2021 (9) TMI 1572 - HC - Indian Laws

Arbitral tribunals must consider CPC Orders XXXVIII and XXXIX principles when exercising Section 17 powers for interim relief

Augmont Gold Pvt. Ltd. Versus One 97 Communication Limited

The Delhi HC held that arbitral tribunals exercising powers under Section 17 of the Arbitration and Conciliation Act, 1996 must consider principles ... Applicability of Order XXXVIII Rule 5 of the CPC in the context of the Arbitral Tribunal's powers under Section 17 of the Arbitration and Conciliation Act, 1996 - Applicability of Order XXXIX Rule 10, CPC - Scope of Section 37(2). Applicability of Order XXXVIII Rule 5 of the CPC in the context of the Arbitral Tribunal's powers under Section 17 of the Arbitration and Conciliation Act, 1996 - HELD THAT:- It is, by now, settled that the power of the Arbitral Tribunal under Section 17 and the power of the Court under Section 9 of the 1996 Act are co-extensive and co-equal in character. The concluding clause in Section 17(1)(ii) makes it clear that the power of the Arbitral Tribunal, for making an order under Section 17 would be the same as the power of a Court, in relation to proceedings before it. On the basis of this statutory clarification, it has been held, in various decisions, that the Arbitral Tribunal, exercising jurisdiction under Section 17, is required to bear in mind the provisions of Orders XXXVIII and XXXIX of the CPC. The power to direct furnishing of security, in connection with the subject matter of the arbitral dispute, therefore, vested in the Arbitral Tribunal even under the pre-amended Section 17, by virtue of sub-section (2) thereof. The law relating to the power to direct furnishing of security, as a measure of interim protection, as enunciated in the pre-amended regime would, therefore, continue to apply, to that extent, even after Section 17 was amended w.e.f. 23rd October, 2015 - In a case arising under the pre-amended Section 9, the Supreme Court, in Arvind Constructions v. Kalinga Mining Corporation [2007 (5) TMI 642 - SUPREME COURT], while noting the view expressed by the High Court of Bombay that exercise of jurisdiction under Section 9 of the 1996 Act was not controlled by Order XXXVIII Rule 5 of the CPC, observed that the extent to which the said view was correct 'requires to be considered in an appropriate case', but that it was not inclined to answer the question finally in the case before it. Even so, the Supreme Court observed that it was 'prima facie inclined to the view that exercise of power under Section 9 of the Act must be based on the well- recognised principles governing the grant of interim injunctions and other orders of interim protection or the appointment of a receiver'. A bare reading of Order XXXVIII Rule 5 CPC reveals that the statutory sine qua non, for a direction by the Court, to furnish security under the said provision, is the satisfaction, of the Court, that the defendant, 'with intent to obstruct or delay the execution of any decree that may be passed against him', (a) is about to dispose of the whole or any part of his property, or (b) is about to remove the whole or any part of his property from the local limits of the jurisdiction of the Court. Applicability of Order XXXIX Rule 10, CPC - HELD THAT:- In Sanjeev Sarin v. Rita Wadhwa [2018 (1) TMI 1758 - DELHI HIGH COURT] this Court has held that the exercise of jurisdiction under Order XXXIX Rule 10 of the CPC has to be on principles analogous to those which apply to Order XII Rule 6 of the CPC. A Court, or an Arbitral Tribunal, which directs deposit of an amount by defendant, which, in its view, is admitted to be payable by the defendant to the plaintiff, is not acting without jurisdiction or even in an illegal manner, if such admission is found to exist in a document executed by the defendant, even if it is not reflected in the pleadings before the court - An arbitral order which arrives at such a conclusion, would not, therefore, merit interference in exercise of the appellate jurisdiction vested by Section 37 of the 1996 Act. Scope of Section 37(2) - HELD THAT:- The difference between orders passed under sub-sections (2) and (3) of Section 16, and an order passed under Section 17, is starkly apparent. Orders passed under sub-section (2) and (3) of Section 16 rule on the jurisdiction and authority of the Arbitral Tribunal to deal with the arbitral proceedings. Any orders accepting the objection to the jurisdiction of the Arbitral Tribunal would, therefore, in that sense, be final, as a decision thereon would conclude the issue of whether the Arbitral Tribunal possesses jurisdiction and authority to arbitrate. As against this, an order of interim protection under Section 17 - especially an order under Section 17(1)(ii)(b) such as the order under challenge - is fundamentally discretionary in nature, and does not put an end to the lis. Such orders would abide by the final award, to be passed later in the arbitral proceedings. It is only in rare and extreme cases, therefore, that, in exercise of its appellate jurisdiction under Section 37, a Court would interfere with a discretionary order passed under Section 17. An order for deposit, under Section 17(1)(ii)(b), is, fundamentally and at all times, an order passed in exercise of its jurisdiction. Discretionary orders, by their very nature, are amenable to judicial interference to a far lesser degree than others. The agreement does appear to be somewhat ambiguous regarding the status of the residual gold, which was neither redeemed, nor purchased by Augmont, nor transferred to any alternate GAP account, during the period of four months. How such gold would have to be treated is, however, a conundrum which this Court, in exercise of its Section 37 jurisdiction, is mercifully not called upon to unravel. This aspect is, however, of significance