Skypower Solar India Private Limited v. Sterling and Wilson International FZE

14. S&W, inter alia, claims that it is entitled to receive the supply price of USD 30,719,892.60. S&W claims that it had supplied solar module PV inverters and other equipment (Offshore Supplies) to SIPL for commissioning the Project in terms of the Offshore Supply Agreement dated 19.05.2017 (hereafter ‘the OSA’). In terms of the OSA, S&W was entitled to 90% of the price of the Offshore Supplies (Supply Price), amounting to USD 30,719,892.60 on achievement of the Commercial Operation Date (COD) of the Project. The COD was RAWAL achieved on 05.09.2017 and accordingly, S&W had raised an invoice for 90% of the Supply Price. The said invoice was received by SIPL on 16.11.2017. S&W claims that SIPL has acted in breach of the OSA and had not paid the invoiced amount within a period of fourteen days of the receipt of the invoice, as agreed. According to S&W, SIPL’s obligation to pay the Supply Price was independent of any other contractual arrangement between SIPL (or its affiliated entities) with SWPL or any of its group entities.

15. S&W further alleges that SIPL in collusion with other Skypower Entities had breached its obligation of ensuring that an adequate security (Offshore Security) is created in the form of pledge of 100% shares directly held by SGC (original respondent no.3) and Holdings 4 Ltd. (original respondent no.4), which directly or indirectly hold 100% of the paid-up capital of SIPL.

16. The appellants dispute the aforesaid claims. According to the appellants, the OSA is not independent of the other agreements and the documents executed between some of the Skypower Entities and SWPL.

17. It is stated that the concerned state instrumentalities of Madhya Pradesh had invited bids for setting up of solar power plants. Some of the Skypower Entities had participated in the bids and were successful. Accordingly, they were permitted to set up 57.5MWP (50.0 MW AC) Photovoltaic Solar Plant with tracker technologies at Chirwel, Madhya Pradesh. The MP Power Management Company Limited (hereafter RAWAL ‘State Discom’) and SIPL along with two other affiliated companies entered into a Power Purchase Agreement dated 18.09.2015.

18. The Project included units and auxiliaries such as water supply, treatment or storage facilities, bays for transmission system in the switchyard, dedicated transmission line up to the delivery point, buildings, structures, equipment, plant and machinery and other facilities for generation and supply of power in terms of the Power Purchase Agreement. SIPL claims that at the material time, SWPL and S&W represented to the concerned Skypower Entities that they had the experience, expertise, capability and know-how for implementing the Project.

19. The appellants claim that the concerned Skypower Entities entered into a Memorandum of Understanding (MOU) and Heads of Terms (HOT) dated 18.04.2016 with SWPL and an Amended HOT dated 19.12.2016 in respect of the design, supply, construction, development and commissioning of the Project. In terms of the Amended HOT, it was agreed that the Offshore Supplies for the project would be undertaken by an Offshore affiliate of SWPL. According to the appellants, it was agreed that separate contracts would be entered into for the Offshore Supplies and other supplies but SWPL would undertake the entire responsibility for the same. The appellants contend that it was always understood that works in relation to the Project would be undertaken by SWPL and S&W as a single point entity. It claims that reading of all the agreements indicates that the Project was awarded to RAWAL the Sterling and Wilson Group (SWPL and S&W) on a turn key basis. The Amended HOT also stipulate the same. The appellants claim that on 19.05.2017, the several contractual documents including the OSA were entered into for executing the Project. These also included six contractual documents between SIPL and SWPL (Development Agreement, Service Contract, Civil Works Contract, Onshore Supply Agreement, Operation and Management Agreement, Wrap Agreement). The OSA was signed only by SIPL and S&W. Although, other entities were not signatories to the Offshore Supply Agreements, S&W had executed a Side Letter on Liquidated Damages, indemnity and composite costs, which were linked to other contractual documents.

