Calcutta High Court
Chemex Oil Private Limited vs Seastarr International Private ... on 30 November, 2022
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
Commercial Division
Present:
The Hon'ble Justice Shekhar B. Saraf
AP 707 of 2022
Chemex Oil Private Limited
VS
Seastarr International Private Limited & Ors.
For the Petitioner : Mr. Krishnaraj Thaker, Adv.
Mr. Rupak Ghosh, Adv.
Mr. Varun Kothari, Adv.
Mr. Rajesh Upadhyay, Adv.
Mr. B. Gupta, Adv.
Mr. A. Shaw, Adv.
For the Respondent No.1 : Mr. Jishnu Chowdhury, Adv.
Mr. Aritra Basu, Adv.
Mr. Shayak Mitra, Adv.
Mr. Abhijit Sarkar, Adv.
Mr. Abhik Chitta Kundu, Adv.
For the Respondent No. 2 : Mr. Avishek Guha, Adv.
Ms. Akansha Chopra, Adv.
Last heard on: November 21, 2022
Judgment on: November 30, 2022
2
Shekhar B. Saraf, J.:
1. The petitioner in the instant application [being A.P. No. 707 of 2022]
under Section 9 of the Arbitration and Conciliation Act, 1996
[hereinafter referred to as 'the Act'] is a company incorporated as per
the provisions of the Companies Act, 1956, engaged in the business of
manufacturing, supplying and marketing refined glycerine.
2. The respondent No.1 is a company incorporated under the laws of the
Republic of Singapore and is engaged in the business of selling crude
glycerine. The Respondent No.2 is a company incorporated under the
provisions of the Companies Act, 1956.
3. The petitioner has filed this application praying for interim relief in the
form of either an (i) interim injunction restraining Respondent No.2
from honouring a Letter of Credit in favour of respondent No.1 till the
completion of the arbitral proceedings, or (ii) an order directing
respondent No.2 to furnish and deposit with this Hon'ble Court an
irrevocable bank guarantee in favour of the Petitioner for a sum of
US$190,000 till the completion of the arbitral proceedings, or (iii) an
order directing the Respondent No. 1 to maintain a balance of
US$190,000 in its bank accounts till the completion of the arbitral
proceedings between the petitioner and respondent no.1.
3
Relevant Facts
4. The petitioner entered into a sales contract dated 31 May, 2022 being
No. SC-2122-553 [hereinafter referred to as 'the contract'] with the
respondent no.1 for purchase of two hundred metric tons of crude
glycerine at the rate of US$950 per metric ton, for a total price of
US$190,000. The specifications agreed upon were as follows:
Term Specifications
GLYCEROL 85% minimum
WATER BALANCE
METHANOL 1% (one per cent) maximum
ASH 6% (six per cent) maximum
SALT Formic Acid
MONG 4% (four per cent)
5. The payment was to be made by way of an irrevocable letter of credit
[hereinafter referred to as 'L.C.'] opened by the petitioner in favour of
the respondent no.1 under which payment would be made within
ninety days from the date of issuance of a bill of lading for the shipment
of the contracted quantity of glycerine. The petitioner had to send the
petitioner a draft L.C. to the respondent no.1 for confirmation, prior to
the opening of such an L.C. The port of loading was to be any port in
the United States of America and the port of discharge was to be
Mundra, India.
6. An L.C. for a sum of US$190,000 being No.0006MLC00025123 was
opened on June 28, 2022 by the petitioner in favour of the respondent
no.1 with the respondent no.2 bank, Rasoi Court branch, 20, Sir
Rajendra Nath Mukherjee Road, Kolkata 700 001, as the issuing bank
and one DBS Bank Private Limited as the advising and negotiating
bank. The L.C. was to be honoured within 90 days from the date of
issuance of the bill of lading.
7. The L.C. was opened after a draft L.C. was sent to the respondent no.1
by an electronic mail dated June 17, 2022, which in turn was sent
back by the respondent no.1 with alterations by an electronic mail sent
on June 20, 2022. Clause 7 of the draft L.C., which required
submission of a certificate of analysis of the shipped glycerine in
triplicate, was accepted by the respondent no.1 and remained unedited
in the mail sent on June 20, 2022.
