Full Judgment Text
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 08.08.2011
% Judgment delivered on: 01.09.2011
+ O.M.P. 417/2011 & I.A. No. 8837/2011
STEEL AUTHORITY OF INDIA LTD ..... Petitioner
Through: Mr. Sanjay Jain, Senior Advocate,
with Mr. Sunil Kumar Jain,
Mr.Parmtma Singh and Mr. Umesh
Kumar, Advocates.
versus
AMCI PTY LTD & ANR ..... Respondents
Through: Mr. Rajiv Nayar, Senior Advocate,
with Mr. Dhirendra Negi and
Mr.Sidharth Sethi, Advocates for
the respondent No. 1.
Mr. Arvind Nigam, Senior Advocate,
with Mr. Amit Sibal, Mr. Anirudh
Das and Ms. Smarika Singh,
Advocates for the respondent No.2.
CORAM:
HON’BLE MR. JUSTICE VIPIN SANGHI
1. Whether the Reporters of local papers may
be allowed to see the judgment? : Yes
2. To be referred to the Reporters or not? : Yes
3. Whether the judgment should be reported
in the Digest? : Yes
J U D G M E N T
VIPIN SANGHI, J.
1. The present petition under Section 9 of the Arbitration &
Conciliation Act, 1996 (The Act) is preferred for securing the amount
awarded by the International Court of Arbitration (ICC) vide its award
dated 10.03.2011 along with future interest of 18% from the date of
O.M.P. No. 417/2011 Page 1 of 33
award till the date of payment in favour of the petitioner-Steel
Authority of India (SAIL).
2. Respondent No. 1 is AMCI Pty Limited, a company incorporated
under the laws of Australia and respondent No. 2 is Vale Australia Pty
Limited, also a company incorporated in Australia.
3. A contract was executed between the petitioner and the
respondent No. 2 dated 23.04.2007 for supply of coal. Subsequently
the respondent No.2 was acquired by the respondent No.1 and vide
amendment dated 07.06.2007, the respondent No. 1 was added to the
contract as the sole seller, and respondent No.2 undertook the
obligations as a producer of coal.
4. Though, initially supply of coal was made by respondent No. 2 to
the petitioner, but subsequently there was some dispute due to which
no further supply was made. The matter was referred to arbitration
and the petitioner claimed breach of agreement due to non-supply of
coal by the respondents, and consequent damages, which the
petitioner claimed to have suffered on account of risk purchase.
5. Both respondents No. 1 and 2 filed their defence before the
Arbitral Tribunal and an award was passed on 10.03.2011, inter-alia,
awarding the following reliefs:
“The tribunal hereby Awards, Adjudges and Directs that:
I. The Respondents shall forthwith pay to the claimant
damages in the sum of US$ 152,270,789.10.
II. The Respondents shall also pay interest on the sum
of US$ 152,270,789.10 at the rate of 2.335364% per
annum on a simple basis to run from 2 April 2009
O.M.P. No. 417/2011 Page 2 of 33
until the date of this award amounting in aggregate
to US$6,897,815.48.
III. The Respondents shall bear and pay the claimant’s
legal costs and expenses incurred in this arbitration
assessed and fixed at US$ 420,072.15.
IV. The ICC Court of Arbitration has fixed the costs of
arbitration at US$ 320,000. The respondents shall
bear the whole of these costs. The respondents must
accordingly reimburse the sum of US$ 160,000 to the
claimant being the advance on costs paid by the
claimant to the ICC.
V. All other claims are accordingly rejected.”
6. The respondents have preferred O.M.P. Nos. 414-15/2011 to
assail the said arbitral award under Section 34 of the Act before this
Court, wherein the Court had issued notice to the petitioner and the
said petitions are still pending consideration.
7. The petitioner contends that both the respondents No. 1 and 2
are foreign entities, having no assets or place of business within the
jurisdiction of this Court or even within the territory of India. The
petitioner submits that respondents’ intention is to try to avoid and
delay the payment under the award. It is contended that the Court has
power to direct preservation of the amount in dispute, in view of
Section 9(ii)(b) of the Act, which entitles the Court to secure the
amount even after an award has been rendered, but before it is
enforced.
8. The petitioner submits that the amount awarded by the Tribunal
should be secured, so that the pendency of objections of respondents
O.M.P. No. 417/2011 Page 3 of 33
No. 1 and 2 to the said award is not exploited by them to evade and
avoid payment under the award, if the objections of the respondents
are ultimately dismissed by the Court. The submission of the
petitioner is that the amount involved is huge, and the petitioner
should be secured, so that the petitioner does not have to run after the
respondents for recovering the same in different countries and
different jurisdictions.
9. The petitioner argues that they are entitled for interim protection
because in absence of such protection, the respondents may in the
meantime dispose of their assets and there is a possibility that the
award may not be executable even if it is affirmed by this Court with
the dismissal of the respondents’ objections thereto. It is submitted
that the award may get frustrated during pendency of the
respondents’ objections to the award, and that the respondents cannot
be allowed to make the award infructuous or redundant.
10. Learned senior counsel for the petitioner has placed reliance on
the following decisions in support of his submissions:
(i) Delta Construction Systems Limited, Hyderabad Vs.
Narmada Cement Company Limited, Mumbai, (2002)
2 BOMLR 225;
(ii) Veda Research Laboratories Limited Vs. Survi
Projects, 164 (2009) DLT 388;
(iii) CREF Finance Limited Vs. Puri Construction Limited
& Others, 87 (2000) DLT 449;
O.M.P. No. 417/2011 Page 4 of 33
(iv) Associated Hotels of India Limited, Delhi Vs. S.B.
Sardar Ranjit Singh, AIR 1968 SC 933;
(v) M. Anasuya Devi and Another Vs. M. Manik Reddy &
Others, (2003) 8 SCC 565;
(vi) Hindustan Steel Limited Vs. M/s Dilip Construction
Co., AIR 1969 SC 1238;
(vii) M. Sons Enterprises Private Limited & Another Vs.
Shri Suresh Jagasia & Another, MANU/DE/0019/2011;
(viii) Canoro Resources Limited Vs. Union of India (UOI),
179 (2011) DLT 72.
11. Upon issuance of notice to the respondents, separate replies
have been filed by the respondents No. 1 & 2. Arguments have been
advanced on behalf of the respondent No. 1 by Mr. Rajiv Nayar, Senior
Advocate, and on behalf of respondent No. 2 by Mr. Arvind Nigam,
Senior Advocate. Since the submissions of the learned senior counsel
for the respondents are common, and their interest is also common, I
am dealing with the submissions of the respondents collectively.
12. The respondents’ submission is that the award in question is not
duly stamped and consequently the same cannot be relied upon for
any purpose by the petitioner. It is urged that the present petition is
not maintainable, as the award is not enforceable. Objections have
been preferred thereto by the respondents. The prayer made by the
petitioner, to seek deposit of the awarded amount, is not maintainable
as the award cannot be enforced at this stage. It is urged that there is
a casus omissus in the law noticed by the Supreme Court in National
Aluminium Co. Ltd. Vs. Pressteel & Fabrications (P) Ltd. and
O.M.P. No. 417/2011 Page 5 of 33
Another, (2004) 1 SCC 540 , which the Court cannot provide. It is also
argued that the petitioner did not seek any such relief during the
arbitral proceedings and, therefore, the petitioner should be taken to
have waived its rights. It is submitted that the petitioner is seeking
relief in the nature of attachment before judgment, however, the
petitioner has failed to make out a case under Order 38 Rule 5 CPC.
13. It is contended that the respondent No. 2 is an entity with a good
business and commercial standing. Respondent No. 2 is controlled by
another entity called Rio Doce Australia Pty Ltd (RDA), a company
incorporated pursuant to the laws of Australia under the Corporations
Act, 2001 which owns all of the shares of respondent No. 2. It is
submitted that on 12.12.2008, RDA and all of its wholly owned
controlled entities at that time, including respondent No. 2 (the RDA
Closed Group Entities), entered into a Deed of Cross-Guarantee. The
effect of the Deed of Cross-Guarantee is that each of the RDA Closed
Group Entities covenants with the trustee of the deed, for the benefit
of each creditor of the RDA Close Group Entities, that each of the RDA
Close Group Entities guarantees to each creditor payment in full of any
debts due and payable. It is submitted that on account of the said
Deed of Cross-Guarantee, respondent No. 2 company, a wholly owned
entity of RDA, prepares consolidated financial statements in terms of
the Australian Law. It is submitted that as on 31.12.2010, RDA and its
controlled entities had total assets of Australian Dollars (AUD) $
2,538,931,197 which included current assets of $ 319,219,561 and
non-current assets of $ 2,219,711,636. It is also submitted that as on
31.12.2010 RDA and its controlled entities held total net assets and
O.M.P. No. 417/2011 Page 6 of 33
equity of AUD $ 805,089,885. The total assets of RDA Closed Group
Entities as on 31.12.2010 were to the tune of AUD $ 2,526,667,614. It
is also submitted that the immediate parent entity of RDA is Vale
International S.A., a company incorporated in Switzerland and the
ultimate parent entity of RDA is Companhia Vale do Rio Doce (“Vale”),
a company incorporated in Brazil. It is submitted that the Brazilian
company aforesaid is one of the world’s leading producers and sellers
of iron ore, pellets, nickel, fertilizers, copper, aluminum products, coal,
bauxite, manganese and ferroalloys. It is submitted that the ultimate
parent company is engaged in mineral exploration in 21 countries and
has operations in 38 countries. In Australia alone, the respondent No.
2’s group employs over 1,000 full time and contract employees
including highly experienced management and coal marketing teams.
It is stated that the Brazilian company as on 31.12.2010 had total
assets of US $ 129,139,000,000. It is submitted that the group to
which respondent No. 2 belongs has decided to enter the Indian ocal
and steel market and continue to do business in India. Respondent No.
2 is not a fly by night operator. The petitioner’s claim for security
deposit is baseless and devoid of merit.
14. The respondents have placed on record the financial statement
of RDA as well as the ultimate parent entity constituted in Brazil. Both
sides have sought to place reliance on various portions of these
financial statements in support of their respective arguments with
which I shall deal with a little later.
O.M.P. No. 417/2011 Page 7 of 33
15. Learned senior counsel for the respondents have also relied upon
the following decisions in support of their submission:
(i) SMJ-RK-SD (JV) Vs. National Highways Authority of India,
164 (2009) DLT 655;
(ii) Sterling & Wilson Electricals Pvt. Ltd. Vs. M/s Silicon
Graphics Systems (India) Pvt. Ltd, 159 (2009) DLT 634;
(iii) Avinash Kumar Chauhan Vs. Vijay Krishna Mishra, (2009) 2
SCC 532;
(iv) State Bank of India and Others Vs. S.N. Goyal, (2008) 8
SCC 92;
(v) Bachhaj Nahar Vs. Nilima Mandal and Another, (2008) 17
SCC 491;
(vi) Maulavi Hussein Haji Abraham Umarji Vs. State of Gujarat
and Another, (2004) 6 SCC 672;
(vii) Union of India and Others Vs. Dharamendra Textile
Processors and Others, (2008) 13 SCC 369;
(viii) Global Company Vs. National Fertilizers Ltd, AIR 1998
Delhi 397;
(ix) Himachal Futuristic Communication Ltd. Vs. Union of
India, 2009 (3) Arb. LR 394 (Delhi);
O.M.P. No. 417/2011 Page 8 of 33
(x) IOCEE Exports Ltd. Vs. Kalyanee Marine & Others, III
(2007) BC 93; and
(xi) M/s SMS Tea Estates Pvt. Ltd. Vs. M/s Chandmari Tea Co.
