Srei Equipment Finance Limited vs The Karur Vysya Bank
2023 Latest Caselaw 1955 Cal/2

                     IN THE HIGH COURT AT CALCUTTA
                      Ordinary Original Civil Jurisdiction
                                Original Side
                            (Commercial Division)


Present :-
The Hon'ble Justice Moushumi Bhattacharya


                             AP 408 of 2023
                                      with

                             AP 409 of 2023
                                      With

                             AP 411 of 2023
                                      With

                             AP 412 of 2023


                     SREI Equipment Finance Limited
                                      vs.
                          The Karur Vysya Bank

For the Petitioner                :           Mr. Swatarup Banerjee, Adv.
                                              Mr. Rajib Mullick, Adv.
                                              Mr. Sariful Haque, Adv.
                                              Ms. Sonia Mukherjee, Adv.
                                              Ms. Biswaroop Ghosh, Adv.


For the Respondent                :           Ms. Pallavi Gandhi, Adv.
                                              Ms. Sweta Gandhi, Adv.
                                          2


Last Heard on                        :           02.08.2023


Delivered on                         :           09.08.2023



Moushumi Bhattacharya, J.

1. The petitioner has filed 4 applications under section 9 of The Arbitration

and Conciliation Act, 1996 for orders of injunction restraining the respondent

from transferring or dealing with the amounts in the escrow accounts in the

respondent Bank bearing the account number stated in the prayer b of each of

the applications.

2. The 4 agreements entered into between the same parties in 2019 contain

arbitration clauses. Since the issues involved in all the 4 applications are

identical, the said applications are being disposed of by way of this judgment.

3. The petitioner seeks a restraint on the respondent Bank from dealing

with the amounts in the Escrow accounts the particulars of which have been

provided respectively in the 4 applications. The accounts are maintained in the

respondent Bank. The petitioner also seeks appointment of a Receiver over the

escrow account in the respondent Bank.

4. The petitioner also intends to approach the arbitral tribunal in an

application under section 17 of the Act. The petitioner seeks this interim relief

until formation of the arbitral tribunal in accordance with the arbitration

agreement contained in clause 8.3 of the Agreement for Assignment executed

between the petitioner and the respondent Bank on 17.1.2019, 4.11.2020,

4.8.2020, 30.8.2019. All the 4 applications are for interim relief.

5. Clause 2.3 of the Assignment Agreement reflects the terms as to

collection of receivables between the parties described as the "assignor"

(petitioner) and the "assignee" (the respondent) and that the assignee was

entitled to receive all receivables from the guarantors / borrowers under the

Original Master Operating Lease Agreement which had been assigned by the

petitioner (assignor) to the respondent (assignee). Clause 2.3 (a) reflects the

obligation of the assignee / respondent to keep the said receivables in a

Designated Account in terms of a Designated Account Agreement dated

30.8.2019/4.8.2020/4.11.2020. Clause 2.3(c) provides that such amounts

shall be transferred by the respondent (assignee) to the petitioner (assignor)

and that the petitioner shall ensure that these amounts are deposited in the

relevant government/regulatory authorities. Clause 2.3 also provides that the

amounts deposited in the Designated Account shall be withdrawn in

accordance with the terms and conditions of the Designated Account

Agreements.

6. Clause 1.1 of the said Agreement defines "tax" to mean any direct or

indirect tax, cess rate or duty on sale or lease of or any provision for goods or

services and includes tax deducted at source, excise duty, import duty, export

duty on import, etc. "Excluded amounts" is also defined in clause 1.1 to mean

and include any indirect taxes paid by the renter under the Renting Agreement

and the relevant Rental Schedules.

7. On a plain reading of the Clauses of the Agreements for Assignment, it is

clear that pursuant to the assignment made by the assignor / petitioner in

favour of the assignee / respondent of the Master Operating Lease Agreement,

the assignee / respondent was to collect the receivables and transfer the tax

component to the assignor / petitioner who thereafter would deposit the same

with the statutory authorities.

8. Learned counsel for the petitioner places demand notices from 6.8.2021

till 6.6.2023 whereby the petitioner demanded transfer of the tax component

from the receivable to the Designated Account of the petitioner and submits

that the respondent did not reply to any of these demand notices. Counsel

hence submits that since the Assignment Agreement contains an arbitration

clause, this is a fit case for a prayer for interim relief to the extent that the

respondent be restrained from dealing with any amount from the Designated

Accounts maintained with the respondent Bank till disposal of a requisite

application before the arbitral tribunal.

9. Admittedly, the respondent / assignee did not comply with the clauses of

the Agreement despite several notices being sent by the petitioner to the

respondent on 6.8.2021, 20.6.2022, 16.8.2022 and 6.6.2023. The petitioner

was constrained to file the present applications for interim relief.

10. The defense taken on behalf of the respondent is first that the present

applications are not maintainable since the petitioner has already invoked the

arbitration clauses in the Agreement by way of notices issued under section 21

of the Act. This defense is however not available to the respondent in view of

section 9 of the Act itself which provides that a party can apply to a Court for

interim measures before or during arbitral proceedings or even after making of

the arbitral award but before the award is enforced under section 36 of the Act.

Hence, the argument lacks statutory basis. In any event, it is undisputed that

the petitioner did not invoke the arbitration clauses by way of a section 21

notice in respect of the Assignment Agreement dated 17.1.2019 and had

instead issued a combined notice under section 21 on 10.11.2022 under

several agreements. Even if the respondents' case is accepted the letters issued

by the respondent in June, 2021 and June - August, 2022 show that the

respondent did not agree to the contentions of the petitioner.

