Delhi High Court
Mcarbon Tech Innovation Pvt. Ltd. vs Rajesh Razdan on 14 May, 2020
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: 27.02.2020
Pronounced on: 14.05.2020
+ ARB. A. (COMM.) 23/2019, I.A. No. 11953/2019
MCARBON TECH INNOVATION PVT. LTD. ..... Appellant
Through Mr. Rajeev Sharma, Mr. Nishant
Menon and Mr. Deepesh,
Advocates.
versus
RAJESH RAZDAN ..... Respondent
Through Mr. Sanjeev Puri, Senior Advocate
with Ms. Pragya Puri, Advocate.
CORAM:
HON'BLE MS. JUSTICE JYOTI SINGH
JYOTI SINGH, J.
1. Present appeal has been filed by the Appellant under Section 37 (2)
(b) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to
as Act). Challenge in the appeal is to an interim order dated 12.08.2019
passed by the Learned Arbitrator on an application filed by the
Respondent under Section 17 of the Act. By way of the said impugned
order, the Arbitrator has directed the Appellant to furnish a Bank
Guarantee in favour of the Respondent in the sum of Rs.30 crores from
State Bank of India or HDFC Bank, initially valid for a period of six
months and to be kept alive thereafter, till the passing of the Award. The
Appellant herein is the Respondent before the Arbitrator and the
Respondent herein is the Claimant.
2. Shorn of unnecessary details, the facts necessary to decide the
present appeal are that the Appellant is engaged in the business of
provision of applications for telecom companies with its products
including Happy Hours and USSD Push Campaign Manager, Pick Pack
Interactive pre-call announcement, Loan Advance Solution, etc.
Appellant installs the software products on servers of concerned
customers i.e. the telecom service providers. Each product contains
database software which stores and processes data and the software
application reads and processes data from the concerned database.
3. Respondent was the CEO of the Appellant. The Genesis of the
present dispute lies in the acquisition of the Appellant by Nuance India
Private Limited and Nuance Communications Netherland BV (hereinafter
referred to as buyers) vide Share Purchase Agreement dated 30.12.2016
(hereinafter referred to as SPA).
4. Pursuant to the said acquisition and in terms of the SPA, Nuance
Communications Inc issued an Offer Letter dated 03.02.2017 to the
Respondent and upon his acceptance of the terms and conditions of the
same, an Employment Agreement dated 03.02.2017 was executed
between the Appellant and the Respondent herein.
5. On account of disputes and differences having arisen between the
parties herein, Appellant terminated the employment of the Respondent
on 09.01.2018. Aggrieved by the termination of his employment,
Respondent on 14.03.2018, issued notice invoking Arbitration under the
Arbitration Clause provided in the Employment Agreement. On the
failure of the Appellant to appoint an Arbitrator, Respondent filed a
petition under Section 11 of the Act before this Court and vide order
dated 31.05.2018, this Court appointed a Sole Arbitrator to adjudicate the
disputes between the parties.
6. On 21.08.2018, Respondent filed his Statement of Claim before the
learned Arbitrator raising the following claims:
"Claim No.1 - Earn-Out consideration INR 24,48,79,320/-
Claim No.2 - Salary for 15 months - Rs.2,25,00,000/-
Claim No.3 - Loss of Reputation -INR 20,00,00,000/-
Claim No.4 - Time based and Performance based Equity -
Rs.54,46,980/-
Claim No.4 - Share of Escrow Amount - INR 3,74,56,860/-."
7. Appellant filed its Statement of Defence on 08.11.2018 and the
rejoinder was filed by the Respondent on 30.11.2018.
