Denel Proprietary Ltd. vs Union Of India
2015 Latest Caselaw 2826 Del

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*     IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                   Date of Decision : April 09, 2015

+                             FAO(OS) 241/2010

      DENEL PROPRIETARY LTD.                   ..... Appellant
               Represented by: Mr.Vikas Goel, Advocate with
                               Mr.Abhishek Kumar, Advocate

                                    versus

      UNION OF INDIA                                ..... Respondent
               Represented by:      Mr.Sanjay Jain, ASG with
                                    Ms.Manjula Gandhi and Mr.Sarfaraz
                                    Ahmad, Advocates for the respondent
                                    (UOI)
                                    Mr.Sanjiv Kakra, Advocate with
                                    Mr.Bheem Sain Jain, Advocate for
                                    the applicant of CM No.3515/2015
                                    (SBI)

CORAM:
HON'BLE MR. JUSTICE PRADEEP NANDRAJOG
HON'BLE MS. JUSTICE PRATIBHA RANI

PRADEEP NANDRAJOG, J. (Oral)

CM No.3515/2015

1. The appellant had preferred a petition under Section 9 of the Arbitration and Conciliation Act 1996 seeking to restrain the respondent from invoking a bank guarantee furnished at the instance of the appellant beneficiary whereof was the respondent. The guarantee was a Warrantee Bank Guarantee No.SBI/GAUR/1460 dated March 28, 2002. The guarantee was issued by the applicant (State Bank of India) at the instance of the appellant and was secured by a counter guarantee No.821020002584 issued

by ABSA Bank South Africa.

2. Since the applicant bank had honoured its obligation under the bank guarantee issued by it to the respondent, when the bank guarantee was invoked, it issued a demand draft in the name of the respondent in sum of US $11,97,930. The learned Single Judge did not grant the relief prayed for by the appellant. FAO (OS) No.241/2010 was filed laying a challenge to the order dated March 22, 2010.

3. Initially recording a statement made by the learned Additional Solicitor General on behalf of the respondent that the respondent would not present for collection the demand draft issued by the applicant-bank, an order was passed on May 24, 2011 in the appeal directing that after encashing the demand draft issued in its favour by the applicant the respondent would deposit the proceeds thereof with the Registrar General of this Court.

4. The respondent complied with the said order.

5. The appeal was disposed of on March 23, 2012 noting that the dispute(s) between the appellant and the respondent has been referred to an Arbitral Tribunal before which the respondent had already filed its claims. The final direction issued in the appeal read as under:-

"(i) The Bank Guarantees qua which the respondent has already filed the claims before the Arbitral Tribunal, we implore the Arbitral Tribunal to make attempt to decide the dispute between the parties as early as possible. Even if the final adjudication is likely to take time, the Arbitral Tribunal can always pass interim award deciding whether the appellant is under any obligation to keep these Bank Guarantees alive or not;

(ii) The Bank Guarantees qua which the respondent has not so far preferred any claims, we grant six months time to the respondent to prefer the claims. If no claims are preferred

within six months, the liability of the respondent to keep the Bank Guarantees alive shall cease; if the amount of the Bank Guarantees has already been received in this Court, the appellant shall become entitled to refund thereof;

(iii) Else we direct that the amount deposited in this Court and the Bank Guarantees which are still alive shall be kept alive by the appellant, and shall be subject to the orders of the Arbitral Tribunal.

(iv) The findings and observations of the learned Single Judge being on a prima facie view of the matter shall have no bearing on the decision of the Arbitral Tribunal;

(v) To balance the equity, we further direct that in the event of the appellant succeeding in the arbitral proceedings, the costs hereafter or keeping the Bank Guarantees alive shall have to be borne by the respondent."

6. Thus, the money deposited by the respondent in the name of the Registrar General of this Court is lying deposited in the name of the Registrar General of this Court.