20. According to the appellants, although separate documents were executed for Onshore Contracts and Offshore Supplies, it was always understood and agreed between the parties that these separate contractual agreements were a part of a single consolidated contract, which would be executed by SWPL and its affiliate entities.

21. The appellants claim that SWPL and its affiliates had breached the terms of the agreements. Although the appellants do not deny receipt of the Offshore Supplies, they dispute their obligation to pay for the same on account of claims in respect of performance of other agreements, which were allegedly breached.

22. Since the invoices submitted by S&W had not been paid, S&W sent a letter dated 21.05.2018 to SIPL communicating that it had RAWAL invoked the dispute resolution mechanism under Clause 23.1.[2] of the OSA.

23. SIPL responded by a letter dated 19.06.2018 declining to make the payment on the ground that SWPL had not complied with its material obligations under the Onshore EPC (Engineering, Procurement and Construction) Contracts including the Wrap Agreement. It claimed that as per the Side Letter on Liquidated Damages executed by S&W, it was not liable to pay the invoiced amount as claimed.

24. Thereafter, discussions were held, inter alia, between SIPL and S&W. However, the disputes remained unresolved. On 28.07.2018, S&W sent an e-mail to SIPL accepting the addition of a dispute resolution provision, that is, arbitration according to the Singapore International Arbitration Centre Rules (hereafter ‘the SIAC Rules’) to be included in the OSA.

25. Subsequently, on 18.09.2018, SIPL sent an e-mail to S&W claiming that it had scheduled diligence activities for the Project. S&W replied on 24.08.2018 stating that no sale will be permitted by it till it is paid its legitimate dues.

26. On 03.10.2018 SIPL responded to S&W’s e-mails, requesting for details pertaining to the indemnity claims in respect of the Project and the OSA. Further, on 2.11.2018, S&W sent a letter to SIPL refuting the objections put forth by it in its letter dated 27.07.2018. It is S&W’s case that the provisions of the Indemnity Letter are in respect of the payment RAWAL of taxes and the letter is not relevant to the obligation to pay the Offshore Supply Price.

27. It is submitted that on 10.11.2018, a representative of a potential buyer of SIPL’s affiliate project addressed an e-mail to S&W. The said buyer, inter alia, sought details of S&W’s outstanding claims against SIPL stating that the same were sought for undertaking due diligence of the said Project.

28. S&W claims that after the lapse of 12 months from receiving the invoices, on 5.12.2018, SIPL asked S&W to rescind and withdraw the same on the ground that the invoices were not in accordance with the provisions of the OSA and the Onshore EPC Contracts on account of alleged deficiencies in the Project.

29. On 12.12.2018, S&W refuted the claims raised by SIPL in its letter dated 05.12.2018, and reiterated its claim for payment of 90% of the Offshore Supply Price.

30. In view of the aforesaid dispute, S&W commenced arbitration against original respondent nos.[1] to 8 on 16.03.2019, to be conducted by SIAC.

31. Thereafter, S&W filed a petition under Section 9 of the A&C Act being OMP (1) COMM. 461/2018 titled Sterling & Wilson International FZE v. Skypower Solar India Private Limited and Others, (arraying the appellants in the present appeals as respondent RAWAL nos.1, 2, 3, 4, 5 and 6) and seeking an interim injunction in order to secure its claim, while the arbitral proceedings were pending.

32. By an order dated 18.12.2018, a learned Single Judge of this Court granted temporary injunction to S&W against the appellants (original respondent nos.[1] to 6) in terms of prayer (c) of the said petition. In terms of the said prayer the appellants and its directors, officers, servants, agents were restrained from creating third party rights and/or otherwise encumbering the Project. The appellants, Skypower Canada and CIM, were also directed to disclose the extent of shareholdings of each of their companies. The order was subsequently modified on 11.01.2019 to read as under: “I.A. No. 303/2018 (for modification of the order dated 18.12.2018)

1. This application is allowed and the expression ‘Respondent no. 1’ written in the third line of paragraph 3 of the order dated 18.12.2018 will be read as ‘Respondent no.4’.