8. Consequently, Clause 6 of the L.C. dated June 28, 2022 sent to
respondent no.1 as an attachment to an electronic mail required
submission of a certificate of analysis of the shipped glycerine in
triplicate by the respondent no.1.
9. Pursuant to the contract, the respondent no.1 shipped the said
quantity of crude glycerine via Scan Global Logistics as carrier from
Houston, Texas, United States on July 31, 2022. A bill of lading of the
same date, being no.SIN31101259, was also issued.
10. On September 5, 2022 the petitioner was informed vide an email by an
officer of the respondent no.1, who relied upon a report, that instead of
85% purity, the crude glycerine had been found to be of 81.10% purity.
It was also informed that the said glycerine contained NaCl or Sodium
Chloride as the salt instead of Formic Acid. Essentially, both were not
as per the contractual specifications. The petitioner replied vide email
dated September 5, 2022 expressing its inability to accept the glycerine.
Despite the petitioner's attempts to stop and return the crude glycerine
in transit, the forwarder continued with the same.
11. Although the respondent no.1 was aware of the non-conformity of the
crude glycerine to the contract, the petitioner received intimation from
the respondent no.2 in or about the second or first week of September,
2022 that the respondent no.1 had furnished the forms and documents
for invocation of the L.C. on or about September 1, 2022. When
respondent no.2 forwarded the documents to the petitioner, it was
found that the certificate of analysis presented for invocation was
falsified and untrue. It stated that the crude glycerine had met the
contractual specifications.
12. Upon non-inclination of respondent no.2 to listen to the petitioner's
pleas about the falsified nature of the documents submitted by
respondent no.1 and respondent no.2's inclination to invoke the said
L.C., the petitioner approached this court praying for injunctive relief.
13. This court, vide order dated September 30, 2022, directed the
respondent no.2 to not encash the L.C. for a period of eight weeks from
date. Since then the ad-interim relief has been extended from time to
time vide various orders. The respondent no.1 has objected to the
extension of the said ad-interim relief.
14. It is undisputed that the arbitration clause makes the settlement of
disputes to be done in a foreign seated arbitration.
Submissions
,
15. It is pertinent now to mention the arguments put forth by counsels of
both the parties.
16. Mr. Krishnaraj Thakker, learned counsel appearing on behalf of the
petitioner made the following arguments:
a) The law relating to the proviso to Section 2(2) of the Act stands
calibrated as such that it allows for granting interim relief even in
foreign seated arbitrations, unless specifically excluded. Reliance
was placed on the Calcutta High Court's judgements in Medica LLC
v. Balasore Alloys Limited [AP/267/2021, Order dated August 3,
2021] and KSE Electricals Private Limited v. The Project
Director and Anr. [AP 230 of 2021, Order dated May 10, 2021].
b) The counsel further relied on Bharat Aluminium Company v.
Kaiser Aluminium Technical Services Inc. ([2012] 9 SCC 552)
and Mankatsu Impex Private Limited v. Airvisual Limited
([2020] 5 SCC 399) to connote a difference between (i) provisions
relating to arbitration proceedings and (ii) provisions in aid of
arbitration proceedings. Section 9 relates to the latter category,
included in proviso to Section 2(2) of the Act, which applies to even
foreign seated arbitration, unless specifically excluded. Furthermore,
he submitted that in relation to provisions in aid of arbitration
proceedings, the concept of 'seat' and 'venue' are used
interchangeably.
17. Mr. Jishnu Chowdhury, learned counsel appearing on behalf of the
respondent no.1 submitted that the Apex Court in a plethora of
judgements has held that in circumstances wherein the arbitration is
foreign seated, the applicability of Part I is excluded in totality, by
express or implied waiver. The judgements relied upon were Bharat
Aluminium Company (supra), Imax Corporation v. E-City
Entertainment (India) Private Limited ([2017] 5 SCC 331), Noy
Vallesina Engineering Spa v. Jindal Drugs Limited and Others
([2020] 1 SCC 382), Eitzen Bulk A/S v. Ashapura Minechem
Limited and Another ([2016] 11 SCC 508), Reliance Industries
Limited and Another v. Union of India ([2014] 7 SCC 603) and
Union of India v. Reliance Industries and Others ([2015] 10 SCC
213).