7. Vide CM No.3375/2015 the State Bank of India informs this Court that notwithstanding the counter bank guarantee issued by ABSA Bank South Africa is an irrevocable and unconditional counter guarantee the said bank has refused to make payment to the applicant notwithstanding applicant having honoured the bank guarantee issued by it at the instance of the appellant in favour of the respondent. The stand taken by ABSA Bank was that in view of the pending litigation it was not obliged to honour a bank guarantee issued by it in favour of the applicant, which bank guarantee ABSA Bank issued in favour of the applicant at the asking of the appellant.

8. Under the circumstances the applicant filed a claim before the Debt Recovery Tribunal against ABSA Bank for recovery of rupee equivalent of the amount, in US Dollars, secured by the bank guarantee.

9. The arbitration proceedings between the appellant and the respondent have resulted in an award dated December 12, 2014 holding that the invocation of the bank guarantee by the respondent issued by the applicant in its favour at the instance of the appellant was bad in law.

10. Pleading that the original application filed by the applicant has been dismissed by the Debt Recovery Tribunal, prayer made is that the sum deposited by the applicant in this Court pursuant to the interim order passed in the appeal which was confirmed when the final order was passed be returned to the applicant.

11. Notice was issued of CM No.3515/2005 to the applicant and the respondent, both of which were served and have filed their respective reply.

12. The appellant pleads that the amount lying in deposit in this Court should be directed to be released in its favour together with interest which has accrued thereon for the reason the applicant issued the bank draft in favour of the respondent under a bank guarantee which was issued by the applicant in favour of the respondent at the asking of the appellant, a plea which we note and reject for the reason it is preposterous.

13. The applicant has not debited the account of the appellant when it issued the bank draft in favour of the respondent upon invocation of the bank guarantee issued by it, at the asking of the appellant, in favour of the respondent. Further, the consideration for the bank guarantee issued by the applicant was the securing of the amount covered by the bank guarantee by the appellant through a counter guarantee issued by the appellant's bank (ABSA Bank South Africa), which bank has refused to honour its commitment under the counter bank guarantee issued.

14. Union of India prays that the amount should be either retained in this Court or paid over to it because it has filed objections to the award.

15. No interim order has been obtained by the Union of India in the objections filed by it to the award against it, as per which the invocation of the bank guarantee has been held to be illegal.

16. In view of the decision reported as 2014(145) DRJ 399 Nussli Switzerland Ltd. Vs. Organizing Committee Commonwealth Games, 2010 it is doubtful whether Union of India can claim any interim measure concerning the bank guarantee, for the reason the view taken by the Division Bench of this Court that post award an interim measure can be sought and hence can be granted in favour of the party who has the award in its favour. In paras 15 to 33 of the decision it has been held as under:-

"15. We thus proceed to answer the basic question : Whether a party which has lost before an Arbitral Tribunal and has no enforceable claim under an award is entitled to seek an interim measure against the winning party?

16. Section 9 of the Arbitration and Conciliation Act, 1996 reads as under:-

"9. Interim measures, etc. by Court -

A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a court -

(i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of the following matters, namely:-

(a) the preservation, interim custody or sale of any goods which are the subject matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or thing which is the subject matter of the dispute in arbitration, or as to which any question may arise therein and authorizing for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorizing any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the court to be just and convenient,

and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it."

17. We highlight the catchwords of Section 9 : A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a court.

18. A plain textual reading of the above indicates that at any stage of the proceedings, before, during or after the making of the arbitral award (but before it is executed) a party to an arbitration agreement may approach the Court seeking interim measures. The word 'but' can either be a conjunction or a proposition or a noun or an adverb. In the textual setting in which the word 'but' finds itself in the section, it is obviously not used as a noun or an adverb. Whether the word „but' is read as a conjunction or proposition would make no difference because if read as a conjunction, the section would read : „A party may, before or during arbitral proceedings or at any time after the making of the arbitral award and not before it is

enforced‟ and if read as a proposition, the section would read : A party may, before or during arbitral proceedings or at any time after the making of the arbitral award except before it is enforced‟.

19. As noted by the Division Bench of the Bombay High Court Section 2(h) of the Arbitration and Conciliation Act, 1996 defines „party‟ to mean „a party to an arbitration agreement‟. And thus literally read the section could mean that any party, irrespective of whether or not it has or can have an enforceable claim in its favour, can avail the remedy under Section 9 of the Arbitration and Conciliation Act, 1996.

