Shiningkart Ecommerce Pvt Ltd v. Jiayun Data Limited

15. It is next contended that the Arbitral Tribunal has passed an order against a third party Bank Account which is neither under the control of nor operated by the appellant herein.

16. It is further contended that the only basis for the claim of the respondent was the Auditor’s report, which was seriously disputed by the appellant before the Arbitral Tribunal on various grounds. The Arbitral Tribunal had itself noted that at this stage reliance could not be placed on the report of the Auditor and would be considered after evidence is led, yet the Tribunal completely erred in passing the impugned order against the appellant, ignoring that there was no other basis of the claim of the respondent.

17. Learned counsel submits that the Arbitral Tribunal has completely erred in basing its interim order on certain transactions whereby the appellant had transferred amounts of Rs. 8 Crores to Weblink Trading Co. Ltd. on 07.03.2019 and Rs. 5 Crores to New Term Deposit, on 07.03.2019. It is submitted that these transactions were made by the appellant during its routine and usual course of business and could not be the reason for the Tribunal to come to a conclusion that the alleged amounts payable to the respondent were not secured. The Tribunal has completely ignored the principles of Order XXXVIII Rule 5 CPC and the tests laid down therein. The Apex Court in the case of Arvind Constructions Co. (P) Ltd. v. Kalinga Mining Corpn. [(2007) 6 SCC 798] and Adhunik Steels Limited v. Orissa Manganese and Minerals (P) Ltd. [(2007) 7 SCC 125] has held that the principles of Order XXXVIII Rule 5 and Order XXXIX and Rule 1 and 2 CPC would apply to Section 9 of the Act.

18. It is vehemently contended that before passing such a drastic order, the Tribunal should have satisfied itself that there was material available on record to support the apprehension of the respondent that in the event the Award was passed in favour of the respondent, the appellant would have no security to execute the said Award. The Tribunal has completely overlooked the principles for granting such a relief that the order passed should not convert an unsecured debt into a secured one and in fact the present is a case where the claim of the respondent is not even a debt, but a mere claim for damages, for the present.

19. Learned senior counsel submits that the interim order directing the appellant to maintain at all times an amount of Rs. 30 Crores in its Bank account till the Award is rendered and restraining from operating, withdrawing, disposing the amounts in its various Bank accounts, including Account No. 321192050[1], Account NO. 3212847180 and Account No. 0313025561 maintained at Kotak Mahindra Bank, Preet Vihar Branch, New Delhi, IFSC- KKBK0000183; Account no. 629505502421 maintained at ICICI Bank, Sardar Bazar Branch, New Delhi IFSC-ICIC0006295, and/or any other Bank Accounts being owned and operated by appellant so as to maintain the said minimum amount, is having serious repercussions on its business transactions and is unprecedented in commercial matters.

20. Per contra, learned senior counsel for the respondent submits that while filing the claim, the respondent had relied on the e-mail dated 30.10.2018 sent by the appellant itself, wherein it had clearly and categorically admitted the outstanding payment of license fee to the respondent and had further stated that the amount would be processed once the invoice was issued. Though under the agreement there was no requirement to issue the invoice, yet the invoice was also given to the appellant, but the outstanding payments were never released.

21. Learned senior counsel further submits that it is completely wrong for the appellant to contend that the Termination Deed was signed under coercion. This was purely by way of a mutual agreement between the parties and the same is expressly recorded in the Termination Deed. Learned senior counsel submits that it is not open to the appellant to even contest the report of the Auditor inasmuch as his appointment was never disputed by the appellant at any stage, besides the fact that the appellant has been throughout corresponding with the Auditor and providing data on various issues. In fact, the appellant himself has claimed certain amounts from the respondent, based on the Auditor’s report and thus it cannot take contradictory stands, today.

22. Learned senior counsel submits that as per the Auditor’s report, the appellant owes to the respondent an amount of USD 5,621,267/- on account of accumulation of license fee and USD 5,897,395.05/towards procurement fee. Learned senior counsel submits that the amounts due to the respondent had to be secured by the Arbitral Tribunal inasmuch as it was found that the appellant was transferring the amounts from its accounts to other accounts and therefore, even if the respondent was to succeed, the Award would have become unexecutable.

