Civil Appellate Jurisdiction
In the Supreme Court of India
(Before Indira Banerjee and A.S. Bopanna, JJ.)
Civil Appeal No. of 2022
(Arising out of SLP (C) No. 3187 of 2021)
Decided on September 14, 2022.
Facts of the case:
The appeal before the Supreme Court arose against the common judgment and order dated February 1, 2021, passed by a Division Bench (Commercial Appellate Division) of the Bombay High Court under Section 37 of the Act read with Section 13 of the Commercial Courts Act, 2015.
In 2017, Essar Steel was faced with insolvency proceedings that were initiated by Standard Chartered Bank and State Bank of India. Essar House Private, a real estate company that is linked to Essar Steel, had leased parts of Essar House to Essar Steel starting from April 2016, for a monthly rent of Rs. 78,40,000.
Essar Steel had financial obligations that extended to its group companies, including Equinox. Equinox settled a debt of Rs. 60.95 crores for Essar Steel with HDFC Bank. In 2019, Arcelor Mittal Nippon Steel India Limited’s resolution plan for Essar Steel was approved by the National Company Law Tribunal. This approval was confirmed by the National Company Law Appellate Tribunal in June 2019.
The dispute between Arcelor Mittal Nippon Steel (respondent) and Essar House Private (appellant) began with the submission and approval of the Resolution Plan for Essar Steel by the respondent. The respondent claimed that Essar House Private had received Rs. 25,80,00,000 from Essar Steel, but had offset it against a loan taken over from Marvel Mines, leaving no refundable security deposit.
On 17th November 2020, the respondent filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996. The petition directed Essar House Private to deposit the disputed amount, which is Rs. 35,51,89,875/- with the Bombay High Court. The Single Bench granted the petition, and the Commercial Appellate Division dismissed the subsequent appeal of Essar House Private Limited, and Essar Services India Private Limited against the court’s orders.
Arcelor had also paid a sum of Rs. 4,75,06,260/- to Essar Services on behalf of Essar Steel. Later, Arcelor sought a refund of Rs. 47.41 crores. To pursue the refund, Arcelor filed another application under section 9 of the 1996 Arbitration Act, which led to a court directive for Essar Services to deposit the disputed amount in court.
The respondent’s application has been granted by the Bombay High Court, directing the appellant and Essar Services to deposit the said amount before the court vide orders dated 10th December 2020. Both orders for the deposit of the disputed amounts were upheld by the Division Bench of the Bombay High Court on 1st February 2021. Essar House Private Limited has now approached the Supreme Court, claiming that the High Court made an error by not considering the requirements of Order XXXVIII, Rule 5 of the Code of Civil Procedure, 1908 (CPC) while granting interim relief.
Issues raised:
1. Whether the respondent could seek for grant of an interim relief under Section 9 of the Arbitration and Conciliation Act, 1996?
2. What was the scope of the Court’s power under Section 9 of the 1996 Arbitration Act, in comparison to the Code of Civil Procedure, 1908 (CPC)?
Contention:
The appellant has raised a key contention before the Supreme Court. According to Essar, in order for the Court to grant discretionary interim relief under Section 9 of the Act, the Court must first satisfy itself that the applicant for interim relief (Arcelor) has a bona fide and strong claim that Essar is about to remove or dispose of whole or part of its property with intent to obstruct or delay the execution. In this context, Essar has argued that the High Court erred by not examining the requirements of Order XXXVIII, Rule 5 of the Code of Civil Procedure (CPC) while granting an interim relief.
To support its argument, Essar has relied on the judgment in Raman Tech & Process Engineering Co & Anr v. Solanki Traders, which held that the power under Order XXXVIII Rule 5 CPC is a drastic and extraordinary power that should not be exercised mechanically or merely for the asking. Essar has emphasized that the power to grant interim relief is a discretionary power that must be exercised judiciously and that the High Court did not properly examine the requirements of the CPC before granting the relief.
Essar’s argument is based on its belief that the power to grant interim relief should be used sparingly and only in cases where there is a strong likelihood that the applicant will succeed in its claim. By raising this contention before the Supreme Court, Essar is seeking to challenge the High Court’s decision and ensure that the power to grant interim relief is not used arbitrarily or without proper consideration of the facts and circumstances of the case.
