Arbitration and Conciliation Act, 1996 – s.9 – Insolvency and Bankruptcy Code, 2016 – ss.7, 14 – Code of Civil Procedure, 1908 – Or.38, r.5 –A sum of about Rs.35 crores and Rs.47 crores was paid by Essar Steel to the appellant shere in (Essar House Private and Essar Services)respectively, by way of refundable security deposit – A petition was filed u/s.7, IBC for initiation of CIR Pagainst Essar Steel – Respondent, as resolution applicant submitted a Resolution Plan in respect of Essar Steel which was approved– Respondent took over Essar Steel – Sent legal notices calling upon the appellants to refund the security deposits – Denied – Application filed by respondent u/s.9, Arbitration Act was allowed, appellants were directed by Single Bench of High Court to deposit Rs.35.5 crores and Rs.47.41 crores respectively or to furnish bank guarantee for the entire amount with interest – Order confirmed by Division Bench – On appeal, held: Obligations under a contract cannot be assigned, without consent of the counterparty – Novation of contract or set off is not allowed in respect of a corporate entity undergoing CIRP without the consent of the Resolution Professional – In the present case, admittedly, the CIRP of Essar Steel commenced when the Resolution Professional took over the management of the affairs of Essar Steel under the IBC – Even if any prior inter se arrangement existed between the parties, Essar Services could not have adjusted the security deposit payable to Essar Steel under the amended agreement against the alleged dues of Essar Steel to a third party during the CIRP – Further, while it is true that the power u/s.9, Arbitration Act should not ordinarily be exercised ignoring the basic principles of procedural law in the CPC, the technicalities of CPC cannot prevent the Court from securing the ends of justice – Besides the specific power of securing the amount in dispute, the Courts are empowered to pass any interim measure of protection, keeping in view the purpose of the proceedings before it – If a strong prima facie case is made out and the balance of convenience is in favour of interim relief being granted, the Court exercising power u/s.9 should not withhold relief on the mere technicality of absence of averments, incorporating the grounds for attachment before judgment u/Or. 38, r.5, CPC – Proof of actual attempts to deal with, remove or dispose of the property with a view to defeat or delay the realisation of an impending Arbitral Award is not imperative for grant of relief u/s.9 – A strong possibility of diminution of assets would suffice– In the instant case, prima facie, the refundable security deposit was not released to respondent on the purported ground of a convoluted series of internal arrangements between group companies for diversion of the security deposits towards liquidation of alleged dues of Essar Steel to third parties – This contention of the appellant was considered by the Division Bench –No infirmity in the well-reasoned judgment of the Division Bench – Contract.
Arbitration and Conciliation Act, 1996 – s.9 –Power of Court – Scope of– Discussed– Code of Civil Procedure, 1908. Dismissing the appeals, the Court
HELD: 1.1 Obligations under a contract cannot be assigned, without consent of the counterparty. In any case, novation of contract or set off is not allowed in respect of a corporate entity undergoing CIRP without the consent of the Resolution Professional. Section 14 of the IBC bars action to foreclose, recover or enforce any security interest created by a Corporate Debtor undergoing CIRP. Admittedly, the CIRP of Essar Steel commenced on 2nd August 2017 when the Resolution Professional took over the management of the affairs of Essar Steel under the IBC. Even if any prior inter se arrangement existed between the parties, Essar Services could not have adjusted the security deposit payable to Essar Steel under the amended agreement against the alleged dues of Essar Steel to a third party during the CIRP. [Paras 33-36][1011-E; G-H; 1012-A-B]
Citibank N.A. v. Standard Chartered Bank &Ors. (2004)
1 SCC 12 : [2003] 4 Suppl. SCR 489; Khardah
Company Ltd. v. Raymon& Co. (India) Pvt. Ltd. (1963)
3 SCR 183 – relied on.
1.2 In deciding a petition under Section 9 of the Arbitration Act, the Court cannot ignore the basic principles of the CPC. At the same time, the power Court to grant relief is not curtailed by the rigours of every procedural provision in the CPC. In exercise of its powers to grant interim relief under Section 9 of the Arbitration Act, the Court is not strictly bound by the provisions of the CPC. While it is true that the power under Section 9 of the Arbitration Act should not ordinarily be exercised ignoring the basic principles of procedural law as laid down in the CPC, the technicalities of CPC cannot prevent the Court from securing the ends of justice. It is well settled that procedural safeguards, meant to advance the cause of justice cannot be interpreted in such manner, as would defeat justice. Besides the specific power of securing the amount in dispute, the Courts have been empowered to pass any interim measure of protection, keeping in view the purpose of the proceedings before it. The said provision confers a residuary power on the Court to pass such other interim measures of protection as may appear to be just and convenient. Many High Courts have also proceeded on the principle that the powers of a Court under Section 9 of the Arbitration Act are wider than the powers under the provisions of the CPC. [Paras 39-43][1012-F-H; 1013-A-B]
Ajay Singh &Ors. v. Kal Airways Private Limited and Ors (2017) SCC Online Del 8934; Jagdish Ahuja & Anr. v. Cupino Limited 2020 SCC Online Bom 849; Valentine Maritime Ltd. v. Kreuz Subsea Pte. Ltd. &Anr. 2021 SCC Online Bom 75; Srei Infrastructure Finance Limited v. M/s. Ravi Udyog Pvt. Ltd & Anr. A.P. No.
522 of 2008 – approved.
1.3 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 interim measure has a good prima facie case, whether the balance of convenience is in favour of interim relief as prayed for being granted and whether the applicant has approached the court with reasonable expedition. If a strong prima facie case is made out and the balance of convenience is in favour 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 absence of averments, incorporating the grounds for attachment before judgment under Order 38 Rule 5 of the CPC. Proof of actual attempts to deal with, remove or dispose of the property with a view to defeat or delay the realisation of an impending Arbitral Award is not imperative for grant of relief under Section
9 of the Arbitration Act. A strong possibility of diminution of assets would suffice. To assess the balance of convenience, the Court is required to examine and weigh the consequences of refusal of interim relief to the applicant for interim relief in case of success in the proceedings, against the consequence of grant of the interim relief to the opponent in case the proceedings should ultimately fail. It is not in dispute that a sum of about Rs.35 crores odd was paid by Essar Steel to Essar House Private and Rs.47 crores odd to Essar Services, being the appellants in the respective appeals, by way of security deposit which is a refundable security deposit. Prima facie, the refundable security deposit is not being released to Arcellor on the purported ground of a convoluted series of internal arrangements between group companies for diversion of the security deposits towards liquidation of alleged dues of Essar Steel to third parties. The Division Bench considered this contention of the Appellant. No infirmity in the well-reasoned judgment and order of the Division Bench. [Paras 48-53][1017-B-H; 1018-A-B; 1019-B] Committee of Creditors of Essar Steel India through Authorised Signatory v. Satish Kumar Gupta &Ors. (2020) 8 SCC 531 : [2019] 16 SCR 275; Raman Tech. & Process Engg. Co. &Anr. v. Solanki Traders (2008)
2 SCC 302 : [2007] 12 SCR 409 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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