Full Judgment Text
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
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Date of Decision: 6 April, 2022
+ O.M.P.(I) (COMM.) 47/2022 & I.As. 2258-59/2022
CANARA BANK ..... Petitioner
Through: Mr. Pradeep Dewan, Senior Advocate
with Ms. Anupam Dhingra, Advocate.
versus
HELM DUNGEMITTEL GMBH ..... Respondent
Through: Mr. A. S. Chandhiok, Senior
Advocate with Mr. Rahul P. Dave,
Mr. Amit Dhingra, Mr. Rohit
Mahajan, Ms. Neelampreet Singh
Deol, Mr. Shivam Kumar Raheja and
Mr. Pranav V. Kamnani, Advocates
for R-1.
Mr. Tarkeshwar Nath and Mr. Lalit
Mohan, Advocates for R-2.
CORAM:
HON'BLE MR. JUSTICE SANJEEV NARULA
JUDGMENT
SANJEEV NARULA, J. (Oral):
1. The present petition under Section 9 of the Arbitration and
Conciliation Act, 1996 [ hereinafter , “ the Act ”] has been filed seeking
interim measures for securing the amount in dispute of 38 crores, pending
appointment of the arbitral tribunal. Canara Bank – the Petitioner – also
seeks continuation of orders of restrain against withdrawal of bank
guarantee of Rs. 15 Crores, furnished by Respondent No. 1 in O.M.P. (I.)
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(COMM.) 318/2018.
2. Briefly stated, the background of the case is as follows:
2.1. Canara Bank issued a performance bank guarantee [ hereinafter ,
“ PBG ”] of USD 67,86,450/- for securing transaction between
Respondent No. 1 [ hereinafter , “ Helm ”] and Respondent No. 2
[ hereinafter , “ STC ”]. The exposure was safeguarded by way of a
counter guarantee of/by HypoVereins Bank [ hereinafter , “ German
Bank ”].
2.2. Upon invocation of the PBG, Canara Bank paid the amount to STC
[the beneficiary], and parallelly invoked the counter-guarantee issued
by the German Bank. However, German Bank failed to make good its
obligation to pay Canara Bank. Later on, in proceedings before this
court, the amount of counter guarantee was deposited in court by
Helm - which by then had taken over the liabilities and
responsibilities of the German Bank. The said amount was
subsequently released in favour of Canara Bank, pursuant to court
directions. The dispute relating to invocation of the PBG by STC,
rights and obligations of German Bank & Helm, including Canara
Bank’s entitlement to the amount of counter guarantee - were referred
to arbitration between Canara Bank, Helm (which also represented
German Bank) and STC.
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2.3. The arbitration proceedings culminated in a majority Award dated 29
April, 2016 wherein Canara Bank’s claim was adjudicated, and it was
held to be entitled to retain the amount already released to it. Several
other claims inter-se the parties were also adjudicated. Challenge to
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the said Award, at the instance of STC, was rejected right up to the
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Supreme Court vide its order dated 27 July, 2018 in an SLP .
2.4. Canara Bank also assailed the majority award before this Court under
Section 34 of the Act [being O.M.P.(COMM.) 373/2016], limited to
the extent of denial of interest on the PBG amount, for the period
Canara Bank was out of pocket for the said amount. On this aspect,
the Arbitral Tribunal made certain observations which favoured
Canara Bank, yet, no relief was granted.
2.5. While considering the challenge to the award, the court found that the
Nil Award in respect of interest claim was not supported with reasons
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and accordingly, set-aside the same vide Judgment dated 21
December 2021, and observed that Canara Bank could initiate fresh
arbitration proceedings qua both Helm and STC on this limited
aspect.
2.6. Along with the aforenoted petition, the Court also adjudicated a
petition filed by Canara Bank under Section 9 of the Act on the same
date, [ being O.M.P.(I.)(COMM.) 318/2018] wherein Canara Bank
sought to secure its claim for interest. In the said proceedings, Canara
Bank was protected by way of a bank guarantee for an amount of Rs.
15 crores. Since the Nil Award was set aside by this Court, the interim
protection which was continuing in O.M.P.(I.)(COMM.) 318/2018,
was directed to be maintained for a brief period, to enable Canara
Bank to take recourse to protect its interest, in accordance with law.
