Konkan Railway Corporation ... vs Maytas-Rithwik (Jv)
2021 Latest Caselaw 15428 Bom

                 IN THE HIGH COURT OF JUDICATURE AT BOMBAY

                       ORDINARY ORIGINAL CIVIL JURISDICTION

                    INTERIM APPLICATION (L) NO. 23237 OF 2021

                                        IN

               COMMERCIAL ARBITRATION PETITION NO. 483 OF 2021



Konkan Railway Corporation Ltd.                  ...      Applicant/ Petitioner
         vs.
Maytas-Rithwik (JV)                              ...     Respondent


Mr. Simil Purohit a/w. Mr. Saket Mone, Mr. Subit Chakrabarti and Mr.
Devansh Shah i/b. M/s. Vidhii Partners for the Applicants.
Mr. Gaurav Joshi, Senior Advocate a/w. Dr. Birendra Saraf, Senior Advocate,
Mr. Purvesh Buttan, Mr. Bharat Jain, Mr. Tejas Agarwal and Mr. Varun Nair i/
b. IC Legal for the Respondent.


                                          CORAM : A. K. MENON, J.

DATED : 27th OCTOBER, 2021

P.C. :

1. By this IA, the applicant-original petitioner seeks a direction against

the respondent to renew 32 bank guarantees described in paragraph 9 of the

application of a total value of Rs.38,37,39,785/- for the period during which

the Commercial Arbitration Petition no.483 of 2021 remains pending in this

court and for three months thereafter and by renewing the bank guarantees

one month prior to the expiry. Failing such renewal leave is sought to encash

the bank guarantees. The claimant also seeks a direction to the respondent to

3-IAL-23237-2021-CARBP-483-2021.odt wadhwa/ rrpillai submit further unconditional bank guarantees of a sum of Rs.24,94,37,614/-

to secure interest upto 31st December, 2022 on the mobilization advance paid

by the petitioner to the respondent.

2. As and by way of background, I may point out that the present IA has

occasioned by virtue of an order passed on 3 rd August, 2021 by this court

while admitting the arbitration petition filed under Section 34 of the

Arbitration and Conciliation Act ("the Act").

3. At the time of admission, the petitioner was put to terms, staying the

operation of the award on deposit of Rs.6,06,51,846/-. In addition, the

petition under Section 34 had sought a mandatory order seeking fresh bank

guarantees to be issued to cover the demobilization advance. Liberty was

granted to the applicant to file a separate IA for this purpose and in the

meantime, the court directed the petitioner not to invoke the bank guarantees

without leave of the court. Today it is pointed out by the applicant that the

amount has been deposited and pursuant to the liberty granted, the present IA

has been filed.

4. Mr. Purohit, the learned counsel appearing in support of the

application submitted that the applicant had paid a mobilization advance paid

to the respondent in three stages as set out in paragraph 5 of the application

return of which was to be secured by the aforesaid bank guarantees. A

Subsidiary Agreement was then executed between the parties on 26 th Novem-

3-IAL-23237-2021-CARBP-483-2021.odt wadhwa/ rrpillai ber, 2012 whereby the scope of work was reduced, certain items were

deleted from the scope of work. The contract was thereafter cancelled by

executing a Foreclosure Agreement dated 22 nd November, 2013. The

respondent was not therefore required to carry out any work of the

non-scheduled items mentioned in the Subsidiary Agreement as on the date

of foreclosure. In the meantime, mobilization advance along with interest

amounting to Rs.38,37,39,785/- was outstanding. According to the applicant,

this amount is to be repaid by the respondent to the claimant and is therefore

secured by the bank guarantees.

5. Mr. Purohit submitted that the bank guarantees are now valid till 31 st

October, 2021. The amount secured by the bank guarantees are the amounts

of mobilization advance as aforesaid which guarantees are required to be

renewed one month prior to their expiry. The bank guarantees must

therefore be kept alive till the Arbitration Petition is disposed. He states that

unless this relief is granted, the applicant is likely to lose more than Rs.30

crores and hence the bank guarantees may be ordered to be renewed.

6. In the alternative, Mr. Purohit submitted that if the court was not

inclined to order renewal, the applicant may be permitted to encash these

guarantees since the order dated 3 rd August, 2021 provides that the bank

guarantees will not be encashed without the leave of the court. He therefore

seeks leave as contemplated in the order dated 3 rd August, 2021.