Pvt. Ltd, 2011 (7) SCALE 747.
16. The Supreme Court in Pressteel & Fabrications (P) Ltd.
(supra) has held that an award, when challenged under Section 34
within the time stipulated therein, becomes unexecutable. There is no
discretion left with the Court to pass any interlocutory order in regard
to the said award except to adjudicate on the correctness of the claim
made by the applicant therein. A perusal of the judgment of the
Supreme Court in Pressteel & Fabrications (P) Ltd. (supra) shows
that the Supreme Court did not consider the power vested in the Court
under Section 9 of the Act. The observations of the Supreme Court
were made “in regard to the said award” and not in relation to the
subject matter of dispute.
17. What has been held by the Supreme Court in Pressteel &
Fabrications (P) Ltd. (supra), (without stating so in express terms),
is that the Court cannot invoke the principles of Order 41 Rule 5 C.P.C.
while entertaining objections to an award. This is evident from the
observation: “at one point of time considering the award as a money
decree we were inclined to direct the party to deposit the awarded
amount in the Court below so that the applicant can withdraw it, on
such terms & conditions as the Court might permit it to do as an
interim measure” . Therefore, the objections to the award are not akin
O.M.P. No. 417/2011 Page 9 of 33
to challenge to a money decree in an Appellate Court, which enables
the Appellate Court to require the deposit of the decreed amount or
furnishing of security before staying the execution of the decree. In
Pressteel & Fabrications (P) Ltd. (supra), the Supreme Court was
dealing with the contention of the appellant that the respondent should
make a deposit in terms of the award, only because an award had
been rendered in favour of the applicant. It is this submission which
was rejected by the Supreme Court by placing reliance on Sections 34
& 36 of the Act.
18. The automatic suspension of the award upon a challenge being
raised to the award under Section 34 of the Court, which leaves no
discretion in the Court to put the parties to terms, was considered by
the Supreme Court as being opposed to the very objective of
alternative dispute resolution system to which arbitration belongs. The
Supreme Court, therefore, desired that the Parliament may look into
this aspect. However, the Supreme Court did not say, and cannot be
understood to have said that the rights available to the parties under
Section 9 of the Act, post-award and before the award is enforced, also
cannot be ventilated, because the petition under Section 34 of the Act
to assail an award has been preferred by one or the other party.
19. Section 9 of the Act in terms states that “ a party may , before or
during the 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 the Court ….. ….. ….. …..“ . Therefore the
power of the Court under Section 9 is not limited only in respect of
O.M.P. No. 417/2011 Page 10 of 33
such cases, where the arbitral proceedings have either not
commenced or are in progress. It extends to even such cases where
an arbitral award has come into existence, but is still not in the process
of being enforced under Section 36 of the Act.
20. By virtue of Section 36 of the Act, an arbitral award cannot be
enforced where an application to assail the arbitral award under
Section 34 of the Act is pending disposal.
21. In the present case, the petitioner has not applied, and possibly
cannot apply at this stage, to enforce the award in accordance with
Section 36 of the Act, for the simple reason that the respondents’
objections to the award under Section 34 of the Act are pending
consideration in O.M.P. Nos. 414-415/2011.
22. Reliance placed by the respondents on the decisions of this Court
in Sterling & Wilson Electricals Pvt. Ltd. (supra) and SMJ-RK-SD
(JV) (supra) is completely misplaced. Neither of these decisions lay
down the proposition that Section 9 cannot be invoked by a party after
the award has been rendered by the Tribunal, but before the award is
enforced. In SMJ-RK-SD (JV) (supra), a petition under Section 9 had
been preferred by the petitioner to seek a direction to the respondent
to release the awarded amount to the petitioner against a matching
value of Bank Guarantee during the pendency of the petition under
Section 34 of the Act. The ground for seeking release of the amount
under the award was the financial hardship being faced by the
petitioner. In this background, it was observed by the Court that
O.M.P. No. 417/2011 Page 11 of 33
provisions of Section 9 could not be invoked to circumvent Section 36
of the Act. The Court, in fact, observed that “no doubt Section 9 of the
Act is applicable post-award as well but it is applicable only for the
purpose as provided under Section 9, namely for preservation and
interim custody of the subject matter of arbitration agreement or for
securing amount in dispute in arbitration or preservation or inspection
of any property or things or for appointment of a Receiver” .
23. There can be no quarrel with the aforesaid observations made by
the Court in SMJ-RK-SD (JV) (supra), and this case in no way
advances the submission of the respondents that post-award, and
during the pendency of the objections to the award, a petition under
Section 9 of the Act is not maintainable.
24. Even in Sterling & Wilson Electricals Pvt. Ltd. (supra) all that
the Court observed, by placing reliance on Pressteel & Fabrications
(P) Ltd. (supra), was that there was no discretion left in the Court to
pass any interlocutory order with regard to the award under challenge,
except to adjudicate on the correctness thereof. This observation has
to be read and understood in the context of Section 34. What has
been observed by the Court is that merely because an award has been
rendered by the Arbitral Tribunal, only on that account, the party in
whose favour an award has been rendered does not become entitled to
seek the relief, requiring the party challenging the award and against
whom it has been rendered, to deposit or pay the awarded amount
during pendency of the objections to the award to the opposite party.
O.M.P. No. 417/2011 Page 12 of 33
25. Reliance placed by the respondents on Himachal Futuristic
Communication Ltd. (supra) is also misplaced. This Court did not
hold that a petition under Section 9 is not maintainable after the
making of the award and before its enforcement. The Court refused to
grant the relief sought under Section 9 on the merits of the case before
it. The petitioner had sought an interim measure to direct the
respondent to deposit the awarded amount in the Court and to keep it
in a Fixed Deposit in a nationalised bank.
26. Global Company (supra) relied upon by the respondents also
has no relevance as that was a case decided on its own merits.
Considering the fact that the respondent was a Government of India
undertaking, the Court held that there was no real danger of the
respondent defeating, delaying or obstructing the execution of the
award and on that basis the Court rejected the petition to seek interim
measures of protection.
27. Similarly, the decision of the Madras High Court in IOCEE
Exports Ltd. (supra) is a case turning on its own facts and does not
support the contention of the respondent.
28. This Court in Veda Research Laboratories Ltd. (supra)
considered a similar objection raised on the maintainability of an
application under Section 9 of the Act in proceedings under Section 34
of the Act to challenge the award. The Court held that the ingredient
of a prima-facie case is made out once an arbitral award has found a
case in favour of a party. The Court also held that while dealing with
O.M.P. No. 417/2011 Page 13 of 33
an application under Section 9, the Court does not impose any
condition on the petitioner challenged in award under Section 34 of the
Act to maintain its petition under Section 34 of the Act. An order would
be passed under Section 9 of the Act only upon finding a case in favour
of the applicant. The Court also observed that the observations of the
Supreme Court in Pressteel & Fabrications (P) Ltd. (supra) were
made in the context of imposing conditions on the maintainability of a
petition under Section 34, and not in the context of Section 9 of the
Act.
29. In CREF Finance Limited (supra) also, this Court rejected a
similar submission. It was held “In the hiatus created by the conjoint
operation of Sections 34(3) and Section 36, a party to the Arbitration
cannot be held remediless in this interregnum if the Court is convinced
that interim protection, negative or positive, is called for. The Court
has not been rendered impotent by the Act even where it desires to
grant relief since the circumstances call or it. This would be a logical
extension of the ratio established in the Sundaram Finance Ltd. Vs.
NEPC India Ltd. , (1999) 2 SCC 479, and especially in conformity with
the opinion expressed in para 11 of the judgment, extracted above.
Justice and equity would not countenance a Judge standing by as a
mute spectator while a party renders an award worthless and
practically unenforceable and nonimplementable.”
30. It was further held that: “If the Court has power to grant interim
relief in anticipation of arbitral proceedings being commenced, there is
no warrant for canvassing the stance that it did not have the
O.M.P. No. 417/2011 Page 14 of 33
complementary assistery power to ensure that the orders passed in
arbitral proceedings are not rendered nugatory”.
31. Mr. Jain has submitted that Section 48, which falls in Part II
Chapter I of the Act, relates to enforcement of New York Convention
awards. Sub-Section (3) for Section 48 enables the Court to order the
party challenging the award to give suitable security. He submits that
in contradistinction, Section 34 does not enable the Court to require
the party challenging the award to furnish a security for the reason
that under Section 9, which also falls in part-I like Section 34, the Court
is empowered to require the furnishing of the security after the making
of the award and before its enforcement, which would include the
period during which the award is under challenge under Section 34 of
the Act. In the light of the above discussion, I see merit in this
submission and accept the same.
32. The submission of the learned senior counsel for the respondents
that there is a casus omissus or hiatus in the law does not impress me
at all. The scheme of the Act to my mind is very clear. An application
under Section 9 can be maintained either before the arbitration
proceedings, during the arbitration proceedings or even thereafter till
the award is enforced under the Act. Consequently, where an award is
under challenge under Section 34 of the Act (which obviously would
mean that it is not in the process of enforcement under Section 36 of
the Act in the same manner as if it were a decree of the Court), the
right to apply for interim measure of protection under Section 9 by one
or the other party to the arbitration agreement/ arbitration
O.M.P. No. 417/2011 Page 15 of 33
proceedings/ arbitration award is preserved. The exclusion of the
jurisdiction of the Court under Section 9 to cases where the arbitral
award is in the process of being enforced in accordance with Section
36 is easy to explain. Once the award is in the process of being
enforced under Section 36 of the Act in the same manner as if it were
a decree of the Court, it shall be for the Executing Court enforcing the
award to pass appropriate orders of injunction/attachment in respect of
the subject matter of the arbitration agreement/award as permitted
under the C.P.C.
33. The law should not be interpreted so as to render it ineffective or
otiose. The submission of the respondents that merely because the
arbitral award is under challenge, the right of the petitioner to invoke
Section 9 of the Act is suspended is not only against the express
language of Section 9 of the Act, it also does not stand to reason.
34. The hiatus in the law referred to by the Supreme Court in
Pressteel & Fabrications (P) Ltd. (supra) is in relation to the
absence of the power of the Court to put the party challenging the
arbitral award to terms at the time of entertaining such a challenge.
The said hiatus does not relate to the power of the Court to deal with a
petition under Section 9 of the Act for grant of interim measures of
protection after the making of the award, but before its enforcement.
35. The decisions in Dharamendra Textile Processors (supra) and
Maulavi Hussein (supra) relied upon by the respondents to submit
O.M.P. No. 417/2011 Page 16 of 33
that the Court cannot provide the casus omissus, therefore, have no
applicability in the light of the aforesaid discussion.
36. The submission of the learned counsel for the respondent that
the award in question cannot be looked into for any purpose, on
account of its not being sufficiently stamped, also does not appear to
have any merit. The Supreme Court in M. Anasuya Devi (supra)
rejected the specific plea raised with regard to the deficiency in
stamping by holding that the said issue is not required to be gone into
at this stage of proceedings under Section 34 of the Act. It was held
that the said issue was premature at that stage. The Supreme Court
held that: “ The question as to whether the Award is required to
be stamped and registered, would be relevant only when the
parties would file the Award for its enforcement under Section
36 of the Act. It is at this stage the parties can raise objections
regarding its admissibility on account of non-registration and
non-stamping under Section 17 of the Registration Act . In that
view of the matter, the exercise undertaken to decide the said issue by
the Civil Court as also by the High Court was entirely an exercise in
futility. The question whether an Award requires stamping and
registration is within the ambit of Section 47 of the Code of Civil
Procedure and not covered by Section 34 of the Act.” (emphasis
supplied).