23. Learned senior counsel for the appellant in the rejoinder has contended that the claims of the respondent towards the license and procurement fee are completely untenable. It is the respondent who had failed to provide the required KnowHow, consultancy services, customer database etc. to the appellant. The respondent had breached clause 2.1.[1] of the agreement and violated the terms of granting exclusive license to the appellant. The procurement fees in any case was not a part of the agreement. It is reiterated that the Auditor was not appointed in accordance with the terms of the Termination Deed.

24. Learned senior counsel further submits that interim relief on the basis of speculative claim is not maintainable. The respondent had not adduced any proof that the appellant was attempting to remove or dispose its assets to defeat the alleged claims of the respondent. Reliance is placed on the judgment of this Court in the case of Lanco Infratech Ltd. v. Hindustan Construction Company Limited 2016 SCC OnLine Del 5365, for the proposition that an interim relief in terms of attachment of property before judgment will not be granted, if the claimant fails to establish a prima facie case.

25. I have heard the learned senior counsels for the parties and examined their rival contentions.

26. The Arbitral Tribunal, after hearing the parties at length, formulated the following questions to decide the application under Section 17 of the Act. “(1) Whether Tribunal can direct a party to furnish security at the interlocutory stage as an interim measure of protection under Section 17 of the Act, 1996 and; (2) Whether Claimant has established a Prima Facie case in its favour?”

27. The Tribunal extracted Section 17 of the Act and examined the powers of the Tribunal to pass interlocutory orders under the said provision. Reliance was placed on several judgments on this aspect.

28. Having examined the various judgments, the Tribunal came to a conclusion that even in the case of claims involving monetary reliefs, the Tribunal is vested with powers to secure the claim of the party subject to the party establishing a prima facie case and the opposite party can be directed to furnish adequate security. The Tribunal observed that the paramount consideration in granting an interim relief should be that the party having its claims adjudicated should be in a position to reap the benefits of the Award by being able to execute it. Principles of Order XXXVIII Rule 5 CPC were also considered by the Tribunal and it came to a finding that power under Section 17 of the Act cannot be restricted to the powers conferred under CPC.

29. Having examined the scope of its powers, the Tribunal concerned itself with examining whether the respondent had been able to make out a prima facie case. Insofar as the Auditor’s report was concerned, the Tribunal only observed that at the stage of Section 17 of the Act, it could not place reliance on the said report since no evidence had been led by either party to prove the true nature of the document or the amounts payable under the report. In fact, at the cost of repetition, it may be noted here that the learned senior counsel for the appellant has laid a lot of emphasis on this observation of the Tribunal to contend that once the Tribunal itself observed that the report could not be relied upon, it had no basis to hold that the respondent had made out a prima facie case.

30. As is evident from the reading of the impugned order, the Tribunal perused the Bank Account statement furnished by the appellant and noticed that the appellant had transferred huge amounts to Weblink Trading Co. Ltd. and on the same day, another sum of Rs. 5 Crores was transferred to New Term Deposits. The Tribunal noted that neither the appellant denied the transactions nor explained the true nature of such transactions. It is in this background that the Tribunal was of the opinion that a restraint order was required to be passed against the appellant so that the amounts claimed by the respondent are secured.

31. Insofar as the issues regarding the outstanding payments to the respondent or excess payment due, if any, to the appellant as well as the validity of the Termination Deed are concerned, in my view, the same would be decided by the Arbitral Tribunal at the time of final adjudication of the disputes. The aspect of the appointment of the Auditor being in accordance with the agreement or not and the correctness and sanctity of its report, would also be considered by the Arbitral Tribunal after the parties have led evidence and it is not for this Court in an appeal under Section 37 of the Act to enter into this arena. All that this Court is concerned in the present appeal is about the correctness and legality of the order dated 04.09.2019 passed by the Tribunal by way of interim measures on an application under Section 17 of the Act, filed by the respondent.

