Alagendiraa Apparels Pvt Ltd & Anr vs Terra Manufacturing & Sales
2011 Latest Caselaw 5279 Del

*                IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                                           Date of decision : 01.11.2011

+                               CONT. APP. (C) No.19 of 2011

ALAGENDIRAA APPARELS PVT LTD & ANR                 ..... Appellants
              Through:  Mr. U. Hazarika. Sr. Advocate with
                        Mr. E. Md. Abbas, Mr. Santosh Kumar &
                        Mr. Paul R. Paske, Advocates.

                                           Versus

TERRA MANUFACTURING & SALES                  ..... Respondent
             Through:  Mr. Sanjeev Puri, Sr. Advocate with
                       Mr. Ritin Rai & Ms. Aarti Gandotra,
                       Advocates.

CORAM:
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON‟BLE MR. JUSTICE RAJIV SHAKDHER

1.        Whether the Reporters of local papers
          may be allowed to see the judgment?                   No

2.        To be referred to Reporter or not?                    No

3.        Whether the judgment should be
          reported in the Digest?                               No

SANJAY KISHAN KAUL, J. (Oral)

Caveat No.980/2011

1. Learned counsel for the respondent has entered appearance and thus the

caveat is discharged.

CM No.19915/2011 (Exemption)

2. Allowed subject to just exceptions.

CM No.19914/2011 (for permission to file appeal)

3. This application has been filed for leave to appeal by appellant No.2,

who is the Managing Director of appellant No.1. It appears that __________________________________________________________________________________________

appellant No.2 was by name not impleaded as a respondent though in the

capacity of the Managing Director of appellant No.1, the contempt

proceedings were sought to be initiated against appellant No.2.

4. We, thus, grant leave to appellant No.2 to file the appeal and the

application is allowed.

Cont. App. (C) No.19/2011

5. Admit.

6. Learned counsel for the respondent accepts notice.

7. At request of learned counsels for the parties, the appeal is taken up for

final disposal.

8. The origin of disputes between the parties is a leasing agreement entered

into between appellant No.1 and the respondent qua the machinery. It is

the case of the respondent that appellant No.1 defaulted in making

payments from the very inception which resulted in proceedings being

filed by the respondent - an application under Section 11 (6) of the

Arbitration & Conciliation Act, 1996 (hereinafter referred to as „the

Arbitration Act‟) and an application under Section 9 of the Arbitration

Act for necessary interim relief qua the leased machinery. These two

applications were disposed of by a common order of the learned single

Judge dated 28.8.2008. The disputes were referred to an arbitrator and

in so far as the relief under Section 9 of the Arbitration Act is concerned,

interim measures were made as per paragraph 18, which is reproduced

hereinunder:

"18. Accordingly, the following interim measures are made. __________________________________________________________________________________________

(i) The Respondent is restrained from selling, alienating, encumbering or parting with possession of the equipment.

(ii) The Respondent, if desires to retain the equipment, to intimate the same to Petitioner within four weeks herefrom and to then furnish security to the satisfaction of Arbitral Tribunal in the sum of Rs. 3,74,87,343/- within eight weeks herefrom.

(iii) Upon the failure of Respondent to exercise option in (ii) above, the Respondent is directed to, within 8 weeks herefrom, deliver the equipment to the Petitioner/Applicant in the presence of Mr. K Parameshwar, Advocate (Mobile:9818113824) who is appointed as the Local Commissioner to make an inventory of the equipment delivered.

(iv) Upon the failure of the Respondent to so deliver the equipment, the aforesaid Local Commissioner is authorised to take delivery of the equipment from the Respondent after preparing an inventory of the same and to hand over the same to the Petitioner/Applicant. The Police Authorities of the place where the equipment is at present in custody of the Respondent are directed to render all possible help to the said Local Commissioner for delivery of the equipment.

(v) The fee of the Local Commissioner is fixed at Rs 30,000, besides out of pocket and travel expenses.

(vi) The Petitioner/Applicant would be entitled to dispose of the said equipment under direction of the Arbitral Tribunal."