37. As rightly pointed out by learned counsel for the petitioner, the
Stamp Act is a fiscal measure enacted to secure revenue for the State
on certain classes of instruments. It is not enacted to arm a litigant
O.M.P. No. 417/2011 Page 17 of 33
with a weapon of technicality to meet the case of his opponent. The
stringent provisions of the Act are conceived in the interest of the
revenue. (See Hindustan Steel Limited (supra)).
38. In M. Sons Enterprises (supra), the Court considered and
rejected the submission that the decision in M. Anasuya Devi (supra)
was per-incuriam. This Court, in para 10, observed as follows:
“10. The recent judgment of the Apex Court in Anasuya
Devi (supra) cannot be brushed aside as per-incuriam or
as sub-silentio on the provisions of the Stamp Act. The
Apex Court was very much conscious of the said provisions
and it is not as if it pronounced the judgment in ignorance
of the same or that the provisions of the Stamp Act have
been given a go by. What the Supreme Court has held,
examining the scheme of the Arbitration Act, 1996, is that
the objections on account of deficiency in stamping and
registration fall outside the ambit of Section 34 of the Act.
It is not as if, the Supreme Court by adopting the said
procedure has contravened the mandatory provisions of
the Stamp Act; it is not as if benefits have been permitted
to be derived under an insufficiently stamped award. The
Supreme Court however has held that the said objection
has to be taken at the time of enforcement of the award. In
my humble opinion, this is but a pragmatic approach. The
common thread running through the 1996 Act is of
expediency. If objections under the Stamp Act or the
Registration Act were to be permitted to be taken at the
stage of Section 34, it would indefinitely delay the disposal
of the said proceedings. The Supreme Court thus held that
the objections under Section 34 be decided expeditiously
without reference to the said pleas. In this manner, the
rights of persons against whom the award is pronounced
have been preserved. If they are able to establish that on
O.M.P. No. 417/2011 Page 18 of 33
account of insufficiency in stamping of the award or non-
registration of the award, the person in whose favour the
same is made is not entitled to benefit thereof, the award
would not be enforced against them. I, therefore, do not
find any merit in the contention of the petitioners of the
award being liable to be set aside for the said reason and
the same is dismissed.”
39. In the light of the judgment of the Supreme Court in M. Anasuya
Devi (supra), the decision in Avinash Kumar Chauhan (supra), which
does not pertain to a case under the Act, has no application.
40. Reliance has also been placed by the respondents on M/s SMS
Tea Estates Pvt. Ltd. (supra). This was a case where a Section 11
petition had been preferred to seek appointment of an Arbitrator in
terms of an arbitration agreement contained in an unstamped and
unregistered agreement. The Supreme Court held that mere non-
stamping of the agreement did not render the arbitration agreement
invalid and unenforceable. After the defect of stamping is cured as per
the provisions of the Stamp Act, the Court could enforce the arbitration
agreement. The arbitration agreement contained in an unregistered
but mandatorily registerable instrument can also be enforced, as the
arbitration agreement itself does not require registration. This decision
has no application in the facts of this case as the petitioner is not
seeking to place reliance on the agreement between the parties to
seek the interim measures of protection. To establish a prima-facie
case, the petitioner is only seeking to rely upon the arbitration award
rendered by the Tribunal in its favour.
O.M.P. No. 417/2011 Page 19 of 33
41. I may note that even prior to filing of this petition, the
respondent has itself preferred a petition under Section 34 of the Act,
as aforesaid. If the respondents submission with regard to non-
stamping of the award were to be accepted, even the respondent’s
petition under Section 34 would be liable to be rejected unless the
stamp duty in terms of the Stamp Act is made good. However, in view
of the decision of the Supreme Court in M. Anasuya Devi (supra),
that cannot be said to be the case.
42. I now turn to examine the question as to what are the guiding
principles that the Court would follow while considering a petition
preferred under Section 9(ii)(b), and also whether the petitioner has
made out a prima-facie case in its favour; whether the balance of
convenience is in favour of the petitioner, and; whether the petitioner
would suffer an irreparable loss and injury in case the interim
measures, as sought by the petitioner, are not granted.
43. In Himachal Futuristic Communication Ltd. (supra), this
Court observed: “once there is no decree, the powers of the Court to
be exercised under Section 9, for granting interim measures in the
nature of attachment before judgment, as sought, are the same as in
Order 38 or Order 39 of the CPC” .
44. There are two decisions of Bombay High Court in Delta
Construction Systems Limited, Hyderabad (supra) (Single Bench)
and National Shipping Company of Saudi Arabia Vs. Sentrans
Industries Limited, ( 2004) 1 ArbLR 409 (DB), wherein it has been
O.M.P. No. 417/2011 Page 20 of 33
held that the power of the Court to secure the amount in dispute under
arbitration is not hedged by the predicates as set out in Order 38. All
that the Court must be satisfied is that an interim measure is required.
The party coming to the Court must show that if it is not secured, the
award which it may obtain would result in a paper decree or a decree
which cannot be enforced on account of acts of a party pending
arbitration process. The Division Bench in National Shipping
Company of Saudi Arabia (supra), inter alia, held:
“….. ….. ….. ….. In a special provision of the nature like
Section 9(ii)(b), we are afraid, exercise of power cannot be
restricted by importing the provisions of Order 38, Rule 5
of the Code of Civil Procedure as it is. The legislature while
enacting Section 9(ii)(b) does not seem to us to have
intended to read into it the provisions of Order 38, Rule 5
of the Civil Procedure Code as it is. ….. ….. ….. ….. the
guiding factor for exercise of power by the Court under
Section 9(ii)(b) has to be whether such order deserves to
be passed for justice to the cause. The provisions of Order
38, Rule 5, CPC cannot be read into the said provision as it
is nor can power of the Court in passing an order of interim
measure under Section 9(ii)(b) be made subject to the
stringent provision of Order 38, Rule 5. The power of the
Court in passing the protection order to secure the amount
in dispute in the arbitration before or during arbitral
proceedings or at any time of making of the arbitral
amount but before it is enforced cannot be restricted by
importing the provisions set out in Order 38 of C.P.C. but
has to be exercised ex debito justitiae and in the interest of
justice….. ….. ….. ….. Though the power given to the Court
under Section 9(ii)(b) is very wide and is not in any way
controlled by the provisions of the Code but such exercise
of power, obviously, has to be guided by the paramount
O.M.P. No. 417/2011 Page 21 of 33
consideration that the party having a claim adjudicated in
its favour ultimately by the Arbitrator is in a position to get
the fruits of such adjudication and in executing the
award….. ….. ….. ….. The party seeking protection order
under Section 9(ii)(b) ordinarily must place some material
before the Court, besides the merits of the claim that order
under Section 9(ii)(b) is eminently needed to be passed as
there is likelihood or an attempt to defeat the award,
though as indicated above, the provisions of Order 38, Rule
5, CPC are not required to be satisfied. The statutory
discretion given to the Court under Section 9(ii)(b) must be
exercised judicially in accordance with established legal
principles and having regard only to relevant
considerations. ….. ….. ….. ….. We also hold without
hesitation that the Court is competent to pass an
appropriate protection order of interim measure as
provided under Section 9(ii)(b) outside the provisions of
Order 38, Rule 5 of the Code of Civil Procedure. Each case
under Section 9(ii)(b) of the Act of 1996 has to be
considered in its own facts and circumstances and on the
principles of equity, fair play and good conscience. The
power of the Court under Section 9(ii)(b) cannot restricted
to the power conferred on the Court under Civil Procedure
Code though analogous principles may be kept in mind.”
45. In proceedings under Section 9 of the Act, at the highest what
could be said is that the provisions of Order 38 Rule 5 CPC would
serve as the guiding principle for the Court to exercise its discretion
while dealing with a petition requiring the respondent to furnish
security for the amount in dispute. Since the letter of the law per se is
not applicable, the requirements set out in Order 38 Rule 5 CPC need
not strictly be satisfied, and so long as the ingredients of the said
O.M.P. No. 417/2011 Page 22 of 33
provision are generally present, the Court would not be unjustified in
exercising its jurisdiction to require the respondent to furnish security.
The bottom line, in my view, is that the Court should be satisfied that
the furnishing of security by the respondent is essential to safeguard
the interests of the petitioner.
46. The petitioner has produced the award made by the ICC
International Court of Arbitration in its favour. I have already set out
hereinabove the operative part of the award. Apart from interest the
awarded amount comes to US$ 152,850,861.25. The award has been
rendered on a contest to the petitioner’s claims by the respondents. It
has been conducted under the aegis of the ICC which is internationally
recognized as a credible body for conduct of international commercial
arbitrations. The arbitral award has been made by an independent
sole arbitrator who hails from a nationality other than the nationality of
the contesting parties. The award is detailed and prima-facie appears
to be comprehensive. The first round in this legal battle has gone in
favour of the petitioner. Therefore, the petitioner has made out a
prima-facie case in its favour.
47. The relevant averments made in the petition by the petitioner
are to the effect that the respondents do not have any asset or place
of business within the jurisdiction of this Court, or even within the
territory of India. It is also averred that the amount involved in the
case is huge. It is also averred that it is most essential that the
amount in question, for which the award is made, is secured so that
the petitioner can recover the amount and is not forced to run after the
O.M.P. No. 417/2011 Page 23 of 33
respondents for recovering the same in different countries and
different jurisdiction. The petitioner also states that the act and
conduct of the respondents may defeat and frustrate the award. They
also allege that the respondents have made all attempts to circumvent
the due process of law. The petitioner states that in the absence of
interim protection, the petitioner will not be able to execute the award
and this will frustrate the process of justice. It is also averred that the
respondent cannot be allowed to make the award infructuous and/or
redundant.
48. According to the respondents, the aforesaid averments are
wholly deficient and do not provide justification enough to require the
respondent to furnish any security, particularly, in view of the financial
position of the respondents detailed hereinabove. It is submitted, by
placing reliance on S.N. Goyal (supra) and Bachhaj Nahar (supra),
that no amount of evidence can be put forward in the absence of
necessary pleading and issue, and neither a Trial Court nor the
Appellate Court can consider the contention and record a finding in
that respect. It has also been held that a Court cannot make out a
case not pleaded. The Court should confine its decision to the
questions raised in pleadings. The Court cannot grant a relief which is
not claimed, and which does not flow from the facts and the cause of
action alleged in the plaint.
49. Mr. Jain has submitted that even if it were to be held that the
principles of Order 38 Rule 5 CPC are applicable in the present case,
even then the petitioner satisfies the conditions laid down therein. He
O.M.P. No. 417/2011 Page 24 of 33
submits that the obstruction to the execution of any decree that may
be passed against the respondents is imminent from the fact that the
respondents are, year after year, running into losses. He submits that
since the respondents are not having any property within the
jurisdiction of this Court, the petitioner’s case is on an even higher
footing, when compared to one where the respondent is about to
remove the whole or any part of its property from the local limits of the
jurisdiction of the Court. He further submits that the satisfaction of the
Court in the matter could be arrived at either by the affidavit of the
petitioner “or otherwise” . Therefore, even if the pleadings of the
petitioner in the petition are taken to be deficient, the record of the
case including the documents filed by the parties can be looked into by
the Court to determine whether the guidelines of Order 38 Rule 5
C.P.C. are substantially satisfied.
