M/S. P E C Limited vs M/S. Kandla Energy And Chemicals ...
2016 Latest Caselaw 6693 Del

$~
*    IN THE HIGH COURT OF DELHI AT NEW DELHI

                               Date of decision:27th October, 2016

+          FAO(OS) No. 95/2016

     M/S. P E C LIMITED
                                                    ..... Appellant
                             Through: Mr. Dhruv Mehta, Sr.
                             Adv. with Mr. Rajesh Kumar, Ms.
                             Anupama Dhruve and Mr. Anubhav
                             Ray, adocates.

                             versus

     M/S. KANDLA ENERGY AND CHEMICALS LTD. & ANR.
                                       ..... Respondent
                      Through: Mr.Akhil Sibal, Ms.
                      Manmeet Kaur, Mr. Yashvardhan &
                      Ms. Riya, Advocates for respondent
                      No.2.
          CORAM:
     HON'BLE MS. JUSTICE INDIRA BANERJEE
     HON'BLE MR. JUSTICE ASHUTOSH KUMAR
                           JUDGMENT

INDIRA BANERJEE , J (ORAL)

1. This appeal is against a judgment and order dated 5.10.2016 of

the learned Single Bench disposing of an application filed by

the appellant under Section 9 of the Arbitration and

Conciliation Act, 1996, hereinafter referred to as the 1996 Act

after vacating the earlier interim orders passed in the said

application.

2. The appellant, M/s.P.E.C. Limited, a Government of India

enterprise filed an application under Section 9 of the 1996 Act

seeking interim reliefs against M/s. Kandla Energy and

Chemicals Limited and M/s Adani Ports and Special Economic

Zone Ltd. being respondent Nos. 1 and 2.

3. The respondent No.1 Kandla Energy and Chemicals Ltd.

hereinafter referred to as KECL had approached the appellant

for financing the import of 2000 metric tones of heavy

aromatics of South Korean origin, which is hereinafter referred

to as 'the cargo' from a foreign supplier in Singapore.

4. An agreement was executed on 7th May, 2014, by and between

the appellant and M/s. KECL, in terms whereof the appellant

agreed to finance the import of the cargo on the terms and

conditions stipulated in the said agreement.

5. Pursuant to and/or in terms of the said agreement between the

appellant and KECL, KECL pledged the entire cargo in favour

of the petitioner, but agreed to store it at its own cost and risk.

The appellant claims first charge on the cargo.

6. It was also agreed by and between the appellant and KECL, that

in the event of failure of KECL to pay the entire cost of import

within the stipulated time, the appellant would be at liberty to

sell the goods to any third party, without reference to and at the

cost and risk of KECL. KECL was also to indemnify the

appellants against any loss, damage or costs, which the

appellant might incur or suffer with regard to the import, or in

relation to the agreement.

7. The agreement contained an arbitration clause for reference of

disputes between the appellant and KECL to arbitration, in

accordance with the rules of arbitration of the Indian Council of

Arbitration. The venue of the arbitration was to be at Delhi and

Courts in Delhi were to have jurisdiction.

8. Pursuant to/and in terms of the said agreement the appellant got

a Letter of Credit opened on 8th May, 2014 by its banker,

the State Bank of Tranvacore, Parliament Street, New

Delhi, in favour of the foreign supplier for a sum of US $

21,12,140.57, being the value of the cargo.

9. It appears that the import was made on 23rd May, 2014. On 11th

June, 2014, KECL executed a Deed of Pledge, pledging the

entire cargo covered by the Letter of Credit to the appellant.

10. It is pleaded that on the same day, that is, 11th June 2014,

KECL entered into a High Seas Agreement with the appellant

whereby the appellant agreed to sell the cargo to KECL.

11. By a letter dated 14th June, 2014, the respondent No.2,

hereinafter referred to as Adani Ports confirmed that it had

received the cargo, which had been stored at its bonded

warehouse. Adani Ports undertook to release the cargo to

KECL after a 'No Objection' Certificate was given by the

appellant, and after payment by KECL of the warehousing

charges of Adani Ports in terms of the contract executed by and

between KECL and Adani Ports on 24th September 2013.