3-IAL-23237-2021-CARBP-483-2021.odt wadhwa/ rrpillai

7. The application is opposed on behalf of the respondent by Mr. Joshi

who has raised a preliminary objection as to maintainability. He submits that

the application is not maintainable in view of the legal position that the relief

under Section 9 cannot be sought by a losing party and in the instant case the

applicant has failed in its attempt to secure an award for the mobilization

advance. The claim of the applicant had been rejected by the tribunal and

hence there is no occasion to secure this amount by way of bank guarantee.

Subject to the objection of maintainability, Mr. Joshi has invited my attention

to some of the provisions of the Subsidiary Agreement and has contended

that there is no occasion to renew the bank guarantees. According to Mr.

Joshi this is a case where the applicant after having failed to get any award in

its favour, is seeking to secure the amount of a counter claim which was

rejected by the arbitral tribunal. As an unsuccessful counter claimant, there is

no question of renewing the bank guarantees upon expiry nor is there any

occasion to permit the encashment of the bank guarantee.

8. What the applicant seeks to achieve is to secure the claim which has

been rejected by the tribunal and which cannot be allowed even if the peti-

tioner were to succeed in the challenge under section 34. Mr. Purohit while

acknowledging the legal position has submitted that the present set of facts

will justify the relief that is sought. According to him the tribunal had re -

jected the claim in a summary fashion without any justification and therefore

the mobilization advance is due to be repaid to the applicant.

3-IAL-23237-2021-CARBP-483-2021.odt wadhwa/ rrpillai

9. Mr. Joshi submitted that the law as laid down in Dirk India Private

Limited vs. Maharashtra State Electricity Generation Company Limited 1 is

clear on this aspect and an application made for interim reliefs after

arbitration can only be made by a successful party to enjoy the fruits of the

award and not by a party who has failed to secure an award in its favour. Mr.

Joshi further submitted that the judgment of this court in Dirk India(supra)

has been consistently followed in numerous other matters and therefore

considering the state of the law the present application is not competent.

10. Inviting my attention to the observations of the Division Bench in Dirk

India (supra). Mr. Joshi submitted that in Hindustan Construction Company

Limited vs. Union of India2 the Supreme Court has referred the judgment of

this court in Dirk India(supra) in aid of interpretation of the objects of

section 9. He further submitted that in yet another judgment of this court in

Evonik India Pvt. Ltd vs. Reliable Spaces Pvt. Ltd. 3 Dirk India (supra) has been

followed repeatedly different. Reliance is also placed on the decision of Wind

World (India) Ltd vs. Enercon GmbH 4 in which the Court held that an

unsuccessful party under section 9 will not have the occasion to seek and be

granted interim relief. Such a party will not be entitled to seek enforcement

of the award under section 36. Inviting my attention to the decision of the

single judge of this court in the case of ONGC vs Consortium of Sime Darby

1 2013 SCC Online Bom 481 2 2019 SCC OnLine SC 1520

4 2017 SCC OnLine Bom 1147

3-IAL-23237-2021-CARBP-483-2021.odt wadhwa/ rrpillai Engineering5, in Notice of Motion (L ) no. 733 of 2018 in Commercial

Arbitration Petition (L) No. 327 OF 2018 Mr. Joshi submitted that in an

almost identical case, where the applicant had suffered partial rejection of

the claim, a prayer seeking a direction against the respondent to extend the

period of bank guarantees was refused. This view of the learned single

judge was then upheld by the Division Bench in Commercial Appeal (L) No.

166 of 2018 along with connected matters. Mr. Joshi therefore submitted

that the application is devoid of merit and deserves to be dismissed.

11. Incidentally it is revealed that the respondent had already filed a

petition under section 9 of the Arbitration and Conciliation Act being

Commercial Arbitration Petition (L)No. 19900 of 2021 seeking the very same

relief that is sought in this interim application and that petition came to be

withdrawn albeit with liberty to file this interim application. This interim

application was then listed before the appropriate Court when the Court felt

that the order dated 3rd August, 2021 needed clarification. This Interim

Application has since been assigned to this Court by an administrative order

and hence I have proceeded to hear the parties .

