ARBP/63/2019
2021 Latest Caselaw 3277 Ori

                             ARBP No. 63 of 2019




                             I.A. No. 28 of 2020

05.03.2021

1. Heard Mr. D. Panda, learned counsel for the Petitioner M/s. Uniexcel Group Holding Co. Ltd. (UGHCL) and Mr. S. Parekh, learned counsel for the Opposite Party National Aluminium Company Limited (NALCO).

2. NALCO has filed this application under Section 9 of the Arbitration and Conciliation Act, 1996 (in short 'Act') for a direction to UGHCL to deposit the entire amount awarded under the arbitral Award dated 15th July, 2019 in the Registry of this Court as a pre-condition for hearing of the arbitration petition i.e. ARBP No.63 of 2019 filed by UGHCL under Section 34 of the Act and for securing the said amount awarded by the sole Arbitrator in favour of NALCO.

3. The background to the present application is that UGHCL is a company incorporated under the Laws of British Virgin Islands, having its registered office at Fu Hsing North Road Tapiei 10476 Taiwan (Republic of China). A fact, which is not in dispute, is that UGHCL is not operating in India and has no assets in India. Another admitted fact is that along with its petition under Section 34 of the Act i.e. ARBP No.63 of 2019, UGHCL did not file any application under Section 36 (2) of the Act seeking stay of the Award dated 15th July, 2019.

4. The arbitration by a sole Arbitrator was an international commercial arbitration and took place under the aegis of the International Chambers of Commerce. The case of NALCO, which was the claimant, was that UGHCL committed a breach of the contract of sale of goods by refusing to take the last shipments of the goods. The sole Arbitrator awarded NALCO damages constituting the difference between the contract price and the market price of the goods on the date of the breach. The sole Arbitrator awarded NALCO a sum of USD 469,850 together with the post award interest @ 9.5%.

5. Mr. Sameer Parekh, learned counsel for NALCO submits that since UGHCL has no assets in India, NALCO is not in a position to file an application for the execution of the Award in India. He submits that even if ARBP No.63 of 2019 filed by UGHCL under Section 34 of the Act is dismissed, NALCO would not be able to enforce the Award in India. Additionally, Mr. Parekh points out that the entire fees of the ICC arbitration, including UGHCL's share, was deposited by NALCO. It is also pointed out that the Award is a foreign award in an international commercial arbitration and, therefore, the scope to challenge under Section 34 of the Act, after the amendment to the Act with effect from 23rd October 2015, is narrow since no review on merits of

the dispute is permissible. The ground of patent illegality on the face of the award is no longer available. He urges that UGHCL should be asked to either deposit the entire awarded sum in this Court or provide adequate security to ensure its enforceability in the event of UGHCL failing in its challenge to the Award.

6. Mr. Parekh, in support of his submissions on the maintainability of the application under Section 9 of the Act relied on the decision of the Supreme Court in Hindustan Construction Company Ltd. v. Union of India, 2019 SCC Online SC 1520 (hereafter HCCL), the decision of the Delhi High Court in Power Mech Projects Ltd. v. SEPCO Electric Power Construction Corporation (decision dated 17th February, 2020 in O.M.P.(I) (COMM) 523 of 2017) (hereafter 'Power Mech'), the decision of the Calcutta High Court in Candor Gurgaon Two developers & Projects Pvt. Ltd. v. Srei Infrastructure Finance Ltd. 2018 SCC Online Cal 2430, and the decision of the Madras High Court in M/s. Samson Maritime Limited v. Hardy Exploration & Production (India) Inc. 2016 SCC Online Mad 9122.

7. UGHCL resists the application. It is first submitted by Mr. D. Panda, learned counsel for UGHCL, that the timing of present application is suspect. It is pointed out that no reply was filed by NALCO to UGHCL's petition under

Section 34 of the Act for about seventeen months, and when the petition was ripe for arguments, the present application has been filed only to scuttle the hearing. It is repeatedly urged by Mr. Panda that there is no change in the circumstances from the time of the contract to warrant the seeking of interim relief from the Court by invoking Section 9 of the Act. NALCO always knew that UGHCL has no assets in India and is operating entirely on foreign soil.

8. While not disputing that even now UGHCL is not seeking a stay of the Award in question, Mr. Panda, relying on the decision of the High Court of Bombay in Centrient Pharmaceuticals India Pvt. Limited v. Hindustan Antibiotics Ltd. (2019) SCC Online Bom 1614, submits that on the plain reading of Sections 9 and Section 36 of the Act, the only remedy available to NALCO was to execute the Award and recourse of Section 9 of the Act is not available. Reliance is also placed on another decision of the Bombay High Court in Karvy Financial Services Ltd. v. Progressive Construction Ltd, MANU/MH/2473/2014. Mr. Panda seeks to refer to certain passages of the decision in HCCL to urge that the question of providing appropriate security does not arise since the award is fully capable of being executed and this if at all, would be a matter within the province of the executing court alone.

