Global Company v. M/s. National Fertilizers Limited

K.S. Gupta, J,

1. In this petition filed on January 16,1998 under Section 9(ii) ofthe Arbitration and Conciliation Act, 1996 (for short the Act), it is inter alia alleged that the petitioner moved A.A. No. 42/1996 under Sections 8 and 11 of the Act. By the order dated October 17, 1996 said petition was disposed ofand the Arbitrators byboth the parties were duly appointed. Arbitrators, namely, Justice R.P.Bhat (Retd.) nominee of the petitioner and Sh.V.Kumar, nominee ofthe respondent in turn appointed Justice Avadh Behari Rohtagi (Retd.) as the Presiding Arbitrator. The Arbitrators have made the award dated December 31,1997 and have awarded to the petitioner US $ 88,250 together with interest @ 9%p.a.from December 27,1995. Financial interest of the petitioner for that amount needs to be protected. It is prayed that respondent be directed to furnish security for US $ 88,250 plus interest @ 9% p.a. in terms of the arbitral award dated December 31,1997.

2. In the reply it is, inter-alia, alleged that the Arbitrators after having reached, the conclusion that no valid contract was concluded between the parties, ought not have exercised jurisdiction in awarding US $ 88,250 with interest at the exhorbitant rate of9% p.a. and the respondent has a bona fide ground to challenge the award. It is denied that any order is required to be passed for securing the said amount as claimed.

3. I have heard the learned Counsel of the parties.

4. Under Section 34 of the Act, application for setting aside arbitral award can be filed within three months of the receiving of the arbitral award and thereafter delay of 30 days in making such an application can be condoned on sufficient cause being shown by the Court. Petitioner has placed on record the photostat copies of the said award alongwith covering letter Annexure-1. Annexure-1 goes to show that a signed copy of the award in terms of Section 31 (5) of the Act was simultaneously sent to the respondent by the Arbitrators on December 31,1997 itself. Respondent being located in New Delhi must have received the copy of the award within 2-3 days of the dispatch thereof by the Arbitrators. Admittedly , even after lapse of more than 4½ months of the making of the award the respondent has chosen not to file any application under aforesaid Section 34 of the Act for setting it aside. That being so, respondent cannot resist the present petition on the ground of having a bona fide ground to challenge the award as pleaded in the reply.

5. This brings me to the crucial point if the petitioner by way of interim measure can be granted the relief sought for. Section 9 ofthe Act under which the petition has been filed, reads as under:

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

(i) for the appointment of a guardian for a minor or a person of unsound mind for the purpose of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of the following matters, namely:

(a) the preservation, interim custody or sale of any goods which are the subject matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any part or authorising any samples to be taken or any observation to be made, or-experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the Court to be just and convenient;

(f) and the Court shall have the same power for making orders as it has for the purpose of and in relation to, any proceedings before it.

6. Obviously, said section is silent as to the circumstances under which a respondent can be asked to furnish security for securing the amount in dispute in the arbitration.

7. Sections 18(1) and 41 of the Arbitration Act 1940 and Rule 5 of Order XXXVIII, CPC contain provisions for furnishing security and are relevant for deciding the issue at hand.

Said Section 18(1) reads¾

“Notwithstanding anything contained in Section 17, at any time after the filing of the award, whether notice of the filing has been served or not upon being satisfied by affidavit or otherwise that a party has taken or is about to take steps to defeat delay or obstruct the execution of any decree that may be passed upon the award, or that speedy execution of the award is just and necessary, the Court may pass such, interim orders as it deems necessary. ”

Section 41 runs as under––

""Subject to the provisions of this Act and of rules made thereunder¾

(a) the provisions of the Code of Civil Procedure, 1908 shall apply to all proceedings before the Court and to all appeals, under this Act and

(b) the Court shall have, for the purpose of and in relation to, arbitration proceedings, the same power of making orders in respect of any of the matters set out in the Second Schedule as it has for the purpose of, and in relation to, any proceedings before the Court:

Provided that nothing in Clause(b) shall be taken to prejudice any power which may be vested in an Arbitrator or Umpire for making orders with respect to any of such matters.

8. Both the aforesaid sections operate in separate spheres. Section 18(1), amongst others, confers discretionary power to pass interim order directing the respondent to furnish security for the satisfaction of the decree at any time after the filing of the award in Court on the fulfillment of the conditions noted in that Sub-section. Section 41(b) read with para 2 of the IInd schedule empowers the Court to pass order for securing the amount of difference not only when the proceedings are pending before it but also when they are pending before the Arbitrator(s). The practice and procedure of the Court in issuing interim injunction or attachment before judgment would be equally applicable in such cases.

Rule 5 of aforesaid Order XXXVIII, CPC provides thus:

"(1) Where at any stage of a suit, the Court is satisfied, by affidavit or otherwise, that the defendant, with intent to obstruct or delay the execution of any decree that may be passed against him––

(a) is about to dispose of the whole or any part of his property, or

(b) is about to remove the whole or any part of his property from the local limits of the jurisdiction of the Court, the Court may direct the defendant, within a time to be fixed by it, either to furnish security, in such sum as may be specified in the order, to produce and place at the disposal of the Court, when required, the said property or the value of the same, or such portion thereof as may be sufficient to satisfy the decree, or to appear and show cause why he should not furnish security.

(2) The plaintiff shall, unless the Court otherwise directs, specify the property required to be attached and the estimated value thereof.

(3) The Court may also in the order direct the conditional attachment of the whole or any portion of the property to be specified.

(4) If an order of attachment is made without complying with the provisions of Sub-rule (1) of this rule, such attachment shall be void ."

9. For passing an order under the aforesaid provision the intention of the defendant is sine qua non. The question of intent alleged by the plaintiff is to be, determined having regard to the particular facts and circumstances of the case.

10. It is true that the said Arbitration Act, 1940 stands repealed by the Act of 1996and the provisions contained in the Code of Civil Procedure are not applicable to the proceedings under the Act, still, in my opinion, in the absence of guidelines how, the power for grant of relief under Section 9(ii)(b) is to be exercised by the Court, the principles underlying the aforesaid sections are to be applied. It is only on adequate material being supplied by the petitioner that the Court can form opinion that unless the jurisdiction is exercised under the said Section 9(ii) there is real danger of the respondent defeating, delaying or obstructing the execution of the award made against it. On the basis of the only ground of protection of financial interest of the petitioner taken in para No.6 of the petition, the respondent, a Government of India Undertaking cannot be legally directed to furnish security for the amount of US $ 88,250 together with interest @ 9% p.a. Petition thus reserves to be dismissed.

Consequently, the petition is dismissed. No order as to costs.