit No. LD-VC 53 of
2020. This court had granted an order of arrest dated 2nd May, 2020.
KSS had filed a caveat in the said suit. It is averred that the VML
habitually defers and avoids making payment of legitimate outstanding
dues until the intervention of this court. In paragraph 5.5, it is averred
that the petitioner apprehends that in order to defeat the ability of the
ppn 46 comapl-7013.20 wt 8386.20 (J).doc
petitioner to recover the amounts legitimately due and payable to it, the
VML may siphon off or divert the funds available with it as well as those
to be received from ONGC or third parties. Since the VML is likely to
immediately siphon off the said amounts received from the ONGC, the
petitioner was desirous of seeking urgent interim/ad-interim reliefs
against the VML. Unless the reliefs as prayed by the petitioner would be
granted, the petitioner would not be able to secure the payment of his
monies from VML.
91. In paragraph 5.6, it was averred by the KSS that in the
affidavit in reply filed by the ONGC in the execution application filed by
the KSS against VML, it was clear that the ONGC had made payment to
the VML and thus it was possible that VML had already taken steps to
siphon off or transfer or has otherwise dealt with the monies it had
already received by ONGC. KSS accordingly averred that it was entitled
to seek from this court an order directing the ONGC to deposit in this
court a sum of US $ 2,403,073.00 in its capacity as a garnishee, pending
the initiation and conclusion of arbitration proceedings.
92. In paragraph 5.7(a), KSS averred that the VML is a foreign
company, incorporated in Liberia. The KSS is not aware if VML has any
properties or assets in India. It is further averred that to the knowledge of
the KSS, VML has already removed all of its vessels from within the
jurisdiction of this Court. In the affidavit in reply filed by the VML, it is
admitted that VML is based in United Arab Emirates and is admittedly a
foreign incorporation which is carrying on its business in Abu Dhabi,
UAE. The VML has not disputed in the affidavit in reply that in respect
ppn 47 comapl-7013.20 wt 8386.20 (J).doc
of another sub-contract entered into between the same parties, VML had
committed default in making payment of dues payable to the KSS and did
not pay inspite of filing consent terms. The KSS was thus required to file
execution proceedings against VML and has impleaded ONGC as a party
to the said execution proceedings. In our view, there are sufficient
averments made by the KSS in the arbitration petition filed under section
9 of the Arbitration Act for seeking interim measures in the nature of
attachment before judgment. In our prima facie view, there was no valid
defence of VML to withhold the amount due and payable to the KSS by
VML for the invoices for the month of May 2020. The VML admittedly
has no assets in India.
93. Insofar as judgment of Supreme Court in case of Raman
Tech. & Process Engg.Co. (supra) relied upon by Mr. Narichania,
learned senior counsel for the VML is concerned, it is held by the
Hon'ble Supreme Court that merely having a just or valid claim or a
prima facie case, will not entitle the plaintiff to an order of attachment
before judgment, unless he also establishes that the defendant is
attempting to remove or dispose of his assets with the intention of
defeating the decree that may be passed. The Hon'ble Supreme Court has
further held that the purpose of Order 38 Rule 5 is not to convert an
unsecured debt into a secured debt. The said judgment of the Hon'ble
Supreme Court was not in respect of the powers of court under section 9
of the Arbitration and Conciliation Act, 1996 but was in respect of power
under Order 38 Rule 5 of the Code of Civil Procedure, 1908 in a suit.
Even otherwise, the said judgment is distinguishable in the facts of this
case. The VML has not paid the undisputed invoices for the month of
ppn 48 comapl-7013.20 wt 8386.20 (J).doc
May 2020 to KSS though had recovered the amount from ONGC for that
part of the work done admittedly. Even in past the VML had committed
several defaults of making payment to KSS under another sub-contract in
respect of which KSS was required to file execution proceedings against
VML.