8. In the interregnum, on 12.10.2018, Appellant filed an application
under Section 16 of the Act challenging the jurisdiction of the learned
Arbitrator. On 08.02.2019, the learned Arbitrator passed an order
dismissing the objections of the Appellant qua Claim Nos. 2 to 4 and held
that Claim Nos. 1 and 5 will be adjudicated at the stage of passing the
final Award. Vide the said order, the learned Arbitrator also directed the
Appellant to secure the Respondent by furnishing a Bank Guarantee for a
sum of Rs. 30 crores. Out of the total amount of Rs. 30 crores, Claim
Nos. 1 and 5, according to the Appellant constitute a sum of
Rs. 28,23,36,180/- (Rupees Twenty Eight Crores Twenty Three Lacs
Thirty Six Thousand One Hundred Eighty).
9. On 11.05.2019, Respondent filed an application under Section 17
of the Act in which pleadings were completed on 21.05.2019. On
05.07.2019, Respondent filed an additional affidavit bringing on record
certain additional facts. According to the Respondent, majority
shareholders of the Appellant were in the process of winding down the
business and selling the same to potential buyers. Respondent
apprehended that the Appellant in order to obstruct or delay the execution
of the Award would encash and utilise the cash reserves of the company
and would eventually leave the jurisdiction of the Tribunal.
10. Appellant filed a reply and contested the said position on twofold
grounds. Firstly, that the Respondent had not made out a case for grant of
interim relief by applying the principles of Order XXXVIII Rule 5 CPC
and secondly, the company had a sound financial standing with its
financial statements showing a huge net worth and there was no question
of the company leaving the jurisdiction of the Tribunal or having any
intent whatsoever to defeat the Award, in case the same was passed in
favour of the Respondent. Learned Arbitrator allowed the application and
granted the interim relief sought for by the Respondent. Operative portion
of the order reads as follows:
"57. In view of the foregoing, I am of the opinion that the
Respondent must furnish a bank guarantee in favour of the
Claimant in the sum of Rs. 30,00,00,000/- (Rs. Thirty Crores)
only. Such bank guarantee should be from State Bank of India
or HDFC Bank. This guarantee should be initially for a
period of six months and should be kept alive thereafter till
the award is finally made. With these directions, the
application under Section 17 is disposed of."
11. Before delving into the respective contentions of the parties at this
stage, it is pertinent to bring on record, that when the matter was being
heard on 27.02.2020, Mr. Puri, learned senior counsel for the Respondent,
on instructions from the Respondent, had made a categorical statement
that the Respondent has already raised Claim nos. 1 and 5 before the
Singapore International Arbitration Centre (SIAC). Learned senior
counsel fairly conceded that the basis of the impugned order directing the
Appellant to furnish a Bank Guarantee in the sum of Rs. 30 crores was
the amount claimed under Claim nos. 1, 2, 4 and 5. However, since two
claims have now been referred before SIAC, the Bank Guarantee required
to be furnished by the Appellant will only be in the sum of
Rs.2,79,46,980/-.
12. There is a dispute between the parties even with regard to the
reason for termination of the Employment Agreement of the Respondent.
While the Appellant blames the Respondent for a professional
misconduct, Respondent alleges that it was a malafide act on behalf of the
Appellant to dispense with the services of the Respondent as they wanted
to oust the officers holding senior positions in the erstwhile management.
However, this Court need not trouble itself with this controversy as the
validity of termination of the Employment Agreement would be decided
by the Arbitral Tribunal at the time of final adjudication. Present appeal
only concerns with the interim order by which the Appellant has been
directed to furnish Bank Guarantee during the pendency of the arbitration
proceedings.
13. Assailing the impugned order, Mr. Rajeev Sharma, learned counsel
for the Appellant contends that the impugned order has been passed in
violation of the judgment of the Supreme Court in case of State Bank of
India v. Ericsson India Private Limited & Ors., [(2018) 16 SCC 617] as
well as of this Court in BMW India Private Limited v. Libra
Automotives Private Limited & Ors. [(2019) 261 DLT 579] and Lanco
Infratech Ltd. v. Hindustan Construction Company Ltd. [(2016) 234
DLT 175], wherein it has been held that an order under Section 17 of the
Act can be passed only if the Tribunal is satisfied that principles of Order
XXXVIII Rule 5 CPC are met. Learned Arbitrator having held in para
49 that no single instance could justify or satisfy grant of an order under
Section 17, passed an interim order. Alleged financial condition of the
Appellant cannot be a ground to justify the impugned order as held in the
case of Natrip Implementation Society Vs. IVRCL Limited, [2016 SCC
OnLine Del 5023].