9. Appellant No.1 filed an appeal aggrieved by this order, being FAO (OS)

No.439/2008, which was disposed of by a Division Bench of this Court

vide order dated 27.1.2009. We may note at this stage that an issue of

jurisdiction had been raised before the learned single Judge by appellant

No.1 which was also raised in appeal but was given up. The agreed

terms of the settlement are contained in paragraphs 3 to 5, which are

reproduced hereinunder:

"3. After the matter was argued at some length, the parties have agreed to the following manner of disposal of this appeal: __________________________________________________________________________________________

a. Subject to the appellant furnishing security to the tune of Rs.1,51,98,833/- to the satisfaction of the Arbitrators on the first date of hearing before the Tribunal, the appellant is permitted to use the equipment/machinery in question. The Appellant shall, however, not alienate, remove or damage the same till the making of the award and shall abide by the directions that may be given by the Arbitral Tribunal in this regard.

b. The respondent, after giving notice in writing to the appellant of the intention to visit and inspect the machinery and take photographs of the same shall be entitled to inspect the machinery and the appellant shall provide full cooperation therefor.

c. That the appellant will appoint their own Arbitrator not later than 3rd February, 2009 and give intimation to the Respondent.

d. That Mr. Rajesh Goel, the learned Arbitrator appointed by the Court shall be the Chairman of the Arbitral Tribunal, the third arbitrator being the one already nominated by the respondent.

e. That the arbitration proceedings shall be conducted in Delhi.

f. That the parties will file before the Arbitral Tribunal and exchange amongst themselves the statement of claims not later than 24th February, 2009 and will also file and exchange their responses to the statement of claims by 18th March, 2009. The parties shall also, within the same period file and exchange their respective documents and shall also conduct the admission/denial of documents on statements. The Tribunal shall proceed on the basis of the above pleadings and such other pleadings through necessary by the arbitral tribunal.

g. That the Parties shall appear before the Arbitral Tribunal on 26th March, 2009, on which date the parties shall produce the suggested issues.

h. That the Arbitral Tribunal shall dispose of the dispute not later than four months from the first hearing before it. The said date can be changed to suit to the convenience of the Arbitrators and the parties but, the first hearing should not be later than 15 days from the date fixed by us.

__________________________________________________________________________________________

4. The learned counsel for the appellant states that in view of this settlement, the order under Section 11 would not be challenged.

5. The judgement of the learned Single Judge impugned before us stands modified in the aforesaid terms."

10. In so far as the present controversy is concerned, which arises out of

interim relief granted under Section 9 of the Arbitration Act, the material

difference was the reduction in the value of the security to be furnished

by the appellants and paragraph 5 aforesaid made it clear that the order

of the learned single Judge is modified in the terms as set out in

paragraph 3 of the order dated 27.1.2009. The effect of this, in our

considered view, was that the appellants were required to furnish a

security of `1,51,98,833.00 instead of `3,74,87,343.00 as specified in

the order of the learned single Judge in paragraph 18 (ii) and on the

failure of the same, the consequences in paragraphs 18 (iii) & 18 (iv)

would be triggered of.

11. The Arbitral Tribunal which came to be constituted as per the directions

of the Division Bench passed an order on 6.3.2009 requiring appellant

No.1 to furnish security in the form of a bank guarantee in the name of

the respondent on or before 18.3.2009 on which date none appeared for

the appellant. The reason for absence was given as the date being noted

as 26.3.2009. The appellant, was, however unable to obtain a bank

guarantee and moved an application for modification of the order dated

6.3.2009. Appellant No.1 sought to furnish the personal guarantee of the

Managing Director, i.e., appellant No.2, by way of security or in the

__________________________________________________________________________________________

alternative prayed that appellant No.1 may be permitted to move the

Hon‟ble High Court for return of the machinery. In effect the appellants

threw up their hands and expressed their inability to furnish a bank

guarantee.

12. The Arbitral Tribunal in the proceedings held on 26.3.2009 refused to

accept the personal guarantee of appellant No.2 as security but granted

liberty to appellant No.1 to seek appropriate direction from the High

Court for return of machinery, if appellant No.1 was not in a position to

furnish a bank guarantee.