Analysis
18. The Apex Court in Bhatia International v. Bulk Trading S.A. (supra)
noted that Section 2(2) of the pre-2015 amendment Arbitration and
Conciliation Act, 2015 (hereinafter referred to as 'the unamended Act')
stated that Part I applies to arbitration in India. Amidst providing
various reasons for rejecting the submissions in favour of the non-
applicability of Part I to international commercial arbitration outside
India, the Court observed that exclusion of Section 9 would leave a
party remediless when the assets and/or properties are in India. The
Court averred that unless that statute expressly states or by necessary
inference leads to an ouster of jurisdiction, there is an assumption that
jurisdiction exists in courts. The Court expanded upon the same by
stating no difference lies between international commercial arbitration
seated within India or outside India. Ouster of jurisdiction has to be
express with regards to either. The Court held that parties cannot
consent to exclude application of Part I in domestic or international
commercial arbitrations held in India. The Court inferred that by not
specifically stating that Part I does not apply to international
commercial arbitrations outside India, the legislature intended its
applicability, unless the parties exclude it by agreement. The Court
further held that Section 5 and 8 (of the unamended Act) provide that
judicial authority should not intervene unless allowed by Part I. If
exclusion of Part I was the legislative intent, the word 'court' would
have been used. However, the Court clarified that by implied or explicit
agreement of parties, some parts of Part I may be excluded. It
concluded by holding that since the word 'only' was dropped in sub-
section 2 of Section 2 (again, of the unamended Act) before 'apply where
the place of arbitration is in India', in the adoption of the UNCITRAL
Model to the Indian Act, Section 9 would apply in foreign seated
arbitrations as well.
19. The Apex Court in Bharat Aluminium Company (supra), overruled
Bhatia (supra) and placed an absolute embargo on the applicability of
Part I of the Act to international commercial arbitrations seated outside
India. It was also dealing with the law relating to Section 2(2) of the
unamended Act. Relevant portions are extracted below:
"194. In view of the above discussion, we are of the considered
opinion that the Arbitration Act, 1996 has accepted the territoriality
principle which has been adopted in the Uncitral Model Law. Section
2(2) makes a declaration that Part I of the Arbitration Act, 1996 shall
apply to all arbitrations which take place within India. We are of the
considered opinion that Part I of the Arbitration Act, 1996 would have
no application to international commercial arbitration held outside
India. Therefore, such awards would only be subject to the jurisdiction
of the Indian courts when the same are sought to be enforced in India
in accordance with the provisions contained in Part II of the Arbitration
Act, 1996. In our opinion, the provisions contained in the Arbitration
Act, 1996 make it crystal clear that there can be no overlapping or
intermingling of the provisions contained in Part I with the provisions
contained in Part II of the Arbitration Act, 1996.
195. With utmost respect, we are unable to agree with the conclusions
recorded in the judgments of this Court in Bhatia International [(2002)
4 SCC 105] and Venture Global Engg. [(2008) 4 SCC 190] In our
opinion, the provision contained in Section 2(2) of the Arbitration Act,
1996 is not in conflict with any of the provisions either in Part I or in
Part II of the Arbitration Act, 1996. In a foreign-seated international
commercial arbitration, no application for interim relief would be
maintainable under Section 9 or any other provision, as applicability of
Part I of the Arbitration Act, 1996 is limited to all arbitrations which
take place in India. Similarly, no suit for interim injunction simpliciter
would be maintainable in India, on the basis of an international
commercial arbitration with a seat outside India."