50. The aforesaid submissions of the respondents could have been
accepted, but for the fact that respondents have themselves placed on
record the financial report of RDA and its controlled entities which
includes respondent no.2, which does not inspire much confidence
about the soundness of the financial health of petitioner no.2. The
Court is not precluded from looking into materials/documents placed
on record to determine the issue whether the respondents should be
called upon to furnish security, because, even the strict provision
contained in Order 38 Rule 5 C.P.C. enables the Court to arrive at its
decision on the basis of an affidavit “or otherwise”. The enquiry that
the Court undertakes under Order 38 Rule 5 C.P.C. is not limited by the
O.M.P. No. 417/2011 Page 25 of 33
pleadings of the applicant. This reason for the expansion of the scope
of enquiry by the Court appears to be the fact that, very often, the
applicant may not even be privy to the relevant facts relating to the
non-applicant and they may be in the special knowledge of the non-
applicant. In the light of the aforesaid discussion, the decisions of the
Supreme Court in S.N. Goyal (supra) and Bachhaj Nahar (supra)
have no application to the facts of this case. In this case, the
respondents are foreign entities. The petitioner’s ignorance about the
respondents financial condition, at the time of filing of the petition is,
therefore, understandable.
51. No doubt, in the present case there is no averment in the
petition to the effect that the respondents with “intent to obstruct or
delay the execution” of the award, in case it is upheld by this Court, is
about to dispose of the whole or any of its property. As I have already
held, the strict provision of Order 38 Rule 5 C.P.C. cannot be bodily
listed and imported into Section 9(ii)(b) of the Act. The facts that RDA,
of which respondent No. 2 is a constituent, is running into losses, year
after year, and is heavily indebted to Vale International S.A. are
sufficient to justify the seeking of an order requiring the respondents to
furnish a security. After all, whether the losses are being suffered by
the respondents, year after year, with intention to obstruct or delay the
execution of the award (in case the award is upheld), or without any
such intention, the award may be reduced to a paper award, in case
the respondents go under. The position so far as the petitioner is
concerned, remains unchanged. It is no solace to a petitioner, who
O.M.P. No. 417/2011 Page 26 of 33
may not be able to eventually enforce the award because of the
respondents becoming financially defunct, that the financial incapacity
is not on account of any mal-intentions of the respondents but on
account of the respondent going into losses, without intending to do
so, so as to obstruct the execution of the award.
52. The consolidated statement of financial report of RDA and its
controlled entities for the year ended 31.12.2010 shows that
respondent no.2 is one of the many controlled entities of RDA. 100%
interest of respondent No. 2 is held by RDA. It also shows that RDA
and its controlled entities including respondent no.2 entered into deed
of cross guarantee on 12.12.2008. In this deed each company
guaranteed the debts of the others. The consolidated statement of
comprehensive income of RDA and its controlled entities for the year
2009-10 shows that RDA and its controlled entities have been incurring
losses at least for the last two years i.e. 2009 and 2010. While the
losses in the year 2009 were AUD $ 134,299,600.00, in the year 2010,
the losses stood at AUD $ 54,728,380.00. No doubt, the net assets of
st
RDA and its controlled entities as on 31 December of 2009 and 2010
stood at AUD $ 682,946,636.00 and AUD $ 797,244,212.00
respectively but the same statement also shows that accumulated
losses swelled from AUD $ 2,21,594,922.00 in the year ending 2009 to
AUD $ 285,297,346.00 in the year ending 31.12.2010. The net cash
from operating activities in the year ending 2009 stood at AUD $
5,938,997 but for the year ending 2010 there was a deficit of AUD $
93,077,440. The total comprehensive income as shown in the balance
O.M.P. No. 417/2011 Page 27 of 33
sheet for the year ending on 31.12.2009 and 31.12.2010 were AUD $(-)
324,571,505 and AUD $ (-) 333,437,854.00 respectively.
53. The respondent has tendered in Court a communication dated
29.03.2011 issued by Vale International S.A., Switzerland which is the
immediate parent company of RDA regarding confirmation of financial
support. Vale International S.A. confirms that at least for a period of
12 months from the date of approval of financial statement of the
company i.e. 31.12.2010, Vale International S.A. will not require the
repayment of the loan to the company, i.e., RDA, which as on
31.12.2010 stood at AUD 1,214,216,739.00. It has been further
certified that the company i.e. RDA will be able to pay the loans
incurred in the ordinary course of business as and when they became
due and payable.
54. On the other hand, Mr. Jain submits that this letter was “given for
the benefit of the addressee only and may not, without our prior
written consent, be relied upon by another persons”. Moreover, this
communication is valid only till 31.12.2011 and it is not likely that the
award in question will become executable before that date as the
objections to the award are pending consideration and would take
some time for disposal. He further submits that this communication
also shows that RDA itself is hugely indebted to its parent company to
the tune of AUD 1,214,216,739.00. He submits that it clearly shows
the lack of inherent financial strength of RDA which includes
respondent No. 2.
O.M.P. No. 417/2011 Page 28 of 33
55. It is very pertinent to note that the loan from Vale International
SA. to RDA is AUD $ 1,214,216,739.00, whereas the net asset value of
RDA as on 31.12.2010 stood at only AUD $ 797,244,212.00. Therefore,
if the debt owed by RDA to Vale International S.A. is sought to be
recovered, the entire assets of RDA would stand wiped out, and RDA
would still remain indebted. It is not clear whether there are any other
outstanding or debts of RDA other than potential those owned to Vale
International S.A.
56. While the cross guarantee amongst the constituents of RDA
provides confidence to a creditor of any of its constituents, at the same
time it also presents a risk, as it is possible that to meet the liabilities
of any of the constituents of RDA, the assets of respondent No. 2, shall
be appropriated, leading the creditors of respondent No. 2 and other
constituents as the risk of not being able to recover their dues.
57. Much emphasis has been laid by Mr. Arvind Nigam, learned
senior counsel appearing for respondent no.2 on the annual report for
the year 2010 of Vale International S.A., i.e., the ultimate parent
company of respondent no.2 incorporated in Brazil. However, despite
my repeated query to show as to how the assets of the ultimate parent
company Vale S.A. of Brazil could be roped in for meeting the liability
of respondent no.2, in case the need therefor arises on a future date,
Mr. Arvind Nigam had not been able to give any satisfactory answer to
the Court. Merely, because respondent no.2 may be entirely held and
controlled through RDA by Vale S.A. Brazil, it does not mean that the
liabilities of Vale Australian Pty Ltd., i.e., respondent no.2 would also
O.M.P. No. 417/2011 Page 29 of 33
attach to the parent company. It is well-settled that the liabilities of the
limited liability company cannot be enforced against its shareholders.
Therefore, even though Vale S.A. Brazil may be owing and controlling
100% shareholding in respondent No. 2, that itself would not make
Vale S.A. liable to satisfy the award in question, in the eventuality of
the objection thereto dismissed by this court.
58. The various risk factors disclosed in the annual report of the Vale
S.A. read as under:
“(i) We may not be able to replenish our reserves,
which could adversely affect our mining prospects.”
“(ii) We face rising extraction cots over time as
reserves deplete.”
“(iii) We may not have adequate insurance coverage
for some business risks.”
“(iv) We are involved in several legal proceedings
that could have a material adverse effect on our
business in the event of an outcome that is
unfavourable to us.”
“(v) Ineffective project management and other
operational problems could materially and adversely
affect our business and financial performance.”
“(vi) It could be difficult for investors to enforce any
judgment obtained outside Brazil against us or any
of our associates.”
59. The parent company has disclosed in its report the various legal
proceedings that the parent company and its subsidiaries are
defending in the normal course of business, including civil,
O.M.P. No. 417/2011 Page 30 of 33
administrative, tax, social security and labour proceedings. The
significant proceedings have been disclosed in the said report.
However, the present arbitration does not even find mention in the
said report and it shows that the parent company does not even
consider the liability arising out of the contract in question between the
petitioner and the respondents as a liability that the parent company
may eventually have to bear.
60. I have already observed that there is no umbilical cord which
connects respondent No. 2 to the ultimate parent company Vale S.A.
Vale S.A. is not obliged to meet the liabilities of respondent No. 2. The
aforesaid disclosure of risks by the ultimate parent company, also does
not help the assurance sought to be given by the respondents on the
basis of the financial condition of Vale S.A. at the end of the year 2010.
61. In Canoro Resources Limited (supra), while denying interim
measures under Section 9, this Court had proceeded on the basis of
the petitioner being a foreign entity, grant of interim injunction as
sought by the petitioner could eventually result in incurring of
substantial liability by the petitioner, which may not be recoverable on
account of its not being an Indian entity with assets in India.
62. The submission that the petitioner did not seek any interim
measure of protection either from any Court or from the arbitral
tribunal during the progress of the arbitration proceedings and that,
therefore, the petitioner has waived its rights to seek any interim
measure of protection at this stage is meritless. It is upto the
O.M.P. No. 417/2011 Page 31 of 33
petitioner to seek interim measures of protection based on its
perception of the strength of its own case as also the need therefor
considering, inter alia, the financial status of the opposite party.
63. Merely because the petitioner may not have considered it
necessary to seek interim measures of protection earlier, is no ground
to argue that such interim measures of protection cannot be sought
subsequent to the making of the award. There is no statutory bar to
the exercise of its rights by a petitioner under Section 9 of the Act,
even if no such right has earlier been pressed either before the Court
or before the Arbitral Tribunal.
64. Merely because the petitioner may have sought for a larger relief
than what it is entitled to in law, cannot be a ground to decline even
that relief to which the petitioner is otherwise entitled to. The
petitioner cannot seek the relief that the respondents should pay the
awarded amount to the petitioner as that would tantamount to
enforcing the award which is still unenforceable. However, there is no
impediment in directing the respondents to secure the awarded
amount of US$ 152,850,861.25 by furnishing adequate security to the
satisfaction of the Registrar General of this Court during the pendency
of the respondents objection petition, being O.M.P. Nos. 414/2011 and
415/2011. The petitioner has made out a prima-facie case as already
observed. Looking to the financial position of the respondents,
respondent No. 2 being a part of RDA, there is every likelihood that if
the objections of the respondents to the award in question are
dismissed, the petitioner may not be in a position to effectively enforce
O.M.P. No. 417/2011 Page 32 of 33
the award, as the RDA is running into losses for, at least, the last two
years. Consequently, the balance of convenience is in favour of grant
of the interim measure of protection. The petitioner shall suffer
irreparable injury if the interests of the petitioner are not adequately
protected.
65. Accordingly, for the reasons aforesaid, I allow this petition and
direct the respondents to furnish security in the sum of US$
152,850,861.25 to the satisfaction of the Registrar General of this
Court within four weeks from today, which shall remain in force, unless
the award in question is set aside in O.M.P. Nos. 414/2011 and
415/2011. In the event of the objections to the award dated
10.03.2011 being dismissed by this Court, the security shall continue
to remain in force till the said award is enforced by the petitioner in
appropriate proceedings. Parties are left to bear their respective costs.
