TaxTMI 
TaxTMI 
2021 (9) TMI 1572
X X X X Extracts X X X X
X X X X Extracts X X X X
.... could purchase digital gold, Chart 2 sets out the manner in which the customer could redeem the gold and Chart 3 sets out the manner in which the customer could sell back the gold to Augmont, which may be reproduced thus: CHART 1 Step Process Owner Process Action 1 Customer Customer sees the live price of gold on Paytm Platform 2 Customer Customer confirms the buy quantity of Rs 1 upwards 3 Customer Customer redirected to payment page 4 One97 Customer makes payment through preferred payment options 5 Augmont-Bullion Augmont-Bullion generated invoice details are relayed to One97 system 6 One97 One97 system generates a digital invoice on behalf of AugmontBullion 7 Augmont-Bullion Augmont-Bullion credits the quantity in the customer account. CHART 2 Step Process Owner Process Action 1 Customer Customer selects 'Get Delivery' within Gold section of Paytm Platform and is redirected to product catalogue. Each product has its making + delivery charges indicated 2 Customer Customer selects the product 3 Customer Customer confirms delivery address 4 Custom....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (b) The customer would, for the said purpose, proceed to the Paytm platform of One97. (c) The system set up by One97 would check if the customer held gold in its GAP account. (d) If so, the gold rate would be blocked, so that the customer could proceed to sell the gold at the rate then prevalent. For this, a specific time window would be provided. (e) The customer would confirm the transaction in the said time window. (f) One97 would issue an instantaneous digital receipt of sale, on behalf of Augmont, acknowledging receipt of digital gold from the GAP account of the customer. (g) One97 would then transfer an amount equivalent to the value of the gold which is sold back by the customer to Augmont, on the basis of the blocked gold rate, to the customer's account. (h) On the next date, Augmont would credit the said amount to the account of One97. 6. The dispute between Augmont and One97 essentially arose because, between 5th January, 2019 and 7th January, 2019, there was a glitch in the system as a result of which certain customers repeatedly sold back, to Augmont, gold from their GAP accounts, without the debiting o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....est of the counsel for the parties, this court appoints Justice Manmohan Singh, a retired Judge of this court as the Sole Arbitrator, who shall adjudicate the disputes/differences between the parties. The appointment of the Justice Manmohan Singh shall be governed by the Arbitration and Conciliation Act, 1996. Parties shall appear before the learned Arbitrator after taking prior appointment on his mobile number being 9717495001. The petition stands disposed of." 14. Subsequently, IA 7080/2020 was filed by Augmont, before this Court, for clarifying the order dated 17th January, 2020, specifically on the issue of whether it was entitled to raise a plea of fraud in its defence to the claims set up by One97. 15. This application was disposed of by this Court, vide the following order dated 22nd October, 2020: "This is an application filed by the respondent with the following prayers: "a. clarify its order dated 17.01.2020, and b. pass such other order(s) in favour of the respondent, as this Hon'ble court deems fit and proper." In effect, by this application, the respondent is seeking clarification of order dated J....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to One97 within one working day. This position, it was alleged, continued even after termination of the agreement, as gold continued to remain in the GAP account of the customers, and the accounts were required to be closed. 18. By way of evidence of payments having been made by it to the customers, against sale back, of gold, to Augmont, One97 placed on record a copy of its ledger accounts for the periods 5th to 7th January, 2019 as well as for the period thereafter. For the period between 7th January, 2019 and 21st February, 2019, One97 claimed to be entitled to payment, from Augmont, of an amount of Rs. 2, 16, 42, 352/-, as per terms and conditions set out in the agreement. 19. A tabular representation of the manner in which this amount was worked out was provided thus, in the Statement of Claim filed before the learned Arbitral Tribunal: S. No. Particulars Amount to be paid by Respondent to Claimant Amount to be paid by Claimant to Respondent 1. Valuation of sell transactions from .. November, 2018 till 31.01.2020 including commission (excluding 55485 transactions on 5th, 6th and 7th January, 2019) 7, 71, 28, 935 2. Excess received fro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he present appeal, at the instance of Augmont. 