12. At the request of KECL, the Letter of Credit was extended from

time to time, the last extension being on 13th February. In the

meanwhile correspondence ensued between KECL and the

appellant with regard to removal of the cargo upon payment of

customs duty and other charges and with regard to payment of

the dues of the appellant.

13. On 11th February, 2015, KECL executed a Deed of Undertaking

in favour of the appellant and also issued 13 cheques towards

repayment of the amount financed by the appellant for the

import. Three more cheques were issued in similar fashion.

However, when presented, the cheques were dishonoured and

five proceedings were initiated under the Negotiable

Instruments Act, 1881.

14. Even though KECL had assured the appellant that the cargo

would be removed from the warehouse between March and

May 2015, upon payment of the requisite duties and charges,

KECL did not remove the cargo.

15. By an E-mail dated 19th February, 2016, Adani Ports forwarded

a letter dated 12th February, 2016, from the office of the

Principal Commissioner of Customs, Mundra, Gujrat and

requested KECL to clear the cargo upon payment of storage

charges.

16. Thereafter Adani Ports sent a final notice dated 5th January,

2016 to KECL under Section 48 of the Customs Act, 1982

informing KECL that Adani Ports would sell the cargo in its

custody, if customs duties were not cleared within ten days.

17. By a letter dated 23rd February, 2016, the appellant informed

the Custom Authorities of its proposal to auction the cargo,

pledged in its favour by KECL and requested the Customs

authorities to defer the auction proposed to be taken by them.

The Customs authorities were requested to grant 60 days time

to the appellant to conclude the process of sale. According to

the appellant a sum of Rs.13,20,94,675/- was due and payable

from KECL to the appellant as on 20th May, 2016.

18. On 1st June, 2016, the appellant filed an application under

Section 9 before the Single Bench, praying inter alia for orders

of injunction restraining KECL and Adani Ports from selling,

transferring, alienating and/or creating any third party interest

or parting with possession of the heavy aromatics pledged with

the appellant and lying in the bonded warehouse of Adani Ports,

till such time, as the entire dues of the appellant were recovered

from KECL. Further interim reliefs were sought for attachment

of the cargo and for a direction on Adani Ports to allow the

appellant to have access to the cargo for initiation of the auction

sale.

19. On 3rd June, 2016, the Single Bench of this Court passed an

interim order restraining the respondent nos.1 and 2 KECL and

Adani Ports from selling, transferring, alienating and/or

creating any third party interest or parting with possession of

the pledged cargo lying in the bonded warehouse of Adani

Ports at Mundra.

20. On 31st August, 2016, a further order was passed permitting the appellant to initiate steps to auction the heavy aromatics lying in the bonded warehouse of Adani Ports at Mundra. Soon thereafter, Adani Ports filed an application being IA No. 11610/2016 seeking clarification/modification of the order dated 31st August, 2016, which has given rise to the order under appeal.

21. By the order under appeal the earlier interim orders have been vacated and Adani Ports has been directed to initiate the process of selling the goods in question by public auction, if the same has not been done. The learned Single Bench has further directed that the proceeds of the sale would abide by Section 115 of the Customs Act, 1962.

22. The short question in this appeal is whether Adani Ports who is not a party to the arbitration agreement, could have been restrained from selling the cargo in exercise of its rights under the Customs Act, 1962.

23. The learned Single Bench rightly observed that ordinarily an order under Section 9 of the 1996 Act cannot be passed against persons who are not parties to the arbitration agreement. Orders which affect persons who are not parties to an arbitration

agreement, may be issued in certain circumstances, for example, when such persons claim right title or possession from a party to the agreement. However, in no circumstances can a person who is not a party to the arbitration agreement be restrained from exercising an independent right vis-a-vis one of the parties to the arbitration agreement.