13. Appellant No.1 thereafter moved CM No.5956/2009 in FAO (OS)

No.439/2008 but prayed for the said appellant to furnish a security other

than the bank guarantee by way of personal guarantee of the Managing

Director. This application was examined on 28.5.2009 when appellant

No.1 was directed to obtain directions whether instead of a personal

guarantee/security, a security in the nature of immovable property could

be submitted. The appellants sought to offer an immovable property as

security on 9.7.2009. The Division Bench noted this fact as also there

being dispute about valuation. A valuation report was, thus, called for

from appellant No.1. The issue of valuation of property located at

Village Velampalayam, Coimbatore SRO Zone, Revenue District

Coimbatore, Taluk Trippur, Chennai was thereafter further explored and

the Division Bench directed that the appropriate method would be to

request the Registrar, Madras High Court to appoint a Government

approved valuer. In terms of the order dated 4.8.2009, the Registrar, __________________________________________________________________________________________

Madras High Court was requested to appoint an official valuer of its

choice to carry out the necessary exercise. This resulted in a valuer

being appointed and a valuation report coming on record in terms

whereof the property was valued at `1,36,02,869.00.

14. The application, however, came to be listed before a different Division

Bench on 9.12.2009 which took a view that the order of the Arbitral

Tribunal for furnishing of security in the form of a bank guarantee which

was sought to be altered by the application was not appealable and that

the security amount had been reduced by the consent of the parties and

the security had to be furnished to the satisfaction of the Tribunal. The

application was accordingly dismissed and the endeavour of appellant

No.1 to further challenge the same in Special Leave to Appeal (Civil)

No.5146/2010 also met the same fate though with the direction to

withdraw the petition with liberty to move the High Court. We are

informed that there were no further proceedings in the High Court.

15. The respondent sought to file a Civil Contempt Petition under Sections

11 & 12 of the Contempt of Courts Act, 1971 (hereinafter referred to as

„the Contempt Act‟) against appellant No.1 and for punishment of the

officers in charge of and in control of appellant No.1 including appellant

No.2 in view of the aforesaid facts. We are informed that the machinery

in question was handed over to the respondent in collateral proceedings

about more than six (6) months back but that the same has not been sold

by the respondent.

__________________________________________________________________________________________

16. The present appeal arises from the impugned order dated 19.10.2011

passed by the learned single Judge in Cont. Cas. (C) No.920/2009. In

this contempt case on 15.1.2010 it was observed by the learned single

Judge that the respondent was at liberty to inspect the machinery and to

seize the same so that appellant No.1 could not use the same. The

learned single Judge observed that "it is doubtful that non furnishing of

security would amount to contempt". However, the counsel for the

respondent stated that he would like to make further submissions to

address arguments on the issue of contempt. The endeavour of the

respondent to seek a review of this order for deletion of this sentence

was not successful. This contempt petition has ultimately came to be

decided by another learned single Judge vide order dated 19.10.2011,

whereby appellant No.1 has been held guilty of contempt as represented

by appellant No.2 as its Managing Director, who has been convicted

under Sections 12 & 15 of the Contempt Act and the matter is adjourned

to 3.11.2011 for sentence.

17. Learned senior counsel for the appellant has pointed out to us, and

rightly so, that there is an obvious mistake in the operative portion of

this order, at least, to the extent that it seeks to invoke Section 15 of the

Contempt Act in as much as the jurisdiction to hear a criminal contempt

petition is of the Division Bench and not of the Single Bench. The

invocation by the respondent was also under Sections 11 & 12 of the

Contempt Act.

__________________________________________________________________________________________

18. However, the more material aspect which we seek to examine in the

present appeal is whether even a case of civil contempt is made out in

the present case. On hearing learned counsels for the parties the answer

to this question would be in the negative.

19. In our view the order of the learned single Judge dated 28.8.2008 gave

options. The first option was for appellant No.1 to furnish security to the

satisfaction of the Arbitral Tribunal in the sum of `3,74,87,343.00.