32. This Court in the case of Intertole ICS(Cecons) O&M Company Pvt. Ltd v. NHAI, (2013) I LR 2 Delhi 1018 has laid down the scope and powers of the Arbitral Tribunal under Section 17 of the Act relying upon the judgment of the Apex Court in MD, Army Welfare Housing Organisation v. Sumangal Services (P) Ltd: (2004) 9 SCC 619. Relevant part of the judgment is as under: “…

13. The interim measure of protection under section 17 of the Act has to be understood with reference to the “subject-matter of the dispute". A plain reading of the provision shows that an arbitral Tribunal can in exercise of its powers thereunder direct a party “to take any interim measure of protection” “in respect of the subject-matter of the dispute". The words "take" and "protection" give an indication as to the legislative intent behind the words “subject-matter of the dispute." The protection envisaged is in relation to some tangible property and not an indeterminate monetary claim. 14.. The scope of the powers of an arbitral Tribunal under section 17 of the Act has been explained by the Supreme Court in MD, Army Welfare Housing Organisation v. Sumangal Services (P) Ltd: (2004) 9 SCC 619 as under (SCC p. 649):

58. A bare perusal of the aforementioned provisions would clearly show that even under section 17 of the 1996 Act the power of the arbitrator is a limited one. He cannot issue any direction which would go beyond the reference or the arbitration agreement. Furthermore, an award of the arbitrator under the 1996 Act is not required to be made a rule of court; the same is enforceable on its own force. Even under section 17 of the 1996 Act, an interim order must relate to the protection of the subject matter of dispute and the order may be addressed only to a party) to the arbitration. It cannot be addressed to other parties. Even under section 17 of the 1996 Act, no power is conferred upon the Arbitral Tribunal to enforce its order nor does it provide for judicial enforcement thereof.

18. However, for examining the question as to what could constitute the 'subject-matter of the dispute' in the context of section 17 of the Act, it would be useful to draw a comparison with Section 9 of the Act. A reading of the various sub-clauses of Section 9 makes it apparent that a distinction. has been drawn between the words 'subject-matter of the dispute' [used in Section 9(ii) (a) and (c)] and 'amount in dispute' [used in Section 9(ii)(b)]. It is arguable that where the legislature in the same provision uses the words 'subject-matter of the dispute' in two sub-clauses and uses the words „amount in dispute' in another sub-clause it intends to draw a distinction between the two. When Section 9(ii)(a) use the words 'subject matter of the dispute‟, they refer to 'goods' in respect of which there could be an order of 'preservation' or 'interim custody'. The same words in Section 9(ii)(c) refer to 'any property or thing' in respect of which there could be an order of 'detention, preservation or inspection of'. Where the claim is of a monetary nature Section 9(ii)(b) talks of 'securing the amount in dispute in the arbitration.' By the same analogy the words 'subject-matter of the dispute‟ in section 17 should be understood as referring to a tangible „subject matter of dispute' different from an 'amount in dispute'.”

33. Kerala High Court in the case of K.G. Rathish Kumar v. N.P.R. Finance Ltd. 2012 SCC OnLine Ker 29908 has held that an interim measure of protection can be granted by the Arbitral Tribunal which may include providing appropriate security. Relevant para of the judgment is as under:

34. It is thus a settled law that once the party makes out a prima facie case in its favour, the Arbitral Tribunal can grant an interim relief under Section 17 of the Act so as to ensure that the successful party is assured that the Award in its favour would be executable.

35. In the facts of the present case, the respondent had set out certain claims which were outstanding payments to be made by the appellant. The Bank account statements furnished by the appellant itself had indicated two transactions on the same day, whereby a total amount of Rs. 13 Crores had been suddenly transferred to some other accounts. The appellant had in the petition under Section 9 of the Act before this Court disclosed on an affidavit all their properties along with their values. The relevant portion of the affidavit is as under: “… 2. That the Club Factory India Pvt. Ltd., the Respondent No. 1 now M/s Shiningkart Commerce Pvt. Ltd. Possess the following:

As on 01.02.2019 (a) Balance with Banks (Including FD) 26,84,93,008/- 33,68,45,809/- (b) Stocks and shares 1,96,50,000/- 1,08,50,000/-

(c) Other property 79,09,873/- 79,09,873/-

(d) Other Securities and advances

36. After perusing the said affidavit, the Tribunal came to a finding that if the financial state of the appellant as evident from the said affidavit was correct then it would be unable to provide security as prayed for by the respondent and an order directing to secure or deposit an amount of Rs. 81.78 Crores would be nugatory. In this background, the Tribunal passed an order directing the appellant to maintain at all times an amount of Rs. 30 Crores in its Bank accounts leaving the balance to be utilized by the appellant in its business transactions. Even before this Court the appellant has not been able to explain the said transfers. There was no argument on how else the alleged amounts claimed by respondent could be secured.

