Indian Oil Corporation Ltd. vs Iranian Offshore Engineering And ...
2009 Latest Caselaw 3756 Del

              * IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                                   Date of Reserve: 30.7.2009
                                                          Date of Order: 15th September, 2009

Arb. Appeal No.7/2009
%                                                                                        15.09.2009

        Indian Oil Corporation Ltd.       ... Petitioner/Appellant
                        Through: Mr. (Dr.) A.M.Singhvi, Sr. Advocate
                   With Mr. Rakesh Sawhney & Ms. Mona Aneja, Advs.

                 Versus


        Iranian Offshore Engineering and
        Construction Company                    ... Respondent
                        Through: Mr. V.P.Singh, Sr. Advocate with
                        Mr. Kamal Budhiraja, Mr. Anil Airi &
                        Mr. Manu Seshadhari, Advocates


JUSTICE SHIV NARAYAN DHINGRA

1. Whether reporters of local papers may be allowed to see the
judgment?                                                                                       Yes.

2. To be referred to the reporter or not?                                                       Yes.

3. Whether judgment should be reported in Digest?                                               Yes.

JUDGMENT

By this appeal under Section 37(2) of the Arbitration & Conciliation

Act, 1996, the appellant has appealed against the order dated 20 th May, 2009 of

the Arbitral Tribunal.

2. Brief facts relevant for the purpose of deciding this appeal are that

the appellant filed a petition under Section 9 of the Arbitrations & Conciliation Act,

1996 being OMP No. 492/2007 before this Court seeking interim measure of

protection by directing arrest of the Sea Vessel "MV Abouzar 81" as security for

reported claim of the appellant against the respondent arising out of contract

dated 16th December, 2004. This Court passed an ex parte interim order on 10 th

September, 2007 restraining respondent from sailing the Sea Vessel "MV

Abouzar 81" out of the Mumbai Port till next date of hearing or till such time the

respondent furnished security of the amount claimed by the petitioner. The

respondent entered appearance in the High Court and moved an application for

vacating the aforesaid order. This Court by an order dated 14th November, 2007

modified the earlier ex parte interim order dated 10 th September, 2007 and

permitted the sea vessel "MV Abouzar 81" to leave Mumbai Port but directed not

to leave Indian waters. While the petition under Section 9 was pending before

the Court, the arbitration proceedings were initiated at the instance of appellant

and the Arbitral Tribunal was referred the dispute between the parties for

adjudication. On 10th April, 2008 when the petition under Section 9 came up for

hearing, this Court observed that no further orders were required in the petition.

The interim order already passed by the Court was made operative in favour of

the petitioner till the appropriate orders were passed on an application proposed

to be filed by the respondent under Section 17 of the Arbitration & Conciliation

Act, 1996 before the Arbitral Tribunal.

3. The order dated 20th May, 2009 has been passed by the Arbitral

Tribunal on the application of respondent under Section 17 of the Arbitration &

Conciliation Act whereunder the respondent made a prayer to release the

respondent from undertaking given to the High Court on 14 th November, 2007

regarding sea vessel "MV Abouzar 81" not leaving the Indian waters and seeking

leave to permit it to sail the vessel out of Indian waters. Before the Arbitral

Tribunal the appellant took a plea that the Arbitral Tribunal could not sit in appeal

against the order passed by the High Court and therefore the order passed by

the High Court could not be subject matter of jurisdiction of the Tribunal under

Section 17 of the Arbitration & Conciliation Act and the application should be

rejected. The other plea taken by the appellant was that the detention of the

vessel within the Indian waters was the interim measure of protection necessary

to protect the interest of the appellant as respondent had no other assets in India

and in case of vacating the injunction order, the appellant would not be able to

recover the amount claimed by it.

