ESSAR HOUSE PRIVATE LIMITED versus ARCELLOR MITTAL NIPPON STEEL INDIA LIMITED on 14 September 2022

[2022] 11 S.C.R. 1001

ESSAR HOUSE PRIVATE LIMITED

v.

ARCELLOR MITTAL NIPPON STEEL INDIA LIMITED

(Civil Appeal No. 6574 of 2022)

SEPTEMBER 14, 2022

[INDIRA BANERJEE AND A.S. BOPANNA, JJ.]

Arbitration and Conciliation Act, 1996 – s.9 – Insolvencyand Bankruptcy Code, 2016 – ss.7, 14 – Code of Civil Procedure,1908 – Or.38, r.5 –A sum of about Rs.35 crores and Rs.47 croreswas paid by Essar Steel to the appellant shere in (Essar House Privateand Essar Services)respectively, by way of refundable securitydeposit – A petition was filed u/s.7, IBC for initiation of CIR PagainstEssar Steel – Respondent, as resolution applicant submitted aResolution Plan in respect of Essar Steel which was approved–Respondent took over Essar Steel – Sent legal notices calling uponthe appellants to refund the security deposits – Denied – Applicationfiled by respondent u/s.9, Arbitration Act was allowed, appellantswere directed by Single Bench of High Court to deposit Rs.35.5crores and Rs.47.41 crores respectively or to furnish bank guaranteefor the entire amount with interest – Order confirmed by DivisionBench – On appeal, held: Obligations under a contract cannot beassigned, without consent of the counterparty – Novation of contractor set off is not allowed in respect of a corporate entity undergoingCIRP without the consent of the Resolution Professional – In thepresent case, admittedly, the CIRP of Essar Steel commenced whenthe Resolution Professional took over the management of the affairsof Essar Steel under the IBC – Even if any prior inter se arrangementexisted between the parties, Essar Services could not have adjustedthe security deposit payable to Essar Steel under the amendedagreement against the alleged dues of Essar Steel to a third partyduring the CIRP – Further, while it is true that the power u/s.9,Arbitration Act should not ordinarily be exercised ignoring the basicprinciples of procedural law in the CPC, the technicalities of CPCcannot prevent the Court from securing the ends of justice – Besidesthe specific power of securing the amount in dispute, the Courtsare empowered to pass any interim measure of protection, keepingin view the purpose of the proceedings before it – If a

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Astrong prima facie case is made out and the balance of convenienceis in favour of interim relief being granted, the Court exercisingpower u/s.9 should not withhold relief on the mere technicality ofabsence of averments, incorporating the grounds for attachmentbefore judgment u/Or. 38, r.5, CPC – Proof of actual attempts todeal with, remove or dispose of the property with a view to defeatBor delay the realisation of an impending Arbitral Award is notimperative for grant of relief u/s.9 – A strong possibility of diminutionof assets would suffice– In the instant case, prima facie, therefundable security deposit was not released to respondent on thepurported ground of a convoluted series of internal arrangementsCbetween group companies for diversion of the security depositstowards liquidation of alleged dues of Essar Steel to third parties –This contention of the appellant was considered by the DivisionBench –No infirmity in the well-reasoned judgment of the DivisionBench – Contract.

DArbitration and Conciliation Act, 1996 – s.9 –Power of Court– Scope of– Discussed– Code of Civil Procedure, 1908.

Dismissing the appeals, the Court

Conclusion

HELD: 1.1 Obligations under a contract cannot be assigned,without consent of the counterparty. In any case, novation ofEcontract or set off is not allowed in respect of a corporate entityundergoing CIRP without the consent of the ResolutionProfessional. Section 14 of the IBC bars action to foreclose,recover or enforce any security interest created by a CorporateDebtor undergoing CIRP. Admittedly, the CIRP of Essar SteelFcommenced on 2nd August 2017 when the Resolution Professionaltook over the management of the affairs of Essar Steel under theIBC. Even if any prior inter se arrangement existed between theparties, Essar Services could not have adjusted the securitydeposit payable to Essar Steel under the amended agreementagainst the alleged dues of Essar Steel to a third party during theGCIRP. [Paras 33-36][1011-E; G-H; 1012-A-B]

Citibank N.A. v. Standard Chartered Bank &Ors. (2004)1 SCC 12 : [2003] 4 Suppl. SCR 489;KhardahCompany Ltd. v. Raymon& Co. (India) Pvt. Ltd.(1963)3 SCR 183 – relied on.

