The Delhi High Court vide its decision dated June 09, 2020 in the case of Goodwill Non-Woven(P) Limited v. XCoal Energy and Resources LLC[1] held that under Section 9 of the Arbitration and Conciliation Act, 1996, granting of interim measures is not dependent on the pre-requisite that the asset(s) must be in India and hence the Court cannot refuse to entertain a petition under Section 9 of the Act on the basis that the foreign party does not have assets in India.
Facts
The Petitioner, Goodwill Non-Wovens (P) Ltd. is a private limited company in India incorporated in 2008 for the purpose of undertaking the business of buying, selling, exporting, importing and manufacturing various commodities. While the Respondent, XCoal Energy & Resources LLC, is a privately-owned global coal marketing and logistics company headquartered in Pennsylvania, USA. The parties entered into a contract for sale and delivery of 13,500 MT of Consol BEFH US High CV Thermal Coal (“consignment”/“coal”) at the designated port on March 10, 2020. In accordance to this, the Petitioner issued an irrevocable Letter of Credit (LoC) securing its payment obligation and the said shipment was sent on vessel MV Berge Toubkal from Console Marine Terminal, Baltimore, Maryland on March 22, 2020. The Respondent realised the full amount of USD 1,182,735 by invoking the LoC on April 21, 2020.
The Petitioner alleged that it received a 12-day Pre-Arrival Notice on April 22, 2020 which was issued by the Respondent’s vessel agent who informed that the vessel was due to arrive at the designated port on May 4, 2020 where the coal would be discharged w.r.t. the impugned contract. In response to this, the Petitioner wrote that it had performed its respective obligations including making the full payment under the contract on April 21, 2020 and further requested respondent to ensure immediate unloading and delivery of the consignment, which was due to arrive on May 4, 2020.
Subsequently, the Petitioner received a marked email whereby the Respondent called upon M/s. Kalyani to fulfil its contractual obligations with Respondent. It is contended that there was no privity of contract between the Petitioner and M/s. Kalyani and the performance of the impugned contract is independent of any other subsisting contract of the Respondent with any party. The Petitioner on May 5, 2020 in response to the e-mail, pointed out to the Respondent that it had complied with all the contractual obligations while the Respondent failed to discharged its end of the bargain. However, the Respondent submitted that it will not be able to discharge the consignment until the contractual obligations by certain third parties towards the Respondent are performed.
The Petitioner served a legal notice to the Respondent asking it to rectify the breach of contract within the next 5 days, failing which it was stated that the contract shall be deemed to be terminated and legal action would be taken against the Respondent. After receiving no response from the Respondent, the Petitioner terminated the contract on May 19, 2020 which was denied by the Respondent, and it further directed the Petitioner to take discharge of the consignment failing which the same shall be discharged by the respondent itself on the basis of the Contract, at the expense of the petitioner.
On May 22, 2020 the Respondent’s vessel agent informed the Petitioner that the consignment was ready for discharge at Kandla Port while the Petitioner stated that the Contract stands terminated as on May 19, 2020 and it does not have any responsibility w.r.t. it.
Clause 21 (dispute resolution) of the contract stated that the performance of the contract shall be determined in line with laws of State of New York, USA and provided that all disputes shall be referred to a tribunal of 3 arbitrators pursuant to the rules of the International Chamber of Commerce (ICC).
The Petitioner approached the Delhi High Court when the dispute arose and under section 9 of the Arbitration and Conciliation Act, 1996 seeking an interim relief against the Respondent in order to secure the disputed amount.
Petitioner’s Arguments
It contended that there was no bar to approach the High Court as per the proviso of section 2 (2) of the Act. Further, the ICC Rules of Arbitration bind the parties as agreed to govern the arbitration proceedings, and do not prevent either party from approaching the Court for grant of interim measures. The Petitioners even relied on judgments that were delivered on similar facts to drive the point home regarding the jurisdiction of the Court. Further, the Petitioner surmised that it is entitled to refund of amount remitted under the Contract as well as damages in arbitration proceedings that the Petitioner intended to invoke as it had fulfilled its contractual obligations, a prima facie case and balance of convenience was in its favour, and irreparable harm will be caused to the Petitioner if such a relief was not granted.
Respondent’s Arguments
The Respondent raised objection to the maintainability of the petition. It pointed out that under section 2(2) of the Arbitration Act, the Indian Court has ‘asset based jurisdiction’, which meant that only when the asset of the opposite party against which an order is being sought is based in India, an Indian Court can exercise its jurisdiction under the proviso of section 2 (2). Further, the Court needs to determine as to whether if an award was made in the arbitral proceedings, could such an award be enforced against the Respondent in India. The Respondent, therefore contended that parties expressly intended to subject themselves to the courts in New York alone and owing to non-availability of any assets in India, the ensuing award could not be executed against the Respondent in India by the Petitioner.