20. In paragraph 12 and 13 of its opinion, the Division Bench of the Bombay High Court has opined as under:-

"12. Two facets of Section 9 merit emphasis. The first relates to the nature of the orders that can be passed under clauses (i) and (ii). Clause (i) contemplates an order appointing a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings. Clause (ii) contemplates an interim measure of protection for:

(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement; (b) securing the amount in dispute in the arbitration; and (c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration; (d) an interim injunction or the appointment of a receiver; and (e) such other interim measure of protection as may appear to the Court to be just and convenient. The underlying theme of each one of the sub-clauses of clause (ii) is the immediate and proximate nexus between the interim measure of protection and the preservation, protection and securing of the subject-matter of the dispute in the arbitral proceedings. In other words, the orders that are contemplated under clause (ii) are regarded as interim measures of protection intended to protect

the claim in arbitration from being frustrated. The interim measure is intended to safeguard the subject-matter of the dispute in the course of the arbitral proceedings. The second facet of Section 9 is the proximate nexus between the orders that are sought and the arbitral proceedings. When an interim measure of protection is sought before or during arbitral proceedings, such a measure is a step in aid to the fruition of the arbitral proceedings. When sought after an arbitral award is made but before it is enforced, the measure of protection is intended to safeguard the fruit of the proceedings until the eventual enforcement of the award. Here again the measure of protection is a step in aid of enforcement. It is intended to ensure that enforcement of the award results in a realisable claim and that the award is not rendered illusory by dealings that would put the subject of the award beyond the pale of enforcement. Now it is in this background that it is necessary for the Court to impart a purposive interpretation to the meaning of the expression "at any time after the making of the arbitral award but before it is enforced in accordance with section 36". Under Section 36, an arbitral award can be enforced under the Code of Civil Procedure in the same manner as if it were a decree of the Court. The arbitral award can be enforced where the time for making an application to set aside the arbitral award under Section 34 has expired or in the event of such an application having been made, it has been refused. The enforcement of an award enures to the benefit of the party who has secured an award in the arbitral proceedings. That is why the enforceability of an award under Section 36 is juxtaposed in the context of two time frames, the first being where an application for setting aside an arbitral award has expired and the second where an application for setting aside an arbitral award was made but was refused. The

enforceability of an award, in other words, is defined with reference to the failure of the other side to file an application for setting aside the award within the stipulated time limit or having filed such an application has failed to establish a case for setting aside the arbitral award. Once a challenge to the arbitral award has either failed under Section 34 having been made within the stipulated period or when no application for setting aside the arbitral award has been made within time, the arbitral award becomes enforceable at the behest of the party for whose benefit the award enures. Contextually, therefore, the scheme of Section 9 postulates an application for the grant of an interim measure of protection after the making of an arbitral award and before it is enforced for the benefit of the party which seeks enforcement of the award. An interim measure of protection within the meaning of Section 9(ii) is intended to protect through the measure, the fruits of a successful conclusion of the arbitral proceedings. A party whose claim has been rejected in the course of the arbitral proceedings cannot obviously have an arbitral award enforced in accordance with Section 36. The object and purpose of an interim measure after the passing of the arbitral award but before it is enforced is to secure the property, goods or amount for the benefit of the party which seeks enforcement.

13. The Court which exercises jurisdiction under Section 34 is not a court of first appeal under the provisions of the Code of Civil Procedure. An appellate court to which recourse is taken against a decree of the trial Court has powers which are co-extensive with those of the trial Court. A party which has failed in its claim before a trial Judge can in appeal seek a judgment of reversal and in consequence, the passing of a decree in terms of the claim in the suit. The court to which an arbitration petition challenging the award under