20. The Law Commission in its 246th Report took note of the anomaly that
could arise out of a complete exclusion of Part I of the Act and
suggested changes to Section 2(2) of the Act. It would be pertinent now
to discuss Medica LLC (supra) wherein my esteemed sister,
Bhattacharya, J., has laid down a lucid exposition of the understanding
of the law relating to the proviso to Section 2(2) of the Act, post the
2015 amendment. She has gone to great extents and exhaustively dealt
with the materiality of the said proviso with respect to interim reliefs in
foreign seated arbitrations and the effect of the amendment. At the
outset, I must admit that I am ad idem with the ratio laid down therein.
A few relevant paragraphs are extracted below:
"13. The caveat to the application of section 9 to international
commercial arbitrations with a place outside India and an arbitral
award made in such place is 'an agreement to the contrary'. This
means that the contracting parties must evince and articulate an
intention not to subject the arbitration agreement to the application of
section 9 of the Act. The application of section 9 to an arbitration
agreement and an award which is under Part II of the Act is a fallout
of the Supreme Court decision in Bhatia which was prospectively
overruled in BALCO only to be reinstated by the recommendations of
the Law Commission in August 2014 thereafter culminating in the
insertion of the proviso to 2(2) with effect from 23rd October, 2015.
* * *
15. The argument that the deletion of the word 'express' in relation to
'agreement to the contrary', as recommended by the Law Commission
to the proviso to 2(2) would indicate that an implied agreement is
included in the proviso has to be seen through the same prism as the
other sections of the Act which contemplate an agreement by the
parties. In other words, dropping the word 'express' in the final cut
means little; the structure of the proviso as it exists today is that there
must be a clear, unequivocal and unambiguous articulation by the
parties to exclude the application of section 9 from the arbitration
which is to take place outside India. Simply put, there must be
something more to an arbitration agreement governed by a foreign law
and with a foreign seat; the agreement must indicate in clear and
express terms that the parties intend to exclude the operation of
section 9 from the purview of the said arbitration agreement
(underlined for emphasis). Hence, an arbitration agreement.
16. The import of the proviso to section 2(2) can be better understood if
each part thereof is placed in the larger framework of the Act. Sub-
section (2) of 2 makes Part I of the Act applicable where the "place" of
arbitration is in India. The exception to this brought in by the proviso
repeats the word "place of arbitration" in the proviso. The word "place"
finds mention in Section 20 of the Act which gives free-reign to the
parties to agree on the place where the arbitration shall be conducted
and in Sections 28 and 31 of the Act which further roots the arbitration
to a place and the laws of that place while Section 31 confers a place-
identity to the arbitral award. The term "seat" on the other hand,
despite being the more popular choice, does not find mention in respect
of foreign arbitrations. The proposal of the Law Commission in its
246th Report to amend several sections of the Act to replace "place"
with "seat" was not given effect to. The Supreme Court in BALCO
referred to "place" as being equivalent to the juridical seat of
arbitration which was referred to by the Supreme Court in Indus
Mobile Distribution Pvt. Ltd. vs. Datawind Innovations Pvt. Ltd.; (2017)
7 SCC 678. In this decision, the Supreme Court referred to the inter-
changeability of "place" and "seat" with reference to Section 2(2) of the
Act. BGS SGS Soma JV v. NHPC Limited; (2020) 4 SCC 243 may also
be referred to this context."
21. Mr. Thakker, counsel on behalf of the petitioner, vehemently placed a
few paragraphs of Bharat Aluminium Company (supra), which are
extracted below:
"122. In Part I, Section 8 regulates the commencement of arbitration in
India, Sections 3, 4, 5, 6, 10 to 26, 28 to 33 regulate the conduct of
arbitration, Section 34 regulates the challenge to the award, Sections
35 and 36 regulate the recognition and enforcement of the award.
Sections 1, 2, 7, 9, 27, 37, 38 to 43 are ancillary provisions that either
support the arbitral process or are structurally necessary. Thus, it can
be seen that Part I deals with all stages of the arbitrations which take
place in India. In Part II, on the other hand, there are no provisions
regulating the conduct of arbitration nor the challenge to the award.
Section 45 only empowers the judicial authority to refer the parties to
arbitration outside India in pending civil action. Sections 46 to 49
regulate the recognition and enforcement of the award. Sections 44, 50
to 52 are structurally necessary."