2. Also, the figure of ‘USD 31,250,711.70’ written in paragraph 1 of the order be read as ‘USD 34,723,013’, without in any manner observing the merits of the cases of the respective parties.

3. I.A. stands disposed of.”

33. Thereafter, by an order dated 21.01.2019, the learned Single Judge recorded that the entire shareholding of Holdings 2 Ltd. is held by SGC and directed that there will be no further transfer of the said shareholdings.

34. On 22.06.2020, the learned Single Judge passed the impugned judgment, partly allowing the prayer or for interim relief and directed the original respondents (appellants, Skypower Canada and CIM) to furnish a Bank Guarantee for 50% of the claim against the Offshore Supply Price. The learned Single Judge also restrained SGC, Holdings

4 Ltd. and IV Investment Ltd. from transferring, disposing off, creating a charge and/or encumbering, in any manner their shares and other securities held by them in SIPL, SGC and Holdings 4 Ltd.

35. Aggrieved, the appellants have filed the present appeals.

REASONING AND CONCLUSION

36. At the outset it is necessary to note that the question whether the court has the jurisdiction to order interim measures for protection under Section 9 of the A&C Act in aid of the arbitral proceedings conducted overseas, was not agitated before this Court. The appellants concede that the learned Single Judge has rightly held that this Court has the jurisdiction to issue interim orders in aid of arbitration being conducted overseas under the aegis of the SIAC and according to its Rules.

37. The memoranda of appeals mention several grounds, other than the impugned order falls foul of the principles under Order XXXVIII Rule 5 of the Code of Civil Procedure, 1908 (hereafter ‘the CPC’), for assailing the impugned order. But, as noted above, the same were not pressed. It is relevant to note that one of the questions raised before the learned Single Judge was whether the court could issue any orders of RAWAL interim measures of protection, under Section 9 of the A&C Act against the appellants in FAO(OS)(COMM) 30/2022, as they were not signatories to the Arbitration Agreement. The learned Single Judge referred to various principles including the Group of Companies Doctrine as accepted by the Supreme Court in Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. & Ors.1, Mahanagar Telephone Nigam Limited v. Canara Bank & Ors.[2] and Ameet Lalchand Shah & Ors. v. Rishabh Enterprises & Anr.[3] and expressed a prima facie view that in the given facts, even though the said appellants were not signatories to the arbitration agreement, they could be compelled to arbitrate. The said issue – which was stoutly contested before the learned Single Judge – was not pressed in these appeals. However, it is necessary to record that although, Mr Dayan Krishnan had not pressed the said issue before us, he reserved the rights of the appellants to raise the same before the learned Arbitral Tribunal.

38. The controversy in the present appeals is in a narrow compass. Mr Dayan Krishnan and Mr Nayar, learned senior counsels, who advanced submissions on behalf of the appellants, confined these appeals to assailing the direction issued for submission of a bank guarantee equivalent to 50% of the amounts claimed by S&W. Further, they circumscribed the challenge by founding the same on a singular

39. In view of the above, the only question to be addressed by this Court is whether the impugned directions to furnish a Bank Guarantee equivalent to 50% of the amount claimed by the respondent, can be faulted on the ground that the conditions for issuing such a direction as stipulated under Order XXXVIII Rule 5 of the CPC, are not satisfied.

40. The appellants contend that the direction to furnish a Bank Guarantee to secure S&W’s claims amounts to attachment before decree and no such direction can be issued without satisfying the conditions for issuing such an order under Order XXXVIII Rule 5 of the CPC. Mr. Wadhwa, the learned senior counsel appearing for S&W countered the aforesaid contention and urged that the findings of the learned Single Judge clearly warrant issuance of such directions.