24. The reasoning of the learned Arbitral Tribunal is essentially contained in paras 18, 20, 22 to 24, 26 to 32, 35, 37 to 41 of the impugned order which, for ready reference, are reproduced as under: "18. There is no dispute that after 7th January, 2019, even the parties continued to work the Agreement. For default of the Respondent, the contract was initially terminated by Notice dated 21st February, 2019 with immediate effect. For the period 8th January, 2019 to 21st February, 2019 while the Agreement was worked the Customers of the Respondent continued to sell gold from their GAP accounts and the Claimant instantly made payment to the said customers. Despite there being no dispute for transactions during the period, the Respondent failed to reimburse the due amounts to the Claimant for the period despite there being no dispute. This amount as on date of filing of Section 17 application was a sum of Rs. 2, 61, 22, 319/- and forms part of Prayer (a) of the said application. It is argued on behalf of the claimant that there is no dispute or controversy for this period or the said amount and yet the Respondent has failed to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that it is holding gold belonging to customers, but the Respondent stated that as and when a customer makes a request for sale to the Claimant, the Claimant may forward the said request to the Respondent and the Respondent shall satisfy the said claim. Firstly, the Respondent cannot hold the gold of third parties. Secondly, it is the obligation of the Claimant to pay the sale value of gold as and when sold by the customer from their GAP Account. Despite termination of Agreement, the Claimant has continued to satisfy the sale values of every customer instantly. In fact even after termination of the Agreement, the Claimant is continuously making payment to the customers instantly as and when sales are made by the respective customer. This shall continue to happen day after day. 28. There is no denial by the Respondent that it held the quantity of gold of customer as referred by the Claimant. It is also not denied that they are mere custodian of the said gold. It is also not denied that the said gold belongs to Customers. In fact, in para (1) on page 51 of the Statement of Defense, the Respondent admits that it is custodian of the gold lying in customer's GAP accounts. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the agreement where the obligation to carry out KYC requirements for every customer is solely and exclusively of the Respondent. The claimant is not to undertake any KYC process for Respondent customers. The Claimant is only required to provide customer name, unique customer ID, State and Pincode to the Respondent at the time of opening of GAP Account as per Clause 12.1. Indisputably, all these three details have been provided and are available with the Respondent for each customer. For every user of the Claimant, the claimant only undertakes a verification by OTP as per Clause 1.1.44. At the time of becoming a 'Paytm User', the concerned person is only to disclose his name, his mobile number and complete verification of One Time Password 'OTP' sent to his disclosed mobile number. For all 'Paytm users', the said process has been undertaken as alleged. The complete list of the said customer is given in Annexure C-9 of the Statement of Claim. ***** 37. The Respondent has also admitted in para (v) on page 64 of the statement of defense that the Respondent is responsible for de biting gold balance from customer's GAP accounts. It is however....
X X X X Extracts X X X X
X X X X Extracts X X X X
....imant is liable and has paid to each customer the sale value. Hence, the Respondent's plea is prima facie without any force. 41. The Respondent did not deny that it maintained the GAP Accounts of the customers. It also did not dispute that the accounts were not debited on account of sale made. It is admitted that the payments were made by the Claimant to the customers. Admittedly, the Respondent did not reimburse the said payments to the Claimant." 25. Consequent on the aforesaid reasoning, the learned Arbitral Tribunal issued the following directions, in para 42 of the impugned order: "42. After having gone through the entire gamut of the matter, this Arbitral Tribunal passes the following directions:- a) The Respondent shall pay a sum of Rs. 2, 61, 22, 319/- to the Claimant, which is undisputed amount and is payable as per agreement. The Respondent is directed to pay the same to the Claimant within two weeks from the date of receipt of this order. The interim order is passed accordingly. As far as interest component is concerned, the said aspect would be considered at the time of passing the final award. b) The Respondent is directed to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... stood admitted by Augmont. He submits that there is no such admission. In fact, Mr. Dayan Krishnan sought to contend, by referring to the corresponding paragraphs from the Statement of Defence filed by Augmont before the learned Arbitral Tribunal, in response to the Statement of Claim of One97, that Augmont had, in no uncertain terms, denied both the factum of payment, by One97 to customers after 7th January, 2019, but also the assertion, of One97, that it had done so after confirmation of sale had been received from Augmont. Mr. Dayan Krishnan emphasises the fact that, in fact, Augmont had filed a counter-claim, for the said purpose before the learned Arbitral Tribunal. He submits that, save and except for its own ledger, One97 had filed no document to vouchsafe its claim of having paid customers even after 7th January, 2019. Mr. Dayan Krishnan also drew my attention to the relevant pages of the ledger, as filed by One97 before the learned Arbitral Tribunal, to contend that the ledger did not even disclose