Supreme Court: The Division Bench of Indira Banerjee* and A.S. Bopanna, JJ., contemplated the scope of Section 9 of Arbitration and Conciliation Act, 1996 vis-a-vis Order 38 Rule 5 of Civil Procedure Code, 1908 and decided whether High Court erred in not considering the requisites of Order 38, Rule 5 of the CPC for grant of interim relief. The Supreme Court dismissed appeals against the order of Bombay High Court (Division Bench), dismissing the Commercial Arbitration Appeal filed by Essar House Private Limited (hereinafter referred to as Essar House) under Section 37 of Arbitration and Conciliation Act, 1996 (hereinafter referred to as Act), subsequently confirming the order of Single Judge, allowing an application filed by Arcellor Mittal Nippon Steel India Limited (hereinafter referred to as Arcellor), under Section 9 of the Act, wherein the Judge directed Essar House Private and Essar Service to deposit an amount with High Court or, in alternative furnish bank guarantee.
Factual matrix of the case:
The main issue involves Arcellor who took over Essar Steel by order of the Supreme Court. Essar Steel entered into a Business Centre Agreement with Essar House. Essar House entered into a Rental Agreement with Essar Steel, under which certain parts of the building were let out to Essar Steel on leave and license basis, at a monthly rent. In terms of the aforesaid Rental Agreement, Essar Steel was to pay an amount of Rs. 25.80 cr. to Essar House Private as interest free refundable security deposit.
Arcellor as resolution applicant submitted a Resolution Plan in respect of Essar Steel. Essar House Private sent an email to Arcellor asking to vacate the premises.
Arcellor called upon Essar House to refund the interest free security deposited by Essar Steel in lieu of the rental agreement. Essar House Private acknowledged that Essar House had received security deposit from Essar Steel, but contended that Essar House had taken over loan of Rs. 26 crores due from other sister companies of Essar Groups and had adjusted the same against the security deposit kept by Essar Steel with Essar House. The balance amount had allegedly been paid by the Essar House another company, in discharge of debt owed by Essar Steel. There was, therefore, no security deposit left to be refunded by the Essar House Private to the Arcellor.
Arcellor paid Essar Services on behalf of Essar Steel in settlement of its claims/dues. However, Arcellor addressed a legal notice to Essar Services for refund of Rs. 47.41 crores. Arcellor filed an application under Section 9 of the Act, 1996 claiming similar relief.
Contentions:
Appellants emphatically contended that no amount was due from Essar House or from Essar Services to Arcellor. The security deposits of Essar Steel with the appellants had been discharged to liquidate dues of Essar Steel to creditors.
The appellant further argued that, to grant discretionary interim relief under Section 9 the Court would have to satisfy itself that the applicant for interim relief, i.e., Arcellor had a bona fide and strong claim and that Essar House Private and/or Essar Services was about to remove or dispose of whole or part of its property with intent to obstruct or delay the execution. It was contended that while deciding a Section 9 application filed under the provisions of the Arbitration Act, the principles of the CPC are to be strictly followed. It was alleged that the High Court has taken note of the pleadings only for invoking the principles of CPC.
On the other hand, the respondent contended that specific power of securing the amount in dispute, the Courts have been empowered to pass any interim measure of protection, keeping in view the purpose of the proceedings before it. The said provision confers a residuary power on the Court to pass such other interim measures of protection as may appear to be just and convenient.
Observations:
The Supreme Court while taking note of the contentions put forth by the Appellant observed that Section 9 of the Act should not ordinarily be exercised ignoring the basic principles of procedural law as laid down in the CPC, however the technicalities of CPC cannot prevent the Court from securing the ends of justice.
Court further relied on Ajay Singh v. Kal Airways Private Limited, 2017 SCC OnLine Del 8934 and made an observation that many High Courts have also proceeded on the principle that the powers of a Court under Section 9 of the Act are wider than the powers under the provisions of the CPC.
Court while considering the facts of matter before them held that, “Section 9 of the Act confers wide power on the Court to pass orders securing the amount in dispute in arbitration, whether before the commencement of the arbitral proceedings, during the arbitral proceedings or at any time after making of the arbitral award, but before its enforcement in accordance with Section 36 of the Act. All that the Court is required to see is, whether the applicant for interim measure has a good prima facie case, whether the balance of convenience is in favour of interim relief as prayed for being granted and whether the applicant has approached the court with reasonable expedition.”
Court further observed that in the instant matter a strong prima facie case was made out and it would have been unfair if the High Court would have withheld relief on the mere technicality of absence of averments, incorporating the grounds for attachment before judgment under Order 38 Rule 5 of the CPC. It was further held that, “to assess the balance of convenience, the Court is required to examine and weigh the consequences of refusal of interim relief to the applicant for interim relief in case of success in the proceedings, against the consequence of grant of the interim relief to the opponent in case the proceedings should ultimately fail.”
Prima facie, the refundable security deposit was released to Arcellor on the purported ground of a convoluted series of internal arrangements between group companies for diversion of the security deposits towards liquidation of alleged dues of Essar Steel to third parties.
Appeals dismissed.
[Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited, 2022 SCC OnLine SC 1219, decided on 14-09-2022]
*Judgment by: Indira Banerjee and A.S. Bopanna.
Advocates who appeared in this case:
Mr. Shyam Divan, Advocate, for the Appellant;
Mr. Neeraj Kishan Kaul, Advoctae, for the Respondent.
*Aastha Sharma, Editorial Assistant has reported this brief.