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1.2 In deciding a petition under Section 9 of the ArbitrationAct, the Court cannot ignore the basic principles of the CPC. Atthe same time, the power Court to grant relief is not curtailed bythe rigours of every procedural provision in the CPC. In exerciseof its powers to grant interim relief under Section 9 of theArbitration Act, the Court is not strictly bound by the provisionsof the CPC. While it is true that the power under Section 9 of theArbitration Act should not ordinarily be exercised ignoring thebasic principles of procedural law as laid down in the CPC, thetechnicalities of CPC cannot prevent the Court from securingthe ends of justice. It is well settled that procedural safeguards,meant to advance the cause of justice cannot be interpreted insuch manner, as would defeat justice. Besides the specific powerof securing the amount in dispute, the Courts have beenempowered to pass any interim measure of protection, keepingin view the purpose of the proceedings before it. The saidprovision confers a residuary power on the Court to pass suchother interim measures of protection as may appear to be justand convenient. Many High Courts have also proceeded on theprinciple that the powers of a Court under Section 9 of theArbitration Act are wider than the powers under the provisionsof the CPC. [Paras 39-43][1012-F-H; 1013-A-B]

Ajay Singh &Ors. v. Kal Airways Private Limited andOrs (2017) SCC Online Del 8934; Jagdish Ahuja &Anr. v. Cupino Limited2020 SCC Online Bom 849;Valentine Maritime Ltd. v. Kreuz Subsea Pte. Ltd. &Anr.2021 SCC Online Bom 75;Srei Infrastructure FinanceLimited v. M/s. Ravi Udyog Pvt. Ltd & Anr. A.P. No.522 of 2008 – approved.

1.3 Section 9 of the Arbitration Act confers wide power onthe Court to pass orders securing the amount in dispute inarbitration, whether before the commencement of the arbitralproceedings, during the arbitral proceedings or at any time aftermaking of the arbitral award, but before its enforcement inaccordance with Section 36 of the Arbitration Act. All that theCourt is required to see is, whether the applicant for interimmeasure has a good prima facie case, whether the balance of ABC

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Aconvenience is in favour of interim relief as prayed for beinggranted and whether the applicant has approached the court withreasonable expedition. If a strong prima facie case is made outand the balance of convenience is in favour of interim relief beinggranted, the Court exercising power under Section 9 of theArbitration Act should not withhold relief on the mere technicalityBof absence of averments, incorporating the grounds for attachmentbefore judgment under Order 38 Rule 5 of the CPC. Proof ofactual attempts to deal with, remove or dispose of the propertywith a view to defeat or delay the realisation of an impendingArbitral Award is not imperative for grant of relief under SectionC9 of the Arbitration Act. A strong possibility of diminution of assetswould suffice. To assess the balance of convenience, the Court isrequired to examine and weigh the consequences of refusal ofinterim relief to the applicant for interim relief in case of successin the proceedings, against the consequence of grant of theinterim relief to the opponent in case the proceedings shouldDultimately fail. It is not in dispute that a sum of about Rs.35 croresodd was paid by Essar Steel to Essar House Private and Rs.47crores odd to Essar Services, being the appellants in therespective appeals, by way of security deposit which is arefundable security deposit. Prima facie, the refundable securityEdeposit is not being released to Arcellor on the purported groundof a convoluted series of internal arrangements between groupcompanies for diversion of the security deposits towardsliquidation of alleged dues of Essar Steel to third parties. TheDivision Bench considered this contention of the Appellant. Noinfirmity in the well-reasoned judgment and order of the DivisionFBench. [Paras 48-53][1017-B-H; 1018-A-B; 1019-B]

Committee of Creditors of Essar Steel India throughAuthorised Signatory v. Satish Kumar Gupta &Ors.(2020) 8 SCC 531 : [2019] 16 SCR 275; Raman Tech.& Process Engg. Co. &Anr. v. Solanki Traders (2008)G2 SCC 302 : [2007] 12 SCR 409 – referred to.