Judgment
The Respondent relied upon the 246th report of the Law Commission in order to build its case on jurisdiction which has the words ‘enforceable and recognized under the provision of Part-II’ in proviso to Section 2(2) of the Act. It relied on the Supreme Court judgment[2] which aimed at reducing the judicial intervention in foreign seated arbitration, by excluding the applicability of Part-I, however, a problematic area therein was where the assets of a party are located in India and since there is likelihood that such parties will dissipate its assets in the near future, the other party will lack an efficacious remedy.
The case brought up two questions before the High Court. The first being the maintainability of the petition under Section 9 of the Act and the second, whether the Petitioner should be granted reliefs as claimed in the petition.
I. Maintainability
The Court opined that the effect of the proviso to Section 2(2) is that it makes applicable sections 9, 27, 37 (1)(a) and 37(3) of the Act to foreign seated arbitration. According to the submissions, a contracting State, on the basis of reciprocity shall recognize and enforce the awards made in the territory of another contracting state. There is no doubt that an arbitral award made in the USA is enforceable in India under Part-II of the Act.
The Court relied on the case of Raffles Design International India Pvt. Ltd.[3] wherein it considered the Law Commission report as well. The Court dissected the wording of Section 9 and came to the conclusion that for the purpose of passing an order/interim measure, the availability of asset in India is irrelevant. The bank guarantee, which is furnished or the amount deposited pursuant to an order passed by a Court in India under Section 9 can be invoked or withdrawn by an Indian party in the eventuality, it succeeds in a foreign seated arbitration in satisfaction of the Award, even though the foreign entity may not have any assets in India.
Additionally, the Court cannot refuse to entertain a petition under Section 9 of the Act on the ground that the foreign party does not have any assets in India, as in a given case it may so happen that the Indian party may not be successful in the arbitration proceedings for it to have an Award in its favour, so as to execute against a foreign party in India.
Thus, it held that for the reliefs claimed, the petition is maintainable under Section 9 of the Act.
II. Granting an Interim Relief
The Petitioner referred to its many notices, specially the Letter of Termination and other communications to submit that its obligations stood discharged adding that the price of coal had depreciated. It was contended by the Respondent that since it was a CIF contract, it stood concluded the moment the goods were loaded on the ship and payment received by the Respondent and since it was an executed contract, the Petitioner could not terminate it. That the Petitioner had claimed the termination of the contract on breach of material obligations but has miserably failed to point out in terms of the contract, the obligations which the respondent is in breach of.
The Petitioner has to establish that the Respondent is attempting to remove or dispose of the assets with the intention of defeating the decree that may be passed and the discretion of the Court to grant interim relief under Section 9 of the Act has to be exercised sparingly and in appropriate cases and the Court should be extremely cautious in granting interim relief and it should be based on materials on record leading to a definite conclusion that the respondent is likely to render the entire arbitration proceedings infructuous.
It is clear based on previous judgments[4] on the matter that the Petitioner has to show that it has a prima facie case and balance of convenience in its favour and that the respondent is acting in a manner as to defeat the realization of the future award that may ultimately be passed.
The power to grant an interim measure of protection under section 9 (ii)(b) is in line with the provisions of the CPC. Section 9 does not either attach a special condition for the exercise of the power nor does it embody a special form of procedure for the exercise of the power by the Court. Thus, such orders cannot be passed mechanically and the undertaking basis of Order 38 Rule 5, CPC has to be kept in mind while deciding an application under Section 9 (ii)(b) of the Act.
The plea in support of reliefs primarily is that in view of COVID-19, the Petitioner is unable to meet the timelines for invoking the Arbitration and there is an apprehension that the respondent may make attempts to obstruct the satisfaction of the decree, which may be awarded in favour of the petitioner in the arbitration proceedings. It would be safe to say that the plea of COVID-19 for not invoking the arbitration has no bearing on the merits of the case. The Court did not find any evidence to support this plea of the Petitioner. Thus, the Court does not find any merit in the petition.
Conclusion
The Delhi High Court in this case held that under Section 9 of the Act, granting of interim measures is not dependent on the pre-requisite that the asset(s) must be in India and hence the Court cannot refuse to entertain a petition under Section 9 of the Act on the basis that the foreign party does not have assets in India. This decision encourages foreign entities against their Indian counterpart as the embargo of assets shall not stop them from pursuing their rights in cases where earlier the deterrent was the need for asset presence in India.
[1] OMP(I)(COMM) 120/2020 (High Court of Delhi). Access here. [2] Bharat Aluminum and Co. vs. Kaiser Aluminium and Co., (2012) 9 SCC 552. [3] Raffles Design International India Pvt. Ltd. v. Educomp Professional Education Ltd. & Ors., 234 (2016) DLT 349. [4] Arvind Constructions v. Kalinga Mining Corporation (2007) 6 SCC 798; BMW India Pvt. Ltd. and Ors. v. Libra Automotives Pvt. Ltd. and Ors., 261(2019) DLT 579.
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