2018 (4) TMI 2008 - HC - Indian Laws

Appeal dismissed challenging arbitral order on bank guarantee funds release during ongoing arbitration proceedings under Section 37

Delhi HC dismissed appeal challenging Arbitral Tribunal's order regarding bank guarantee funds during arbitration. Appellant sought release of deposited ... Seeking release of funds deposited as a bank guarantee and the conditions under which these funds should be handled during the arbitration process - HELD THAT:- As far as the apprehension of the appellant that in case the insolvency proceedings are initiated against the respondent, it would not be able to encash the bank guarantee as ordered by the Arbitral Tribunal, the Arbitral Tribunal holds that presently this is only a vague and unsubstantiated apprehension without any justification and in any case, the bank guarantee that would be furnished pursuant to the order of the Arbitral Tribunal shall be subject to its further orders. It further holds that in any case, the appellant would not be prejudiced if the money is kept deposited with the Registrar General of this Court or the money is converted and secured in form of a bank guarantee in favour of the appellant. The Arbitral Tribunal further balances the equity by directing the respondent to give the bank guarantee of a higher amount, including the interest at a higher rate than the interest being earned in the fixed deposit. The Arbitral Tribunal has balanced the equity between the parties and has considered the submissions made by the parties before the Arbitral Tribunal. This Court in exercise of its power under Section 37 of the Act cannot interfere with the order passed by the Arbitral Tribunal under Section 17 of the Act unless the discretion exercised by the Tribunal is found to be perverse or contrary to law. As an Appellate Court, the interference is not warranted merely because the Appellate Court in exercise of its discretion would have exercised the same otherwise. This Court in Bakshi Speedways v. Hindustan Petroleum Corporation [2009 (8) TMI 1306 - DELHI HIGH COURT], has held that the same principles will apply even in case of an appeal under Section 37(2)(b) of the Act. Conclusion - The Arbitral Tribunal having exercised its discretion and found a balance of equity between the parties, this Court in exercise of its power under Section 37(2)(b) of the Act would not interfere with the same unless it is shown that the discretion so exercised is perverse in any manner or contrary to the law. In the present case, no such exception has been made out by the appellant. Appeal dismissed. The judgment from the Delhi High Court addresses an appeal against an order by an Arbitral Tribunal concerning disputes arising from contracts related to a wind farm project. The key issues revolve around the release of funds deposited as a bank guarantee and the conditions under which these funds should be handled during the arbitration process.1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the Arbitral Tribunal's order to release funds deposited with the Registrar General to the claimant was justified.The conditions under which the bank guarantee should be maintained and potentially invoked, particularly in the context of insolvency proceedings.The balance of equities between the parties and the appropriate interim measures under Section 17 of the Arbitration and Conciliation Act, 1996.The scope of the appellate court's power to interfere with the Arbitral Tribunal's exercise of discretion under Section 37 of the Act.2. ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents: The legal framework primarily involves the Arbitration and Conciliation Act, 1996, specifically Sections 9, 17, and 37, which deal with interim measures and appeals. The judgment also references the Insolvency and Bankruptcy Code, 2016, regarding the potential impact of insolvency proceedings on the enforceability of a bank guarantee.Court's interpretation and reasoning: The court evaluated the Arbitral Tribunal's decision to release the funds under certain conditions, emphasizing that the Tribunal has broad powers to make interim arrangements that are just and convenient. The Tribunal's decision was based on balancing the interests of both parties, ensuring that the claimant could maintain its credit rating while the respondent earned higher interest on the funds.Key evidence and findings: The Tribunal's order was influenced by a prior consent order between the parties and the fact that the funds were voluntarily deposited by the respondent. The Tribunal noted that the respondent had not sought the return of the funds, which remained with the High Court, thus not benefiting either party directly.Application of law to facts: The Tribunal applied principles from the law of bank guarantees, determining that the potential for insolvency proceedings did not justify withholding the release of funds. The Tribunal also considered the balance of equities, requiring the claimant to secure the respondent's easement rights and provide a bank guarantee for the principal amount plus interest.Treatment of competing arguments: The appellant argued against the release of funds, citing defaults by the respondent and potential insolvency risks. The Tribunal addressed these concerns by requiring additional securities and assurances from the claimant, ensuring that the respondent's interests were protected.Conclusions: The Tribunal concluded that the interim arrangement was equitable and beneficial to both parties, allowing for the release of funds under specified conditions. The High Court found no reason to interfere with this discretion, as it was neither perverse nor contrary to law.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: The judgment emphasizes that 'Section 17 of the A & C, Act, 1996 bestows on the Arbitral Tribunal wide powers to make interim arrangements that are just and convenient.' It also highlights that the appellate court should not interfere with the Tribunal's discretion unless it is exercised 'arbitrarily, or capriciously or perversely or where the court had ignored the settled principles of law.'Core principles established: The judgment reinforces the principle that appellate courts should defer to the discretion of arbitral tribunals in interim matters unless there is clear evidence of a legal or procedural error. It also underscores the importance of balancing equities in interim orders to protect the interests of both parties.Final determinations on each issue: The High Court upheld the Arbitral Tribunal's order, dismissing the appeal and confirming that the Tribunal had appropriately exercised its discretion in balancing the interests of the parties and ensuring that interim measures were fair and equitable. The court reiterated that its role was not to substitute its judgment for that of the Tribunal unless there was a demonstrable error in the exercise of discretion.