41. Mr Wadhwa, referred to the decision of the Supreme Court in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited[4] and submitted that the powers of a court under Section 9 of the A&C Act are wider than the powers under the provisions of the CPC. He further emphasized that the Supreme Court had approved the view of this Court in Ajay Singh & Ors. v. Kal Airways Private Limited & Ors.[5] as well as the Bombay High Court in Jagdish Ahuja & Anr. v.

2017 SCC OnLine Del 8934 RAWAL Cupino Limited[6] and Valentine Maritime Ltd. v. Kreuz Subsea Pte Limited & Anr.7. He also relied on the observations of the Supreme Court to the effect that if a strong prima facie case is made out and the balance of convenience is in favour of the petitioner, the court would not withhold relief on a mere technicality of absence of averments. In addition, he referred to the decision of the learned Single Judge of this Court in Huawei Technologies Co. Ltd. v. Sterlite Technologies Limited.8.

42. Before proceeding further, it would be relevant to refer to the findings of the learned Single Judge on which the impugned directions rest. The learned Single Judge had considered Clause 12.2.[1] of the OSA and noted that in terms of the said agreement, S&W was entitled to 90% of the Offshore Supply Price on achieving of the COD. It was further entitled to the remaining 10% of the Offshore Supply Price on Final Acceptance. The Court noted that the commercial operations had commenced, and admittedly, the said milestones were achieved. This was also reflected by the certificates issued by the State Discom. Thus, the Court concluded that, prima facie, S&W would be entitled to 90% of the Offshore Supply Price. The Court noted that the OSA expressly recorded that it was a complete agreement. And, S&W was not in breach of its obligations in respect of the Offshore supplies.

43. In view of the above, the learned Single Judge accepted that S&W had established a prima facie case in its favour. In view of the undisputed facts, the learned Single Judge returned findings on a prima facie basis, to the following effect:

(i) that S&W’s obligations under the OSA were limited to the

(ii) that S&W had fulfilled its obligations;

(iii) that the cover of Offshore Security cover was not provided to S&W;

(iv) that the Offshore Supply Price payable to S&W was required be secured by the shareholding of Holdings 2 Ltd. (respondent no.4), which was held by SGC (respondent no.3). Holdings 4 Ltd. was a holding company for SIPL (respondent no.1) and the security in respect of the shares of Holdings 4 Ltd. would effectively secure S&W by an indirect control of the shareholding of SIPL, despite S&W completing its supplies which were used in setting up a project and for achieving the COD, no amount was paid to S&W; and

(v) that the OSA between S&W and SIPL was independently executed.

44. The learned Single Judge found that the balance of convenience was in favour of S&W. The Offshore Supply Price payable to S&W was required to be secured by the shareholding of Holdings 2 Ltd.

2 Ltd. was the holding company of SIPL and securing the shares of Holdings 2 Ltd. would effectively secure the indirect control of the shareholding of SIPL. However, contrary to the agreement between the parties, the said security was not created. The learned Single Judge found that S&W was unsecured in respect of the Offshore Supplies and was not protected by the hypothecation deed or the equitable mortgage documents.

45. The learned Single Judge additionally observed that the interim directions were required to be issued against the non-signatories [appellant nos. 1 to 5 in FAO(OS)(COMM) 30/2022 as well as Skypower Canada and CIM Group, which were arrayed as respondent nos. 7 & 8 in OMP(I) (COMM) 461/2018 but are not parties to the present appeals]. The learned Single Judge reasoned that the change in the shareholding pattern of SIPL would have a material bearing on the arbitration proceedings and the execution of the arbitral award that may be rendered on culmination of the arbitral proceedings.

46. In view of the above, the learned Single Judge interdicted respondent no.3 (SGC), respondent no.5 (Holdings 4 Ltd.) and respondent no.6 (IV Investments Ltd.) from transferring, disposing of, creating a charge and/or encumbering in any manner the shares and securities held by them in respondent nos.1, 4 and 6 (SIPL, Holdings 2 Ltd. and IV Investments Ltd.). As noticed at the outset, the appellants have not pressed their challenge to the said directions.