94. Insofar the judgment of the Division Bench of this court in
case of National Shipping Company of Saudi Arabia (supra) relied upon
by Mr. Narichania, learned senior counsel for the VML is concerned, the
Division Bench of this Court observed that no material has been placed
by the appellant to indicate even remotely that respondent by its acts was
intending to defeat the claim of the appellant and if no interim protection
order is passed by the Court, in the event of appellant succeeding before
Arbitral Tribunal, it would not be possible for the appellant to derive
fruits of the Award. In these circumstances, the Division Bench of this
Court held that since there was counter claim by the respondent in the
facts and circumstances of that case, it did not seem to the Division
Bench in the interest of justice to direct the respondent to deposit the
amount. In our view, in this case, the KSS has clearly made out a case for
grant of reliefs before attachment of judgment by directing the VML to
deposit the undisputed amount. The judgment delivered by the Division
Bench of this Court in case of National Shipping Company of Saudi
Arabia (supra) is clearly distinguishable in the facts of this case and
would not assist the case of the VML.
95. Insofar as judgment of this Court delivered by the Division
Bench of this court in case of Nimbus Communications Limited vs.
ppn 49 comapl-7013.20 wt 8386.20 (J).doc
Board of Control for Cricket in India & Anr. (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.
vs. 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
ppn 50 comapl-7013.20 wt 8386.20 (J).doc
Conciliation Act, 1996. The underlying basis 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
ppn 51 comapl-7013.20 wt 8386.20 (J).doc
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.
99. Learned senior counsel for the VML could not distinguish
the judgment of the Division Bench of this Court in case of Jagdish
Ahuja & Anr. (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
ppn 52 comapl-7013.20 wt 8386.20 (J).doc
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.
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 Conciliation 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
ppn 53 comapl-7013.20 wt 8386.20 (J).doc
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).
102. Insofar as unreported judgment of the learned Single Judge
of this Court in case of Yusufkhan @ Dilip Kumar (supra) relied upon by
the learned senior counsel for the VML is concerned, learned Single
Judge had considered an appeal under section 37 of the Arbitration Act
against the order passed by the arbitral tribunal directing the petitioner to
furnish an undertaking to the effect that he will not alienate or encumber
or part with possession of the property which was the subject matter of
the arbitration to the extent of Rs.25 crores till the arbitration proceedings
were concluded. Learned Single Judge in the said judgment considered
the situation where the Hon'ble Supreme Court in the dispute between the
same parties arising out of the same cause of action where respondent
before the learned Single Judge (original claimant) had filed a suit for
specific performance.
103. The Hon'ble Supreme Court had directed the petitioner
before the learned Single Judge to deposit a sum of Rs.20 crores in the
Registry of the Supreme Court and allowed the claimant to withdraw the
said amount subject to them handing over possession of the said property
to the petitioner before the learned Single Judge. The possession of the
property was accordingly handed over by the respondent before the
learned Single Judge to the petitioner. The dispute was referred to the
arbitration. The learned arbitrator however though such facts at hand,
directed the petitioner to furnish security in favour of the respondent
ppn 54 comapl-7013.20 wt 8386.20 (J).doc
before the learned Single Judge. The fact before the learned Single Judge
in the said judgment were totally different. In our view, the said
judgment is clearly distinguishable in the facts of this case and would not
assist the case of the VML.
104. The Division Bench of this court in case of Deccan
Chronicle Holdings Limited vs. L & T Finance Ltd. 2013 SCC OnLine
Bom 1005 after adverting to the judgment of Supreme Court in case of
Adhunik Steel Ltd.(supra), judgment of the Division Bench of this court
in case of Nimbus Communications Ltd. and Another(supra) held that
the rigors of every procedural provision of the Code of Civil Procedure
cannot be put into place to defeat the grant of relief which would sub-
serve the paramount interests of the justice. The object of preserving the
efficacy of arbitration as an effective form of dispute resolution must be
duly fulfilled. This would necessarily mean that in deciding an
application under Section 9, the Court would while bearing in mind the
fundamental principles underlying the provisions of the Code of Civil
Procedure, at the same time, have the discretion to mould the relief in
appropriate cases to secure the ends of justice and to preserve the sanctity
of the arbitral process. The Division Bench of this Court in the said
judgment did not interfere with the order passed by the learned Single
Judge directing the parties to furnish security so as to secure the claim of
the original petitioner in arbitration by applying principles of Order 38
Rule 5 of the Code of Civil Procedure. The principles laid down by the
Division Bench of this court in the said judgment would apply to the facts
of this case.