4. None of the contentions raised by the appellant before the Arbitral

Tribunal found favour with it. The Tribunal, after considering the arguments of

both the sides, came to the conclusion that the Tribunal had jurisdiction to

entertain application under Section 17 filed before it. The Tribunal also observed

that the order of interim measure of protection of detention of vessel could not be

passed on mere asking of claimant and one had to be satisfied that the

respondent was inclined to dispose of its property with intent to obstruct

execution of decree, which may eventually be passed. The satisfaction of the

authority passing the order must not be an illusory one and the direction to have

an interim measure of the nature as prayed was undoubtedly an extra ordinary

remedy and as such the Tribunal or the Court had to act with utmost

circumspection. The Tribunal observed that the claimant/appellant had not been

able to establish any ground to its satisfaction so that the interim measure of

arrest of vessel could be allowed to continue by the Tribunal; the respondent was

awarded contract after ascertaining its financial stability looking at its three years‟

turnover prior to bidding for the contract and only when the respondent was

found financially stable, the contract was awarded to the respondent. The

appellant‟s contention about respondent suffering other orders of attachment at

the instance of other creditors was also turned down saying that such order of

attachments were not enough for coming to conclusion that the respondent was

in financial hardship more so, when the respondent had averred that those

matter had been settled on negotiations.

5. During arguments, the learned Counsel for the appellant pressed

the point that the Tribunal exceeded its jurisdiction by vacating the interim order

passed by this Court. The Tribunal had no jurisdiction to vary or set aside the

order of this Court and if the respondent was aggrieved by the order, the

respondent should have preferred an appeal against the order.

6. A perusal of the order passed by this Court on 10 th September,

2007 would show that this order was passed ex parte at the initial stage when the

petition under Section 9 was made and no notice of the petition was served upon

the respondent. The respondent after receiving notice of the petition moved an

application IA No. 12980/2007 for vacating the ex parte order. Notice of this

application was issued to the appellant however, the ex parte interim order

already passed by the Court was modified after considering the contention of the

respondent that the respondent was suffering irreparable loss and damage due

to each day‟s delay which was causing a loss of hire charges of US $ 17,000 and

was resulting into breach of agreement with the hirer of the vessel. It was

submitted that the vessel was performing critical safety-related work at ONGC‟s

offshore oil and gas fields at Mumbai High end and was expected to remain there

till 28th February, 2008. Considering the facts and circumstances, the order

dated 10th September, 2008 was modified pending disposal of the application on

merits. In between the Arbitral Tribunal was constituted and the matter was

referred to the Arbitral Tribunal. The petition under Section 9 (OMP-492/2007)

and the application made by the respondent for vacating the order remained

undecided on merits. On 10th April, 2008 this Court ordered that since the

respondent was taking steps to move Tribunal under Section 17 of the Arbitration

& Conciliation Act, 1996 no further order was necessary and it was left to the

Tribunal to pass an appropriate order. It is clear that the order passed by the

Court under Section 9 was purely an ad hoc interim order on an application

under Section 9 which itself is an application calling for interim order and this

order was made operational till the disposal of the application under Section 17

to be made by the respondent before the Arbitral Tribunal. Thus, the order

passed by this Court was to exhaust itself on the Arbitral Tribunal passing an

appropriate order on the same subject. It cannot be said that the Tribunal acted

without jurisdiction in entertaining an application under Section 17 of the Act or

the Tribunal acted as an Appellate Court over the order of this Court. I,

therefore, find no force in this contention.

7. The other plea raised by the appellant is that the Tribunal wrongly

vacated the interim injunction and wrongly allowed the sea vessel "MV Abouzar

81" to sail out of Indian waters. It is submitted that the injunction was in the

nature of „Mareva‟ injunction and the court/tribunal had ample power to issue a

mandamus of the nature passed by this Court or to appoint a receiver. The

respondent had no assets within the country and there was every likelihood of

the sole asset i.e. vessel being sailed out of the country. Reference is made to

an order of Division Bench of this Court in Rite Approach Group Ltd. v.

Rosoboronexport 139(2007) DLT 55 (DB) wherein this Court had observed as

under:

6. The appellant is based in Singapore and Austria. The respondent is a company operating and having its registered office in Russia. Without examining and going into the question whether the injunction can be issued on an application under Section 9 of the Act by the Courts in India,