2.7. Subsequently, Canara Bank filed appeals - FAO(OS)(COMM.)
17/2022 impugning the judgment in O.M.P (COMM.) 373/2016; and
FAO(OS)(COMM.) 18/2022 impugning the judgment in
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O.M.P.(I.)(COMM.) 318/2018.
2.8. In so far as FAO(OS)(COMM.) 18/2022 is concerned, the Appellate
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Court decided the same vide Order dated 01 February, 2022,
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extending the operation of the Order dated 21 December, 2021 in
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O.M.P.(I.)(COMM.) 318/2018 till 21 February, 2022, giving liberty
to Canara Bank to seek appropriate orders under Section 9 of the Act.
2.9. In FAO(OS)COMM 17/2022, Canara Bank’s challenge is limited to
the court’s refusal to refer the matter back to the Arbitral Tribunal for
assigning reasons under Section 34(4) of the Act. The said appeal is
pending consideration.
2.10. In light of the aforenoted circumstances, Canara Bank has now
approached this Court, seeking the following reliefs:
i. Restrain Respondent No. 1 from withdrawing the bank
guarantee of Rs. 15 Crores furnished by it in
O.M.P.(I.)(Comm.) 318/2018, by extending the directions
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given by this court order dated 28 September 2018 in
O.M.P.(I.) 318/2018 and lastly by the Division Bench vide
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order dated 01 February 2022 in FAO(OS)(COMM.) 18/2022
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till 21 February 2022 or to file a fresh Bank Guarantee or by
passing any other appropriate orders.
ii. Pass interim measures of protection to secure the amount of
Rs. 38 Crores which is in dispute in arbitration by directing
Respondent No. 1 to disclose on affidavit the full particulars of
the money to be received by it or to be owed to it by its
customers or other debtors in India and direct an attachment of
such amounts or issue garnishee notice to such person/parties
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directing them to deposit in this Court the amount due and
payable by them to Respondent No. 1.
3. Canara Bank asserts that a fresh arbitration has been requested,
however, the Tribunal is not in place. The interim order of protection dated
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21 December, 2021, as extended by the Division Bench till 21 February,
2022, requires further extension. It is also the case of Canara Bank that
Helm - incorporated and carrying on business in West Germany - has no
assets within the jurisdiction of this Court. Thus, in the event Canara Bank
were to succeed in arbitration, it would be unable to enforce the arbitral
award against Helm. On merits, it is argued that the erstwhile Tribunal had
held in favour of Canara Bank that on invocation of bank guarantee, German
Bank was bound to honour its commitment under the counter guarantee.
4. Mr. A. S. Chandhiok, Senior Counsel for Helm, contests the present
petition, by urging as follows:
4.1. The petition makes no averment or allegation against the German
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Bank. This Court, vide judgement dated 21 December, 2021, has
allowed Canara Bank to commence arbitration proceedings against the
German Bank. However, any claim against the said bank can only
succeed if Canara Bank is able to establish a case of negligence
against the German Bank. In fact, the German Bank had acted
prudently while declining the payment under the counter-guarantee.
Subsequently, there was a stay order passed by this Court in relation
to the PBG, and therefore, German bank, under any circumstance, was
not obliged to make payment under the counter guarantee. These
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aspects require adjudication in arbitral proceedings, and therefore,
Canara Bank does not have prima face case in its favour to seek an
order of interim protection. Reference was made to paragraphs no. 22
and 23 of the application, as well as to the prayer clause, to support
the aforenoted submissions.
4.2. There is no allegation in the petition which could indicate that future
award against Helm or German Bank, if passed, cannot be satisfied.
Helm is part of a world-wide group of companies with presence in
more than 30 countries. It’s subsidiary, namely Helm India Pvt. Ltd.,
has been present in India for last more than 45 years. The balance
sheets and other documents placed on record show that the said
company has considerable net worth and turnover, and therefore, in
the event Canara bank were to succeed, there would be sufficient
means available to satisfy the Award. The second prayer of the
petition indicates that on Canara Bank’s own showing, Helm has on-
going business in India.
4.3. Canara Bank has not manifested any intention to initiate arbitration
proceedings, despite being giving an opportunity to do so. Instead, it
has impugned the said order, which shows a clear absence of any
intent to arbitrate, and thus disentitles Canara Bank to seek interim
measures under the Act. Reliance is placed on the Judgment of this
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Court in Avantha Holdings Limited v. Vistra ITCL India Limited .
