2022 (9) TMI 672 - SC - Indian Laws

Court Upholds Interim Relief in Arbitration Appeals

ESSAR HOUSE PRIVATE LIMITED Versus ARCELLOR MITTAL NIPPON STEEL INDIA LIMITED

The court dismissed the appeals, upholding the High Court's decision to grant interim relief under Section 9 of the Arbitration Act. It emphasized the ... Seeking grant of interim relief - direction to deposit an amount of Rs. 35.5 crores with the Prothonotary and Senior Master of the High Court or, in the alternative, to furnish bank guarantee of any nationalised bank for the entire amount along with interest thereon - remove or dispose of whole or part of its property with intent to obstruct or delay the execution - Section 9 of the Arbitration Act - novation of contract or set off is allowed or not - HELD THAT:- Section 9 of the Arbitration 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 Arbitration 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. If a strong prima facie case is made out and the balance of convenience is in favour of interim relief being granted, the Court exercising power under Section 9 of the Arbitration Act should not withhold relief on the mere technicality of absence of averments, incorporating the grounds for attachment before judgment under Order 38 Rule 5 of the CPC. Proof of actual attempts to deal with, remove or dispose of the property with a view to defeat or delay the realisation of an impending Arbitral Award is not imperative for grant of relief under Section 9 of the Arbitration Act. A strong possibility of diminution of assets would suffice. 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. There are no infirmity in the well-reasoned judgment and order of the Division Bench. The appeals are, accordingly, dismissed. Issues Involved:1. Whether Essar House Private and Essar Services owe any amount to Arcellor.2. Whether the High Court correctly granted interim relief under Section 9 of the Arbitration Act.3. Applicability and interpretation of Order XXXVIII, Rule 5 of the CPC in the context of Section 9 applications.4. Validity of set-off claims and novation of contracts without consent.5. The impact of the Corporate Insolvency Resolution Process (CIRP) on claims and set-offs.Issue-wise Detailed Analysis:1. Whether Essar House Private and Essar Services owe any amount to Arcellor:The court examined the claims of Essar House Private and Essar Services regarding the discharge of security deposits. Essar House Private argued that the security deposits were used to liquidate Essar Steel's debts to third parties, including Marvel Mines and Edwell Infrastructure. However, the court found that the refundable security deposits were not being released to Arcellor, indicating a convoluted series of internal arrangements between group companies. The court concluded that the security deposits were still owed to Arcellor.2. Whether the High Court correctly granted interim relief under Section 9 of the Arbitration Act:The court upheld the High Court's decision to grant interim relief under Section 9 of the Arbitration Act. It emphasized that Section 9 confers wide powers on the court to secure the amount in dispute and to pass any interim measures of protection as may appear just and convenient. The court noted that the principles of the CPC should guide but not unduly bind the court's discretion in granting interim relief. The court found that the High Court had correctly applied these principles and that the balance of convenience favored granting interim relief to Arcellor.3. Applicability and interpretation of Order XXXVIII, Rule 5 of the CPC in the context of Section 9 applications:The court discussed the applicability of Order XXXVIII, Rule 5 of the CPC, which deals with attachment before judgment. It clarified that while the principles of Order XXXVIII, Rule 5 should guide the court, the technicalities of the CPC should not prevent the court from securing the ends of justice. The court emphasized that procedural safeguards should advance the cause of justice and not defeat it. The court found that the High Court had appropriately considered the principles of Order XXXVIII, Rule 5 in its decision.4. Validity of set-off claims and novation of contracts without consent:The court addressed the issue of set-off claims and novation of contracts. It reiterated that novation or alteration of a contract under Section 62 of the Indian Contract Act requires the agreement of both parties and cannot be done unilaterally. The court cited precedents to support this view, including Citibank N.A. v. Standard Chartered Bank & Ors. and Khardah Company Ltd. v. Raymon & Co. (India) Pvt. Ltd. The court found that Essar House Private and Essar Services had not provided sufficient evidence to support their claims of set-off and novation.5. The impact of the Corporate Insolvency Resolution Process (CIRP) on claims and set-offs:The court noted that the CIRP of Essar Steel commenced on 2nd August 2017, and the Resolution Professional took over the management of Essar Steel's affairs. It emphasized that during the CIRP, any set-off or novation of contracts required the consent of the Resolution Professional. The court found that Essar Services could not have adjusted the security deposit payable to Essar Steel against alleged dues to a third party during the CIRP without such consent.Conclusion:The court dismissed the appeals, finding no infirmity in the High Court's judgment and order. It upheld the High Court's decision to grant interim relief under Section 9 of the Arbitration Act, emphasizing the wide powers conferred by Section 9 and the need to balance procedural safeguards with the ends of justice. The court also reiterated the principles regarding novation of contracts and set-offs, particularly in the context of CIRP.