Paragraph 18 (iii) of the order dated 28.8.2008 of the learned single

Judge provided the consequences of failure to furnish such a security,

i.e., to deliver the equipment to the respondent in the presence of the

Local Commissioner, who is named in the order. The further

consequence is contained in paragraph 18 (iv) of that order, i.e., on the

failure of appellant No.1 to deliver the equipment, the Local

Commissioner was authorized to take delivery of the equipment from

appellant No.1 and was even entitled to seek assistance of police

authorities, if so required. The Division Bench in terms of order dated

27.1.2009 in so far as interim measures of protection are concerned only

watered down the amount for furnishing security to `1,51,98,833.00 as

per paragraph 3 (a) of that order but made it clear in paragraph 5 that the

order of the learned single Judge was only modified in the terms as set

out in the order of the Division Bench. The net effect was that all the

consequences as discussed above would follow on non-furnishing of the

security to the tune of `1,51,98,833.00.

__________________________________________________________________________________________

20. Appellant No.1 at the threshold of the arbitral proceedings itself has

thrown up its hands in so far as requirement of furnishing a bank

guarantee as security was concerned and had even expressed its desire to

surrender the machinery if the personal guarantee of the Managing

Director was not acceptable. In this behalf, leave was taken from the

Arbitral Tribunal to move the Division Bench and the appellants did

move the Division Bench in this behalf. However, it is in the course of

the proceedings that the Division Bench explored possibility of appellant

No.1 being required to furnish an alternative security of immovable

property. The matter proceeded further and even the valuation report

was obtained through independent sources, i.e., by appointment of a

valuer by the Registrar, Madras High Court. However, the subsequent

Division Bench proceeded in a different direction and chose to dismiss

the application, which order was sustained by the Supreme Court.

21. In our considered view, thus, at least, till that stage it could not be said

that there was any willful contemptuous conduct of the appellants. After

the withdrawal of the Special Leave Petition on 26.2.2010 the

respondent was well within its right to have invoked the consequences

arising from the order of the learned single Judge dated 28.8.2008 as

upon the failure of the appellants to deliver possession of the machinery,

assistance should have been obtained of the Local Commissioner to take

possession thereof and in case of resistance, assistance of police

authorities could have been obtained. Learned senior counsel for the

appellants has pointed out to us that the appellant, in fact, had __________________________________________________________________________________________

volunteered to surrender the machinery vide letter dated 17.3.2010 but

the respondent chose not to take the machinery. The response of the

respondent vide letter dated 26.7.2010 shows that the respondent wanted

to proceed really in the direction of contempt proceedings rather than

take possession of the machinery. We, thus, find that at no stage there

had been willful disobedience of the orders of the Court by the

appellants though admittedly the appellants were not able to satisfy the

monetary claims of the respondent.

22. We may note that the arbitral proceedings have given rise to an award

dated 21.12.2010 against the appellants, the objections of the appellants

under Section 34 of the Arbitration Act were dismissed on 29.4.2011 and

we dismissed the appeal on 20.9.2011.

23. Learned senior counsel for the respondent endeavoured to persuade us

that the present case is covered under the parameters of the law laid

down in Maruti Udyog Limited Vs. Mahinder C. Mehta & Ors.(2007) 13

SCC 220. It is the submission of the learned counsel that once the

appellants exercised the option to retain the machinery and furnish

security, the other alternatives would not come into play.

24. We are unable to accept the plea for the reason that the alternatives have

been clearly set out in the order of the learned single Judge dated

28.8.2008 which was modified by the Division Bench vide order dated

27.1.2009 only to the extent of the value of the security. We further find

that the facts of Maruti Udyog Limited case (supra) are quite different in

as much as there was never any question of any option being available __________________________________________________________________________________________

but of an undertaking being furnished to a Court which had been

violated.

25. We are, thus, of the considered view that the impugned order of the

learned single Judge dated 19.10.2011 cannot be sustained and is

accordingly set aside. As a sequitur the contempt notice issued against

the appellants stands discharged and the order of conviction is set aside.

Consequently, the date fixed before the learned single Judge of

3.11.2011 shall stand cancelled.

26. Needless to say that the respondent is within its right to proceed for the

execution of the award in accordance with law.

27. The appeal is accordingly allowed in the aforesaid terms leaving the

parties to bear their own costs.

CM No.19913/2011 (Stay)

28. In view of the disposal of the appeal, no directions are called for on this

application and the same stands disposed of.

SANJAY KISHAN KAUL, J.

NOVEMBER 01, 2011                                       RAJIV SHAKDHER, J.
b'nesh

__________________________________________________________________________________________