Section 34 lies does not pass an order decreeing the claim. Where an arbitral claim has been rejected by the arbitral tribunal, the court under Section 34 may either dismiss the objection to the arbitral award or in the exercise of its jurisdiction set aside the arbitral award. The setting aside of an arbitral award rejecting a claim does not result in the claim which was rejected by the Arbitrator being decreed as a result of the judgment of the court in a petition under Section 34. To hold that a petition under Section 9 would be maintainable after the passing of an arbitral award at the behest of DIPL whose claim has been rejected would result in a perversion of the object and purpose underlying Section 9 of the Arbitration and Conciliation Act, 1996. DIPL's application under Section 9, if allowed, would result in the grant of interim specific performance of a contract in the teeth of the findings recorded in the arbitral award. The interference by the Court at this stage to grant what in essence is a plea for a mandatory order for interim specific performance will negate the sanctity and efficacy of arbitration as a form of alternate disputes redressal. What such a litigating party cannot possibly obtain even upon completion of the proceedings under Section 34, it cannot possibly secure in a petition under Section 9 after the award. The object and purpose of Section 9 is to provide an interim measure that would protect the subject-matter of the arbitral proceedings whether before or during the continuance of the arbitral proceedings and even thereafter upon conclusion of the proceedings until the award is enforced. Once the award has been made and a claim has been rejected as in the present case, even a successful challenge to the award under Section 34 does not result an order decreeing the claim. In this view of the matter, there could be no occasion to take recourse to Section 9. Enforcement for the purpose of Section 36 as a decree of the Court is at the behest of a person

who seeks to enforce the award."

21. No doubt, literally read, as observed by us in paragraph 19 above, Section 9 of the Arbitration and Conciliation Act, 1996 can be availed of even by the loosing party having no enforceable claim.

22. It may be true that there are a large number of decisions and notably the decisions reported as (1832) 2 D. & Cl. (H.L.) 480 Warburton v. Loveland; (1864) 2 H. & C. 431 Att.- Gen. v. Sillem; (1881) 8 Q.B.D. 125 Att.- Gen. V. Noyes; (1889) 24 Q.B.D. 1 Hornsey L.B. v. Monarch Investment Building Society; [1891] A.C. 401 M'Cowan v. Baine; [1897] A.C. 22 Salomon v. Salomon; [1922] 1 A.C. 1 Sutters v. Briggs; [1959] 1 W.L.R. 995 I.R.C. v. Collco Dealings, Same v. Lucbor Dealings; [1954] 1 Q.B. 439 (D.C.), Cf. Gluchowska v. Tottenham Borough Council wherein it has been held that where the language of an Act is clear and explicit, effect must be given to it, whatever may be the consequences, for in that case the words of the statute speak the intention of the legislature.

23. But, that is not the end of the matter because those who are in the know of the affairs of the law, would accept that law is not a logical code and this explains a series of judgments that the ratio of a decision is the law declared in the context of the facts of a particular case and not what logically flows there from.

24. It has been pertinently observed in the decision reported as (1914) 1KB 641 Camden (Marquis) v. IRC:-

"It is for the court to interpret the statute as best it can. In so doing the court may no doubt assist itself in the discharge of its duty by any literary help which it can find, including of course the consultation of standard authors and references to well known and authoritative dictionaries."

25. In the decision reported as AIR 1963 SC 1241 State of W.B. v. Union of India, the Supreme Court held that a Court

must ascertain the intention of the legislature by directing its attention not merely to the clauses to be construed but to the entire statute; it must compare the clause with the other parts of the law, and the setting in which the clause to be interpreted occurs.

26. In the decision reported as (1871) L.R. 6 C.P. 365 Abel v. Lee it was observed by Willes J. that „no doubt the general rule is that the language of an Act is to be read according to its ordinary grammatical construction unless so reading it would entail some absurdity, repugnancy, or injustice.‟

27. Thus, we would find that there are two underlying principles while interpreting a statute and the same would be that one fundamental rule : „verbis legis non est recedendum‟ which means that the words of a statute must not be varied has to be harmoniously applied with the second rule that the intention of the legislature has also to be given effect to because „Index animi sermo est - Speech after all is the index of the mind‟.