37. Section 17 of the Act has been specifically enacted by the Legislature to provide a party, during the arbitral proceedings or after the Award is made, but before it is enforced, a right of seeking detention and preservation of property or thing, which is subject matter of the dispute in arbitration.

38. Prior to the Amendment to Section 17 of the Act, it had a restricted scope. However, after the Amendment, Section 17 of the Act is virtually at par with Section 9 of the Act granting powers to the Arbitral Tribunal to make orders of interim protections on a wider canvass. The High Court of Bombay in the case of Shakti International Private Limited v. Excel Metal Processors 2017 SCC OnLine Bom 321 has summed up the scope of power under Section 17 of the Act as under:

57. The issue of enforceability of such orders is now expressly addressed by Section 17(2) of the Amended Act, which provides that such orders of the arbitral tribunal, “… shall be deemed to be an order of the Court for all purposes and shall be enforceable under the Code of Civil Procedure, 1908 (5 of 1908), in the same manner as if it were an order of the Court.”

58. In light of the enhanced powers and efficacy of recourse under Section 17 of the Amended Act, there have been corresponding changes to Section 9 of the Amended Act as well. Section 9(3) of the Amended Act states that, “once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious.”

39. There is thus no merit in the contention of the appellant that powers of Arbitral Tribunal are very restricted and it had no powers to pass the impugned order. Tribunal in the present case has looked into the alleged claims of the respondent as well as the transactions made by the appellant, transferring Rs. 13 Crores into other accounts, coupled with its financial status. Having examined the matter in depth, the Arbitral Tribunal has passed the impugned order securing the alleged claims of the respondent. A perusal of the impugned order shows that the view taken by the Tribunal is certainly a plausible view and does not suffer from any perversity requiring interference by this Court under Section 37 of the Act. It is well settled that the Act of 1996 contemplates very little or no interference in the orders passed by the Arbitral Tribunal. In examining the orders passed by the Arbitral Tribunal, the Court has to examine whether the view taken is a plausible view and not a perverse view or against public policy. Even though this Court may find that another view was possible, the interference is not called for. A Division Bench of this Court in the case of NHAI v. BSC-RBM-Patil Joint Venture [2018 SCC OnLine Del 6780] while examining the scope of interference held that minimal interference is called for under Section 37 of the Act in an order passed by the Arbitral Tribunal. This decision has been followed by the High Court of Bombay in the case of Artha Vruddhi Securities Ltd. v. Mahavir Prasad Gujjar [Arbitration Petition NO. 547 of 2018 decided on 25th January, 2019] and the Court held as under:

40. This being the position of law, I am of the opinion that the view taken by the Tribunal is a plausible view and there is no perversity calling for any interference. The impugned order of the Tribunal has balanced the equities between the parties. Transferring of huge amounts on a single day prima facie does create an impression that the transfers were made with an intent to defeat the claims of the respondent. Securing the respondent was thus required so that on his succeeding in the proceedings the Award is not rendered unexecutable. There is no infirmity in the order of the Tribunal impugned herein.

41. It is however made clear that the observations made herein are only prima facie observations. The Arbitral Tribunal is free to adjudicate the disputes between the parties uninfluenced by the observations made herein.

42. It is also clarified that the facts and the disputes mentioned above is only by way of a narrative in order to examine the correctness of the impugned order and not to decide the main disputes between the parties, which will be finally adjudicated by the Arbitral Tribunal.

43. There is no merit in the appeal and the same is hereby dismissed.

JYOTI SINGH, J OCTOBER 16, 2019 rd/