47. There is no finding (prima facie or otherwise) by the learned Single Judge that, if S&W prevails in the arbitral proceedings, it would be unable to enforce the arbitral award in its favour if the amounts as claimed are not secured. There is no allegation that appellant nos. 2 to 6 are alienating their assets and are acting in a manner that would frustrate the enforcement of an arbitral award that may be delivered in favour of S&W.

48. Mr Darpan Wadhwa, learned senior counsel appearing for S&W contended that powers to pass interim measures of protection under Section 9 of the A&C Act are wide and not constrained by the provisions of the CPC. He submitted that the learned Single Judge had clearly made observations to the effect that S&W was unsecured; it had established a prima facie case; and the balance of convenience was in its favour. He submitted that in view of the aforesaid prima facie findings, it was not necessary for S&W to establish that the appellants were acting in a manner that would frustrate the arbitral award that may be in its favour.

49. We have carefully examined the impugned judgment. Whilst, the learned Single Judge has found that S&W has established a prima facie case and that the balance of convenience is also in its favour, there is no finding to the effect that appellant nos. 2 to 6 are alienating their assets or would do so and frustrate S&W’s recourse to enforce the arbitral award if it prevails in the arbitral proceedings. There is no finding that absent an order for securing the amounts in dispute, S&W would be RAWAL unable to enforce the Arbitral Award that may be made in its favour. The learned Single Judge had accepted that any change in the shareholding pattern of original respondents no.2 to 8 would have a bearing on the arbitration proceedings as well as the execution of the Arbitral Award. The observations to the said effect are contained in paragraph 74 of the impugned judgment, which reads as under:

50. In view of the above, the learned Single Judge had issued directions interdicting original respondent nos. 3, 5 and 6 (SGC, Holdings 4 Ltd. and IV Investments Ltd.) from transferring, disposing of, creating a charge and/or encumbering their shares or any securities by original respondent nos.1, 4 and 6 (SIPL, Holdings 2 Ltd. and IV Investments Ltd.) in any manner. As noted above, there are no findings to the effect that if the original respondent nos. 2 to 8 do not secure S&W by furnishing a Bank Guarantee, the enforcement of an Arbitral Award in favour of S&W would be frustrated. However, the learned Single Judge had observed that if S&W succeeded in securing an award RAWAL in its favour, realization of its dues from the Project “may be a long drawn battle and may also involve complications due to interest of the State Discoms in the same.”

51. Paragraph 85 of the impugned judgement is relevant and is set out below:

52. It is material to note that there is no cavil that the direction issued by the learned Single Judge for furnishing the Bank Guarantee is in the nature of an order under Order XXXVIII Rule 5 of CPC.

53. The question as to the conditions required to be satisfied for issuance of orders in the nature of attachment before decree, for securing the claims made by a party, under Section 9 of the A&C Act, has been the subject matter of several decisions.

54. Before discussing the same, it would be relevant to refer to Section 9(1) of the A&C Act. The same is reproduced below: “Interim measures, etc. by Court.—(1) 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 purposes of arbitral proceedings; or (ii) (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 party, 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, 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.” RAWAL

55. The last limb of Section 9(1) of the A&C Act, expressly provides that the courts would have the same powers for making orders as it has for the purpose of, and in relation to, any proceedings before it. Thus, the powers to be exercised under Section 9 of the A&C Act are expressly qualified to be limited to those that are available to a court in respect of any proceedings before it. To put it conversely Section 9 of the A&C Act does not confer any additional powers, which are otherwise not available in relation to proceedings before courts.