Case Law Reference

[2019] 16 SCR 275

referred toPara 21

[2007] 12 SCR 409[2003] 4 Suppl. SCR 489

referred toPara 30relied onPara 32

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CIVIL APPELLATE JURISDICTION : Civil Appeal No.6574of 2022.

From the Judgment and Order dated 01.02.2021 of the High Courtof Judicature at Bombay in Commercial Arbitration Appeal (L) No.1022of 2021 in Comm. Arbitration Petition (L) No.6602 of 2020.

With

Civil Appeal No.6575 of 2022.

Shyam Divan, Sajan Poovayya, Sr. Advs., Mahesh Agarwal, RishiAgrawala, Rishabh Parikh, S. Sahil Reddy, E. C. Agrawala, Advs. forthe Appellant.

Neeraj Kishan Kaul, Sr. Adv., Siddhant Kant, Avishkar Singhvi,Ms. Misha, Ms. Prabh Simran Kaur, Deepak Joshi, S. S. Shroff, Advs.for the Respondent.

The Judgment of the Court was delivered by INDIRA BANERJEE, J.

Leave granted.

2. These appeals are against a common judgment and order dated1[st] February 2021 passed by a Division Bench (Commercial AppellateDivision) of High Court of Judicature at Bombay, dismissing the appealbeing Commercial Arbitration Appeal (L) No. 1022 of 2021 filed by theAppellant in the Civil Appeal arising out of SLP (C) No.3187 of 2021,Essar House Private Limited, hereinafter referred to as “Essar HousePrivate”, under Section 37 of the Arbitration and Conciliation Act, 1996,hereinafter referred to as the “Arbitration Act” and confirming an orderdated 10[th] December 2020 passed by the Commercial Division (SingleBench) of the High Court allowing an application filed by the Respondent-Arcellor Mittal Nippon Steel India Limited, hereinafter referred to asthe “Arcellor”, under Section 9 of the Arbitration Act and directing EssarHouse Private to deposit an amount of Rs.35.5 crores with theProthonotary and Senior Master of the High Court or, in the alternative,to furnish bank guarantee of any nationalised bank for the entire amountalong with interest thereon.

3. By the impugned judgment and order, the Division Bench hasalso dismissed the appeal being Commercial Arbitration Appeal (L)No.1023 of 2021, filed by the Appellant in the Civil Appeal arising out of A

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ASLP (C) No.3351 of 2021, Essar Services India Private Limited,hereinafter referred to as “Essar Services”, and confirming an orderdated 10[th] December 2020 passed by the Commercial Division (SingleBench) of the High Court, allowing an application by Arcellor againstEssar Services and directing Essar Services to deposit Rs.47.41 croreswith the Prothonotary and Senior Master of the High Court or, in theBalternative, furnish Bank Guarantee of any nationalised bank for theentire amount along with interest thereon.

4. Essar Services is engaged in providing services of accounting,account related services, review, research etc. Essar Services is a partof the Essar Group of Companies.C

5. On or about 24[th] January 2012, Essar Services and Essar SteelIndia Limited, hereinafter referred to as “Essar Steel” entered into aSupport Services Agreement, whereby Essar Services was to provideaccounting and other services to Essar Steel.

D6. On 15[th] May 2014, Essar Services entered into an Amendedand Restated Support Services Agreement with Essar Steel. UnderClause 3.2 of the said Amended and Restated Support ServicesAgreement, Essar Steel was required to deposit a sum of Rs.73 croresas security deposit. Essar Steel deposited a total sum of Rs.47.41 croreswith Essar Services as security deposit in terms of the Support ServicesEAgreement. Further, Essar Steel had to pay a sum of Rs.6,38,75,000/-per month to Essar Services on account of charges for the servicesrendered by Essar Services to Essar Steel.

7. The Support Services were discontinued for the period fromJanuary 2016 to March 2016, but restored after some adjustments/Fvariations in charges, and an inter-corporate arrangement between EssarSteel, Essar Services and Equinox Business Park Private Limited,hereinafter referred to as the “Equinox”.

8. Essar House Private, a company registered under the CompaniesAct, 1956, is engaged in the business of dealing in real estate. EssarGHouse Private is the owner of the building Essar House, situated atKeshavrao Khadye Marg, Opposite Race Course, Mahalaxmi, Mumbai-400034.