the names of the payees, to whom payments had been made. Augmont had categorically denied the validity of the ledger. In these circumstances, he submits that the learned Arbitr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....my attention to the averments contained in para 33 of the Statement of Claim which were not traversed in the corresponding para ff of the Statement of Defence except by way of bald denial. He has also invited my attention to para 40 of the impugned order, which reads as under: "It is not denied and disputed that the Respondent sent the requisite sale confirmation for each transaction to the Claimant, whereupon the Claimant has no option, but is instead duty bound to pay each customer the sale value. There was no other option. Under the API System of the Respondent of the Statement of Defense, the code for a successful transaction is "200" and the code for failure is "400". For each of the said 55458 transactions, indisputably the Respondent's system sent code of "200" and not "400". The Claimant is liable and has paid to each customer the sale value. Hence, the Respondent's plea is prima facie without any force." 33. Additionally, he relies on the observation, in para 19 of the impugned order, that the liability to reimburse One97, for the payment made in respect of the transactions which took place after 7th January, 2019, was not disputed by Augmont during hea....
X X X X Extracts X X X X
X X X X Extracts X X X X
....only in financially impecunious circumstances but was seeking to dissipate its assets with a view to defeat the arbitral award, in the event that the award was in favour of the appellant. More precisely, Mr. Krishnan submits that, even if the learned Arbitral Tribunal were to be regarded as having taken, into consideration, the financial condition of his client, there is no finding, whatsoever, to the effect that his client was seeking to dissipate its assets, with a view to defeat the ultimate arbitral award. In the absence of such a finding, contends Mr. Krishnan, no relief, under Section 17(1)(ii)(b) of the Act, could have been granted. 37. This is an aspect which comes up for consideration in case after case, and there are decisions galore on the point. Judicial opinion, in this respect, is mixed. It requires to be examined, therefore, in some detail. 38. Parliamentary statutes are not mere pen and parchment. They are living, breathing entities which pulsate with life. As in the case of any living entity, the intent of a plenary statutory legislative instrument is best discerned from its words, and the manner in which it chooses to express itself. 39. Before adverting ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e appropriate security in connection with a measure ordered under sub-section (1)." 44. 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. 45. In a case arising under the pre-amended Section 9, the Supreme Court, in Arvind Constructions v. Kalinga Mining Corporation (2007) 6 SCC 798, 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 un....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... against him' in Rule 5 make it clear that before exercising the power under the said Rule, the court should be satisfied that there is a reasonable chance of a decree being passed in the suit against the defendant. This would mean that the court should be satisfied that the plaintiff has a prima facie case. If the averments in the plaint and the documents produced in support of it, do not satisfy the court about the existence of a prima facie case, the court will not go to the next stage of examining whether the interest of the plaintiff should be protected by exercising power under Order 38 Rule 5 CPC. It is well settled that merely having a just or valid claim or a prima facie case, will not entitle the plaintiff to an order of attachment before judgment, unless he also establishes that the defendant is attempting to remove or dispose of his assets with the intention of defeating the decree that may be passed. Equally well settled is the position that even where the defendant is removing or disposing his assets, an attachment before judgment will not be issued, if the plaintiff is not able to satisfy that he has a prima facie case. 5. The power under Order 38 Rule 5....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t be vague, & must be properly verified. Where it is affirmed true to knowledge or information or belief, it must be stated as to which portion is true to knowledge, the source of information should be disclosed, & the grounds for belief should be stated. (5) That a mere allegation that the deft. was selling off & his properties is not sufficient. Particulars must be stated. (6) There is no rule that transactions before suit cannot be taken into consideration, but the object of attachment before judgment must be to prevent future transfer or alienation. (7) Where only a small portion of the property belonging to the deft. is being disposed of, no inference can be drawn in the absence of other circumstances that the alienation is necessarily to defraud or delay the pltf's claim. (8) That the mere fact of transfer is not enough, since nobody can be prevented from dealing with his properties simply of cause a suit has been filed. There must be additional circumstances to show that