Court Exercising Powers Under Section 9 Of The A&C Act For Securing Amount In Dispute Draws Sustenance Broadly From The Principles Of Order XXXVIII Rule 5 Of CPC: Delhi High Court

The bench of Justice Yashvant Varma has held that the under Section 9 of the A&C Act, the Court would not order securing the sum in dispute in absence of necessary pleading and allegations that the respondent is making an attempt to defeat any Award that may be ultimately rendered in favour of the petitioner. It held that the Court would not grant such a relief unless the pre-conditions for grant of relief under Order XXXVIII of CPC are broadly satisfied by the petitioner.

The Court noted that there is some divergence between the two recent judgments of the Supreme Court in Essar House v Arcellor Mittal Nipon and Sanghi Industries v. Ravin Cables on the issue of application of principles of CPC regarding attachment before judgment to Section 9 of A&C Act.

The Apex Court in Essar has held that the Court would not withhold relief on the mere technicality of absence of averments or grounds akin to those which must be made when a prayer for attachment before judgment in terms of Order XXXVIII Rule 5 of the Code comes to be made, however, in Sanghi Industries the Apex Court held that no order for securing amount in dispute can be made in absence of satisfaction of conditions laid down under Order XXXVIII Rule 5 of CPC. The Court held that since the judgment in Sanghi Industires has come after Essar Homes, the Court would be obliged to follow Sanghi Industries.

Facts

The petitioner and the respondent signed a License Agreement on August 3, 2020. According to this agreement, the petitioner's role was to produce educational videos that would be published on the respondent's website.

Issues started to arise in May 2022 when the petitioner declined to extend the Agreement. The disagreement was rooted in a change in the payment structure, moving from a fixed fee to a revenue-sharing model. In October 2022, the respondent refused to pay a Special Retention Bonus, leading to further strain in their relationship.

Additional conflicts arose when the respondent requested revisions to the content as per a Statement of Work (SoW), while the petitioner maintained that the content adhered to the terms of the Agreement. During this period, the petitioner, along with other educators, introduced 'Cerebellum Academy,' an offline educational platform for students preparing for Post Graduate Medical Entrance Examinations.

On November 12, 2022, the respondent sent an email accusing the petitioner of breaching the Agreement by launching a platform similar to respondent’s platform. The petitioner contended that 'Cerebellum Academy' was an offline institute and did not breach the Agreement.

The respondent alleged that the petitioner had consistently and intentionally violated their contractual obligations. They claimed that the petitioner promoted Cerebellum Academy on various social media platforms, conducted live sessions, and uploaded videos that were part of the Agreement.

On November 26, 2022, the respondent issued a cease-and-desist notice to the petitioner. In December 2022, the petitioner filed the present petition. On February 16, 2023, the respondent terminated the Agreement dated October 3, 2020. Thereafter, the Court appointed the arbitrator on an application under Section 11 of the A&C Act.

In the meantime, the petitioner had filed the present petition under Section 9 of the A&C Act praying the Court to direct the respondent to deposit and disburse the allegedly undisputed due amount.

Contention of the Parties

The petitioner sought the interim reliefs on the following grounds:

• The amount of license fee payable to the petitioner is admitted, therefore, the Court must direct the respondent to deposit the amount.
• The content generated by the petitioner is continued to be used by the respondent for monetary gains, therefore, it would be unjust and inequitable for the petitioner to be denied of the license fee.
• The Court would also be justified in further passing a mandatory injunction against the respondent directing it to disburse this amount to the petitioner.

The respondent made the following counter-arguments against the petition:

• The petitioner is wrong to contend that the amount of license fee is undisputed as the same amount has not been paid due to breach of condition of exclusivity by the petitioner as well as its failure to revise the content in terms of the agreement and there exists a serious dispute qua that amount.
• The relief as sought by the petitioner cannot be granted by the Court as the petitioner has failed to satisfy the pre-conditions for the grant of such reliefs.
• For relief of attachment before judgment or securing the amount in dispute, the petitioner has to show that the ultimate award if delivered in its favour would become a mere paper award. However, there is no averment in the petition to that effect.
• The prayer regarding mandatory injunction directing the respondent to pay the disputed amount is beyond the scope of Section 9 of the A&C Act as it goes beyond the duty of the Court to secure the amount in dispute and any such direction would entail not only a conclusive and final adjudication on the right of the petitioner to receive such a sum but also perhaps amount to the framing of an interim Award itself.

Analysis by the Court

The Court observed that the amount as claimed due by the petitioner is not undisputed rather there exists a serious dispute between the parties qua the rights and obligations under the Contract. It observed that the respondent disputes its liability on the ground that the petitioner has breached the exclusivity clause and also failed to revise the content as per the agreement.

The Court also observed that the petition does not aver that the respondent is likely to dispose of the subject matter of the arbitration or that it would not be able to satisfy the award if ultimately passed in favour of the petitioner.

The Court held that a Court exercising powers under Section 9 of the A&C Act to secure the amount in dispute or for ordering attachment before award draws sustenance broadly from the principles of Order XXXVIII Rule 5 of CPC. It held that the under Section 9 of the A&C Act, the Court would not order securing the sum in dispute in absence of necessary pleading and allegations that the respondent is making an attempt to defeat any Award that may be ultimately rendered in favour of the petitioner. It held that the Court would not grant such a relief unless the pre-conditions for grant of relief under Order XXXVIII of CPC are broadly satisfied by the petitioner.

The Court noted that there is some divergence between the two recent judgments of the Supreme Court in Essar House v Arcellor Mittal Nipon and Sanghi Industries v. Ravin Cables on the issue of application of principles of CPC regarding attachment before judgment to Section 9 of A&C Act.

The Apex Court in Essar has held that the Court would not withhold relief on the mere technicality of absence of averments or grounds akin to those which must be made when a prayer for attachment before judgment in terms of Order XXXVIII Rule 5 of the Code comes to be made, however, in Sanghi Industries the Apex Court held that no order for securing amount in dispute can be made in absence of satisfaction of conditions laid down under Order XXXVIII Rule 5 of CPC. The Court held that since the judgment in Sanghi Industires has come after Essar Homes, the Court would be obliged to follow Sanghi Industries.

The Court also rejected the relief of payout of the amount on the ground that such a relief is beyond the scope of Section 9 of the A&C Act. It held that it goes beyond the duty of the Court to secure the amount in dispute and any such direction would entail not only a conclusive and final adjudication on the right of the petitioner to receive such a sum but also perhaps amount to the framing of an interim Award itself.

Accordingly, the Court dismissed the petition.

Case Title: Dr. Vivek Jain v. PrepLadder Pvt Ltd

Citation: 2023 LiveLaw (Del) 964

Date: 09.10.2023

Counsel for the Petitioner: Mr. Jayant Mehta, Sr. Adv. with Mr. Neil Hildreth, Mr. Rahul Jain and Mr. Kshitiz Arya, Advs.

Counsel for the Respondent: Mr. Dayan Krishnan, Sr. Adv. with Mr. Aman Nandrajog, Mr. Abhishek Thakur, Mr. Dhruv Wadhwa, Mr. Vishv Vardhan and Mr. Sanjeevi Sheshadri, Advs.

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