9. Mr. Panda does not dispute that UGHCL has no assets in India. Nevertheless, according to him, at this stage when NALCO can seek to enforce the Award under Section 36 (2) read with Section 36 (3) of the Act, the question of NALCO being granted interim relief under Section 9 of the Act does not arise. A comparison is drawn with Section 19 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act), which mandates pre-deposit of the awarded sum for entertaining a challenge to the award, and the absence of such a provision in the Act. It is submitted that NALCO should not be permitted to achieve indirectly what it cannot directly.

10. Mr. Panda points out that the same learned Single Judge of the Delhi High Court who authored the decision in Power Mech delivered a subsequent decision in Indian Oil Corporation Limited v. Toyo Engineering Corporation (decision dated 6th March 2020 in O.M.P. (COMM) 316/2019), where a prayer for deposit of 100% of the awarded amount as a pre-condition for entertaining a challenge to the Award under challenge in a petition under Section 34 of the Act was rejected.

11. Mr. Panda refers to the decision in M/s. Icomm Tele Ltd v. Punjab State Water Supply and Sewerage Board (2019) 4 SCC 401 where such 'deposit-at-call' clause in the

contract requiring deposit of 10% of the awarded sum as a precondition for invoking arbitration was held to be ultra vires Article 14 of the Constitution of India as it discourages arbitration.

12. Lastly Mr. Panda referred to the decisions in Arvind Constructions Company Private Limited v. Kalinga Mining Corporation (2007) 6 SCC 798 and Raman Tech & Process Engineering Co. v. Solanki Traders, (2008) 2 SCC 302 and urged that the general rules that govern the grant of interlocutory reliefs would be applicable even while dealing with an application under Section 9 of the Act post the stage of pronouncement of the Award. He also referred to the decision in Adhunik Steels Ltd. v. Orissa Manganese and Minerals Pvt. Ltd. (2007) 7 SCC 125, the decision of the High Court of Madras in C.S.S. Corp Pvt. Ltd. v. Space Matrix Design Consultants Pvt. Ltd. (2012) 1 CTC 225; of the Bombay High Court in Nimbus Communications Ltd. v. BCCI, (2012) 4 Arb. LR 113 and the decision of the Delhi High Court in C.V. Rao v. Strategic Ports Investments KPC Ltd., (2015) 218 DLT 200 (DB) and submitted that this Court has to examine whether the balance of convenience is in favour of UGHCL in denying the interim relief as prayed for by NALCO.

13.1 Since both the parties have relied extensively on the decision in HCCL, the Court first would like to discuss the said decision in some detail. HCCL, an infrastructure construction company, undertaking projects for public utilities was said to be facing a major problem when awards in its favour were challenged under Section 34 of the Act resulting in an automatic stay of their enforcement. It was argued by HCCL that Article 36 of the UNCITRAL Model Law, on which the Act was based, did not provide for such an automatic stay.

13.2 One of the issues that arose for consideration before the Supreme Court concerned the correctness of its earlier decision in National Aluminium Co. Ltd. v. Pressteel and Fabrications Pvt. Ltd. (2004) 1 SCC 540. In para 30 of the judgment in HCCL, the three-Judge Bench of the Supreme Court categorically held that the decisons in NALCO (supra) and Fiza Developers & Inter Trade Pvt. Ltd. v. AMCI (I) Pvt. Ltd. (2009) 17 SCC 796 were 'per incuriam' since they failed to notice Sections 9 and 36 and in particular the second part of Section 36 of the Act. It was held that the subsequent amendment to Section 36 of the Act in 2019 was 'clarificatory in nature". It merely reiterated the position under the unamended Section 36 that did not result in the grant of an automatic stay of an Award. It was held that the judgment in BCCI v. Kochi Cricket Pvt.

Ltd. (2018) 6 SCC 287 had already clearly enunciated the law in this regard, viz., that there is no automatic stay of an Award if there is a challenge laid to it under Section 34 of the Act.

13.3 Specific to the interplay between Section 9 and Section 36 of the Act, it was held by the Supreme Court that the language of Section 9 of the Act supported the proposition that there was no automatic stay with the mere filing of a Section 34 petition. It was observed as under:

"27. This also finds support from the language of Section 9 of the Arbitration Act, 1996, which specifically enables a party to apply to a Court for reliefs ....after the making of arbitration award but before it is enforced in accordance with Section 36." The decision in NALCO (supra) and Fiza Developers and Intra-Trade Pvt. Ltd. (supra) overlook this statutory position. These words in Section 9 have not undergone any change by reason of the 2015 or 2019 Amendment Acts.

28. Interpreting Section 9 of the Arbitration Act, 1996, a Division Bench of the Bombay High Court in Dirk India Pvt. Ltd. v.