[Emphasis Added]
The intention of Mr. Thakker was to outline the difference between
provisions relating to arbitration proceeding and provisions in aid of
arbitration proceedings. Section 9 of the Act belongs to the latter
category and has been legislatively mandated to apply to even foreign
seated arbitrations. He further relied on Mankatsu Impex Private
Limited (supra) for the same proposition, the relevant paragraph of
which is cited below:
'26. In this regard, we may usefully refer to the insertion of proviso to
Section 2(2) of the Arbitration Act, 1996 by the Amendment Act, 2015.
By the Amendment Act, 2015 (w.e.f. 23-10-2015), a proviso has been
added to Section 2(2) of the Act as per which, certain provisions of Part
I of the Act i.e. Section 9 -- interim relief, Section 27 -- court's
assistance for evidence, Section 37(1)(a) -- appeal against the orders
and Section 37(3) have been made applicable to "international
commercial arbitrations" even if the place of arbitration is outside
India. Proviso to Section 2(2) of the Act reads as under:
"2. Definitions.--(1) * * *
(2) Scope.--This Part shall apply where the place of arbitration is in
India:
Provided that subject to an agreement to the contrary, the provisions of
Sections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of
Section 37 shall also apply to international commercial arbitration,
even if the place of arbitration is outside India, and an arbitral award
made or to be made in such place is enforceable and recognised under
the provisions of Part II of this Act.'
It is pertinent to note that Section 11 is not included in the proviso and
accordingly, Section 11 has no application to "international commercial
arbitrations" seated outside India."
22. The Apex Court in Indus Mobile Distribution Pvt. Ltd. vs. Datawind
Innovations Pvt. Ltd.; (2017) 7 SCC 678 clarified that the term 'place'
means 'seat' in the proviso to Section 2(2) of the Act. The legislative
history, having regard to the concerns displayed about non-availability
of interim reliefs in foreign seated arbitration in the 246th Law
Commission Report and the subsequent amendment to the proviso of
the Act, suggests the same. Therefore, even if parties select the
arbitration to be foreign seated, the intelligible comprehension cannot
be that expressly or impliedly, merely by such selection, powers of
Indian Courts under Section 9 of the Act are ousted.
23. The distilled stream of statutory interpretation and judicial
pronouncements flow such that for ouster of powers of Indian Courts
under Section 9 read with proviso to Section 2(2) of the Act, parties
have to unequivocally agree to such deprivation. At the cost of
repetition, Section 9 is amongst the provisions which act in aid of the
arbitration proceedings and has been legislatively made applicable to
international commercial arbitrations, even if foreign seated.
24. The Delhi High Court in Raffles Design International v. Educomp
Professional Education (SCC Online Del 5521), while elaborating
upon a similar line of thought, held:
"58. That, however, is the position de hors the proviso to Section 2(2).
The proviso to Section 2(2), which came into effect on 23rd October,
2015, changes the goalpost. By operation of this proviso, Section 9 of
the 1996 Act would also apply to international commercial arbitration,
where the place of arbitration is outside India. It is not in dispute that
any arbitral award, issued by the SIAC, would be enforceable and
recognised under Part II of the 1996 Act.
59. Though the proviso to Section 2(2) uses the expression "place of
arbitration", the decisions, cited hereinabove, make it apparent that, in
the absence of any indication to the contrary, the reference to "place of
arbitration" may justifiably be treated as fixing Singapore as the "seat
of arbitration".
* * *
60. With the introduction of this proviso, the fixation of Singapore as
the "place" or the "seat" of arbitration would not, ipso facto, divest this
Court of Section 9 jurisdiction. Such divestiture would occur only if
there is any "agreement to the contrary".