14. It is further argued that the Supreme Court in Raman Tech. &
Process ENGG. CO. & Anr. v. Solanki Traders, [(2008) 2 SCC 302] has
held that power under Order XXXVIII Rule 5 CPC is a drastic and extra
ordinary power and should be exercised sparingly and not mechanically
and the mandatory precondition for passing the order would be an actual
sale and purchase of the assets by the Respondent in a given case, with a
view to evade the decree that may be passed in favour of a claimant. It is
submitted that the Arbitrator has confused itself in as much as in one part
of the order it has reached a conclusion that conditions of Order XXXVIII
Rule 5 CPC have been met, while in the other it appears that the
Arbitrator was of the view that such principles need not be met, while
passing an order under Section 17 of the Act. It is also submitted that the
Respondent was unable to point out a single incident to prove that the
Appellant was selling or about to sell its properties to defeat the claim of
the Respondent.
15. It is next contended that the Arbitrator completely failed to
appreciate that the Appellant's letter dated 13.11.2018 regarding end-of-
life and wind down process, was purely a business decision and was not
with an intention to defeat the Award. Mr. Sharma submits that the
circumstances set out by the Respondent for grant of relief were that
shareholders of the Appellant were selling the Appellant company and the
Appellant had not renewed certain contracts. He submits that in the two
affidavits filed by the Respondent there was no indication that Appellant
was transferring its properties to obstruct the Award and there was no
mention of any conduct on the part of the company and all that was
referred to was the conduct of its shareholders which would not attract
Order XXXVIII Rule 5 CPC. Though it is true that the shareholders are
engaged in negotiations for sale of their shares in the company, but sale
of shares by shareholders only relates to the ownership of the Appellant
and not to the financial condition of the company. Change of ownership
of shares cannot be any indication of any change in the company's
financial health.
16. Counsel contends that the impugned order overlooks the fact that
the claims are seriously disputed and even application under Section 16
of the Act is pending adjudication. Arbitrator has converted an unsecured
debt of the Respondent into secured debt. Power under Section 17 of the
Act cannot be extended to secure speculative, undetermined and disputed
claims of damages, without there being a determination of the same.
Claims of the Respondent are in the nature of damages and need to be
first crystallized and adjudicated.
17. Counsel next argues that without any reason and basis the
Arbitrator came to an omnibus conclusion that Appellant was packing its
business from India due to dwindling business and heavy losses. It is
submitted that Appellant is an Indian company which is still in existence
and business. Appellant's letter dated 13.11.2018, only refers to platform-
based product portfolio and also expressly states that Appellant would
plan to develop new products. It is, in fact, a strange conclusion of the
Arbitrator as common business sense would never allude to the fact that
anyone would wind up entire business only to defeat an Award by the
Arbitrator. Insofar as declining revenues are concerned, the revenues
were declining even in 2016 - 2017 when the Respondent was the CEO
of the Appellant.
18. Mr. Sanjeev Puri, learned senior counsel on behalf of the
Respondent per contra contends that the defence of the Appellant before
the Tribunal and this Court is primarily based on strict applicability of
provisions of Order XXXVIII Rule 5 CPC in securing the disputed
amount during the arbitration proceedings. Appellant has mainly relied on
two decisions i.e. Raman Tech. (supra) and State Bank of India (supra)
in support of this proposition. Mr. Puri argues that the first decision has
no applicability in the present case since that case pertains to a suit and
not Arbitration and Order XXXVIII Rule 5 CPC will not have strict
application in the present case. Moreover, the Tribunal has itself
distinguished the said judgment in paragraph 42 of the impugned order.