       Maharashtra      State    Power     Generation
       Company Ltd., 2013 SCC OnLine Bom 481
       held that :

'13. ...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."

29. This being the legislative intent, the observation in NALCO (supra) that once a Section 34 application is filed, "there is no discretion left with the Court to pass any interlocutory order in regard to the said Award..." flies in the face of the opening words of Section 9 of the Arbitration Act, 1996, extracted above."

14. Although it was sought to be contended by Mr. Panda, learned counsel for UGHCL that the HCCL judgment supports the proposition that the recourse can be had only to execution proceedings when no stay is sought by the Petitioner challenging an Award under Section 34 of the Act, the Court is unable to draw such inference from a reading of the judgment in HCCL or the plain language of Section 9 of the Act.

15. On the contrary, the judgment of Delhi High Court in Power Mech (supra) supports the case put forth by NALCO. Interestingly, in Power Mech (supra) what appears to have persuaded the Court to require pre-deposit of the awarded amount was that the Petitioner in that case did not have any assets in India. Even its ongoing projects in India could not be accepted as security for making the award enforceable. This was after noticing that the Petitioner in that case was a Central Government owned entity registered in China affiliated to the Power Construction Corporation in China.

16. Although it was sought to be argued by Mr. Panda that the same learned Single Judge of Delhi High Court who decided Power Mech (supra) had declined a similar relief in a subsequent decision in Indian Oil Corporation (supra), it is seen that in was in a different set of circumstances as is evident from the following passage:

"15. I have gone through the various orders including the judgment passed by this Court in the case of SEPCO (supra). It is important to mention that in the case of SEPCO (supra), this Court had noted that there is no mandate of law that in every case the Court should direct 100% deposit of the awarded amount. This is purely in the discretion of the Court and the discretion has to be exercised in the facts and circumstances of each case. In so far as SEPCO (supra) is concerned what had

weighed was the fact that the petitioner therein was a foreign Company, with no assets in India. The various affidavits filed by its disclosing its ongoing projects were also a subject matter of serious dispute between the parties. Most significantly, the distinguishing factor in the case of SPECO (supra) was that when the Court passed the order on 17.02.2020, it was exercising its discretion to direct the petitioner to deposit an amount subject to which the Enforcement of the Award was to be stayed and it was also to be decided whether petition was to be admitted to hearing. Therefore, the stage in SEPCO (supra) was a stage which is comparable with the stage in the present petition when the order of 09.08.2019 was passed. Thus, in my view the two cases are incomparable."

17. As far as the present case is concerned, since it is not even disputed that the Petitioner has no assets in India, it is obvious that even if the petition under Section 34 of the Act were to be dismissed, NALCO would not be able enforce the Award in India.

18. The argument that it is open to NALCO to enforce the Award rightaway and, that making the maintainability of the petition under Section 34 of the Act conditional upon pre- deposit of the awarded would be unreasonable, overlooks the fact that the present stage is a post-Award and not a pre- Award one. The change in circumstance since the contract between UGHCL and NALCO, is that there is now an

international award in favour of NALCO. Given the problem faced by NALCO of not being able to enforce the Award in India, it is permissible for NALCO to invoke Section 9 of the Act to bind down UGHCL to the extent of securing the Award amount. The fact that UGHCL has no assets in India also persuades the Court to accept such a prayer by NALCO.

19. None of the decisions cited on behalf of UGHCL by Mr. Panda are of assistance to him particularly in the context of the case at hand. An important distinguishing feature in those decisions and the facts at hand, is that UGHCL is an entity incorporated outside India and has no assets whatsoever in India. The fact that the Award is enforceable since no application for stay has been filed by UGHCL, does not change the position.

20. Mr. Panda placed great emphasis on the decision of the Delhi High Court in Avantha Holdings Limited v. Vistra ITCL India Ltd. (Decision dated 14th August, 2020 in O.M.P. (I) (COMM) 177/2020) and in particular in para 26 regarding the applicability of the known principles for grant of interim relief to an application under Section 9 of the Act. Even if it were to be accepted that all the principles that govern the grant of interim relief apply to an application under Section 9 of the Act, the balance of convenience in

the present case is clearly in favour of NALCO in granting the interim relief as prayed for.

21. For all the aforementioned reasons, the application is allowed. The Petitioner UGHCL is directed to deposit the entire awarded amount in this Court on or before 1st May, 2021 as a pre-condition to entertaining the arbitration petition i.e. ARBP No.63 of 2019. The amount so deposited, will be kept by the Registry of this Court in a fixed deposit in any Nationalized Bank initially for a period of six months and will be kept renewed thereafter during pendency of the arbitration petition.

22. The I.A. is allowed in the above terms but with no order as to costs.

23. The ARBP No.63 of 2019 be listed on 18th June, 2021 as already directed.

( Dr. S. Muralidhar) Chief Justice S.K. Jena/P.A.