* * *
62. There is a qualitative, an unmistakable, difference, between the
jurisdiction exercised by a Court under Section 9, and the jurisdiction
exercised by the Court under other provisions of the 1996 Act, such as
Section 11, 34 and 36. Section 9 is available at the pre-arbitration
stage, before any arbitral proceedings, and could be subject to
supervision by any judicial forum, have commenced. The purpose in
including, specifically, Section 9, in the proviso to Section 2(2), has to
be appreciated in the backdrop of the recommendations of the 246th
Law Commission, and the observations guiding the said
recommendations. It is at this point that the difficulty, or impossibility,
of the petitioner obtaining pre-arbitral interim relief from Singapore,
becomes relevant. As has been correctly pointed out by Mr. Gautam
Narayan, para 41 (i) of the recommendations of the Law Commission
indicate, unmistakably, that the decision to exclude, generally from the
ambit of Section 2(2), applications seeking prearbitral interim reliefs,
for securing the assets constituting subject matter of the arbitration,
was that, where the assets were located in India and there is a
likelihood of dissipation thereof, the party, seeking a restraint there
against, would "lack an efficacious remedy if the seat of the arbitration
is abroad".
* * *
67. There is yet another way of looking at the issue. What is required,
by the proviso to Section 2(2) of the 1996 Act, in order to render the
proviso inapplicable in a particular case, is an "agreement to the
contrary". The agreement, which would exclude the application of the
proviso to Section 2(2) would, therefore, have to be contrary to the
dispensation provided in the proviso, i.e., it would have to be contrary
to the applicability, to the proceedings, of Section 9 of the 1996 Act.
Expressed otherwise, as the proviso makes Section 9 of the 1996 Act
applicable even in the case of foreign seated arbitrations; any
"agreement to the contrary" would, therefore, have to expressly
stipulate that Section 9 would not apply in that particular case. Absent
such a specific stipulation, the beneficial dispensation, contained in
the proviso, cannot stand excluded."
[Emphasis Added]
25. I must now allude to the judgements cited by Mr. Chowdhury, counsel
appearing on behalf of respondent no.1. The Apex Court in Noy
Vallesina Engineering Spa (supra), Eitzen Bulk (supra), Imax
Corporation (supra) and Union of India (supra) has dealt with
general applicability of Part I and Section 34 of the Act. They are
distinguishable as they do not adjudicate upon the applicability of
interim relief in terms of the proviso to Section 2(2) of the Act. The Apex
Court's decision in Reliance Industries (supra) is also distinguishable
as it (i) was passed pre-amendment and (ii) deals with general
applicability of Part I and Section 14's exclusion.
26. Upon a careful perusal of the judgements and statutory interpretations
discussed above, the following principles emerge:
a) There is a stark difference between (i) provisions relating to
arbitration proceedings and (ii) provisions in aid of arbitration
proceedings, in relation to their applicability to foreign seated
arbitrations.
b) Section 9 of the Act is a provision in aid of arbitration proceedings
and has been legislatively mandated to apply to international
commercial arbitrations, even if seated outside India.
c) In proviso to Section 2(2) of the Act, the terms 'seat' and 'venue' are
interchangeable.
d) For exclusion of Section 9 of the Act, parties have to specifically
agree to the same.
Conclusion
27. The arbitration in the present case is seated in Singapore. This position
is undisputed. However, the records nowhere reflect an express
exclusion of Section 9 of the Act. Therefore, this Court reserves the
power to grant interim relief.
28. An officer of the respondent no.1 had admitted, by a report shared with
the petitioner vide an email dated September 5, 2022, that the crude
glycerine and salt used did not align with the contractual
specifications. Prima facie, it is clear that the documents furnished to
respondent no.1 in an attempt to invoke the L.C. are forged. If an
injunction is not granted against invocation of the L.C., irreparable loss
would occur to the petitioner. The balance of convenience lies in favour
of the petitioner. Therefore, the ad-interim relief granted in the form of
a direction upon the respondent no.2 to not encash the L.C. till
December 16, 2022 vide order dated 21 November, 2022, is extended
for a further period of twelve weeks or until further orders, whichever is
earlier.
29. Accordingly, affidavit-in-opposition is to be filed within a period of five
weeks from the date of this order and affidavit-in-reply, if any, two
weeks thereafter.
30. The respondent no.1 shall be at liberty to file a vacating application, if
so advised.
31. Urgent Photostat certified copy of this order, if applied for, should be made
available to the parties upon compliance with the requisite formalities.
(Shekhar B. Saraf, J.)
