2020 (10) TMI 1397 - HC - Indian Laws

Delhi HC confirms territorial jurisdiction under Section 9 despite Singapore arbitration seat when no contrary agreement exists

Delhi HC held it has territorial jurisdiction under Section 9 of Arbitration Act 1996 despite Singapore arbitration seat, as no contrary agreement ... Seeking certain pre-arbitration interim reliefs - Section 9 of the Arbitration and Conciliation Act, 1996 - seeking a restraint, against the respondents creating any third party interest/right/title on the aircraft, or from selling, transferring or encumbering the aircraft in any manner - seeking a restraint, against the respondents, from taking the aircraft out of India - seeking a direction, to the respondents, to deposit US $ 530,000 (equivalent to Rs. 4,01,05,736/-) in an escrow account - territorial Jurisdiction of Delhi High Court to entertain present petition, given the arbitration seat is in Singapore - delivery of the aircraft, within the meaning of the Lease Deed - Liability to pay maintenance reserves. Whether the Delhi High Court has the territorial jurisdiction to entertain the petition under Section 9 of the Arbitration and Conciliation Act, 1996, given the arbitration seat is in Singapore? - HELD THAT:- Section 9 has its own distinct indicia and, while it is fundamentally guided by the three considerations of existence of a prima facie case, balance of convenience and irreparable loss, which guide the exercise of discretion under Order XXXIX CPC, there is a fundamental difference between the two provisions. Interim relief, under Order XXXIX, is in the nature of an interlocutory order pending disposal of a suit. Pre-arbitral interim relief under Section 9 of the 1996 Act, on the other hand, is primarily aimed at securing the corpus of the dispute so that arbitral proceedings are not rendered a futility before they commence. It is for this reason that, apart from the aforesaid three criteria, of prima facie case, balance of convenience and irreparable loss, a Section 9 petitioner is also required to demonstrate that, were urgent interim reliefs not granted, there is a chance of the arbitral proceedings being frustrated, even before they take off, and of the award, if any, which may come to be passed, being rendered futile. For this reason, the principles governing Order XXXVIII Rule 5 CPC have, for that reason, also been held to be applicable, while directing the furnishing of security, under Section 9(1)(ii)(b). The sequitur is that the degree of satisfaction, of the Section 9 court, at the pre-arbitral stage, is not the same as the degree of satisfaction of the arbitrator, while exercising jurisdiction under Section 17 of the 1996 Act. The Section 9 court is essentially concerned with the issue of whether an arbitrable dispute, deserving of resolution by arbitral proceedings, exists, or not. If the case set up by the Section 9 petitioner is devoid of merit altogether, so that no dispute, worthy of arbitration, exists, the Section 9 court would be justified in declining relief. If, on the other hand, an arguable case is found to exist, which deserves resolution by arbitration, and the court finds that, were interim protection, under Section 9, not granted, there is a likelihood of frustration of the arbitral proceedings, the court would proceed to grant relief under Section 9. A section 9 court is, therefore, concerned with protecting the corpus of the arbitral dispute, so that the arbitration can take off and fructify. Once a dispute, amenable to, and deserving of, resolution by arbitration, is found to exist, and the apprehension, of dissipation of the assets forming the corpus of the dispute, is found to be real and subsisting, or where the circumstances indicate that enforcement of the award, as and when delivered, would otherwise be hindered, a Section 9 can grant 'interim measures of protection'. Contention of petitioner that no delivery of the aircraft, within the meaning of the Lease Deed, as taken place - HELD THAT:- The arbitral tribunal, if and when constituted, is not required to opine on the registration of the aircraft, or how such registration could be obtained. It would be required to examine whether there has, or has not, been a breach, by the respondent, of the covenants of the Lease Deed, as alleged by the petitioner. That, prima facie, has taken place. Prima facie, therefore, there is merit in the submission that the plea of non-filing of the Bill of Entry has been advanced, by the respondent, only to cover up the default, on the part of the respondent, in providing the certificate of de-registration of the aircraft. In view thereof, it is not inclined to enter, for the purposes of the present order, into the factual dispute of whether the petitioner has, or has not, filed the Bill of Entry. Alleged unilateral termination of the Lease Deed - HELD THAT:- The fact that the CDSS was required to be installed on the aircraft, in order for the aircraft to be registered with the DGCA in India, stands recognized and acknowledged by the respondent itself, in its email dated 16th February, 2020, to the petitioner. Clause 32.1 of the Lease Deed cannot wish away this acknowledgement, or reduce the effect thereof. Having accepted, in the email dated 16th February, 2020, that installation of the CDSS was mandatory for registration of the aircraft by the DGCA in India, it can hardly lie in the mouth of the respondent to contend, now, that the CDSS was not required to be installed on the aircraft. Clause 6.3 starts with the words 'subject to the generality of the foregoing'. 'The foregoing' would include Clause 6.2, which commences with a non-obstante clause, and required the respondent to deliver, to the petitioner, the aircraft in accordance with the terms and conditions of the Lease Deed. It was only thereafter that the petitioner was required, as lessee, to accept the aircraft by execution of the delivery acceptance certificate. The terms and conditions of the Lease Deed included Clause 4.1, which required the lessor to provide all necessary documentation, required by the lessee for registering the aircraft with the DGCA. Evidence of installation of the CDSS in the imported aircraft would also, therefore, be one of the requirements, in order for the aircraft to be registered with the DGCA in India. On this count, too, therefore, the submission that the respondent was in breach of the covenants of the Lease Deed, merits acceptance. Liability to pay maintenance reserves - HELD THAT:- Clause 10.6 of the Lease Deed specifically obligated the lessee, to pay to the lessor, maintenance reserves on a monthly