it may be noticed that the Court of Appeal in the case of Mareva versus International Bulkcarriers (1980) 1 All.ER 213 had held that freezing injunction should not be granted unless a person has a legal or equitable right, it appears that a debt is due and owed and there is danger that the debtor may dispose of his assets before the judgment is passed so as to defeat the decree which may be passed. Injunction order even as per the Court of Appeal can be issued in extraordinary circumstances. Mareva or freezing injunction is passed when there is evidence or material to show that the debtor is acting in a manner or is likely to act in a manner to frustrate subsequent order/decree of the court or tribunal. The Court therefore freezes the assets of the debtor to prevent the assets from being dissipated, to prevent irreparable harm to the creditor. It prevents a foreign defendant from removing his assets from the jurisdiction of the court. It is like and akin to „attachment before judgment‟ and conditions mentioned in the said provision should be satisfied before freezing injunction order is passed [see Formosa Plastic Corporation Ltd. v. Ashok Chauhan reported in 76(1998) DLT 817 and Uppal Engg. Co. (P) Ltd. v. Cimmco Birla Ltd. reported in 121 (2005) DLT 539). The respondent-company is owned by Russian Government and there is no such allegation that the respondent company is trying to defeat and play a fraud by moving/transferring its assets. We agree with the reasoning given by the learned Single Judge.

8. The appellant also sought support from Mohit Bhargava v. Bharat

Bhushan Bhargava & Ors. (2007) 4 SCC 795 wherein the Supreme Court

observed that it was within the jurisdiction of the court which passed the decree

to issue orders of restraint to a person from handing over a property in his

possession to the judgment debtor along with the documents concerned and to

direct keeping the documents in safe custody. Such orders were in the nature of

a "freezing order" or a "Mareva injunction" and an order akin to an Anton Piller

order, orders that could be issued even if the property or the person concerned

was outside the jurisdiction of the courts.

9. In „Mareva versus International Bulkcarriers" (supra) the judgment

being referred, the Court of appeal of England had laid down a principle that a

creditor who had a right to be paid the debt owing to him, even before he had

established his right for getting judgment for it can obtain an injunction if it

appeared that the debt was due and owed and there was a danger that the

debtor could dispose of its assets so as to defeat it before judgment. The Court

had jurisdiction in a proper case to grant an interlocutory judgment so as to

prevent the debtor from disposing of those assets. The Court of Appeal

observed in Mereva case that it was a proper case for exercise of the jurisdiction

by it. There was money in a bank in London which stood in the name of those

Charterers. The Charterers had control over it and they may at any time dispose

of it or remove it out of the country if they do so the ship owners may never get

their charter hired. The ship at that time was on high seas. In face of this danger

the Court of Appeal considered it appropriate to grant injunction to restrain the

Charterers from disposing of the money lying in a bank in London until the trial or

judgment in the case was over.

10. The Arbitral Tribunal in this case has considered all the facts and

circumstances and came to the conclusion that there was nothing on record to

show that the respondent, though an Iranian Company, was out to sell its assets

so as to defeat the award that may be passed in favour of the appellant.

11. The order of the nature of detention of the vessel of the respondent

would be an order akin to Order 38 Rule 5 CPC. The Supreme Court in Raman

Technology and Process Engineering Co. & Anr. v. Solanki Traders (2008) 2

SCC 302 observed that powers under Order 38 Rule 5 CPC is a drastic and

extraordinary power. Such power should not be exercised mechanically or

merely for the asking. It should be used sparingly and strictly in accordance with

the Rule. The purpose of Order 38 Rule 5 is not to convert an unsecured debt

into a secured debt. Any attempt by a plaintiff to utilize the provisions of Order

38 Rule 5 as leverage for coercing the defendant to settle the suit claim should

be discouraged. A defendant is not debarred from dealing with his property

merely because a suit was filed or about to be filed. The court should be

satisfied that there was a reasonable chance of a decree being passed in the suit

against the defendant and the Court should be satisfied that plaintiff had a prima

facie case and after being satisfied of it, in order to exercise power under Order

38 Rule 5 CPC, a Court should be further satisfied that the defendant was

attempting to remove or dispose of his assets with the intention of defeating the

decree.

12. I consider that the Arbitral Tribunal in this case rightly discharged

the respondent from the undertaking and allowed it to sail the vessel out of Indian

waters as Tribunal was the best judge to see if there was a prima facie case or

not since the Tribunal had all facts and circumstances before it. The Tribunal

also considered the financial soundness of the respondent and the fact that the

vessel in question was not the subject matter of the contract at any point of time.

I, therefore, find no merits in this appeal. The appeal is hereby

dismissed.

September 15, 2009                                           SHIV NARAYAN DHINGRA, J.
vn