ppn 55 comapl-7013.20 wt 8386.20 (J).doc
105. Learned Single Judge in the impugned order has dealt with
the pleadings filed by the parties and also the judgment relied upon by the
parties in great detail. The learned Single Judge has rightly made prima
facie observation that the invoices for the month of May 2020 submitted
by the KSS were backed with the ONGC signed completion certificate
and were not disputed by the VML within the five days period allowed
for raising such dispute. The learned Single Judge also rightly made
prima facie observation that the VML was unable to demonstrate as to
how or why VML was within its contractual rights to not issue the full
Letter of Credit or to issue one for only part of the amount, or to add to it
conditions apparently beyond the contract. There was no complaint made
by the VML in respect of the invoice issued in the month of May 2020 by
KSS. Similarly no dispute was raised within the period of 5 days also in
respect of invoice for the month of April 2020.
106. Learned Single Judge has rightly made prima facie
observation that the invoices thus issued by the KSS were deemed to
have been accepted in full. All the invoices issued by the KSS were
backed by ONGC certifications of work actually done. KSS has made no
claim for compensation for damages. This is a claim purely on invoices
and nothing else. In our prima facie view, learned Single Judge is right in
observing that the VML could not refuse to pay the invoices in these
circumstances abruptly invoking liquidated damages and the failure to
furnish the performance bank guarantee notwithstanding its own default
in not issuing the full Letter of Credit.
107. The learned Single Judge has not granted the entire relief as
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prayed for by KSS in the petition filed under section 9 but has passed the
balance and equitable order. The learned Single Judge has directed the
VML only to deposit amount of US$ 2,403,073 or the rupee equivalent at
the then prevailing exchange rate, being the value of the invoices dated
2nd June 2020 in the month of May 2020. The learned Single Judge has
not permitted the KSS to withdraw the said amount in the impugned
order but has granted liberty to KSS to apply to the arbitral tribunal for
relief in respect of the said deposit making it clear that if any such
application would be made, the same would be decided on its own merits
uninfluenced by the said order. The learned Single Judge made it clear in
paragraph (44) of the impugned order that all the observations were
prima facie, and only for the purposes of the said order.
108. Insofar as the grievance of ONGC that no such order in the
nature of garnishee could be passed by the learned Single Judge is
concerned, in paragraph (7) of the impugned order, learned Single Judge
has recorded that its contractual rights vis-a-vis VML ought not to be
allowed to be compromised in the least by any order this Court makes. As
long as ONGC's rights vis-a-vis VML are safeguarded, ONGC is not
concerned with this dispute and will of course be bound by orders of this
Court.
109. Learned Single Judge in the impugned order has directed the
ONGC to deposit the said amount out of the amounts, if any, due from it
to VML by 11th December 2020 under the PRP-VI Contract between
ONGC and VML. If VML fails to make the deposit by 4 th December
2020 without prejudice to the rights of the ONGC vis-a-vis VML and the
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making of that deposit by ONGC and a consequent reduction in the
payment or payments by ONGC to VML will not, by virtue of
compliance of this order by ONGC, be claimed by VML in any forum or
any proceeding to be breach of the PRP-VI Contract.
110. Learned Single Judge made it clear that the ONGC is
required to make the said deposit only if there were amounts due from it
to VML after the date of the said order under the PRP-VI Contract
between ONGC and VML. Consequently, to ensure compliance with the
said order, ONGC was directed to withhold the sum of US$ 2,403,073 in
whole or in parts/tranches until 1st December, 2020 to be able to effect
payment into Court under that order. Learned Single Judge made it clear
that if no amount was due from ONGC to VML between the date of the
said order and 11th December, 2020 under the PRP-VI Contract between
ONGC and VML, ONGC will file an affidavit not later than by 11 th
December, 2020 confirming this position.
111. The ONGC has filed an affidavit before the Division Bench
in this proceeding notarized on 1st January, 2021. In the said affidavit, it
is stated that the VML has raised an invoices in the month of October
2020 and November 2020 under the PRP-VI Contract and has not issued
any invoices raised for the milestone work done in the month of
December 2020 so far. According to the said affidavit, an amount
certified and payable by the ONGC for the invoices for October 2020 and
November 2020 are US $ 4,029628.62 and US $ 153,480303.27. It is
thus clear that ONGC does not dispute that certain amounts are due and
payable by the ONGC to VML. By a separate order passed by this Court
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on 13th January, 2021, this Court has clarified the order dated 8 th
December, 2020 passed by the Division Bench of this Court in this appeal
that the ONGC is not required to withheld the entire amount referred in
the said affidavit notarized on 1st January, 2021 and directed to withheld
2.4 million dollars only in compliance with the order passed by the
learned Single Judge subject to the outcome of this Appeal.