28. As was held in the decisions reported as AIR 1961 SC 1491 Jivabhai v. Chhagan, and (2008) 9 SCC 527 Union of India v. Prabhakaran Vijaya Kumar if a provision is capable of more than one construction, that construction should be preferred which furthers the policy of the Act and is more beneficial to those in whose interest the Act may have been passed and the doubt, if any, should be resolved in their favour.

29. In the decision reported as (1982) 1 SCC 159 Chinnamarkathian alias Muthu Gounder v. Ayyavoo alias Periana Counder, the Supreme Court observed that it is a well settled canon of construction that in construing the provisions of such enactments, the Court should adopt that construction with advances, fulfils and furthers the object the Act rather than the one which would defeat the same and render the protection illusory.

30. In the decision reported as (1986) 2 SCC 237 Girdhari Lal & Sons Vs. Balbir Nath Mathur & Ors. the Supreme Court observed :-

"The primary and foremost task of a court in interpreting a statute is to ascertain the intention of the legislature, actual or imputed. Having ascertained the intention, the Court must then strive to so interpret the statute as to promote and advance the object and purpose of the enactment. For this purpose, where necessary the court may even depart from the rule that plain words should be interpreted according to their plan meaning. There need be no meek and mute submission to the plainness of the language. To avoid patent injustice, anomaly or absurdity or to avoid invalidation of a law, the court would be well justified in departing from the so called golden rule of construction so as to give effect to the object and purpose of the enactment by supplementing, the written word if necessary."

31. Words must be interpreted in a manner and given meaning to render the provision workable in a fair manner. There is a presumption that the legislature would not enact a section which produces unjust or inconvenient results. Rule of law presumes and enforces minimum standard of fairness both substantive and procedural. In the decision reported as (2003) 3 SCC 485 Chanchal Goel (Dr.) Vs. State of Rajasthan, the Supreme Court referred to D.Smith's Administrative Law and approved observations in the decision reported as (1997) 3 All ER 577 Pierson v. Secretary of State for Home Department, while discussing the plea of legitimate expectation. In Pierson's case (supra), Lord Steyn referred to Cross on Statutory Interpretation (Third Edition, 1995), and observed:-

"Statutes often go into considerable detail, but even so allowance must be made for the fact that they are not enacted in a vacuum. A great deal inevitably remains unsaid. Legislators and drafters assume that the courts will continue to act in accordance with well-recognised rules... Long- standing principles of constitutional and administrative law are likewise taken for granted,

or assumed by the courts to have been taken for granted, by Parliament. Examples are the principles that discretionary powers conferred in apparently absolute terms must be exercised reasonably, and that administrative tribunals and other such bodies must act in accordance with the principles of natural justice. One function of the word 'presumption' in the context of statutory interpretation is to state the result of this legislative reliance (real or assumed) on firmly established legal principles. There is a 'presumption' that mens rea is required in the case of statutory crimes, and a 'presumption' that statutory powers must be exercised reasonably. These presumptions apply although there is no question of linguistic ambiguity in the statutory wording under construction, and they may be described as 'presumptions of general application'.... These presumptions of general application not only supplement the text, they also operate at a higher level as expressions of fundamental principles governing both civil liberties and the relations between Parliament, the executive and the courts. They operate here as constitutional principles which are not easily displaced by a statutory text...."

32. Guided as aforesaid, we agree that the reasoning by the Division Bench of the Bombay High Court is correct and thus we adopt the same as our reasoning.

33. The criticism of the view taken in Dirk‟s case (supra) by the learned counsel for the respondent, premised on Article 9 of the UNCITRAL Model Law which reads : 'Arbitral agreement an interim measures by Court. It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a Court an interim measure or protection and for a Court to grant such measure.‟ is noted by us and rejected for the reason the legislative intent in India to confer power on a Court post award by way of an interim measure does not mean that the legislative intent was to vest

an all embracing, all pervading power in favour of any party, irrespective of it being the loosing party."

17. Under the circumstances we dispose of the application directing the Registrar General of this Court to release the amount deposited by the respondent, together with interest which has accrued thereon, to the applicant State Bank of India.

18. No costs.

(PRADEEP NANDRAJOG) JUDGE

(PRATIBHA RANI) JUDGE APRIL 09, 2015 mamta