Insofar as the second judgment is concerned, in the said case an order
under Section 17 of the Act was passed against the party who was not
even a party before the Arbitral Tribunal. The Court had thus held that the
Tribunal had no jurisdiction to effect rights of third parties and order for
interim measures can only be passed against a party to a suit/arbitration.
The said judgment has been clearly distinguished by the learned
Arbitrator in paragraph 43 of the impugned order.
19. Mr. Puri, learned senior counsel further argues that in arbitration
proceedings provisions of Order XXXVIII Rule 5 CPC will not have
strict application and only the underlying principles are to be followed.
Having applied the underlying principles, the Tribunal has in paragraph
49 clearly held that the application filed by the Respondent under Section
17, looking to its contents, broadly satisfied the conditions and
requirements of Order XXXVIII Rule 5 CPC. Learned senior counsel
specifically points out that in its application under Section 17 of the Act,
Respondent had clearly pleaded in paragraphs 4-9 that the Appellant
company had decided to initiate end-of-life and wind down process for
many of its services, which were undoubtedly the major revenue
generating services provided by the Respondent company. This was clear
from communications dated 13.11.2018 and 16.11.2018 whereby the
Appellant had notified Hutchinson, one of the most high-profiled
customers, about non-renewable of their contracts with the Appellant
company. It was categorically stated in the application that the business
of the Appellant was being wound up and they were about to encash,
appropriate, utilize the cash reserves, with the intent of leaving the
Respondent with only a paper Award and no means to execute it in case
the same was passed in favour of the Respondent.
20. It is further submitted that in reply to the application, Appellant
made certain admissions which were also taken into consideration by the
learned Arbitrator. Appellant clearly admitted that there was non-renewal
of certain contracts and dwindling trend in the business of the company,
revenues showed declining trend and losses showed upward trend. It was
also admitted that net worth of the Appellant was negative in the year
ending 31.03.2018 while it was Rs. 55,40,28,507/- in the year ending
31.03.2016 and that there were negotiations by the shareholders for sale
of their shares. After elaborate discussion on facts, consideration of all
material on record and examining the judgments cited by both parties, the
Tribunal in its wisdom came to a conclusion that looked at holistically, it
appeared that the Appellant was packing up its business due to losses.
The Arbitrator made observations in paragraphs 11 and 14 of the order
and was of the view that an inference could be drawn that the Appellant
had the intent to defeat the Award and render it a paper Award in case the
same was finally passed in favour of the Respondent.
21. Mr. Puri also contends that in paragraph 50 of the order the
Tribunal has clearly held that Respondent had made out a prima facie
case and balance of convenience was also in its favour and thus the
Respondent would suffer irreparable harm and injury if the relief prayed
for was not granted. It is argued, that in the same paragraph, the learned
Arbitrator considered the admissions made by the Appellant as recorded
in paragraph 28 of the impugned order as also the facts recorded in
paragraph 29, being financial distress, admitted losses, descaling of
business operations and held that aforesaid factors individually and
cumulatively show that security must be furnished so that the ultimate
Award is not rendered a nullity. Respondent relies on the judgments in
the case of Steel Authority of India Ltd. v. AMCI Pty Ltd. & Ors. [2011
(3) ARBLR 502 (Delhi)], Gatx India Pvt. Ltd. v. Arshiya Rail
Infrastructure Ltd. [216 (2015) DLT 20], Tower Vision India Private
Limited v. Videocon Telecommunications Limited [2016 SCC OnLine
Del 5273] to support his case.
22. The next argument of the Respondent is that it is no longer res
integra that this Court cannot sit in appeal over the orders passed by the
Arbitral Tribunal under Section 17 of the Act and the scope of
interference is extremely limited. So long as the order balances equities
and is a plausible and equitable view, it should not be interfered with.
Reliance is placed on the decisions of this Court in Shiningkart
Ecommerce Pvt. Ltd. v. Jiayun Data Limited, Arb A. (Comm) 30/2019,
decided on 16.10.2019 and Subhash Chander Chachra and ors. vs
Ashwani Kumar Chachra and ors. [2007 (1) ARBLR 288 (Delhi)].