24. In the instant case, it is not in dispute that the cargo has been lying in the bonded warehouse of Adani Ports. Adani Ports has an independent right to realise its charges on account of storage of goods in the bonded house from KECL. The appellant cannot, in an application under Section 9 of the 1996 Act restrain Adani Port from exercising such right.

25. Some of the relevant provisions of the Customs Act, 1962 set out hereinbelow for convenience:-

"48. Procedure in Case of Goods not Cleared, Warehoused, or Transshipped within Thirty Days after Unloading:-

If any goods brought into India from a place outside India are not cleared for home consumption or warehoused or transshipped within thirty days from the date of the unloading thereof at a customs station or within such further time as the proper officer may allow or if the title to any imported goods is relinquished, such goods may, after notice to the importer and with the permission of the

proper officer be sold by the person having the custody thereof:

Provided that-

(a) animals, perishable goods and hazardous goods, may, with the permission of the proper officer, be sold at any time;

(b) arms and ammunition may be sold at such time and place and in such manner as the Central Government may direct."

"142A. Liability under Act to be first charge.- Notwithstanding anything to the contrary contained in any Central Act or State Act, any amount of duty, penalty, interest or any other sum payable by an assessee or any other person under this Act, shall, save as otherwise provided in section 529A of the Companies Act, 1956 (1 of 1956), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), and the Insolvency and Bankruptcy Code, 2016, be the first charge on the property of the assessee or the person, as the case may be."

"150. Procedure for Sale of Goods and Application of Sale Proceeds.-

(1) Where any goods not being confiscated goods are to be sold under any provisions of this Act, they shall, after notice to the owner thereof, be sold by public auction or by tender

or with the consent of the owner in any other manner.

(2) The proceeds of any such sale shall be applied-

(a) firstly to the payment of the expenses of the sale,

(b) next to the payment of the freight and other charges, if any, payable in respect of the goods sold, to the carrier, if notice of such charges has been given to the person having custody of the goods,

(c) next to the payment of the duty, if any, on the goods sold,

(d) next to the payment of the charges in respect of the goods sold due to the person having the custody of the goods,

(e) next to the payment of any amount due from the owner of the goods to the Central Government under the provisions of this Act or any other law relating to customs, and the balance, if any, shall be paid to the owner of the goods......"

26. The learned Single Bench has rightly found that Section 48 of the Customs Act provides for sale of the imported goods with the permission of the proper officer if such goods are not cleared for home consumption or warehoused or transshipped within 30 days from the date of the unloading thereof at a

customs station. Section 48 enables the person having the custody of the goods to sell the same.

27. Section 142A provides that any amount of duty, penalty, interest or any other sum payable under the Customs Act, except to the extent provided in Section 529-A of the Companies Act and the other acts mentioned in Section 142A shall be a first charge on the property of the assessee.

28. Under section 58, the owner of a bonded house has the right to sell cargo under the provisions of the Customs Act upon notice to the owner. Section 152 clearly provides the sequence in which the proceeds of the sale are to be applied. Payment is first to be made of freight and other charges payable to the carrier, then of customs duty and then payment of charges due to the person having the custody of the goods. Adani Ports is in custody of the cargo.

29. Under Section 152 (d) charges due to the person in custody of the cargo, which would include outstanding, storage charges such as rent, may be appropriated from the sale proceedings after clearing the expenses of the sale, freight and other charges of the carrier and the duty payable in respect of the goods. The owner would be entitled to goods, only after all the appropriations as aforesaid are made. The learned Single Judge

very rightly held that the petitioners stepped into the shoe of the owner as pledgee. It has no higher rights.

30. The learned Single Bench has rightly vacated the earlier interim orders and permitted the respondent No.2-Adani Ports to sell the cargo. The order under appeal does not call for interference. Needless to mention that Adani Ports shall also consider the offer of tenderers who have submitted their bids pursuant to the tender notice issued by the appellant in terms of the orders of this Court, or any other offers the appellant may procure. The appeal is disposed of accordingly.

INDIRA BANERJEE, J

ASHUTOSH KUMAR, J October 27, 2016 /n