12. Mr. Purohit persisted with his contention that the respondent was

duty bound to renew the bank guarantees and keep the same renewed and

alive for at least six months after the award was communicated and in this

behalf he has relied upon the consent minutes of order dated 5 th October,

5 2018 SCC OnLine Bom 6034

3-IAL-23237-2021-CARBP-483-2021.odt wadhwa/ rrpillai 2020 passed in Commercial Arbitration Petition (L) No. 3014 of 2020 and

Petition LDVC No. 90 of 2020. Vide clause 10 of those minutes, the applicant

herein had agreed not to invoke the bank guarantees till declaration and

communication of the award by the tribunal and for further period provided

in a Subsidiary Agreement dated 22nd November, 2013 (SA No.3). The

respondent was required to continue to extend and renew the bank

guarantees one month prior to expiry as stipulated in the SA No. 3 and

continuously till six months after the communication of the Award passed by

the Arbitral Tribunal. It was also clarified that if the respondent failed to

renew the bank guarantees and keep them valid and operative as aforesaid,

the applicant would be entitled to invoke and encash the bank guarantees.

13. Relying on this provision, Mr. Purohit submitted that the order dated

3rd August, 2021 prevents the applicant from encashing the bank guarantees

without leave of this court. He therefore sought leave of this court to encash

the bank guarantees as an alternative to a direction to the respondent to

renew the same. He submitted that unless the bank guarantees are renewed

they would expire on 31st October, 2021 and valuable security would be then

lost to the applicant Corporation. In the absence of such renewal he

submitted that the applicants would be entitled to invoke and encash the

guarantees.

14. Reference to Clause 10 of the minutes has led me to consider the

contents of the SA No. 3. SA No. 3 was required to be executed because the

3-IAL-23237-2021-CARBP-483-2021.odt wadhwa/ rrpillai contract was brought to a close and to draw up the financial statements

both parties had agreed to execute this subsidiary agreement. It records that

a total sum of Rs.22,79,08,104/- had been paid as mobilisation advance.

Interest accrued thereon amounted to Rs.15,58,38,681/- and it provided for

the contractor, namely the respondent herein, to keep the bank guarantees

valid and operative by keeping it extended till the finalisation of the

arbitration award. The said agreement also provided that till such time the

arbitral award is pronounced and subsequently as agreed in the minutes of

meeting dated 3rd September, 2013, the applicant would not invoke the bank

guarantees provided the extension was forthcoming. It further provided that

upon the award being declared, the applicant would be entitled to deduct the

outstanding amount of advances given to the contractor and interest

accrued there on from amounts, if any, payable to the contractor under the

award. If the Arbitration award was insufficient then the respondent would

pay balance including applicable interest in equal installments from the date

of the award failing which the applicant was entitled to invoke the bank

guarantees.

15. On a query from the court, the parties have produced a copy of the

minutes of the meeting referred to in clause 10 and those minutes reveal that

the applicant had requested the respondent to refund the entire advances

(mobilisation advance) along with interest due and the respondent had stated

that they were unable to remit the amount but would await the outcome of

3-IAL-23237-2021-CARBP-483-2021.odt wadhwa/ rrpillai the arbitration. They had thus expressed their willingness to renew the

guarantees prior to its expiry but till the award was pronounced. It is under

these circumstances that the bank guarantees came to be extended.

16. After the last extension of 12 months, the bank guarantees are now

scheduled to expire on 31 st October, 2021 and read in this light it does appear

that the obligation to renew the bank guarantees was only till the award was

published. If the award was in favour of the applicant to the extent it

concerns the claim for reimbursement of mobilisation advances, there would

have been merit in the submission of Mr. Purohit that loss of more than 30

crores is likely to be caused to the applicant if the bank guarantees were not

encashed. The submission of the counsel proceeds on the basis that they were

a successful party in the arbitration. indeed they were partly successful in the

arbitration but net of claims and counter claims, it is the applicant that owed

more than Rs. 6 crores to the respondent. The claim for repayment of

mobilisation advance was clearly rejected and in no uncertain terms.