in the present case, given the fact that the learned Arbitral Tribunal has directed Augmont to secure the full value of the residual gold. Such a direction, viewed any which way, could sustain only if there was, at least prima facie, material on the basis of which it could be held that Augmont would be liable, ultimately, to disgorge the full value of the residual gold to One97. The impugned order is upheld to the extent it directs securing, by Augmont, of ₹ 2, 61, 22, 319/-, with the modification that the said amount would not be paid to One97, but would be deposited with the learned Registrar General of this Court, and would abide by the outcome of the arbitral proceedings. The direction, to Augmont, to furnish a bank guarantee of ₹ 3, 30, 57, 992/-, representing the value of the residual gold, is set aside. Conclusion - i) The power under Order 38 Rule 5 CPC is a drastic and extraordinary power. Such power should not be exercised mechanically or merely for the asking. ii) The Arbitral Tribunal's discretion under Section 17 is guided by principles underlying Orders XXXVIII and XXXIX of the CPC, but not constrained by their express terms. iii) Admissions of liability can justify interim measures without strict adherence to Order XXXVIII Rule 5. Appeal disposed off. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the Arbitral Tribunal's interim order directing Augmont to pay 2,61,22,319/- to One97 was justified.Whether the Arbitral Tribunal was correct in directing Augmont to furnish a bank guarantee covering the value of the residual gold post-termination of the agreement.The applicability of Order XXXVIII Rule 5 of the CPC in the context of the Arbitral Tribunal's powers under Section 17 of the Arbitration and Conciliation Act, 1996.The scope of appellate intervention under Section 37(2) of the Arbitration and Conciliation Act, 1996.2. ISSUE-WISE DETAILED ANALYSISInterim Order for Payment of 2,61,22,319/-Relevant legal framework and precedents: The Arbitral Tribunal's power under Section 17 is co-extensive with that of a court under Section 9 of the Arbitration and Conciliation Act, 1996. The Tribunal's discretion in granting interim measures of protection is guided by principles underlying Orders XXXVIII and XXXIX of the CPC.Court's interpretation and reasoning: The Tribunal found that Augmont had, impliedly, admitted liability to reimburse One97 for payments made to customers between 8th January and 21st February 2019. This was based on the absence of denial during hearings and the ledger evidence provided by One97.Key evidence and findings: The Tribunal relied on One97's ledger accounts, which recorded payments to customers, and Augmont's lack of credible material to challenge these ledgers.Application of law to facts: The Tribunal's direction was based on a prima facie finding of admitted liability by Augmont, making the direction to secure the amount reasonable under Section 17.Treatment of competing arguments: Augmont's arguments focused on the sufficiency of evidence and the applicability of Order XXXVIII Rule 5, which the Tribunal found unpersuasive given the admissions and ledger evidence.Conclusions: The Court upheld the Tribunal's order for securing the amount but modified it to require deposit with the Registrar General instead of payment to One97.Direction to Furnish Bank Guarantee for Residual GoldRelevant legal framework and precedents: The Tribunal's power under Section 17 to secure claims in arbitration was considered, with reference to the obligations upon termination outlined in the agreement.Court's interpretation and reasoning: The Tribunal deemed Augmont a custodian of the residual gold and noted One97's ongoing payments to customers, but did not find a prima facie liability for the entire value of the residual gold.Key evidence and findings: The Tribunal's decision was based on the contractual obligations post-termination and the lack of a clear finding on Augmont's liability for the full value of the residual gold.Application of law to facts: Without a prima facie finding of liability or an admission by Augmont, the direction to secure the entire residual gold value was found unjustified.Treatment of competing arguments: Augmont argued that it was not liable for the entire residual gold value, and the Tribunal's lack of a finding on this point supported Augmont's position.Conclusions: The Court set aside the Tribunal's direction to furnish a bank guarantee for the residual gold value.Applicability of Order XXXVIII Rule 5, CPCRelevant legal framework and precedents: The principles underlying Order XXXVIII Rule 5 guide the exercise of jurisdiction under Sections 9 and 17 of the Arbitration and Conciliation Act, 1996, but the Tribunal is not bound by its express terms.Court's interpretation and reasoning: The Tribunal's discretion in directing security is not constrained by the express terms of Order XXXVIII Rule 5, but the guiding principles must be considered.Conclusions: The Court found that the Tribunal's order was not vitiated by a failure to consider Order XXXVIII Rule 5, as the direction was based on admitted liability.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'The power under Order 38 Rule 5 CPC is a drastic and extraordinary power. Such power should not be exercised mechanically or merely for the asking.'Core principles established: The Arbitral Tribunal's discretion under Section 17 is guided by principles underlying Orders XXXVIII and XXXIX of the CPC, but not constrained by their express terms. Admissions of liability can justify interim measures without strict adherence to Order XXXVIII Rule 5.Final determinations on each issue: The direction to secure 2,61,22,319/- was upheld with modification for deposit with the Registrar General. The direction to furnish a bank guarantee for the residual gold was set aside.