23. Reiterating his submissions made before the start of the arguments,
Mr. Puri submits that while the amounts directed by the learned
Arbitrator to be secured were calculated to be Rs. 31,02,83,160/-,
however, now that the Respondent has taken certain claims before SIAC,
Respondent prays that the impugned order be upheld only qua claim Nos.
2 and 4, quantification of which is given in paragraphs 51 and 54 of the
impugned order. Thus, the Appellant is required to furnish a Bank
Guarantee only in the sum of Rs. 2,79,46,980/- i.e. Rs.2,25,00,000/- qua
Claim no.2 and Rs. 54,46,980/- qua claim no.4.
24. I have heard the Learned Counsels for the parties.
25. The proposition argued by Mr. Sharma on behalf of the Appellant
can hardly be quarreled with. It is no longer res integra that an order
under Section 17 of the Act can be passed only if the Tribunal is satisfied
that principles of Order XXXVIII Rule 5 CPC are met. In 2007 Supreme
Court in the case of Adhunik Steels Limited v. Orissa Manganese and
Minerals (P) Ltd., (2007) 7 SCC 125, while examining the powers of the
Court under Section 9 of the Act held as under :-
"10. It is true that Section 9 of the Act speaks of the court by
way of an interim measure passing an order for protection,
for the preservation, interim custody or sale of any goods,
which are the subject matter of the arbitration agreement
and such interim measure of protection as may appear to the
court to be just and convenient. The grant of an interim
prohibitory injunction or an interim mandatory injunction
are governed by well known rules and it is difficult to
imagine that the legislature while enacting Section 9 of the
Act intended to make a provision which was de hors the
accepted principles that governed the grant of an interim
injunction. Same is the position regarding the appointment
of a receiver since the Section itself brings in, the concept of
'just and convenient' while speaking of passing any interim
measure of protection. The concluding words of the Section,
"and the court shall have the same power for making orders
as it has for the purpose and in relation to any proceedings
before it" also suggest that the normal rules that govern the
court in the grant of interim orders is not sought to be
jettisoned by the provision. Moreover, when a party is given
a right to approach an ordinary court of the country without
providing a special procedure or a special set of rules in
that behalf, the ordinary rules followed by that court would
govern the exercise of power conferred by the Act. On that
basis also, it is not possible to keep out the concept of
balance of convenience, prima facie case, irreparable injury
and the concept of just and convenient while passing interim
measures under Section 9 of the Act."
26. A Division Bench of the Bombay High Court in the case of
Nimbus Communications Limited v. Board of Control for Cricket in
India and Ors., 2012 SCC OnLine Bom 287, relying on Adhunik Steels
(supra) held as under:
"22. The judgment of the Supreme Court in Adhunik Steels
has noted the earlier decision in Arvind Constructions which
holds that since Section 9 is a power which is conferred
under a special statute, but which is exercisable by an
ordinary court without laying down a special condition for
the exercise of the power or a special procedure, the general
rules of procedure of the court would apply. Consequently,
where an injunction is sought under Section 9 the power of
the Court to grant that injunction cannot be exercised
independent of the principles which have been laid down to
govern the grant of interim injunctions particularly in the
context of the Special Relief Act 1963. The Court,
consequently would be obligated to consider as to whether
there exists a prima facie case, the balance of convenience
and irreparable injury in deciding whether it would be just
and convenient to grant an order of injunction. Section 9,
specifically provides in sub-clause (d) of clause (ii) for the
grant of an interim injunction or the appointment of a
receiver. As regards sub-clause (b) of clause (ii) the interim
measure of protection is to secure the amount in dispute in
the arbitration. The underlying object of Order 38 Rule 5 is
to confer upon the Court an enabling power to require a
defendant to provide security of an extent and value as may
be sufficient to satisfy the decree that may be passed in
favour of the plaintiff. The exercise of the power to order
that security should be furnished is, however, pre-
conditioned by the requirement of the satisfaction of the
Court that the defendant is about to alienate the property or
remove it beyond the limits of the Court with an intent to
obstruct or delay execution of the decree that may be passed
against him. In view of the decisions of the Supreme Court