the transfer is with an intention to delay or defeat the pltf.'s claim. It is open to the Court to look to the conduct of the parties immediately before suit, & to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er: "5. Where defendant may be called upon to furnish security for production of property. - (1) Where, at any stage of a suit, the Court is satisfied, by affidavit or otherwise, 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, the Court may direct the defendant, within a time to be fixed by it, either to furnish security, in such sum as may be specified in the order, to produce and place at the disposal of the Court, when required, the said property or the value of the same, or such portion thereof as may be sufficient to satisfy the decree, or to appear and show cause why he should not furnish security. (2) The plaintiff shall, unless the Court otherwise directs, specify the property required to be attached and the estimated value thereof. (3) The Court may also in the order direct the conditional attachment of the whole or any portion of the property so specified. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ads as under: "10. Deposit of money, etc., in Court. - Where the subject-matter of a suit is money or some other thing capable of delivery and any party thereto admits that he holds such money or other thing as a trustee for another party, or that it belongs or is due to another party, the Court may order the same to be deposited in Court or delivered to such last-named party, with or without security, subject to the further direction of the Court." 57. The learned Arbitral Tribunal holds, in the impugned order, that, inasmuch as the right of One97 to reimbursement of the amounts paid by it to the customers who sold back the digital gold to Augmont between 8th January, 2019 and 21st February, 2019 stood admitted by Augmont, the interests of justice deserved issuance of a direction, to Augmont, to secure the amount. 58. To my mind, a direction under Section 17, by the learned Arbitral Tribunal to secure the admitted amount during the arbitral proceedings may not justify interference in exercise of the jurisdiction vested in this Court by Section 37 of the 1996 Act, either on first principles or on merits, unless the finding of admission of liability on the part of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd thereafter in terms of sub-rule (2) of Rule 6 of Order XII, the Court is under a mandate to make a decree on admission. Thus, if in a given case, there is a clinching admission by a defendant that he is holding the money or some other thing capable of delivery as a trustee for the plaintiff and the Court is satisfied that it is a fit case to exercise discretion by passing a judgment on admission under Rule 6 of Order XII, the Court would very well pass a judgment on admission so that by executing the decree drawn in terms of the said judgment, the plaintiff gets the money or the thing capable of delivery. If such a stringent test is to be applied for applicability of Rule 10 of Order XXXIX, the provision of Rule 10 will virtually become redundant. Rule 10 confers powers on the Court to pass an interim order directing the money to be deposited in the Court or to be delivered to the party for whose benefit the concerned party is holding the same as a trustee. There is a power vesting in the Court to direct the party to deposit property ordered to be delivered or to furnish a security. The power under Rule 10 of Order XXXIX is a power to pass an interim order pending suit. But the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h admittedly constitutes the basis of the 1996 Act, too, does not enlighten on this aspect. 65. Having said that, so long as such a differential treatment has been extended, by the statute, to interlocutory orders under Section 16 or 17 of the 1996 Act, vis-à-vis. final awards, the intent of the legislature in doing so has to be respected. 66. Section 37(2) envisages appeals, to the Court, from orders passed by the Arbitral Tribunal either under sub-sections (2) or (3) of Section 16, accepting the objection regarding want of jurisdiction in the Arbitral Tribunal, or granting or refusing to grant an interim measure under Section 17. Sections 16(2) and (3) read thus: "16. Competence of arbitral tribunal to rule on its jurisdiction.- ***** (2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator. (3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Judge. In such appeals, the appellate court will not interfere with the exercise of discretion of the court of first instance and substitute its own discretion except where the discretion has been shown to have been exercised arbitrarily, or capriciously or perversely or where the court had ignored the settled principles of law regulating grant or refusal of interlocutory injunctions. An appeal against exercise of discretion is said to be an appeal on principle. Appellate court will not reassess the material and seek to reach a conclusion different from the one reached by the court below if the one reached by that court was reasonably possible on the material. The appellate court would normally not be justified in interfering with the exercise of discretion under appeal solely on the ground that if it had considered the matter at the trial stage