9. On or about 1[st] April 2016, Essar House Private entered into anagreement styled as “Rental Agreement” with Essar Steel, under whichHthe ground floor, Podium and 20 upper floors in Essar House, was let out

to Essar Steel on leave and license basis, for a period of 36 monthscommencing on 1[st] April 2016, at a monthly rent of Rs.78,40,000/-. Interms of the aforesaid Rental Agreement, Essar Steel was to pay anamount of Rs.25.80 crores to Essar House Private as interest freerefundable security deposit.

10. Essar House Private was a group company of Essar Steeluntil 2019. Many of the group companies have/had credit transactionswith HDFC Bank. It is submitted that the lenders of Essar Steel startedrealising the dues of Essar Steel to lenders from the group companies.Equinox is another group company of Essar Steel. Equinox on theinstructions of Essar Steel, made a payment of Rs.60.95 crores to HDFCbank in discharge of the financial liabilities of Essar Steel to the bank. Itappears that HDFC Bank granted a loan of Rs.26,00,00,000/- (Rupeestwenty six crores only) to Marvel Mines and Minerals Private Limited,hereinafter referred to as “Marvel Mines”. The said amount hasapparently been appropriated towards dues of the Essar Steel of HDFCBank.

11. By an email dated 26[th] April 2017, Essar Steel acknowledgedthat HDFC Bank had disbursed a loan of Rs.26 crores to Marvel Mines,of which Rs.26 crores had been appropriated towards term loanrecoveries.

12. It is the case of the Appellant that on the instructions of EssarSteel and on behalf of Essar Steel, Equinox made payments to HDFCBank from time to time in discharge of debts due from Essar Steel toEquinox. As on 31[st] March 2018, the total dues payable by the EssarSteel to Equinox was Rs.74,84,39,302/- (Rupees seventy four crores,eighty four lacs, thirty nine thousand, three hundred and two only)inclusive of interest.

13. On or about 2[nd] August 2017, the Standard Chartered Bankand the State Bank of India jointly filed a petition under Section 7 of theInsolvency and Bankruptcy Code, 2016 (IBC) for initiation of theCorporate Insolvency Resolution Process (CIRP) against Essar Steel inthe Ahmedabad Bench of the National Company Law Tribunal (NCLT).On 14[th] August 2017, Essar House Private filed its claim against EssarSteel with the Resolution Professional appointed for Essar Steel.

14. On 17[th] September 2018, Essar Steel entered into an agreement,hereinafter referred to as the “Business Centre Agreement” in terms ABC

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Awhereof Essar Steel was allowed to use six floors of the Essar House,i.e., 10[th], 12[th], 13[th], 15[th], 16[th] and 17[th] floor at a monthly rent ofRs.1,78,80,000/- (Rupees one crore seventy eight lacs and eighty thousandonly).

15. Under the said agreement, Essar Steel was required to makeBa security deposit of Rs.35,51,89,875/- (Rupees thirty five crores, fiftyone lacs, eighty nine thousand, eight hundred and seventy five only).However, out of Rs.35,51,89,875/-, the security deposit ofRs.25,80,00,000/- paid by the Essar Steel under the Rental Agreementwas adjusted towards the security deposit payable to Essar House Privateunder the Business Centre Agreement.C

16. By a letter dated 17[th] September 2018, Essar InfrastructureServices Private Limited claimed that it had transferred the balancesecurity deposit of Rs.9,71,89,875/- (Rupees nine crores, seventy onelacs, eighty nine thousand, eight hundred and seventy five only) to EssarHouse Private.D17. In the meanwhile, on 16[th] August 2017, Essar Services filed aproof of claim as an Operational Creditor in respect of unpaid invoicesunder the Support Services Agreement, with the Resolution Professionalof Essar Steel.

E18. Essar Services and Essar Steel mutually reconciled theiraccounts, in March 2018, acknowledging that Rs.47,41,00,000/- was paidto Essar Services as security deposit and sum of Rs.23,21,93,750/- waspayable by Essar Steel to Essar Services.