(VIPIN SANGHI)
JUDGE
SEPTEMBER 01, 2011
AS/„„BSR‟”/B
O.M.P. No. 417/2011 Page 33 of 33
Judgment reserved on: 08.08.2011
% Judgment delivered on: 01.09.2011
+ O.M.P. 417/2011 & I.A. No. 8837/2011
STEEL AUTHORITY OF INDIA LTD ..... Petitioner
Through: Mr. Sanjay Jain, Senior Advocate,
with Mr. Sunil Kumar Jain,
Mr.Parmtma Singh and Mr. Umesh
Kumar, Advocates.
versus
AMCI PTY LTD & ANR ..... Respondents
Through: Mr. Rajiv Nayar, Senior Advocate,
with Mr. Dhirendra Negi and
Mr.Sidharth Sethi, Advocates for
the respondent No. 1.
Mr. Arvind Nigam, Senior Advocate,
with Mr. Amit Sibal, Mr. Anirudh
Das and Ms. Smarika Singh,
Advocates for the respondent No.2.
CORAM:
HON’BLE MR. JUSTICE VIPIN SANGHI
1. Whether the Reporters of local papers may
be allowed to see the judgment? : Yes
2. To be referred to the Reporters or not? : Yes
3. Whether the judgment should be reported
in the Digest? : Yes
J U D G M E N T
VIPIN SANGHI, J.
1. The present petition under Section 9 of the Arbitration &
Conciliation Act, 1996 (The Act) is preferred for securing the amount
awarded by the International Court of Arbitration (ICC) vide its award
dated 10.03.2011 along with future interest of 18% from the date of
O.M.P. No. 417/2011 Page 1 of 33
award till the date of payment in favour of the petitioner-Steel
Authority of India (SAIL).
2. Respondent No. 1 is AMCI Pty Limited, a company incorporated
under the laws of Australia and respondent No. 2 is Vale Australia Pty
Limited, also a company incorporated in Australia.
3. A contract was executed between the petitioner and the
respondent No. 2 dated 23.04.2007 for supply of coal. Subsequently
the respondent No.2 was acquired by the respondent No.1 and vide
amendment dated 07.06.2007, the respondent No. 1 was added to the
contract as the sole seller, and respondent No.2 undertook the
obligations as a producer of coal.
4. Though, initially supply of coal was made by respondent No. 2 to
the petitioner, but subsequently there was some dispute due to which
no further supply was made. The matter was referred to arbitration
and the petitioner claimed breach of agreement due to non-supply of
coal by the respondents, and consequent damages, which the
petitioner claimed to have suffered on account of risk purchase.
5. Both respondents No. 1 and 2 filed their defence before the
Arbitral Tribunal and an award was passed on 10.03.2011, inter-alia,
awarding the following reliefs:
“The tribunal hereby Awards, Adjudges and Directs that:
I. The Respondents shall forthwith pay to the claimant
damages in the sum of US$ 152,270,789.10.
II. The Respondents shall also pay interest on the sum
of US$ 152,270,789.10 at the rate of 2.335364% per
annum on a simple basis to run from 2 April 2009
O.M.P. No. 417/2011 Page 2 of 33
until the date of this award amounting in aggregate
to US$6,897,815.48.
III. The Respondents shall bear and pay the claimant’s
legal costs and expenses incurred in this arbitration
assessed and fixed at US$ 420,072.15.
IV. The ICC Court of Arbitration has fixed the costs of
arbitration at US$ 320,000. The respondents shall
bear the whole of these costs. The respondents must
accordingly reimburse the sum of US$ 160,000 to the
claimant being the advance on costs paid by the
claimant to the ICC.
V. All other claims are accordingly rejected.”
6. The respondents have preferred O.M.P. Nos. 414-15/2011 to
assail the said arbitral award under Section 34 of the Act before this
Court, wherein the Court had issued notice to the petitioner and the
said petitions are still pending consideration.
7. The petitioner contends that both the respondents No. 1 and 2
are foreign entities, having no assets or place of business within the
jurisdiction of this Court or even within the territory of India. The
petitioner submits that respondents’ intention is to try to avoid and
delay the payment under the award. It is contended that the Court has
power to direct preservation of the amount in dispute, in view of
Section 9(ii)(b) of the Act, which entitles the Court to secure the
amount even after an award has been rendered, but before it is
enforced.
8. The petitioner submits that the amount awarded by the Tribunal
should be secured, so that the pendency of objections of respondents
O.M.P. No. 417/2011 Page 3 of 33
No. 1 and 2 to the said award is not exploited by them to evade and
avoid payment under the award, if the objections of the respondents
are ultimately dismissed by the Court. The submission of the
petitioner is that the amount involved is huge, and the petitioner
should be secured, so that the petitioner does not have to run after the
respondents for recovering the same in different countries and
different jurisdictions.
9. The petitioner argues that they are entitled for interim protection
because in absence of such protection, the respondents may in the
meantime dispose of their assets and there is a possibility that the
award may not be executable even if it is affirmed by this Court with
the dismissal of the respondents’ objections thereto. It is submitted
that the award may get frustrated during pendency of the
respondents’ objections to the award, and that the respondents cannot
be allowed to make the award infructuous or redundant.
10. Learned senior counsel for the petitioner has placed reliance on
the following decisions in support of his submissions:
(i) Delta Construction Systems Limited, Hyderabad Vs.
Narmada Cement Company Limited, Mumbai, (2002)
2 BOMLR 225;
(ii) Veda Research Laboratories Limited Vs. Survi
Projects, 164 (2009) DLT 388;
(iii) CREF Finance Limited Vs. Puri Construction Limited
& Others, 87 (2000) DLT 449;
O.M.P. No. 417/2011 Page 4 of 33
(iv) Associated Hotels of India Limited, Delhi Vs. S.B.
Sardar Ranjit Singh, AIR 1968 SC 933;
(v) M. Anasuya Devi and Another Vs. M. Manik Reddy &
Others, (2003) 8 SCC 565;
(vi) Hindustan Steel Limited Vs. M/s Dilip Construction
Co., AIR 1969 SC 1238;
(vii) M. Sons Enterprises Private Limited & Another Vs.
Shri Suresh Jagasia & Another, MANU/DE/0019/2011;
(viii) Canoro Resources Limited Vs. Union of India (UOI),
179 (2011) DLT 72.
11. Upon issuance of notice to the respondents, separate replies
have been filed by the respondents No. 1 & 2. Arguments have been
advanced on behalf of the respondent No. 1 by Mr. Rajiv Nayar, Senior
Advocate, and on behalf of respondent No. 2 by Mr. Arvind Nigam,
Senior Advocate. Since the submissions of the learned senior counsel
for the respondents are common, and their interest is also common, I
am dealing with the submissions of the respondents collectively.
12. The respondents’ submission is that the award in question is not
duly stamped and consequently the same cannot be relied upon for
any purpose by the petitioner. It is urged that the present petition is
not maintainable, as the award is not enforceable. Objections have
been preferred thereto by the respondents. The prayer made by the
petitioner, to seek deposit of the awarded amount, is not maintainable
as the award cannot be enforced at this stage. It is urged that there is
a casus omissus in the law noticed by the Supreme Court in National
Aluminium Co. Ltd. Vs. Pressteel & Fabrications (P) Ltd. and
O.M.P. No. 417/2011 Page 5 of 33
Another, (2004) 1 SCC 540 , which the Court cannot provide. It is also
argued that the petitioner did not seek any such relief during the
arbitral proceedings and, therefore, the petitioner should be taken to
have waived its rights. It is submitted that the petitioner is seeking
relief in the nature of attachment before judgment, however, the
petitioner has failed to make out a case under Order 38 Rule 5 CPC.
13. It is contended that the respondent No. 2 is an entity with a good
business and commercial standing. Respondent No. 2 is controlled by
another entity called Rio Doce Australia Pty Ltd (RDA), a company
incorporated pursuant to the laws of Australia under the Corporations
Act, 2001 which owns all of the shares of respondent No. 2. It is
submitted that on 12.12.2008, RDA and all of its wholly owned
controlled entities at that time, including respondent No. 2 (the RDA
Closed Group Entities), entered into a Deed of Cross-Guarantee. The
effect of the Deed of Cross-Guarantee is that each of the RDA Closed
Group Entities covenants with the trustee of the deed, for the benefit
of each creditor of the RDA Close Group Entities, that each of the RDA
Close Group Entities guarantees to each creditor payment in full of any
debts due and payable. It is submitted that on account of the said
Deed of Cross-Guarantee, respondent No. 2 company, a wholly owned
entity of RDA, prepares consolidated financial statements in terms of
the Australian Law. It is submitted that as on 31.12.2010, RDA and its
controlled entities had total assets of Australian Dollars (AUD) $
2,538,931,197 which included current assets of $ 319,219,561 and
non-current assets of $ 2,219,711,636. It is also submitted that as on
31.12.2010 RDA and its controlled entities held total net assets and
O.M.P. No. 417/2011 Page 6 of 33
equity of AUD $ 805,089,885. The total assets of RDA Closed Group
Entities as on 31.12.2010 were to the tune of AUD $ 2,526,667,614. It
is also submitted that the immediate parent entity of RDA is Vale
International S.A., a company incorporated in Switzerland and the
ultimate parent entity of RDA is Companhia Vale do Rio Doce (“Vale”),
a company incorporated in Brazil. It is submitted that the Brazilian
company aforesaid is one of the world’s leading producers and sellers
of iron ore, pellets, nickel, fertilizers, copper, aluminum products, coal,
bauxite, manganese and ferroalloys. It is submitted that the ultimate
parent company is engaged in mineral exploration in 21 countries and
has operations in 38 countries. In Australia alone, the respondent No.
2’s group employs over 1,000 full time and contract employees
including highly experienced management and coal marketing teams.
It is stated that the Brazilian company as on 31.12.2010 had total
assets of US $ 129,139,000,000. It is submitted that the group to
which respondent No. 2 belongs has decided to enter the Indian ocal
and steel market and continue to do business in India. Respondent No.
2 is not a fly by night operator. The petitioner’s claim for security
deposit is baseless and devoid of merit.
14. The respondents have placed on record the financial statement
of RDA as well as the ultimate parent entity constituted in Brazil. Both
sides have sought to place reliance on various portions of these
financial statements in support of their respective arguments with
which I shall deal with a little later.
O.M.P. No. 417/2011 Page 7 of 33
15. Learned senior counsel for the respondents have also relied upon
the following decisions in support of their submission:
(i) SMJ-RK-SD (JV) Vs. National Highways Authority of India,
164 (2009) DLT 655;
(ii) Sterling & Wilson Electricals Pvt. Ltd. Vs. M/s Silicon
Graphics Systems (India) Pvt. Ltd, 159 (2009) DLT 634;
(iii) Avinash Kumar Chauhan Vs. Vijay Krishna Mishra, (2009) 2
SCC 532;
(iv) State Bank of India and Others Vs. S.N. Goyal, (2008) 8
SCC 92;
(v) Bachhaj Nahar Vs. Nilima Mandal and Another, (2008) 17
SCC 491;
(vi) Maulavi Hussein Haji Abraham Umarji Vs. State of Gujarat
and Another, (2004) 6 SCC 672;
(vii) Union of India and Others Vs. Dharamendra Textile
Processors and Others, (2008) 13 SCC 369;
(viii) Global Company Vs. National Fertilizers Ltd, AIR 1998
Delhi 397;
(ix) Himachal Futuristic Communication Ltd. Vs. Union of
India, 2009 (3) Arb. LR 394 (Delhi);
O.M.P. No. 417/2011 Page 8 of 33
(x) IOCEE Exports Ltd. Vs. Kalyanee Marine & Others, III
(2007) BC 93; and
(xi) M/s SMS Tea Estates Pvt. Ltd. Vs. M/s Chandmari Tea Co.