both in Arvind Constructions and Adhunik Steels, it would
not be possible to subscribe to the position that the power to
grant an interim measure of protection under Section
9(ii)(b) is completely independent of the provisions of the
Code of Civil Procedure 1908 or that the exercise of that
power is untrammeled by the Code. The basic principle
which emerges from both the judgments of the Supreme
Court is that though the Arbitration and Conciliation Act
1996 is a special statute, Section 9 does not either attach a
special condition for the exercise of the power nor does it
embody a special form of procedure for the exercise of the
power by the Court. The second aspect of the provision
which has been noted by the Supreme Court is the
concluding part of Section 9 under which it has been
specified that 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. This has been interpreted in both
the judgments to mean that the normal rules that govern the
Court in the grant of an interlocutory order are not
jettisoned by the provision. The judgment of the Division
Bench of this Court in National Shipping Company (supra)
notes that though the power by Section 9(ii)(b) is wide, it
has to be governed by the paramount consideration that a
party which has a claim adjudicated in its favour ultimately
by the Arbitrator should be in a position to obtain the fruits
of the arbitration while executing the Award. The Division
Bench noted that the power being of a drastic nature, a
direction to secure the amount claimed in the arbitration
petition should not be issued merely on the merits of the
claim, unless a denial of the order would result in grave
injustice to the party seeking a protective order. The
obstructive conduct of the party against whom such a
direction is sought was regarded as being a material
consideration. However, the view of the Division Bench of
this Court that the exercise of power under Section 9(ii)(b)
is not controlled by the provisions of the Code of Civil
Procedure 1908 cannot stand in view of the decision of the
Supreme Court in Adhunik Steels.
xxx xxx xxx
24. A close reading of the judgment of the Supreme Court in
Adhunik Steels would indicate that while the Court held that
the basic principles governing the grant of interim
injunction would stand attracted to a petition under Section
9, the Court was of the view that the power under Section 9
is not totally independent of those principles. In other words,
the power which is exercised by the Court under Section 9 is
guided by the underlying principles which govern the
exercise of an analogous power in the Code of Civil
Procedure 1908. The exercise of the power under Section 9
cannot be totally independent of those principles. At the
same time, the Court when it decides a petition under
Section 9 must have due regard to the underlying purpose of
the conferment of the power upon the Court which is to
promote the efficacy of arbitration as a form of dispute
resolution. Just as on the one hand the exercise of the power
under Section 9 cannot be carried out in an uncharted
territory ignoring the basic principles of procedural law
contained in the Code of Civil Procedure 1908, the rigors of
every procedural provision in the Code of Civil Procedure
1908 cannot be put into place to defeat the grant of relief
which would subserve the paramount interests of justice. A
balance has to be drawn between the two considerations in
the facts of each case. The principles laid down in the Code
of Civil Procedure 1908 for the grant of interlocutory
remedies must furnish a guide to the Court when it
determines an application under Section 9 of the Arbitration
and Conciliation Act, 1996. The underlying basis of Order
38 Rule 5 therefore has to be borne in mind while deciding
an application under Section 9(ii)(b)."
27. Mr. Sharma is also right in his contention that in Raman Tech.
(supra), Supreme Court has held that powers under Order XXXVIII Rule
5 CPC are drastic and extraordinary powers and should be exercised
sparingly and not mechanically and the mandatory pre-condition for
passing the order would be an actual act of the opposite party trying to
remove the essence or the subject matter of the arbitration beyond the
jurisdiction of the Tribunal.
28. Mr. Puri, learned senior counsel is equally right in his contention
that provisions of Order XXXVIII Rule 5 CPC would not have strict
application and only the underlying principles are to be followed.
29. Equally correct is the proposition argued by Mr. Puri, learned
senior counsel that the scope of interference in the orders of the Tribunal
passed under Section 17 is limited. So long as the order balances equities
and is a plausible view, it should not be interfered with. This has been so
held in the case of Shiningkart Ecommerce (supra) and Subhash
Chander Chachra (supra).