Rationale:
The Supreme Court categorically held:
48. 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 an interim measure has a good prima facie case, whether the balance of convenience is in favor of interim relief as prayed for being granted, and whether the applicant has approached the court with reasonable expedition.
49. If a strong prima facie case is made out and the balance of convenience is in favor 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 an absence of averments, incorporating the grounds for attachment before judgment under Order 38 Rule 5 Civil Procedure Code.
The Supreme Court has established that Section 9(3) of the Arbitration Act aims to prevent an overflow of Section 9 petitions when an Arbitral Tribunal is constituted, for two reasons:
(i) that the clogged court system ought to be decongested; and
(ii) that an Arbitral Tribunal, once constituted, would be able to grant interim relief in a timely and efficacious manner.
Section 9 of the Act provides the court with broad powers to issue orders to protect the subject matter of the arbitration agreement and the amount in dispute during the arbitral proceedings. The court can do this before, during, or after the arbitral award has been made, but before its enforcement under Section 36 of the Act. When granting such an equitable remedy, the court must consider certain principles, including whether the applicant for interim measures has a strong prima facie case, whether the balance of convenience favors granting the interim relief requested, and whether the applicant has approached the court with reasonable promptness.
In the case of Essar v. Arcellor, the Supreme Court has rightly examined the scope of interim remedies under Section 9 of the Act. The court held that while granting such remedies, it is not strictly bound by the provisions of the CPC. However, the basic principles of procedural law, as laid down in the CPC, should not be ignored. This decision is reasonable since procedural safeguards intended to promote the cause of justice cannot be interpreted in a way that defeats justice. The Supreme Court has observed that Section 9 of the Act grants wider powers to the court while granting interim relief. The Court relied on several High Court decisions, which have held that a court’s powers under Section 9 of the Act are broader than powers under the provisions of the CPC. In this regard, the Supreme Court relied upon the decisions of Ajay Singh & Ors v. Kal Airways Private Limited and Ors, Jagdish Ahuja & Anr v. Cupino Limited, Valentine Maritime Ltd v. Kreuz Subsea Pte Ltd & Anr.
The Supreme Court has made a decision stating that if a strong case can be established and granting interim relief would be in the best interest of all parties involved, then the Court should not withhold relief simply because the grounds for attachment before judgment haven’t been included in the initial petition. The Court also stated that in order to determine if interim relief should be granted, it is necessary to weigh the consequences of granting or refusing the relief and to consider the impact it would have on both parties if the proceedings were to succeed or fail.
The Supreme Court, however, dismissed the appeal of the appellant, Essar House Private Limited.
Defects of law:
Section 9(3) of the Arbitration Act consists of the word ‘entertain’ and the Essar House case helped in clarifying its scope. The Supreme Court held that the term ‘entertain’ in section 9(3) refers to the court’s consideration of the issues raised in an application and the decision made based on merit. This process may continue until the court pronounces its order, but it does not prevent the court from exercising its powers under section 9, even if a tribunal is constituted during this stage. This interpretation ensures that the parties do not have to go through the redundant process of having to re-agitate their claim before the arbitral tribunal even when the claim was taken up and considered by a court under section 9.
Moreover, the extent to which provisions of the Civil Procedure Code apply to proceedings under section 9 was uncertain. However, the Supreme Court settled the issue by adopting two approaches:
1. That the proceedings under Section 9 of the Act are to be analogous to procedures under Order XXXVIII Rule 5 and Order XXXIX Rule 1 and 2 of the CPC, and hence the principles included in it must be considered for the grant of interim relief. The Supreme Court concluded in ITI v. Siemens Public Communication that, while the Act included no reference to the CPC’s application to arbitral procedures, the provisions of the CPC might be read by a court exercising its powers during any proceedings arising under the Act.
2. That the court should not be restrained by every nook and cranny of the provisions of the CPC while providing interim relief. The terms of Order XXXVIII Rule 5 cannot be used to defeat the grant of interim relief under section 9.
Inference:
The recent decision by the Supreme Court to uphold the orders of the Bombay High Court has reinforced the importance of the remedy of security of costs as an interim relief under Section 9 of the Arbitration Act. This remedy can help safeguard the award holder at the time of enforcement, amongst other benefits. The court has also resolved the unclear legal position regarding the application of CPC provisions to Section 9 of the Act. By adopting an inclusive as well as an exclusive approach, the court has continued to support a pro-arbitration regime.
Vedangi Deshmukh
ILS Law College