Application Under Section 9 Of The A&C Act For Pre-Award Relief Can Be Filed In A Court Where The Assets Of The Respondent Are Located: Delhi High Court

The Bench of Justice Sanjeev Narula held that the Court for the purpose of Section 9 application in a foreign seated arbitration would be as provided under Section 47 of the A&C Act.

The Court held that not every disposal of an asset would justify the grant of interim measure. It further observed that financial condition alone cannot be the reason for attachment before the award.

Facts

SEGCL (Petitioner) and Reliance Infra Projects (UK) Ltd entered into an 'Equipment Supply and Service Contract' dated 26.06.2008 whereby the petitioner was to supply equipment, erect the main body of the turbines and generators, and provide supervision services to Reliance UK in relation to an ultra-mega power project in Madhya Pradesh.

The respondent was to pay Rs. 9461 Crores in consideration to the petitioner. To guarantee the performance of obligations on behalf of Reliance UK, Reliance Infrastructure Limited (Respondent) issued a Guarantee Letter dated 26.06.2008.

The project work was completed on 32.11.2017. As of August 2019, Reliance UK owed an amount of Rs. 995 to the petitioner under the agreement. Accordingly, the petitioner issued a notice to the respondent to fulfill its obligation under the guarantee letter.

On non-compliance with the aforesaid letter, the petitioner invoked the arbitration clause. The proceedings are administered by SIAC under the UNCITRAL Rules.

The petitioner approached the Court under Section 9 of the A&C Act to secure the amount in dispute and to restrain the respondent from selling, transferring or otherwise disposing of and/ or creating any encumbrances on its assets during the pendency of the arbitration proceedings.

Case Of The Petitioner

The petitioner contended that since the beginning of the arbitration, the respondent has been hurriedly dissipating its assets, which, according to the petitioner, is being done to deprive it of the fruits of the award that is likely to be passed in its favour.

The petitioner also contended that the auditors of the respondent have raised serious concerns regarding its fast-deteriorating financial health and ability to continue as a "going concern". Therefore, the indulgence of the court is necessary to secure the amount in dispute in arbitration and to restrain the respondent from further disposing of its assets as that would deprive the petitioner of the fruits of the award.

Objections Raised By The Respondent

The respondent objected to the maintainability of the application on the following grounds:

• The Court does not have the jurisdiction to entertain the application as no cause of action arose within its jurisdiction.
• The application is filed on the basis that the respondent has some shares in the companies within the jurisdiction of the court, however, those shares do not form part of the subject matter of the arbitration, therefore, the court does not have the jurisdiction.
• It is only in rare and exceptional circumstances that too at post-award stage that the Indian Courts have allowed an application under Section 9 of the Act to be filed before the Court where the assets of the respondent are located.
• The Guarantee Letter is issued in contravention to FEMA Regulations, therefore, the same is invalid and no relief can be claimed based on such a document.
• The Guarantee Letter is not executed by it, therefore, no interim relief can be claimed based on such a document whose validity is itself not determined.
• The Claims of the petitioner are barred by limitation.

The petitioner countered the submissions on the following grounds:

• In a foreign seated arbitration, an application under Section 9 of the Act can be filed in any court where the respondent has money or assets to satisfy the award.
• The respondent has shares in the companies located within the jurisdiction of the Court.

Analysis By The Court

The Court held that an application under Section 9 of the A&C Act for pre-award relief can also be filed before the Court where the assets of the respondent are located and not necessarily before the court having jurisdiction to decide the subject matter of arbitration.

The Court held that the Court for the purpose of Section 9 application in a foreign seated arbitration would be as provided under Section 47 of the A&C Act, therefore, the subject matter of the award would determine the jurisdiction of the Court.

After determining the issue of jurisdiction in favour of the petitioner, the Court decided the matter on the merits.

The Court held that there is no prima facie case in favour of the petitioner as its claims are specifically denied by the respondent. Moreover, the respondent has disputed the validity of the Guarantee Letter and it has also raised certain-counter claims.

The Court further observed that the relief claimed by the petitioner is analogous to attachment before judgment. The Court observed that there is no evidence on record to show that the assets which the respondent has disposed of have been disposed with the intention of denying the fruits of award to the petitioner.

The Court held that not every disposal of an asset would justify the grant of interim measure. It further observed that financial condition alone cannot be the reason for attachment before the award.

The Court observed that in its reply the respondent has explained the reason of disposing of its few assets and the same is done to reduce the debts and not to defeat the arbitral award.

The Court held petitioner has no prima facie case in its favour as the liability is expressly denied and the mala fide intention of the respondent is also not established.

The Court further observed that the arbitration between the parties is at the fag end and only the arbitral award is awaited. Moreover, the shares of the respondent in a single entity alone account for more than the arbitral claim amount, therefore, there is no merit in the apprehension that the respondent would dispose of all its assets to deny the fruits of the award.

Accordingly, the Court dismissed the application.

Case Title: Shanghai Electric Group Co. Ltd. v. Reliance Infrastructure Ltd. O.M.P. (I) (COMM.) 433 of 2022

Citation: 2022 LiveLaw (Del) 682

Date: 19.07.2022

Counsel for the Petitioner: Mr. Rajiv Nayar and Mr. Dayan Krishnan, Senior Advocates with Mr. Ashish Bhan, Mr. Ketan Gaur and Mr. Aayush Mitruka, Advocates.

Counsel for the Respondent: Mr. Harish Salve and Mr. Sandeep Sethi, Senior Advocates with Mr. Sanjeev Kapoor, Mr. Mahesh Agarwal, Mr. Gaurav Juneja, Mr. Aditya Ganju, Mr. Pranjit Bhattacharya, Mr. Akshit Mago, Ms. Shruti Garg, Mr. Arjit Oswal and Ms. Monika Vyas, Advocates.

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