11. It is further submitted by learned counsel for the respondent that the

petitioner has failed to comply with the pre-requisites of the Assignment

Agreement and the Designated Account Agreement including the specific

clauses therein. The primary contention in this regard is that the respondent

Bank/assignee is entitled to retain the excess amount for adjusting any

shortfall in the rent receivable due from the petitioner and that the respondent

has exercised Banker's Lien under section 171 of the Indian Contract Act, 1872

for this reason. Counsel submits that the respondent has more than 30 crores

outstanding from the petitioner. Counsel further submits that the schedule of

GST dues recoverable from the respondent is an unverified document. Counsel

also submits that the petitioner has not been able to establish a prima facie

case, irreparable injury or balance of convenience in favour of the petitioner for

grant of the interim relief prayed for.

12. In any event, the Supreme Court in Arcelor Mittal Nippon Steel India

Limited vs. Essar Bulk Terminal Limited; (2022) 1 SCC 712 held that the Court

has discretion to pass a limited order of interim protection under section 9 of

the 1996 Act if the application had been entertained before constitution of the

tribunal and thereafter direct the parties to approach the arbitral tribunal. In

that case, the Supreme Court further went to hold that the Court can entertain

an application under section 9 even after constitution of the arbitral tribunal

under section 9(3) of the Act where the Court had applied its mind to the

matter. Hence, the respondent's objection to entertaining the present

applications is contrary to statute as well as to the case law.

13. The respondent's objection on the ground of suppression of material

facts is also not tenable since the respondent has only relied on 4 replies given

by it which are not disclosed in the applications. It is well settled that for an

application to fail on the ground of suppression, the suppression must be

material and relevant to the cause of action and the relief prayed for. In the

present case, the respondent's replies to the petitioner's letters do not have the

weightage which would persuade this Court to reject the applications on the

ground of suppression.

14. The third objection of the petitioner not showing a manifest intention to

refer the disputes to arbitration would be belied from the pleadings in the

applications where the petitioner has specifically stated that the interim relief

is warranted only till formation of the arbitral tribunal for adjudicating the

larger disputes between the parties and disposal of the applications for interim

relief before the tribunal. Sundaram Finance Ltd. vs. NEPC India Limited; (1999)

2 SCC 479 dealt with the facts where the Supreme Court was of the view that a

party applying under section 9 before issuing a notice under section 21 of the

Act must first satisfy the Court that there exists a valid arbitration agreement

and the applicant intends to take dispute to arbitration. The Supreme Court

was also of the view that in such cases, the Court can pass a conditional order

to put the applicant on such terms as the Court may deem fit with a view to

ensuring that the applicant takes effective steps for commencing the arbitral

proceedings. The Supreme Court significantly held that the Court is not

debarred from dealing with an application under section 9 merely because the

arbitration agreement has not been invoked under section 21 of the Act.

15. The question whether the petitioner has refused to comply with the

specific clauses of the Assignment Agreement is a question which can be

entertained by the arbitral tribunal before final adjudication of the claims /

counter-claims of the parties and the disputes raised therein. Section 9 of the

Act contemplates interim measures which would afford relief to the applicant

pending arbitration and that too for a temporary time period until the disputes

are finally adjudicated by the arbitral tribunal. Moreover, the petitioner does

not seek interim relief which would have an irreversible prejudice on the

respondent. The interim relief sought for is only for a direction on the

respondent from dealing with the amount in the Escrow Accounts in

accordance with the terms of the Assignment Agreements. This is in the nature

of preservation of the subject matter of the dispute which is contemplated

under section 9(i)(a) and (c) of the Act and the Court has the power to grant

such relief upon exercising discretion on the facts and materials placed before

it.

16. The respondent's reliance on clause 5.4 of the Designated Account

Agreement by which the respondent is allegedly authorised to retain excess

amounts for any shortfall in the Rent Receivables or for outstanding dues from

the petitioner is again a matter which must be gone into by the arbitral

tribunal on evidence placed before it. A Court exercising discretion under

section 9 will assess the matter on the common tests for grant of injunction.

17. Upon considering the facts and circumstances placed before this court,

the petitioner has established a case for interim relief under section 9 of the

Act. The stand taken on behalf of the parties makes it abundantly clear that

the subject matters of the disputes are to be preserved until the arbitral

tribunal is constituted. If the respondent proceeds to deal with the money in

the Escrow Accounts, the petitioner will irreversibly be prejudiced and nothing

will remain to be decided in the arbitration. The balance of convenience, the

irrevocable injury and the case made out hence demands interim orders as

prayed for.

18. AP 408 of 2023, AP 409 of 2023, AP 411 of 2023 and AP 412 of 2023 are

accordingly allowed and disposed of by directing the respondent Bank not to

transfer or deal with the amounts in the Escrow Accounts bearing the numbers

namely A/c. No. 2105107000000032, A/c. No. 2105107000000126, A/c. No.

2105107000000081 and A/c. No. 2105107000000138 mentioned in the

applications till formation of the arbitral tribunal and until the parties can

approach the tribunal under section 17 of the 1996 Act. The parties are

directed to take expeditious steps for formation of the arbitral tribunal. This

direction is in keeping with section 9(2) of the 1996 Act which mandates that

arbitral proceedings shall be commenced within a period of 90 days from the

date of any interim measures of protection or within such time as the Court

may direct.

19. There shall be no order as to costs.

Urgent photostat certified copies of this judgment, if applied for, be

supplied to the parties upon fulfillment of requisite formalities.

(Moushumi Bhattacharya, J.)