30. Thus, what this Court needs to examine is whether the Tribunal
while passing the impugned order has applied the well settled principles
i.e. prima facie case in favour of the Respondent and prima facie
satisfaction that the Appellant was in the process of removing its assets
from the jurisdiction of the Tribunal to defeat the Award that may be
passed in favour of the Respondent. It also needs to be examined whether
the view taken by the Tribunal based on these considerations is a
plausible view.
31. The Tribunal in para 11 of the impugned order takes note of a
letter dated 13.11.2018 written by the Director of the Appellant to PT.
Hutchinson 3 Indonesia, 10F, Menara Mulia, Jl. Jend. Gatot Subroto Kav
9-11, Jakarta Selatan 12930, Republic of Indonesia, notifying the latter
that the Appellant had begun end-of-life and wind down process and that
the services would be discontinued at the earliest on account of recent
trends in the telecom market causing decrease in profitability. It is also
notified that the Appellant will not develop any new products and would
not renew any of its agreements listed in the letter. The Tribunal in para
14 extracts a table showing the declining revenues of the Appellant over
the years, a position which was candidly accepted by the Appellant.
Further down in para 28, the Tribunal records the bullet points which are
admitted by the Appellant and which are as under :-
"28. In the written submissions on behalf of the Claimant, it
has been contended that in the reply to the application, the
Respondent has made the following admissions:-
a. Non-renewal of certain contracts and dwindling
trend in the business of the Company - Para D Pg 3 of
Reply.
b. Revenues of the Respondent showing declining
trend and losses showing upward trend- Para F, Pg 4
of the Reply.
c. Losses in the year 2017-2018 are 46,37,82,467
which are even more than the revenue of Rs. 33,37,81,
302- Para F, Pg 4 of the Reply.
d. Net worth of Respondent is negative as on year
ending 31.03.2018 - Balance sheet, while it was
55,40,28,507 as on year ending 31.03.2016.
e. Admits that fact of negotiations of sale by
shareholder (which companies have 100%
shareholding)- Para D at Pg 3 of Reply."
32. In the subsequent paras, the Tribunal discusses the judgments with
respect to the powers of the Tribunal and the Guiding Principles of Order
XXXVIII Rule 5 CPC. Reading of paras 33 to 37 shows that the Tribunal
was conscious of the judgments of various Courts on the applicability of
the tests of a prima facie case and principles of Order XXXVIII Rule 5
CPC while passing an order of interim relief under Section 17 of the Act.
In the subsequent paragraphs, the Tribunal considers the judgments relied
upon by the Appellant and distinguishes them on facts. Finally, in para
49, the Tribunal records that the text of the application filed by the
respondent under Section 17 of the Act, broadly satisfies the requirement
of Order XXXVIII Rule 5 CPC. The Tribunal finally rendered a finding
that looked at holistically, it appeared that the Appellant was packing up
its business from India due to heavy losses which it notes in paras 11 and
14 of the order. On the basis of the facts and figures before it, the
Tribunal concludes that the Appellant is in the process of winding up its
business and there is an intent to defeat the Award that may be finally
passed in the matter making it a mere paper decree. Tribunal also
observes that the respondent has a prima facie case and balance of
convenience also lies in favour of the respondent.
33. On these findings, the Tribunal in its wisdom concludes that an
order needs to be passed to protect the respondent. Relevant part of the
impugned order is as under :-
"48. I have given my serious consideration to the case of both
sides and the various judgments cited for and against seeking
an order under Section 17. I am of the view that for passing
an order under Section 17; an exercise of equitable
jurisdiction; the Tribunal is not bound by the principles laid
down in Order XXXVIII Rule 5 but has to be guided by those
principles. The Tribunal has also to keep in mind the claim
made and the nature of the claim in the arbitration
proceedings. As held in Ajay Singh's case by the Division
Bench of the Delhi High Court, there seems to be two
divergent strands in judicial thinking but the matter is one of
the weight to be given to the materials on record, a fact-
dependent exercise rather than principle. The Tribunal does
not have to be unduly bound by the test of the provision of
Order XXXVIII Rule 5.