it would have come to a contrary conclusion. If the discretion has been exercised by the trial court reasonably and in a judicial manner the fact that the appellate court would have taken a different view may not justify interference with the trial court's exercise of discretion. After referring to these principles Gajendragadkar, J. i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1. Every attempt is required to be made, therefore, to promote the arbitral process, and every attempt at seeking to retard it, is, equally, required to be eschewed. This philosophy, in my view, is required to pervade the exercise of jurisdiction as much under Section 37(2), as under Section 34 of the 1996 Act. 72. Added to this, is the need for judicial circumspection, when the order under challenge is discretionary in nature, as in the present case. 73. 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. 74. In this context, it is necessary to differentiate between the scope and ambit - expressions which often exist cheek by jowl - of Section 37 jurisdiction, vis-a-vis. the reach and extent of such jurisdiction. The scope of jurisdiction - which embraces its governing considerations - i....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... It is not proper that this Tribunal at this stage give the finding about the impact of the case of the respondent's counter-claim." There is no averment, in the appeal by the appellant, to the effect that the afore-extracted finding of the learned Arbitral Tribunal is, on facts, incorrect. Apparently, therefore, apart from the recitals in the counter- claim and the Section 17 application filed by it, the appellant did not deny, even during arguments before the learned Arbitral Tribunal, the transactions effected after 7th January, 2019 and the factum of payments made by One97 in connection therewith. 76. The learned Arbitral Tribunal has opined that, by so pleading, Augmont had impliedly admitted its liability to reimburse, to One97, the amounts claimed by it. 77. The second circumstance is that, for each of the 55458 transactions which took place between 5th and 7th January, 2019, the respondent's system sent the code of "200" indicating success, rather than "400" indicating failure. The statement in that regard is also on record, and this position is found to be correct. That One97 did actually reimburse the customers in respect of the transactions whi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in exercise of Section 37 jurisdiction. 82. Prima facie, if amounts were paid by One97 to the customers, in respect of gold sold to Augmont, Augmont was liable to reimburse One97 on the very next day. 83. The learned Arbitral Tribunal has, keeping in view all these factors, arriving at a finding that the liability of Augmont, to reimburse One97 in respect of the amounts paid by One97 to the customers during the period 8th January, 2019 till the termination of the contract on 21st February, 2019, was prima facie undisputable. It has also observed that no concrete rebuttal, to these submissions, was forthcoming in the stand of Augmont before it. 84. In these circumstances, if the learned Arbitral Tribunal directed One97 to deposit the amounts paid by One97 to the customers during the period 8th January, 2019 to 21st February, 2019, as reflected from its ledgers, pending decision in the arbitral proceedings, that direction, in my view, cannot be said to suffer from perversity or patent illegality as would warrant interference, by this Court, in exercise of its jurisdiction under Section 37 of the 1996 Act. 85. No doubt, in the present case, the learned Arbitral Tribunal d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ccounts, the learned Arbitral Tribunal deemed it appropriate to direct Augmont to secure the value of the digital gold remaining in the customers' GAP accounts on the date of termination. 88. Clause 24 of the agreement sets out the "obligations upon termination". The said clause, with sub-clauses 24.2 to 24.4 thereof, which are of some relevance, may be reproduced thus: "24 OBLIGATIONS UPON TERMINATION If this Agreement is terminated as provided herein: 24.1 One97 shall be responsible to immediately stop taking any further Customer Purchase Order, Customer Redemption Instruction, Transfer Instruction Favouring customer, Open Sale Back Order, or accumulation of Product/gold through the Paytm Platform. 24.2 Augmont-Bullion shall be responsible to continue providing services for a period of at-least 4 (Four) months from the date of termination ("Transition Period") for effectuating redemption or selling of Gold by customers or transfer of balance to an alternate GAP partner of One97 ("Alternate GAP Platform"). 24.3 One97 shall be responsible for informing and communicating to Customer(s) regarding the termination of the Agreement and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....chased by Augmont "at the then prevalent live rate of gold sell back, after deducting applicable charges and taxes" (as is expressly stated in Clause 24.4). 92. Having said that, 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. 93. The liability of One97 to pay customers who chose to exercise their option of redemption or in respect of whose gold, Augmont chose to exercise its option of re-purchase, to pay the customers,....