112. Insofar as submission of Mr.Cama, learned senior counsel
for the ONGC regarding the order directing the ONGC to deposit the said
sum as demanded by the KSS against VML under invoices for the month
of may, 2020 is concerned, learned senior counsel made a suggestion
before this court that the said amount to the tune of US $ 2.4 million
dollars directed to be deposited by the learned Single Judge would be
retained by the ONGC till arbitral award is made and would not part with
the said amount to the VML. In our view under section 9(i)(ii)(b), the
court is empowered to pass interim measures to secure amount in dispute
in arbitration which may be in the form of the bank guarantee or deposit
of the money in Court. The said power of the court under section 9(i)(ii)
(b) can be exercised not only in the hands of the parties to the arbitration
agreement but also in the hands of the third party who has to admittedly
pay any amount to the party to the arbitration agreement by directing the
said third party to deposit the amount on behalf of the party to arbitration
agreement in Court or by way of an injunction against such third party
not to part with that amount in favour of the party to the arbitration
agreement. ONGC has not raised any dispute that the said amount was
not payable to VML.
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113. The Court while passing such order against third party does
not adjudicate the dispute between the third party and the party to the
arbitration agreement but is empowered to pass such order only to secure
the claim of the parties to the arbitration agreement. There is thus no
merit in the submission of Mr.Cama, learned senior counsel for the
ONGC that no such order could be passed by the learned Single Judge
directing the ONGC to deposit the amount due and payable by the ONGC
to VML under the agreement entered into between those two parties. The
learned Single Judge has made it clear in the impugned order that the
ONGC will deposit the said amount without prejudice to the rights of the
ONGC vis-a-vis VML and the making of that deposit by ONGC and a
consequent reduction in the payment or payments by ONGC to VML will
not, by virtue of compliance of that order by ONGC, be claimed by VML
in any forum or any proceeding to be breach of the PRP-VI Contract.
ONGC in the affidavit in reply in these proceedings has admitted that a
large sum of amount is due and payable by the ONGC to the VML under
PRP-VI Contract between them.
114. Insofar as judgment of Madras High Court in case of Kris
Heavy Engineering (supra) relied upon by the learned senior counsel for
the ONGC is concerned, it is held by the Madras High Court that the
reading of Order 21 Rules 46A, 46B and 46C of the Code of Civil
Procedure shows that the words used is 'judgment debtor' and not a party
to the litigation. The provisions for invoking the relief against garnishee
therefore can only be after passing of the decree and not during the
pendency of the proceedings. The security pending proceedings can be
ordered under the provisions of Order 38 Rule 5 of the Code of Civil
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Procedure. In our view, the said judgment of Madras High Court would
not assist the case of the ONGC.
115. The reliefs sought by the KSS against ONGC was not under
Order 21 Rules 46A, 46B and 46C of the Code of Civil Procedure but
was under section 9 of the Arbitration Act. Section 9 of the Arbitration
Act can be invoked by a party before or during the arbitral proceedings or
at any time after making the arbitral award but before it is enforced in
accordance with section 36 by making an application before the Court or
the reliefs setout in the said provisions which includes the relief of
securing amount in dispute in the arbitration. There is no substance in the
submission of the learned senior counsel for the ONGC that the reliefs
sought by the KSS against the ONGC were under Order 21 Rules 46A,
46B and 46C which could be invoked only after final decree is passed.
The remedy of seeking interim measures under section 9 is not only after
making of the arbitral award but before it is enforced in accordance with
section 36 but is available to a party even before or during the arbitral
proceedings.
116. The garnishee proceedings under Order 21 Rules 46A, 46B
and 46C after passing of the final decree are different then the
proceedings under section 9 for interim measures. However the stage of
seeking interim measures after making of the arbitral award in this case
has not arisen. The KSS had applied for interim measures during the
arbitral proceedings which are already commenced by virtue of the KSS
having issued notice of appointment of the arbitrator.