4.4. Whether Canara Bank has a valid claim and which Respondent [i.e.,
Helm or STC] is liable to pay – are pertinent questions to be
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220 SCC OnLine Del 1717.
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determined in fresh arbitration. The extent or quantum of such
liability cannot be ascertained at this stage.
4.5. The interim measures which can be awarded by an arbitral tribunal
under Section 17, are the very same as those which can be ordered by
a Court under Section 9. No such circumstances either exist or are
pleaded by Canara Bank, which may not render the remedy under
Section 17 to be inefficacious.
4.6. Canara Bank has failed to disclose or even plead the essential grounds
for seeking reliefs that are in the nature of attachment before
judgment. Since the nature of reliefs claimed under the present
petition are akin to reliefs under Order 38 Rule 5 of the CPC, 1908,
Canara Bank is required to establish the debt due to them from Helm,
and also validate, with cogent material, its apprehension that Helm is
attempting to take steps with the intention to defeat the future award
that may be eventually passed by an arbitral tribunal.
4.7. Instead of restraining withdrawal of the bank guarantee and directing
its extension, Helm can furnish a corporate guarantee and indemnity
for securing the amount in dispute. Thus, no irreparable harm would
be caused to Canara Bank to warrant interim protection in the nature
of reliefs prayed for.
5. The Court has considered the contentions advanced by the Senior
Counsel for the parties. Indeed, at this stage, the Court is not to adjudicate
upon the subject matter of inter-se claims or disputes between the parties.
The Court is only required to consider whether Canara Bank has made out a
prima facie case for securing interim orders pending appointment of the
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arbitral tribunal. Section 9 of the Act is widely worded, which includes the
power of the Court to secure the amount in dispute in arbitration. Several
judgments of this Court hold that while exercising the power under Section
9 of the Act, Court would be guided by the principles granting interim
measures, as provided under the Code of Civil Procedure, 1908. This would
mean that the Court has to be satisfied as to the existence of the 3-pronged
test of prima facie case, balance of convenience and irreparable loss.
6. On the first aspect, the prima facie view on Canara Bank’ rights and
corresponding obligations of the German bank under the counter-guarantee
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have been discussed and noted in the judgment dated 21 December 2021
and the same need not be reiterated. The Court found apposite reasons for
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setting aside the Nil Award (as recorded in the Judgment dated 21
December, 2021 in the Section 34 petition) which are sufficient to hold that
there is a prima facie case in favour of Canara Bank for the claim of interest
on the counter-guarantee amount, on account of German Bank not
honouring its commitment under the counter-guarantee. Indeed, the award
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dated 29 April 2016 also holds that Canara Bank had rightly made payment
under the PBG to STC and it has the legal right to claim the PBG amount
from the German Bank, under the latter’s counter guarantee. It has also been
held that the German Bank was wrong in not honouring and not paying the
amount payable under the counter guarantee after it was invoked by Canara
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Bank on 09 February, 2009. The German Bank, being the principal debtor,
is prima facie liable to pay/indemnify Canara Bank, as it has been
conclusively held that Canara’s payment under the PBG was correct. Helm
(also representing the German Bank) may have its remedy against STC,
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however, the same cannot discharge its liability towards Canara Bank.
7. For the foregoing reasons, the claim of Canara Bank for interest on
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the amount of counter guarantee between the period 12 February 2009 to
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15 April 2011 / 23 May 2011, is prima facie, payable to Canara Bank by
Helm (German Bank). This liability would attract further interest for the
period commencing from April/May, 2011 as the transaction with German
Bank is a financial transaction, attracting interest as per the usage and trade
practice prevalent in the banking business. Presently, Canara Bank is
secured by a bank guarantee, established by Helm in terms of directions
issued in O.M.P.(I.)(COMM.) 318/2018. Now that the arbitration
proceedings qua the interest component have to commence afresh, the
interim protection already in place should continue, in view of strong prima
face case in favour of Canara Bank. No adverse circumstances have arisen
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with passing of the judgment dated 21 December, 2021 to discontinue this
protection.