49. In the instant case, the Claimant/applicant has pleaded in
the application seeking interim relief under Section 17 which,
to my mind, broadly satisfies the conditions and requirements
of Order XXXVIII Rule 5. No single instance can be said to
justify or satisfy the considerations for grant of an order
under Section 17 but looking at the matter holistically, it
appears to me that the Respondent is 'packing up' its business
from India due to its dwindling business and heavy losses as
noticed in paragraphs 11 and 14 herein above. From the
consideration of facts in totality one can draw the inference
that the intention of the Respondent Company is to wind up its
business totally which would show that it intends to defeat the
Award that may finally be passed in the matter thereby
making the Award and decree a paper decree.
50. I am of the view that the Claimant has a prima facie good
case and the balance of convenience is also in favour of the
Claimant/applicant who would suffer an irreparable harm
and injury if no order under Section 17 is passed in his
favour. The admissions supposed to have been made by the
Respondent as summarized in paragraph 28 above as well as
the facts recorded in paragraph 29 make me conclude that
prima facie, the Claimant/applicant is entitled to an order
under Section 17. As stated in paragraph 9 of the written
submissions on behalf of the Respondent, the object of such an
order is to prevent a party from defeating the realization of a
decree that may be passed."
34. Having gone through the impugned order, this Court is of the
opinion that the order suffers from no infirmity. The view is a plausible
view based on the material before the Tribunal. Documents on record
prima facie indicated that the Appellant was winding up its business and
in its wisdom the Tribunal thought that it was a case where the
respondent needed to be protected. In Emaar MGF Land Limited v.
Kakade British Realities Private Limited and Anr., 2013 (138) DRJ 507,
this Court has laid down the parameter for interference in an order passed
by the Tribunal under Section 17 of the Act. Relevant paras read as
under :-
"6. Having heard the learned counsel for the parties,
according to me, what requires to be examined is not how
this court would have ruled had the matter been placed
before it, in the first instance but, whether the conclusion
reached by the learned arbitrator was reasonably possible
based on the material placed before him. The scope of an
appeal qua discretion employed by an authority of the first
instance is restricted to an appeal on principle. Therefore,
the appellate court is not to interdict the exercise of
discretion employed by the original authority and substitute
the same with its own view in the matter, except when, it is
shown that the discretion exercised in the matter is imbued
with arbitrariness, is capricious, or has resulted in
perversity, or the impugned order is passed in ignorance of
the settled principles of law for grant or refusal of
interlocutory injunctions [see Wander Ltd. and Anr.
(supra)].
8. I find that there is nothing in the interim order which
calls for interference. None of the factor for grant of interim
order are ignored. The discretion, in the grant of
interlocutory orders, is that of the authority, which passed
the order in the first instance, in this case, the learned
arbitrator-Which I do not propose to interdict even if I were
to hold a view different from that of the learned arbitrator
except in situations articulated hereinabove."
35. The only other issue that needs to be considered is the amount of
Bank Guarantee which the Appellant is required to furnish. As recorded
above, Mr. Puri, learned senior counsel had fairly conceded that in view
of the fact that only Claim nos.2 and 4 are pending adjudication before
the Tribunal, the Bank Guarantee directed to be furnished may be reduced
proportionately.
36. The impugned Order of the Tribunal is upheld with a modification
that the amount of Bank Guarantee which the Appellant will be required
to furnish will be proportionate to the two pending claims before the
Tribunal, as against the sum of Rs.30 Crores directed by the impugned
order. The Appellant is at liberty to file an application before the Tribunal
seeking necessary modification and the Respondent undertakes not to
contest the same.
37. There is no merit in the appeal and the same is hereby dismissed.
38. Pending application is also dismissed.
JYOTI SINGH, J
MAY 14th , 2020
yg