56. In Firm Ashok Traders & Anr. v. Gurmukh Das Saluja & Ors.9, the Supreme Court had referred to Section 9 of the A&C Act and had observed as under:

57. In Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd.10, the Supreme Court had observed as under:

58. In Natrip Implementation Society v. IVRCL Limited11, a Single Judge of this Court (one of us, Vibhu Bakhru, J.) had in the context of the powers to secure an amount claimed prior to the passing of the arbitral award observed as under:

59. In Nimbus Communication Ltd. v. Board of Control for Cricket in India & Anr.12 the Bombay High Court held as under:—

60. In Ajay Singh & Ors. v. Kal Airways Private Limited[5], the Coordinate Bench of this Court had observed as under:

61. In National Highway Authority of India v. Punjab National Bank & Ors.13, a Division Bench of this Court considered the petition of the respondent bank for disbursement of payment, which it claimed was due to it notwithstanding the arbitrable disputes. In that case the concession agreement expressly provided the obligation to make certain payment on termination of the concession agreement. This Court was of the view that notwithstanding the controversy and disputes regarding termination of the agreement in question, undisputedly, such demands would be payable. Accordingly, this Court directed deposit of the said amount in a petition filed under Section 9 of the A&C Act. In regard to 2017 SCC OnLine Del 11312 RAWAL the exercise of powers under Section 9 of the A&C Act, this Court observed as under:

RAWAL

62. As noted at the outset, there is no dispute that the directions issued by the learned Single Judge to furnish the Bank Guarantee to partly secure the claims of S&W are in the nature of an order under Order XXXVIII Rule 5 of the CPC. Order XXXVIII Rule 5 of the CPC, is set out below:

RAWAL

63. The principle for granting orders under Order XXXVIII Rule 5 of the CPC are now well settled. In Raman Tech. & Process Engineering Co. & Anr. v. Solanki Traders14, the Supreme Court had observed that the power under Order XXXVIII Rule 5 are drastic and extraordinary powers and are required to be used sparingly and in accordance with the rule. The Supreme Court also observed that the purpose of Order XXXVIII Rule 5 was not to convert an unsecured debt as a secured one. The object of Order XXXVIII Rule 5 was to prevent any defendant from defeating the realization of a decree that may ultimately be passed in favour of the plaintiff. The relevant extract of the said decision is set out below:

64. The powers of a court under Section 9 of the A&C Act to direct interim measures are wide and in the given cases, the court can direct furnishing of a security to secure the claims of the applicant pending the conclusion of the arbitral proceedings. Further, orders under Section 9 of the A&C Act can be passed before, during or after the arbitral proceedings. However, it is equally well settled that the powers available to a court for making orders under Section 9 of the A&C Act are the same as that the court has, for the purpose of, or in relation to, any proceedings before it. Thus, the powers under Section 9 of the RAWAL A&C Act cannot be exercised in disregard of the provisions of the CPC or their underlying principles.

65. In Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited[4], the Supreme Court had approved the view of this Court in Ajay Singh & Ors. v. Kal Airways Private Limited[5] that Section 9 of the A&C Act grants wide powers to the courts in fashioning an appropriate interim order. However, it is material to note that in Ajay Singh & Ors. v. Kal Airways Private Limited[5], this Court had also stressed that the exercise of such power should be “principled, premised on some known guidelines.” The reference to Orders 38 and 39 of the CPC was in the aforesaid context. However, the Court was not bound by the text of those provisions but had to follow the underlying principles. The decision of the Bombay High Court in Jagdish Ahuja & Anr. v. Cupino Limited[6] is not materially different. The reading of the said decision indicates that the Court had followed its earlier decision in Nimbus Communications Limited v. Board of Control for Cricket in India & Anr.12 and emphasized that the Court while exercising the powers under Section 9 of the A&C Act has the discretion to grant a wide range of interim measures of protection. However, the Court was required to be guided by the principles which the civil courts ordinarily employ for considering interim relief, particularly, under Order XXXIX Rule 1 and 2 and Order XXXVIII Rule 5 of the CPC. However, the Court reiterated the view that, in exercise of powers under Section 9 of the A&C Act, the Court is “not unduly bound by their texts”. This is, essentially, the same view as RAWAL expressed by this Court in Ajay Singh & Ors. v. Kal Airways Private Limited[5].