Pvt. Ltd, 2011 (7) SCALE 747.
16. The Supreme Court in Pressteel & Fabrications (P) Ltd.
(supra) has held that an award, when challenged under Section 34
within the time stipulated therein, becomes unexecutable. There is no
discretion left with the Court to pass any interlocutory order in regard
to the said award except to adjudicate on the correctness of the claim
made by the applicant therein. A perusal of the judgment of the
Supreme Court in Pressteel & Fabrications (P) Ltd. (supra) shows
that the Supreme Court did not consider the power vested in the Court
under Section 9 of the Act. The observations of the Supreme Court
were made “in regard to the said award” and not in relation to the
subject matter of dispute.
17. What has been held by the Supreme Court in Pressteel &
Fabrications (P) Ltd. (supra), (without stating so in express terms),
is that the Court cannot invoke the principles of Order 41 Rule 5 C.P.C.
while entertaining objections to an award. This is evident from the
observation: “at one point of time considering the award as a money
decree we were inclined to direct the party to deposit the awarded
amount in the Court below so that the applicant can withdraw it, on
such terms & conditions as the Court might permit it to do as an
interim measure” . Therefore, the objections to the award are not akin
O.M.P. No. 417/2011 Page 9 of 33
to challenge to a money decree in an Appellate Court, which enables
the Appellate Court to require the deposit of the decreed amount or
furnishing of security before staying the execution of the decree. In
Pressteel & Fabrications (P) Ltd. (supra), the Supreme Court was
dealing with the contention of the appellant that the respondent should
make a deposit in terms of the award, only because an award had
been rendered in favour of the applicant. It is this submission which
was rejected by the Supreme Court by placing reliance on Sections 34
& 36 of the Act.
18. The automatic suspension of the award upon a challenge being
raised to the award under Section 34 of the Court, which leaves no
discretion in the Court to put the parties to terms, was considered by
the Supreme Court as being opposed to the very objective of
alternative dispute resolution system to which arbitration belongs. The
Supreme Court, therefore, desired that the Parliament may look into
this aspect. However, the Supreme Court did not say, and cannot be
understood to have said that the rights available to the parties under
Section 9 of the Act, post-award and before the award is enforced, also
cannot be ventilated, because the petition under Section 34 of the Act
to assail an award has been preferred by one or the other party.
19. Section 9 of the Act in terms states that “ a party may , before or
during the 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 the Court ….. ….. ….. …..“ . Therefore the
power of the Court under Section 9 is not limited only in respect of
O.M.P. No. 417/2011 Page 10 of 33
such cases, where the arbitral proceedings have either not
commenced or are in progress. It extends to even such cases where
an arbitral award has come into existence, but is still not in the process
of being enforced under Section 36 of the Act.
20. By virtue of Section 36 of the Act, an arbitral award cannot be
enforced where an application to assail the arbitral award under
Section 34 of the Act is pending disposal.
21. In the present case, the petitioner has not applied, and possibly
cannot apply at this stage, to enforce the award in accordance with
Section 36 of the Act, for the simple reason that the respondents’
objections to the award under Section 34 of the Act are pending
consideration in O.M.P. Nos. 414-415/2011.
22. Reliance placed by the respondents on the decisions of this Court
in Sterling & Wilson Electricals Pvt. Ltd. (supra) and SMJ-RK-SD
(JV) (supra) is completely misplaced. Neither of these decisions lay
down the proposition that Section 9 cannot be invoked by a party after
the award has been rendered by the Tribunal, but before the award is
enforced. In SMJ-RK-SD (JV) (supra), a petition under Section 9 had
been preferred by the petitioner to seek a direction to the respondent
to release the awarded amount to the petitioner against a matching
value of Bank Guarantee during the pendency of the petition under
Section 34 of the Act. The ground for seeking release of the amount
under the award was the financial hardship being faced by the
petitioner. In this background, it was observed by the Court that
O.M.P. No. 417/2011 Page 11 of 33
provisions of Section 9 could not be invoked to circumvent Section 36
of the Act. The Court, in fact, observed that “no doubt Section 9 of the
Act is applicable post-award as well but it is applicable only for the
purpose as provided under Section 9, namely for preservation and
interim custody of the subject matter of arbitration agreement or for
securing amount in dispute in arbitration or preservation or inspection
of any property or things or for appointment of a Receiver” .
23. There can be no quarrel with the aforesaid observations made by
the Court in SMJ-RK-SD (JV) (supra), and this case in no way
advances the submission of the respondents that post-award, and
during the pendency of the objections to the award, a petition under
Section 9 of the Act is not maintainable.
24. Even in Sterling & Wilson Electricals Pvt. Ltd. (supra) all that
the Court observed, by placing reliance on Pressteel & Fabrications
(P) Ltd. (supra), was that there was no discretion left in the Court to
pass any interlocutory order with regard to the award under challenge,
except to adjudicate on the correctness thereof. This observation has
to be read and understood in the context of Section 34. What has
been observed by the Court is that merely because an award has been
rendered by the Arbitral Tribunal, only on that account, the party in
whose favour an award has been rendered does not become entitled to
seek the relief, requiring the party challenging the award and against
whom it has been rendered, to deposit or pay the awarded amount
during pendency of the objections to the award to the opposite party.
O.M.P. No. 417/2011 Page 12 of 33
25. Reliance placed by the respondents on Himachal Futuristic
Communication Ltd. (supra) is also misplaced. This Court did not
hold that a petition under Section 9 is not maintainable after the
making of the award and before its enforcement. The Court refused to
grant the relief sought under Section 9 on the merits of the case before
it. The petitioner had sought an interim measure to direct the
respondent to deposit the awarded amount in the Court and to keep it
in a Fixed Deposit in a nationalised bank.
26. Global Company (supra) relied upon by the respondents also
has no relevance as that was a case decided on its own merits.
Considering the fact that the respondent was a Government of India
undertaking, the Court held that there was no real danger of the
respondent defeating, delaying or obstructing the execution of the
award and on that basis the Court rejected the petition to seek interim
measures of protection.
27. Similarly, the decision of the Madras High Court in IOCEE
Exports Ltd. (supra) is a case turning on its own facts and does not
support the contention of the respondent.
28. This Court in Veda Research Laboratories Ltd. (supra)
considered a similar objection raised on the maintainability of an
application under Section 9 of the Act in proceedings under Section 34
of the Act to challenge the award. The Court held that the ingredient
of a prima-facie case is made out once an arbitral award has found a
case in favour of a party. The Court also held that while dealing with
O.M.P. No. 417/2011 Page 13 of 33
an application under Section 9, the Court does not impose any
condition on the petitioner challenged in award under Section 34 of the
Act to maintain its petition under Section 34 of the Act. An order would
be passed under Section 9 of the Act only upon finding a case in favour
of the applicant. The Court also observed that the observations of the
Supreme Court in Pressteel & Fabrications (P) Ltd. (supra) were
made in the context of imposing conditions on the maintainability of a
petition under Section 34, and not in the context of Section 9 of the
Act.
29. In CREF Finance Limited (supra) also, this Court rejected a
similar submission. It was held “In the hiatus created by the conjoint
operation of Sections 34(3) and Section 36, a party to the Arbitration
cannot be held remediless in this interregnum if the Court is convinced
that interim protection, negative or positive, is called for. The Court
has not been rendered impotent by the Act even where it desires to
grant relief since the circumstances call or it. This would be a logical
extension of the ratio established in the Sundaram Finance Ltd. Vs.
NEPC India Ltd. , (1999) 2 SCC 479, and especially in conformity with
the opinion expressed in para 11 of the judgment, extracted above.
Justice and equity would not countenance a Judge standing by as a
mute spectator while a party renders an award worthless and
practically unenforceable and nonimplementable.”
30. It was further held that: “If the Court has power to grant interim
relief in anticipation of arbitral proceedings being commenced, there is
no warrant for canvassing the stance that it did not have the
O.M.P. No. 417/2011 Page 14 of 33
complementary assistery power to ensure that the orders passed in
arbitral proceedings are not rendered nugatory”.
31. Mr. Jain has submitted that Section 48, which falls in Part II
Chapter I of the Act, relates to enforcement of New York Convention
awards. Sub-Section (3) for Section 48 enables the Court to order the
party challenging the award to give suitable security. He submits that
in contradistinction, Section 34 does not enable the Court to require
the party challenging the award to furnish a security for the reason
that under Section 9, which also falls in part-I like Section 34, the Court
is empowered to require the furnishing of the security after the making
of the award and before its enforcement, which would include the
period during which the award is under challenge under Section 34 of
the Act. In the light of the above discussion, I see merit in this
submission and accept the same.
32. The submission of the learned senior counsel for the respondents
that there is a casus omissus or hiatus in the law does not impress me
at all. The scheme of the Act to my mind is very clear. An application
under Section 9 can be maintained either before the arbitration
proceedings, during the arbitration proceedings or even thereafter till
the award is enforced under the Act. Consequently, where an award is
under challenge under Section 34 of the Act (which obviously would
mean that it is not in the process of enforcement under Section 36 of
the Act in the same manner as if it were a decree of the Court), the
right to apply for interim measure of protection under Section 9 by one
or the other party to the arbitration agreement/ arbitration
O.M.P. No. 417/2011 Page 15 of 33
proceedings/ arbitration award is preserved. The exclusion of the
jurisdiction of the Court under Section 9 to cases where the arbitral
award is in the process of being enforced in accordance with Section
36 is easy to explain. Once the award is in the process of being
enforced under Section 36 of the Act in the same manner as if it were
a decree of the Court, it shall be for the Executing Court enforcing the
award to pass appropriate orders of injunction/attachment in respect of
the subject matter of the arbitration agreement/award as permitted
under the C.P.C.
33. The law should not be interpreted so as to render it ineffective or
otiose. The submission of the respondents that merely because the
arbitral award is under challenge, the right of the petitioner to invoke
Section 9 of the Act is suspended is not only against the express
language of Section 9 of the Act, it also does not stand to reason.
34. The hiatus in the law referred to by the Supreme Court in
Pressteel & Fabrications (P) Ltd. (supra) is in relation to the
absence of the power of the Court to put the party challenging the
arbitral award to terms at the time of entertaining such a challenge.
The said hiatus does not relate to the power of the Court to deal with a
petition under Section 9 of the Act for grant of interim measures of
protection after the making of the award, but before its enforcement.
35. The decisions in Dharamendra Textile Processors (supra) and
Maulavi Hussein (supra) relied upon by the respondents to submit
O.M.P. No. 417/2011 Page 16 of 33
that the Court cannot provide the casus omissus, therefore, have no
applicability in the light of the aforesaid discussion.
36. The submission of the learned counsel for the respondent that
the award in question cannot be looked into for any purpose, on
account of its not being sufficiently stamped, also does not appear to
have any merit. The Supreme Court in M. Anasuya Devi (supra)
rejected the specific plea raised with regard to the deficiency in
stamping by holding that the said issue is not required to be gone into
at this stage of proceedings under Section 34 of the Act. It was held
that the said issue was premature at that stage. The Supreme Court
held that: “ The question as to whether the Award is required to
be stamped and registered, would be relevant only when the
parties would file the Award for its enforcement under Section
36 of the Act. It is at this stage the parties can raise objections
regarding its admissibility on account of non-registration and
non-stamping under Section 17 of the Registration Act . In that
view of the matter, the exercise undertaken to decide the said issue by
the Civil Court as also by the High Court was entirely an exercise in
futility. The question whether an Award requires stamping and
registration is within the ambit of Section 47 of the Code of Civil
Procedure and not covered by Section 34 of the Act.” (emphasis
supplied).