8. As regards balance of convenience, it must be noted that Helm AG is
not present in India and does not have any assets in India. It claims to have
business within the jurisdiction of this Court, by placing reliance upon
documents pertaining to its subsidiary - Helm India private Limited, which
is concededly not party to the arbitration. The execution of an award against
a subsidiary of the principal is always fraught with challenges, and therefore,
reliance on the turnover of the subsidiary is of no consequence. Moreover,
the turnover and net worth disclosed therein also does not satisfy the Court
that the amount claimed in the petition will be adequately secured. In these
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circumstances, the Court finds the balance of convenience to be in favour of
Canara Bank. Further, the amounts claimed to be receivable by Helm AG
from its customers cannot be considered as a security. The court is thus
satisfied that there is adequate material placed on record which can give rise
to reasonable certainty of the award being rendered infructuous in case
interim protection is not granted in the instant proceedings.
9. That said, a question has also arisen regarding the quantum of amount
to be secured. Canara Bank has made a claim of Rs. 38 crores towards
interest, and calculation thereof is disclosed in paragraph 9 of the petition, as
follows:
“i) Interest @ 18% p.a. on Rs.30,00,28,955/- for the period 12.2.2009 to
15.4.2011 i.e. Rs.11,73,37,871.33/-
ii) Interest @ 18% p.a. on the sum of Rs.3,04,37,228/- for the period
12.2.2009 to 23.5.2011 i.e. Rs. 1,24,73,426.20/-
As on 16.4.2011, the total amount due to the petitioner comes to Rs.
12,98,11,297.53/-.
iii) Interest on Rs. 12.98 Cr. from 16.4.2011 till date, which comes to
Rs.25.11. Cr. approx.”.
10. This claim of interest is on an assumption that Canara Bank would be
entitled to interest at the rate of 18% p.a. The majority Award, which was
the subject matter of O.M.P.(COMM.) 373/2016, awarded interest to the
parties at the rate of 8.5% p.a. Mr. Pradeep Dewan, Senior Counsel for
Canara Bank, has relied on an interim order to contend that it imposed
interest at the rate of 9.10% p.a. on Canara bank as a condition for
restitution of released amount. Nevertheless, his supposition does not
reasonably establish that the amount in dispute would be 38 crores, even if
the afore-noted rate of interest is taken into consideration. As of now, the
Court can only assume the rate of interest in the Award to be the guide for
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securing the amount in question. Applying that, the interest claim would be
less than half of what is claimed as the amount in dispute. In these
circumstances, the Court finds that the bank guarantee of Rs. 15 crores
would adequately protect Canara Bank’s interest, and secure the amount in
dispute, pending arbitration that would ensue shortly.
11. Accordingly, the present petition is allowed with the direction that the
bank guarantee for Rs. 15 crores which has been furnished before Court in
O.M.P.(I.)(COMM.) 318/2018 shall be kept alive for a period of eight weeks
from today.
12. It must be added that the relief under Section 9 of the Act is available
to till the arbitral tribunal is constituted, to enable a party to obtain the relief
under Section 17 of the Act. The arbitral tribunal has not been not
constituted as yet. Canara Bank, instead of proceeding for the appointment
of the Tribunal, is exercising other remedies. No doubt Canara Bank can
avail of such remedies under law, but at the same time, the orders under
Section 9 cannot continue everlastingly. There is merit in the submission of
Helm that they are being saddled with costs of maintaining and renewing the
bank guarantee, from 2018 onwards. Since there is no stay of the Judgment
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dated 21 December 2021, there can be no legal impediment in appointment
of an arbitral tribunal. Yet, there appears to be a deadlock on appointment,
owing to reasons which are not relevant to be gone into in the present
proceedings. Nonetheless, if any of parties is not consenting to arbitration or
the arbitral institution is not constituting the tribunal, remedy is provided
under the Act. Thus, it is directed that if Canara bank does not proceed to
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take recourse to appoint the arbitral tribunal by filing appropriate application
before court, within eight weeks from the date of uploading of this order, the
interim protection given herein shall lapse automatically. If the steps are
undertaken, the protection granted today shall be extended till such time
such arbitral tribunal decides Canara Bank’s application under Section 17 of
the Act, if so filed. The arbitral tribunal shall then proceed to decide the
same by extending, revoking or modifying the directions as it deems fit, on
its independent consideration of the facts of the case, uninfluenced by any of
the observations made hereinabove. If no application under Section 17 is
filed by Canara Bank within two weeks of the appointment of the arbitral
tribunal, the interim protection shall lapse.
13. With the above directions, the present petition is disposed of, along
with pending applications.
SANJEEV NARULA, J
APRIL 6, 2022
d.negi
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(Corrected and released on 18 April, 2022)
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