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Non Applicability Of Section 9 Of The A&C Act Can't Be Presumed If Parties Opted For Foreign-Seated Institutional Arbitration: Delhi High Court
Ausaf Ayyub
20 July 2022 10:30 AM GMT
The High Court of Delhi has held that merely because the parties have chosen a foreign-seated institutional arbitration under the UNCITRAL Law, they cannot be presumed to have entered into an agreement to exclude the applicability of Section 9 of the A&C Act as provided under the proviso to Section 2(2) of the A&C Act. The Bench of Justice Sanjiv Narula held that the words...
The High Court of Delhi has held that merely because the parties have chosen a foreign-seated institutional arbitration under the UNCITRAL Law, they cannot be presumed to have entered into an agreement to exclude the applicability of Section 9 of the A&C Act as provided under the proviso to Section 2(2) of the A&C Act.
The Bench of Justice Sanjiv Narula held that the words "an agreement to the contrary" appearing under Section 2(2) cannot be presumed or interpreted on the mere assertion of a party but the same must be clearly borne out of the agreement between the parties.
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.
Objection regarding the maintainability of Section 9 application in a foreign seated institutional arbitration
The respondent objected to the maintainability of the application under Section 9 on the ground that the parties have chosen a foreign-seat of arbitration under the UNCITRAL Rules and agreed to the applicability English Law to the Guarantee Letter, therefore, they have excluded the applicability of Section 9 in view of proviso to Section 2(2) of the Act.
(Reliance placed on Ashwani Minda and Anr. v. U-Shin Limited and Anr O.M.P. (I) (COMM.) 433 of 2020)
Analysis By The Court
The Court held that merely because the parties have chosen a foreign-seated institutional arbitration under the UNCITRAL Law, they cannot be presumed to have entered into an agreement to exclude the applicability of Section 9 of the A&C Act as provided under the proviso to Section 2(2) of the A&C Act.
The Court held that the words "an agreement to the contrary" appearing under Section 2(2) cannot be presumed or interpreted on the mere assertion of a party but the same must be clearly borne out of the agreement between the parties.
The Court observed that merely because the parties have agreed on a foreign seat of arbitration under the UNCITRAL Rules cannot amount to "an agreement to the contrary", so as to exclude the applicability of Section 9. Such an interpretation would be contrary to the intent of the proviso to Section 2(2) – which was introduced only to render Section 9 applicable to foreign-seated institutional arbitrations.
The Court further relied on its earlier judgment in Big Charter Pvt. Ltd. v. Ezen Aviation Pty Ltd. (2020) SCC OnLine Del 1713 wherein the Court held that exclusion of Section 9 in a foreign seated arbitration must be by an express stipulation/agreement.
The Court further observed that Article 26(9) of the UNCITRAL Rules also permits the parties to approach a Court of competent jurisdiction (other than the seat court) for the purpose of interim reliefs.
Accordingly, the Court rejected the objection of the respondent.
Case Title: Shanghai Electric Group Co. Ltd. v. Reliance Infrastructure Ltd. O.M.P. (I) (COMM.) 433 of 2022
Citation: 2022 LiveLaw (Del) 683
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.
