Gainwell Commosales Private Limited v. Minsol Limited

Court: High Court of Calcutta

Bench: Shekhar B. Saraf

Facts:

A contract for the provision of a Gainwell High Wall Mining System had been established by the parties involved. The agreement stated that the petitioner was to provide the respondent with the High Wall Mining System, which included a cutter module. According to the terms of the agreement, the HMW System was to be paid for in installments, for a total consideration of Rs. 60,12,93,000/- (plus taxes). The petitioner had already been paid Rs. 24,00,00,000 of this total. 

Three directives were issued by the Tribunal in its December 22, 2021, order:

1. The advocates of the parties serving as escrow agents were directed to manage the outstanding balance for the HWM System by depositing it into an Escrow Account.
2. An officer with special authority would oversee the HWM System’s pre-dispatch testing. 
3. If the HWM System performed satisfactorily for a continuous 96 hours, the agents were to release the funds to the petitioner.

On March 7, 2022, the Tribunal modified its earlier order from December 21, 2021, directing the respondent to set up an account which bore interest. This account would hold 100% of the taxes and duties owed on the HWM in addition to 50% of the basic contract value, in favour of the petitioner’s attorney. Following the deployment of the HWM System, the funds would be released, and the remaining amount would be paid after the system had operated satisfactorily. 

When the dispatch was complete, the petitioner filed a request to encash the fixed deposit. In order to stop the petitioners from taking any money out of the fixed deposit, the defendants filed a request. The petitioner’s attorney was directed by the Tribunal to only release the fixed deposit in the event that the petitioner produced a bank guarantee for the agreed upon amount. The petitioner’s obligation to provide a bank guarantee was later contested.

Issue:

1. Whether the Tribunal goes beyond the terms of the agreement when granting temporary reliefs?

2. Whether the order dated July 22, 2022, which was issued by the Tribunal, exceeds the scope of the Agreement?

3. Whether the contested order be declared void?

Contentions:

Petitioner’s Arguments:

1. The petitioner’s attorney’s main point of contention was that the Tribunal could not, as it had in this case, impose an additional requirement, like providing a bank guarantee. The attorney argued that the agreement called for payment upon dispatch without any further terms or security, and that there were not enough justifications given for imposing such requirements. As a result, the attorney contended that this requirement would be in conflict with the terms of the Agreement, and the Tribunal lacked the power to change the agreement.

2. In addition, the attorney claimed that the order violated the concepts of natural justice and fair play since it was issued without giving the petitioner a fair chance to be heard. 

3. The attorney further contended that the amount owed has become due and payable because the respondent has already received the machine.

Respondent’s Counterarguments:

1. The respondent’s counsel claims that because of the delayed machine delivery, they believe the terms of the contract are not being followed. Additionally, they assert that some parts are duplicates, subpar, and inexpensive. Both parties had consented to the Tribunal’s orders of December 21, 2021, and March 7, 2022, directing the respondent to make the payment even before the deadlines. As a result, the petitioners cannot contest the demand for a bank guarantee. 

2. In order to maintain the balance of power and guarantee that contractual obligations are fulfilled while the dispute is pending, the counsel believes that the Tribunal imposed this condition. In addition, the petitioners have not delivered the Low Seam Cutter module even after being reminded to do so and having paid 90% of the total amount due. 

3. As a result, they contend that the bank guarantee is a prerequisite and that there are legitimate concerns that the same thing will be done with the HWS System. 

Rationale:

Section 9 of the Arbitration and Conciliation Act, 1996

“Interim measures, etc. by Court –

A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a court—

1. for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or
2. for an interim measure of protection in respect of any of the following matters, namely: 

1. the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;
2. securing the amount in dispute in the arbitration;
3. the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorizing for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorizing any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
4. interim injunction or the appointment of a receiver;
5. such other interim measure of protection as may appear to the court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.”

Section 17 of the Arbitration and Conciliation Act, 1996

“Interim measures ordered by arbitral tribunal –

1. Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order a party to take any interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject-matter of the dispute.
2. The arbitral tribunal may require a party to provide appropriate security in connection with a measure ordered under sub-section.”

Judgment:

The court expressed the opinion that the Tribunal is not required to strictly abide by the Civil Procedure Code’s (CPC) technicalities when it exercises its powers under Section 17. The authority bestowed upon the tribunal by Section 17 bears parallels with the powers bestowed upon a court under Section 9 of the Arbitration and Conciliation Act, as the court emphasized. The court stressed, citing the case of Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited, that although it is crucial that the court uphold fundamental procedural law principles when executing its authority under Section 9, the CPC’s technicalities should not prevent the court from enforcing justice. The Tribunal may not go beyond the parameters of the dispute that was brought before it, but there are no restrictions requiring the Tribunal to limit its authority to the terms of the contract when awarding interim relief. The authority granted by Section 17 is intended to keep the arbitral proceedings from coming to a standstill.

As long as the relief does not directly conflict with the terms of the contract, the Tribunal is empowered to grant it. Because of worries about the HWM System’s performance in this particular case, the Tribunal decided that the respondent needed to be given specific protections. The Tribunal tried to resolve the issues and carry out its end of the bargain. The orders dated December 22, 2021, and March 7, 2022, respectively, were designed to make it easier for parties to fulfill their contractual obligations in a way that is consistent with the fundamental terms of the agreement. Both parties accepted these orders even though they did not follow the terms of the agreement to the letter.  As a result, rather than violating the agreement, this exercise made it easier for both parties to reach a fair settlement.

The Tribunal did not act in violation of the terms of the agreement, the Court found, and as a result, there is no reason to interfere with the order.

Inferences:

It can be said that the court’s decision, under Section 17 of the Arbitration and Conciliation Act of 1996, has established, with high instances, how much the arbitral tribunal enjoys discretion. This was a case which has shown the issue that orders in conflict with strict terms of the contract have been given by the Tribunal, which seems to have been done out of fairness and to also avoid any conflicts in the arbitral proceedings. 

The court further observed that the power of the Tribunal, under Section 17, must not get caught up with the technicalities within the Civil Procedure Code, and should work parallelly to the values of justice. In doing so, the court expressly recognized the need to preserve basic procedural law principles while simultaneously acknowledging the authority of the Tribunal to issue interim relief that, in no way, clashes with the terms of contract. 

The decision reinforces the idea that when acting under a sense of justice and fairness, arbitral tribunals are afforded discretionary powers to ensure efficiency in the arbitration process. 

By:

Rujul Raina

Jindal Global Law School, O.P. Jindal Global University