37. As rightly pointed out by learned counsel for the petitioner, the
Stamp Act is a fiscal measure enacted to secure revenue for the State
on certain classes of instruments. It is not enacted to arm a litigant
O.M.P. No. 417/2011 Page 17 of 33
with a weapon of technicality to meet the case of his opponent. The
stringent provisions of the Act are conceived in the interest of the
revenue. (See Hindustan Steel Limited (supra)).
38. In M. Sons Enterprises (supra), the Court considered and
rejected the submission that the decision in M. Anasuya Devi (supra)
was per-incuriam. This Court, in para 10, observed as follows:
“10. The recent judgment of the Apex Court in Anasuya
Devi (supra) cannot be brushed aside as per-incuriam or
as sub-silentio on the provisions of the Stamp Act. The
Apex Court was very much conscious of the said provisions
and it is not as if it pronounced the judgment in ignorance
of the same or that the provisions of the Stamp Act have
been given a go by. What the Supreme Court has held,
examining the scheme of the Arbitration Act, 1996, is that
the objections on account of deficiency in stamping and
registration fall outside the ambit of Section 34 of the Act.
It is not as if, the Supreme Court by adopting the said
procedure has contravened the mandatory provisions of
the Stamp Act; it is not as if benefits have been permitted
to be derived under an insufficiently stamped award. The
Supreme Court however has held that the said objection
has to be taken at the time of enforcement of the award. In
my humble opinion, this is but a pragmatic approach. The
common thread running through the 1996 Act is of
expediency. If objections under the Stamp Act or the
Registration Act were to be permitted to be taken at the
stage of Section 34, it would indefinitely delay the disposal
of the said proceedings. The Supreme Court thus held that
the objections under Section 34 be decided expeditiously
without reference to the said pleas. In this manner, the
rights of persons against whom the award is pronounced
have been preserved. If they are able to establish that on
O.M.P. No. 417/2011 Page 18 of 33
account of insufficiency in stamping of the award or non-
registration of the award, the person in whose favour the
same is made is not entitled to benefit thereof, the award
would not be enforced against them. I, therefore, do not
find any merit in the contention of the petitioners of the
award being liable to be set aside for the said reason and
the same is dismissed.”
39. In the light of the judgment of the Supreme Court in M. Anasuya
Devi (supra), the decision in Avinash Kumar Chauhan (supra), which
does not pertain to a case under the Act, has no application.
40. Reliance has also been placed by the respondents on M/s SMS
Tea Estates Pvt. Ltd. (supra). This was a case where a Section 11
petition had been preferred to seek appointment of an Arbitrator in
terms of an arbitration agreement contained in an unstamped and
unregistered agreement. The Supreme Court held that mere non-
stamping of the agreement did not render the arbitration agreement
invalid and unenforceable. After the defect of stamping is cured as per
the provisions of the Stamp Act, the Court could enforce the arbitration
agreement. The arbitration agreement contained in an unregistered
but mandatorily registerable instrument can also be enforced, as the
arbitration agreement itself does not require registration. This decision
has no application in the facts of this case as the petitioner is not
seeking to place reliance on the agreement between the parties to
seek the interim measures of protection. To establish a prima-facie
case, the petitioner is only seeking to rely upon the arbitration award
rendered by the Tribunal in its favour.
O.M.P. No. 417/2011 Page 19 of 33
41. I may note that even prior to filing of this petition, the
respondent has itself preferred a petition under Section 34 of the Act,
as aforesaid. If the respondents submission with regard to non-
stamping of the award were to be accepted, even the respondent’s
petition under Section 34 would be liable to be rejected unless the
stamp duty in terms of the Stamp Act is made good. However, in view
of the decision of the Supreme Court in M. Anasuya Devi (supra),
that cannot be said to be the case.
42. I now turn to examine the question as to what are the guiding
principles that the Court would follow while considering a petition
preferred under Section 9(ii)(b), and also whether the petitioner has
made out a prima-facie case in its favour; whether the balance of
convenience is in favour of the petitioner, and; whether the petitioner
would suffer an irreparable loss and injury in case the interim
measures, as sought by the petitioner, are not granted.
43. In Himachal Futuristic Communication Ltd. (supra), this
Court observed: “once there is no decree, the powers of the Court to
be exercised under Section 9, for granting interim measures in the
nature of attachment before judgment, as sought, are the same as in
Order 38 or Order 39 of the CPC” .
44. There are two decisions of Bombay High Court in Delta
Construction Systems Limited, Hyderabad (supra) (Single Bench)
and National Shipping Company of Saudi Arabia Vs. Sentrans
Industries Limited, ( 2004) 1 ArbLR 409 (DB), wherein it has been
O.M.P. No. 417/2011 Page 20 of 33
held that the power of the Court to secure the amount in dispute under
arbitration is not hedged by the predicates as set out in Order 38. All
that the Court must be satisfied is that an interim measure is required.
The party coming to the Court must show that if it is not secured, the
award which it may obtain would result in a paper decree or a decree
which cannot be enforced on account of acts of a party pending
arbitration process. The Division Bench in National Shipping
Company of Saudi Arabia (supra), inter alia, held:
“….. ….. ….. ….. In a special provision of the nature like
Section 9(ii)(b), we are afraid, exercise of power cannot be
restricted by importing the provisions of Order 38, Rule 5
of the Code of Civil Procedure as it is. The legislature while
enacting Section 9(ii)(b) does not seem to us to have
intended to read into it the provisions of Order 38, Rule 5
of the Civil Procedure Code as it is. ….. ….. ….. ….. the
guiding factor for exercise of power by the Court under
Section 9(ii)(b) has to be whether such order deserves to
be passed for justice to the cause. The provisions of Order
38, Rule 5, CPC cannot be read into the said provision as it
is nor can power of the Court in passing an order of interim
measure under Section 9(ii)(b) be made subject to the
stringent provision of Order 38, Rule 5. The power of the
Court in passing the protection order to secure the amount
in dispute in the arbitration before or during arbitral
proceedings or at any time of making of the arbitral
amount but before it is enforced cannot be restricted by
importing the provisions set out in Order 38 of C.P.C. but
has to be exercised ex debito justitiae and in the interest of
justice….. ….. ….. ….. Though the power given to the Court
under Section 9(ii)(b) is very wide and is not in any way
controlled by the provisions of the Code but such exercise
of power, obviously, has to be guided by the paramount
O.M.P. No. 417/2011 Page 21 of 33
consideration that the party having a claim adjudicated in
its favour ultimately by the Arbitrator is in a position to get
the fruits of such adjudication and in executing the
award….. ….. ….. ….. The party seeking protection order
under Section 9(ii)(b) ordinarily must place some material
before the Court, besides the merits of the claim that order
under Section 9(ii)(b) is eminently needed to be passed as
there is likelihood or an attempt to defeat the award,
though as indicated above, the provisions of Order 38, Rule
5, CPC are not required to be satisfied. The statutory
discretion given to the Court under Section 9(ii)(b) must be
exercised judicially in accordance with established legal
principles and having regard only to relevant
considerations. ….. ….. ….. ….. We also hold without
hesitation that the Court is competent to pass an
appropriate protection order of interim measure as
provided under Section 9(ii)(b) outside the provisions of
Order 38, Rule 5 of the Code of Civil Procedure. Each case
under Section 9(ii)(b) of the Act of 1996 has to be
considered in its own facts and circumstances and on the
principles of equity, fair play and good conscience. The
power of the Court under Section 9(ii)(b) cannot restricted
to the power conferred on the Court under Civil Procedure
Code though analogous principles may be kept in mind.”
45. In proceedings under Section 9 of the Act, at the highest what
could be said is that the provisions of Order 38 Rule 5 CPC would
serve as the guiding principle for the Court to exercise its discretion
while dealing with a petition requiring the respondent to furnish
security for the amount in dispute. Since the letter of the law per se is
not applicable, the requirements set out in Order 38 Rule 5 CPC need
not strictly be satisfied, and so long as the ingredients of the said
O.M.P. No. 417/2011 Page 22 of 33
provision are generally present, the Court would not be unjustified in
exercising its jurisdiction to require the respondent to furnish security.
The bottom line, in my view, is that the Court should be satisfied that
the furnishing of security by the respondent is essential to safeguard
the interests of the petitioner.
46. The petitioner has produced the award made by the ICC
International Court of Arbitration in its favour. I have already set out
hereinabove the operative part of the award. Apart from interest the
awarded amount comes to US$ 152,850,861.25. The award has been
rendered on a contest to the petitioner’s claims by the respondents. It
has been conducted under the aegis of the ICC which is internationally
recognized as a credible body for conduct of international commercial
arbitrations. The arbitral award has been made by an independent
sole arbitrator who hails from a nationality other than the nationality of
the contesting parties. The award is detailed and prima-facie appears
to be comprehensive. The first round in this legal battle has gone in
favour of the petitioner. Therefore, the petitioner has made out a
prima-facie case in its favour.
47. The relevant averments made in the petition by the petitioner
are to the effect that the respondents do not have any asset or place
of business within the jurisdiction of this Court, or even within the
territory of India. It is also averred that the amount involved in the
case is huge. It is also averred that it is most essential that the
amount in question, for which the award is made, is secured so that
the petitioner can recover the amount and is not forced to run after the
O.M.P. No. 417/2011 Page 23 of 33
respondents for recovering the same in different countries and
different jurisdiction. The petitioner also states that the act and
conduct of the respondents may defeat and frustrate the award. They
also allege that the respondents have made all attempts to circumvent
the due process of law. The petitioner states that in the absence of
interim protection, the petitioner will not be able to execute the award
and this will frustrate the process of justice. It is also averred that the
respondent cannot be allowed to make the award infructuous and/or
redundant.
48. According to the respondents, the aforesaid averments are
wholly deficient and do not provide justification enough to require the
respondent to furnish any security, particularly, in view of the financial
position of the respondents detailed hereinabove. It is submitted, by
placing reliance on S.N. Goyal (supra) and Bachhaj Nahar (supra),
that no amount of evidence can be put forward in the absence of
necessary pleading and issue, and neither a Trial Court nor the
Appellate Court can consider the contention and record a finding in
that respect. It has also been held that a Court cannot make out a
case not pleaded. The Court should confine its decision to the
questions raised in pleadings. The Court cannot grant a relief which is
not claimed, and which does not flow from the facts and the cause of
action alleged in the plaint.
49. Mr. Jain has submitted that even if it were to be held that the
principles of Order 38 Rule 5 CPC are applicable in the present case,
even then the petitioner satisfies the conditions laid down therein. He
O.M.P. No. 417/2011 Page 24 of 33
submits that the obstruction to the execution of any decree that may
be passed against the respondents is imminent from the fact that the
respondents are, year after year, running into losses. He submits that
since the respondents are not having any property within the
jurisdiction of this Court, the petitioner’s case is on an even higher
footing, when compared to one where the respondent is about to
remove the whole or any part of its property from the local limits of the
jurisdiction of the Court. He further submits that the satisfaction of the
Court in the matter could be arrived at either by the affidavit of the
petitioner “or otherwise” . Therefore, even if the pleadings of the
petitioner in the petition are taken to be deficient, the record of the
case including the documents filed by the parties can be looked into by
the Court to determine whether the guidelines of Order 38 Rule 5
C.P.C. are substantially satisfied.