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117. This Court has repeatedly held in catena of decisions that the
Court has discretion while exercising the power under section 9 which is
to mould the relief in appropriate cases to secure the ends of justice and
to preserve the sensitivity of the arbitral process. The Court has to pass
appropriate order by passing equitable order so as to promote the efficacy
of the arbitration. The Court when decides the petition under section 9
of the Arbitration Act, must have due regard to the underline purpose of
conferment of the power under the Court which is to promote the
arbitration in the form of dispute resolution. If the relief as granted by the
learned Single Judge would not have been granted in case of KSS, the
KSS if succeeding in the arbitral proceedings, would not be able to fetch
the fruits of the arbitral award which may be rendered in its favour.
118. Insofar as the submission of Mr.Cama, learned senior
counsel for the ONGC that his client should not be asked to deposit the
amount in Court and be permitted to retain the said amount under
invoices for the month of May 2020 is concerned, in our prima facie
view, since VML has wrongfully withheld the admitted invoices for the
month of May 2020 by raising false and untenable contentions, we are
not inclined to accept the suggestions made by the learned senior counsel
for the ONGC. The ONGC has admitted that in the month of May 2020,
the work was carried out by KSS and had submitted the invoice with
certificate of ONGC and did not dispute that the ONGC has already
released the payment in favour of VML for the said work. The ONGC in
this case has already admitted that a large sum of payment was payable
by the ONGC to VML for the subsequent work done. The ONGC is not a
total outsider for the work awarded to KSS. In the Letter of Award issued
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by VML in favour of KSS thereby awarding sub-contract to KSS and
more particularly clauses 6.1.2 (A)(C) refers to the completion certificate
to be signed by the ONGC for the purpose of issuing invoices and the
obligation on the part of the VML to release the payment within seven
days from the date of receipt of the payment from VML to ONGC. It is
not in dispute that the ONGC has submitted such completion certificate
which were submitted along with invoices submitted by the KSS upon
VML. In our view, considering the conduct of VML in illegally
withholding the payment of undisputed invoice after receiving payment
from ONGC, if this Court denies the protective order to KSS, it would
result in justice to KSS. If VML or ONGC does not deposit the
crystallized amount, KSS would not be able to apply for withdrawal of
the said undisputed amount.
119. During the course of argument, VML agreed with the
suggestion of ONGC that amount under the invoices of May 2020 be
retained with ONGC and not to be deposited in this Court. On one
hand, ONGC contended that deposit of the amount payable by ONGC
to VML may happen the work awarded by ONGC to VML and on the
other hand, contends that amount equivalent to May invoices would be
retained with it from the amount payable to VML and shall not be
ordered to be deposited in Court. In our view, this submission of the
learned senior counsel for ONGC is inconsistent and self destructing.
By this order, independent rights of ONGC against VML are not taken
away.
120. In our view no case is made out by VML or ONGC to
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interfere with the impugned order passed by the learned Single Judge
under section 9 of the Arbitration Act.
121. We, therefore, pass the following Order :-
(a) Time to comply with the order passed by the learned Single Judge
to Valentine Maritime Ltd. is extended till 15th February, 2021. It
is made clear that if the Valentine Maritime Ltd. does not deposit
the said amount of US $ 2,403,073 or the rupee equivalent at the
then prevailing exchange rate, i.e. on the day of deposit i.e. the
value of the invoices dated 2nd June, 2020 within the time
prescribed in this order, the ONGC shall deposit the sum of US $
2,403,073 or the rupee equivalent at the prevailing exchange rate,
i.e. on the day of deposit on or before 31 st March, 2021 in this
Court without fail.
(b) It is made clear that all the observations made by the learned
Single Judge in the impugned order and made by this Court against
VML are prima facie and are made only for the passing the
impugned order passed by the learned Single Judge and by this
Court in this appeal respectively.
(c) Commercial Appeal (L) No.7013 of 2020 filed by the Valentine
Maritime Ltd. against Kreuz Subsea Pte Limited and Oil and
Natural Gas Corporation and Commercial Appeal (L) No.8386 of
2020 filed by the Oil and Natural Gas Corporation against Kreuz
Subsea Pte Limited and Valentine Maritime Ltd. are dismissed. All
pending Interim Applications are also dismissed.
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(d) There shall be no order as to costs.
V.G. BISHT, J. R.D. DHANUKA, J.