66. In Valentine Maritime Ltd. v. Kreuz Subsea Pte Limited. & Anr.[7] – a decision relied upon by S&W that was also referred to by the Supreme Court in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited[4] – the Bombay High Court had reiterated the aforesaid principles. Contrary to the contentions advanced by Mr Wadhwa, the High Court in the said case had, after referring to the decisions in Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd.10 and Nimbus Communications Ltd. v. Board of Control for Cricket in India & Anr.12, held that the decision of the Division Bench of the Court in National Shipping Companies of Saudi Arabia v. Sentrans Industries Limited15 to the effect that exercise of powers under Section 9 (ii)(b) of the A&C Act was not controlled by the CPC, was not sustainable. Paragraph 95 of the said decision is set out below:

67. It is also relevant to refer to decision of the learned Single Judge of this Court in Tahal Consulting Engineers India Pvt. Ltd. v. Promax Power Ltd.16

68. In the said case, this Court had referred to the earlier decisions and had held as under:

69. We concur with the aforesaid view. The law in regard to issuing orders in the nature of securing the claims made by a party are now well settled. Whilst the court is not unduly bound by the texts or Order XXXVIII Rule 1 and 2 or Order XXXVIII Rule (5) or any other provisions of CPC, the substantial principles for grant of such interim measures cannot be disregarded. These principles must be duly satisfied for the court to issue any interim measures of protection under Section 9 of the A&C Act.

70. The principles underlying the object of Order XXXVIII Rule (5) of the CPC are, as noticed earlier, well settled. Such orders are required to be issued in case where the court is satisfied that the party has established a strong prima facie case and that the respondents are acting in a manner that would defeat the realization of the decree. These principles must be equally satisfied for securing protective orders under Section 9 of the A&C Act, which are in the nature of orders under Order XXXVIII Rule (5) of the CPC.

71. Mr Wadhwa had strongly relied on paragraphs 48 and 49 of the decision of the Supreme Court in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited.[4] The said paragraphs are set out below:

73. In Sanghi Industries Limited v. Ravin Cables Ltd. & Anr.17 – which was delivered after the decision in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited[4] – the Supreme Court considered a case where the appellant was directed to deposit an amount realized by invocation of the performance guarantees. The respondent had filed a petition under Section 9 of the A&C Act seeking to interdict the invocation of the bank guarantees. However, before any order could be passed, the bank guarantees were invoked and the appellant had realised the payments in respect of the said bank guarantees. In the 2022 SCC OnLine SC 1329 RAWAL aforesaid context, the learned Commercial Court had passed an order directing the appellant to deposit the amount realized by it by invoking the bank guarantees, in the court. In the appeal preferred against the said order, the Supreme Court held as under:

74. In the present case, there are no observations or findings to the effect that if the orders for furnishing of the bank guarantee are not granted, S&W would be unable to enforce the Arbitral Award against appellant nos. 2 to 6. There is also no material on record to even remotely suggest that appellant nos. 2 to 6 are alienating their assets or acting in a manner that would frustrate the enforcement of the Arbitral Award, if S&W India prevails in the arbitral proceedings. Clearly, an order directing them to furnish a Bank Guarantee, militates against the principles underlying under Order XXXVIII Rule 5 of the CPC.

75. Appellant no.1 (SHL) is a special purpose vehicle in respect of the project. In regard to the said company the respondent is protected to the extent that the impugned order effectively restrains any change in the shareholding of the said company.

76. In view of the above, we allow the present appeals to the limited extent of setting aside the direction to the appellants to provide a bank guarantee to partly secure the claims of the respondent. We clarify that all other interim measures of protection granted in terms of the impugned order continue to be operative.

77. It is also clarified that this would not preclude the respondent from seeking such interim relief as advised in the arbitral proceedings. Needless to state that any application made by the respondent shall be considered uninfluenced by any observations made in this order.

VIBHU BAKHRU, J AMIT MAHAJAN, J NOVEMBER 10, 2023 RK/gsr RAWAL