basis, 'for every flight hour or flight cycle, as the case may be of usage'. The Clause also stipulated that the maintenance reserves were to be paid in accordance with Schedule III to the Lease Deed, which specifically stipulated that maintenance reserves were payable 'in respect of hours flown on the aircraft', and were 'payable on the 10th day of each month in respect of hours flown in the previous calendar month'. As the aircraft had never been flown, there could be no question of the petitioner being required to pay any maintenance reserves. Whether, in order to secure the corpus of the arbitration, any interim measure of protection, under Section 9 of the 1996 Act, deserves to be granted? - HELD THAT:- Given the respondent's actions to dispose of the aircraft parts and the fact that the respondent is based outside India, it is found that interim relief was warranted to prevent frustration of the arbitral proceedings. It is directed that the amount deposited by the respondent with the Registry of the Court remain pending further orders. Conclusion - i) The Delhi High Court has jurisdiction to entertain the petition under Section 9 of the 1996 Act, as there is no 'agreement to the contrary' excluding its applicability. ii) The respondent breached the Lease Deed by failing to deliver the aircraft with all requisite documentation for registration in India. iii) The claim of unilateral termination by the petitioner is unfounded, as no such termination occurred as per the Lease Deed's terms. iv) The non-installation of the CDSS constitutes a breach of the Lease Deed, as it was necessary for regulatory compliance in India. v) The petitioner is not liable to pay Maintenance Reserves, as the aircraft was not delivered and flown. vi) Interim relief is justified to protect the corpus of the arbitral dispute, and the amount deposited by the respondent should remain with the Court pending further orders. Petition allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the Delhi High Court has the territorial jurisdiction to entertain the petition under Section 9 of the Arbitration and Conciliation Act, 1996, given the arbitration seat is in Singapore.Whether there is an 'agreement to the contrary' that excludes the applicability of Section 9, as per the proviso to Section 2(2) of the 1996 Act.Whether the respondent breached the Lease Deed by failing to deliver the aircraft with all requisite documentation for registration in India.Whether the petitioner unilaterally terminated the Lease Deed.Whether the non-installation of the Cockpit Door Surveillance System (CDSS) constitutes a breach of the Lease Deed.Whether the petitioner is liable to pay Maintenance Reserves despite non-delivery of the aircraft.Whether interim relief under Section 9 is warranted to protect the corpus of the arbitral dispute.2. ISSUE-WISE DETAILED ANALYSISRe. Territorial JurisdictionThe Court examined whether it had jurisdiction to entertain the petition under Section 9, despite the seat of arbitration being in Singapore. The proviso to Section 2(2) of the 1996 Act allows for the application of Section 9 to international commercial arbitrations seated outside India unless there is an 'agreement to the contrary.' The Court considered Clause 22.1 of the Lease Deed, which submits parties to the jurisdiction of Singapore courts, but concluded that this does not constitute an 'agreement to the contrary' that excludes Section 9. The Court emphasized that an 'agreement to the contrary' would need to explicitly exclude the applicability of Section 9, which was not the case here.Re. Breach of Lease DeedThe petitioner argued that the respondent failed to deliver the aircraft with all necessary documentation, particularly the Certificate of Deregistration from the Isle of Man Aircraft Registry (IOMAR), required for registration in India. The Court found merit in this argument, noting that the respondent's obligation under Clause 4.1 of the Lease Deed to provide all necessary documentation was not fulfilled. The Court rejected the respondent's defense that the petitioner had not filed a Bill of Entry, stating that this was irrelevant to the respondent's obligations under the Lease Deed.Re. Alleged Unilateral TerminationThe respondent claimed that the petitioner unilaterally terminated the Lease Deed. The Court found no evidence of such termination, noting that the Lease Deed required termination to be in writing and follow specific procedures outlined in Clause 7. The Court concluded that the respondent's claim of unilateral termination was unfounded.Re. Non-installation of CDSSThe petitioner contended that the aircraft was not delivered with a CDSS, which was necessary for registration in India. The Court found that the respondent acknowledged the requirement for CDSS installation in its communications and that the Lease Deed implicitly required compliance with such regulatory standards. The Court rejected the respondent's argument that the CDSS was not required under the Lease Deed.Re. Liability to Pay Maintenance ReservesThe Court agreed with the petitioner that Maintenance Reserves were payable only for hours flown, as per Clause 10.6 of the Lease Deed. Since the aircraft was not delivered, the petitioner was not liable for Maintenance Reserves.Re. Interim ReliefThe Court considered whether interim relief under Section 9 was necessary to protect the corpus of the arbitral dispute. Given the respondent's actions to dispose of the aircraft parts and the fact that the respondent is based outside India, the Court found that interim relief was warranted to prevent frustration of the arbitral proceedings. The Court directed that the amount deposited by the respondent with the Registry of the Court remain pending further orders.3. SIGNIFICANT HOLDINGSThe Court held that:The Delhi High Court has jurisdiction to entertain the petition under Section 9 of the 1996 Act, as there is no 'agreement to the contrary' excluding its applicability.The respondent breached the Lease Deed by failing to deliver the aircraft with all requisite documentation for registration in India.The claim of unilateral termination by the petitioner is unfounded, as no such termination occurred as per the Lease Deed's terms.The non-installation of the CDSS constitutes a breach of the Lease Deed, as it was necessary for regulatory compliance in India.The petitioner is not liable to pay Maintenance Reserves, as the aircraft was not delivered and flown.Interim relief is justified to protect the corpus of the arbitral dispute, and the amount deposited by the respondent should remain with the Court pending further orders.