17. Having considered the rival contentions, I am of the view that the

present application cannot succeed. Firstly an application for interim reliefs

was filed under section 9 which came to be withdrawn. The very same relief

are now sought in this interim application. The question is whether the

reliefs for interim protection after an Arbitral award is passed and filed via a

petition under section 9 can be, or should be treated differently if an identical

prayer is made in an Interim Application filed in the pending petition under

3-IAL-23237-2021-CARBP-483-2021.odt wadhwa/ rrpillai section 34. In my view the answer must be in the negative. Relief that

cannot be sought or granted under Section 9 cannot in the facts of the case be

granted under this IA in the Section 34 petition. The law as it stands and as

been reiterated after the judgment of this court in Dirk India is that only

successful party would be entitled to seek interim reliefs post arbitral award

in order to ensure that enforcement of the award is meaningful. A successful

party in arbitration therefore must be provided all assistance in enforcing

that award and it is to this end that the decision in Dirk India has considered

the second facit of section 9. As recorded in paragraph 13 of the judgment

in Dirk India the Court was required to consider the proximate nexus

between the orders that were sought in the arbitral proceedings. That when a

interim measure of protection is sought after an arbitral award is made but

before it was enforced, the intention was to safeguard the fruits of the

proceedings until the award was enforced. The measure of protection is only

a step in aid of enforcement and to ensure that the fruits of arbitration are

realized and that the award is not rendered illusory.

18. Dirk India also holds that the scheme of section 9 postulates an

application for grant of interim protection after making the award but before

its enforcement for the benefit of the parties which seeks enforcement of the

award. Furthermore it holds that a party whose claim has been rejected

cannot seek to have the award enforced under section 36 and the purpose of

considering interim measures after passing of an award but before its

3-IAL-23237-2021-CARBP-483-2021.odt wadhwa/ rrpillai enforcement is only to secure the property for the benefit of party seeking

enforcement.

19. Dirk India goes on to hold that the court exercising jurisdiction under

section 34 not being court of Appeal does not have the same powers as that

of Appellate Court and the Court hearing section 34 does not pass the order

decreeing a claim. In a case where a claim has been rejected by arbitral

tribunal the Court under section 34 can uphold or set aside the award. Setting

aside of an award does not necessarily result in a claim that was rejected

being allowed. The applicants case is that the mobilisation advance was

repayable to it. The bank guarantees seek to secure that mobilisation advance.

The claim for payment of mobilisation advance has been rejected by the

arbitral tribunal and to that extent there is no question of the applicant

enforcing the award to recover the mobilisation advance. Since the applicant

is not entitled to enforce the award in those terms there is no question of

securing the amount of mobilisation advance.

20. Mr. Purohit had contended that under the award the bank guarantees

were directed to be released to the claimants. This Mr. Purohit submits is an

aspect that is relevant since the operation of the award having been stayed

and the petition under section 34 admitted, the bank guarantees are not

required to be released to the claimants. This argument in my view overlooks

the fact that the applicant is not the successful party as far as this claim for

repayment of mobilisation advance is concerned. The claim for payment of

3-IAL-23237-2021-CARBP-483-2021.odt wadhwa/ rrpillai mobilisation advance has been rejected and even assuming the applicant

succeeds in the section 34 challenge, the mobilisation advance will not be

automatically repayable. Succeeding in the section 34 petition thus will only

entail that the objections to the award are upheld and award set aside in part

or in full, but it will not result in the claim of the applicant for payment of

the mobilisation advance being allowed. Thus viewed, the operation of the

Award including the direction to release the bank guarantees having been

stayed is in my view of no consequence.

21. The bank guarantees were in place and were required to be kept in

place in anticipation of the publication of an award. If the award was in

favour of the applicant the guarantees would have to be kept alive as

contemplated in the Minutes of order dated 5 th October, 2020 in the earlier

round litigation . In the second round the award passed by the freshly

constituted tribunal has found in favour of the respondent. It has rejected the

applicants claim for repayment of mobilisation advance. The bank guarantees

therefore need not be kept alive and are to be returned. In fact, if these bank

guarantees are allowed to be encashed it would amount to grave injustice to

the respondents which has succeeded in the arbitral proceedings.

22. In the event the arbitration petition under Section 34 succeeds, it will

only result in the award being set aside to the extent it awards the claim as

against the applicant. That however will not result in the mobilisation

advance being ordered to be refunded to the applicants. In my view therefore

3-IAL-23237-2021-CARBP-483-2021.odt wadhwa/ rrpillai no case whatsoever is made out for either directing the respondent to renew

the bank guarantees or permitting their encashment. For all the aforesaid

reasons I pass the following order :

                (i)      Interim Application is dismissed.

                (ii)     No costs.



                                                                          (A. K. MENON, J.)


           Digitally
           signed by
           RAJESHWARI
RAJESHWARI RAMESH
RAMESH     PILLAI
PILLAI     Date:
           2021.10.27
           17:45:09
           +0530





                3-IAL-23237-2021-CARBP-483-2021.odt
                wadhwa/ rrpillai