50. The aforesaid submissions of the respondents could have been
accepted, but for the fact that respondents have themselves placed on
record the financial report of RDA and its controlled entities which
includes respondent no.2, which does not inspire much confidence
about the soundness of the financial health of petitioner no.2. The
Court is not precluded from looking into materials/documents placed
on record to determine the issue whether the respondents should be
called upon to furnish security, because, even the strict provision
contained in Order 38 Rule 5 C.P.C. enables the Court to arrive at its
decision on the basis of an affidavit “or otherwise”. The enquiry that
the Court undertakes under Order 38 Rule 5 C.P.C. is not limited by the
O.M.P. No. 417/2011 Page 25 of 33
pleadings of the applicant. This reason for the expansion of the scope
of enquiry by the Court appears to be the fact that, very often, the
applicant may not even be privy to the relevant facts relating to the
non-applicant and they may be in the special knowledge of the non-
applicant. In the light of the aforesaid discussion, the decisions of the
Supreme Court in S.N. Goyal (supra) and Bachhaj Nahar (supra)
have no application to the facts of this case. In this case, the
respondents are foreign entities. The petitioner’s ignorance about the
respondents financial condition, at the time of filing of the petition is,
therefore, understandable.
51. No doubt, in the present case there is no averment in the
petition to the effect that the respondents with “intent to obstruct or
delay the execution” of the award, in case it is upheld by this Court, is
about to dispose of the whole or any of its property. As I have already
held, the strict provision of Order 38 Rule 5 C.P.C. cannot be bodily
listed and imported into Section 9(ii)(b) of the Act. The facts that RDA,
of which respondent No. 2 is a constituent, is running into losses, year
after year, and is heavily indebted to Vale International S.A. are
sufficient to justify the seeking of an order requiring the respondents to
furnish a security. After all, whether the losses are being suffered by
the respondents, year after year, with intention to obstruct or delay the
execution of the award (in case the award is upheld), or without any
such intention, the award may be reduced to a paper award, in case
the respondents go under. The position so far as the petitioner is
concerned, remains unchanged. It is no solace to a petitioner, who
O.M.P. No. 417/2011 Page 26 of 33
may not be able to eventually enforce the award because of the
respondents becoming financially defunct, that the financial incapacity
is not on account of any mal-intentions of the respondents but on
account of the respondent going into losses, without intending to do
so, so as to obstruct the execution of the award.
52. The consolidated statement of financial report of RDA and its
controlled entities for the year ended 31.12.2010 shows that
respondent no.2 is one of the many controlled entities of RDA. 100%
interest of respondent No. 2 is held by RDA. It also shows that RDA
and its controlled entities including respondent no.2 entered into deed
of cross guarantee on 12.12.2008. In this deed each company
guaranteed the debts of the others. The consolidated statement of
comprehensive income of RDA and its controlled entities for the year
2009-10 shows that RDA and its controlled entities have been incurring
losses at least for the last two years i.e. 2009 and 2010. While the
losses in the year 2009 were AUD $ 134,299,600.00, in the year 2010,
the losses stood at AUD $ 54,728,380.00. No doubt, the net assets of
st
RDA and its controlled entities as on 31 December of 2009 and 2010
stood at AUD $ 682,946,636.00 and AUD $ 797,244,212.00
respectively but the same statement also shows that accumulated
losses swelled from AUD $ 2,21,594,922.00 in the year ending 2009 to
AUD $ 285,297,346.00 in the year ending 31.12.2010. The net cash
from operating activities in the year ending 2009 stood at AUD $
5,938,997 but for the year ending 2010 there was a deficit of AUD $
93,077,440. The total comprehensive income as shown in the balance
O.M.P. No. 417/2011 Page 27 of 33
sheet for the year ending on 31.12.2009 and 31.12.2010 were AUD $(-)
324,571,505 and AUD $ (-) 333,437,854.00 respectively.
53. The respondent has tendered in Court a communication dated
29.03.2011 issued by Vale International S.A., Switzerland which is the
immediate parent company of RDA regarding confirmation of financial
support. Vale International S.A. confirms that at least for a period of
12 months from the date of approval of financial statement of the
company i.e. 31.12.2010, Vale International S.A. will not require the
repayment of the loan to the company, i.e., RDA, which as on
31.12.2010 stood at AUD 1,214,216,739.00. It has been further
certified that the company i.e. RDA will be able to pay the loans
incurred in the ordinary course of business as and when they became
due and payable.
54. On the other hand, Mr. Jain submits that this letter was “given for
the benefit of the addressee only and may not, without our prior
written consent, be relied upon by another persons”. Moreover, this
communication is valid only till 31.12.2011 and it is not likely that the
award in question will become executable before that date as the
objections to the award are pending consideration and would take
some time for disposal. He further submits that this communication
also shows that RDA itself is hugely indebted to its parent company to
the tune of AUD 1,214,216,739.00. He submits that it clearly shows
the lack of inherent financial strength of RDA which includes
respondent No. 2.
O.M.P. No. 417/2011 Page 28 of 33
55. It is very pertinent to note that the loan from Vale International
SA. to RDA is AUD $ 1,214,216,739.00, whereas the net asset value of
RDA as on 31.12.2010 stood at only AUD $ 797,244,212.00. Therefore,
if the debt owed by RDA to Vale International S.A. is sought to be
recovered, the entire assets of RDA would stand wiped out, and RDA
would still remain indebted. It is not clear whether there are any other
outstanding or debts of RDA other than potential those owned to Vale
International S.A.
56. While the cross guarantee amongst the constituents of RDA
provides confidence to a creditor of any of its constituents, at the same
time it also presents a risk, as it is possible that to meet the liabilities
of any of the constituents of RDA, the assets of respondent No. 2, shall
be appropriated, leading the creditors of respondent No. 2 and other
constituents as the risk of not being able to recover their dues.
57. Much emphasis has been laid by Mr. Arvind Nigam, learned
senior counsel appearing for respondent no.2 on the annual report for
the year 2010 of Vale International S.A., i.e., the ultimate parent
company of respondent no.2 incorporated in Brazil. However, despite
my repeated query to show as to how the assets of the ultimate parent
company Vale S.A. of Brazil could be roped in for meeting the liability
of respondent no.2, in case the need therefor arises on a future date,
Mr. Arvind Nigam had not been able to give any satisfactory answer to
the Court. Merely, because respondent no.2 may be entirely held and
controlled through RDA by Vale S.A. Brazil, it does not mean that the
liabilities of Vale Australian Pty Ltd., i.e., respondent no.2 would also
O.M.P. No. 417/2011 Page 29 of 33
attach to the parent company. It is well-settled that the liabilities of the
limited liability company cannot be enforced against its shareholders.
Therefore, even though Vale S.A. Brazil may be owing and controlling
100% shareholding in respondent No. 2, that itself would not make
Vale S.A. liable to satisfy the award in question, in the eventuality of
the objection thereto dismissed by this court.
58. The various risk factors disclosed in the annual report of the Vale
S.A. read as under:
“(i) We may not be able to replenish our reserves,
which could adversely affect our mining prospects.”
“(ii) We face rising extraction cots over time as
reserves deplete.”
“(iii) We may not have adequate insurance coverage
for some business risks.”
“(iv) We are involved in several legal proceedings
that could have a material adverse effect on our
business in the event of an outcome that is
unfavourable to us.”
“(v) Ineffective project management and other
operational problems could materially and adversely
affect our business and financial performance.”
“(vi) It could be difficult for investors to enforce any
judgment obtained outside Brazil against us or any
of our associates.”
59. The parent company has disclosed in its report the various legal
proceedings that the parent company and its subsidiaries are
defending in the normal course of business, including civil,
O.M.P. No. 417/2011 Page 30 of 33
administrative, tax, social security and labour proceedings. The
significant proceedings have been disclosed in the said report.
However, the present arbitration does not even find mention in the
said report and it shows that the parent company does not even
consider the liability arising out of the contract in question between the
petitioner and the respondents as a liability that the parent company
may eventually have to bear.
60. I have already observed that there is no umbilical cord which
connects respondent No. 2 to the ultimate parent company Vale S.A.
Vale S.A. is not obliged to meet the liabilities of respondent No. 2. The
aforesaid disclosure of risks by the ultimate parent company, also does
not help the assurance sought to be given by the respondents on the
basis of the financial condition of Vale S.A. at the end of the year 2010.
61. In Canoro Resources Limited (supra), while denying interim
measures under Section 9, this Court had proceeded on the basis of
the petitioner being a foreign entity, grant of interim injunction as
sought by the petitioner could eventually result in incurring of
substantial liability by the petitioner, which may not be recoverable on
account of its not being an Indian entity with assets in India.
62. The submission that the petitioner did not seek any interim
measure of protection either from any Court or from the arbitral
tribunal during the progress of the arbitration proceedings and that,
therefore, the petitioner has waived its rights to seek any interim
measure of protection at this stage is meritless. It is upto the
O.M.P. No. 417/2011 Page 31 of 33
petitioner to seek interim measures of protection based on its
perception of the strength of its own case as also the need therefor
considering, inter alia, the financial status of the opposite party.
63. Merely because the petitioner may not have considered it
necessary to seek interim measures of protection earlier, is no ground
to argue that such interim measures of protection cannot be sought
subsequent to the making of the award. There is no statutory bar to
the exercise of its rights by a petitioner under Section 9 of the Act,
even if no such right has earlier been pressed either before the Court
or before the Arbitral Tribunal.
64. Merely because the petitioner may have sought for a larger relief
than what it is entitled to in law, cannot be a ground to decline even
that relief to which the petitioner is otherwise entitled to. The
petitioner cannot seek the relief that the respondents should pay the
awarded amount to the petitioner as that would tantamount to
enforcing the award which is still unenforceable. However, there is no
impediment in directing the respondents to secure the awarded
amount of US$ 152,850,861.25 by furnishing adequate security to the
satisfaction of the Registrar General of this Court during the pendency
of the respondents objection petition, being O.M.P. Nos. 414/2011 and
415/2011. The petitioner has made out a prima-facie case as already
observed. Looking to the financial position of the respondents,
respondent No. 2 being a part of RDA, there is every likelihood that if
the objections of the respondents to the award in question are
dismissed, the petitioner may not be in a position to effectively enforce
O.M.P. No. 417/2011 Page 32 of 33
the award, as the RDA is running into losses for, at least, the last two
years. Consequently, the balance of convenience is in favour of grant
of the interim measure of protection. The petitioner shall suffer
irreparable injury if the interests of the petitioner are not adequately
protected.
65. Accordingly, for the reasons aforesaid, I allow this petition and
direct the respondents to furnish security in the sum of US$
152,850,861.25 to the satisfaction of the Registrar General of this
Court within four weeks from today, which shall remain in force, unless
the award in question is set aside in O.M.P. Nos. 414/2011 and
415/2011. In the event of the objections to the award dated
10.03.2011 being dismissed by this Court, the security shall continue
to remain in force till the said award is enforced by the petitioner in
appropriate proceedings. Parties are left to bear their respective costs.
(VIPIN SANGHI)
JUDGE
SEPTEMBER 01, 2011
AS/„„BSR‟”/B
O.M.P. No. 417/2011 Page 33 of 33