19. Sometime in 2018-19, Equinox allegedly assigned its receivablefrom Essar Steel to one Edwell Infrastructure Hazira Limited, hereinafterFreferred to as “Edwell”, to whom Essar Steel had owed an aggregateamount of Rs.88,13,03,623/- inclusive of interest as on November 2019.Later in 2019, the obligation of Essar Services to make payment ofRs.47.41 crores to Essar Steel was novated to Edwell and it was agreedthat payment would be made to Edwell.G

20. Arcellor as resolution applicant submitted a Resolution Plan inrespect of Essar Steel. The said Resolution Plan was approved by theAdjudicating Authority (NCLT), Ahmedabad Bench by an order dated8[th] March 2019. By an order dated 4[th] June 2019, the Appellate Tribunal(NCLAT) confirmed the order dated 8[th] March 2019 of AdjudicatingHAuthority.

21. The Resolution Plan submitted by Arcellor in respect of EssarSteel was approved by this Court in Committee of Creditors of EssarSteel India through Authorised Signatory v. Satish Kumar Gupta &Ors.[1]

22. On 27[th] November 2019, Essar House Private sent an emailto Arcellor stating that the Business Centre Agreement as extendedwas expiring on 30[th] November 2019 and called upon Arcellor to vacateEssar House by 15[th] December 2019. On 15[th] December 2019, Arcellorvacated Essar House. On 16[th] December 2019, Arcellor took over EssarSteel pursuant to the judgment dated 15[th] November 2019 of this Court.

23. By an email dated 11[th] January 2020, Arcellor called upon theEssar House Private to refund the interest free security deposit amountingto Rs.35,51,89,875/-. The email was followed by a reminder email dated19[th] January 2020 and more emails.

24. On 17[th] June 2020, Arcellor sent a legal notice to Essar HousePrivate calling upon the Essar House Private to refund the security depositto Arcellor within seven days along with interest.

25. By an email dated 27[th] June 2020, Essar House Privateacknowledged that Essar House Private had received security depositof Rs.25,80,00,000/- from Essar Steel, but contended that Essar HousePrivate had taken over loan of Rs.26 crores due from Essar Steel toMarvel Mines and had adjusted the same against the security depositkept by Essar Steel with Essar House Private. The balance amount ofRs.9,71,89,875/- had allegedly been paid by the Essar House Private toEdwell Infrastructure in discharge of debt owed by Essar Steel to EdwellInfrastructure. There was, therefore, no security deposit left to berefunded by the Essar House Private to the Arcellor.

26. On 17[th] November 2020, Arcellor filed an application underSection 9 of the Arbitration Act being Commercial Arbitration Petition(L) No. 6602 of 2020 in the Commercial Division of the High Court ofJudicature at Bombay seeking orders directing the Essar House Privateto deposit Rs.35,51,89,875/- with the Prothonotary and Senior Master ofthe High Court. The said application has been allowed by the SingleBench of the High Court. An appeal being Arbitration Appeal (L) No.1022of 2021 filed against the order of the Single Bench has been dismissed A

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Aby the Commercial Appellate Division of the High Court (Division Bench),by the judgment and order impugned.

27. Arcellor paid Rs.4,75,06,260 to Essar Services on behalf ofEssar Steel in settlement of its claims/dues. However, on 14[th] July 2020Arcellor addressed a legal notice to Essar Services for refund of Rs.47.41Bcrores. Arcellor filed an application under Section 9 of the ArbitrationAct being Commercial Arbitration Petition (L) No.6607 of 2020 in theCommercial Division of Bombay High Court seeking orders directingEssar Services to deposit Rs.47,41,00,000/- with the Prothonotary andSenior Master of the High Court.

28. By an order dated 10[th] December 2020, the CommercialCDivision of the Bombay High Court, Single Bench directed Essar Servicesto deposit Rs.47.41 crores with the Prothonotary and Senior Master ofthe High Court. The Essar Services filed Arbitration Appeal No.1023 of2021 under Section 37 of the Arbitration Act read with Section 13 of theCommercial Courts Act in the Commercial Appellate Division of theDHigh Court (Division Bench). The appeal has been dismissed by thejudgment and order impugned.

29. Mr. Shyam Divan, learned Senior Counsel appearing on behalfof the Appellants emphatically argued that no amount was due fromEssar House Private or from Essar Services to Arcellor. The securitydeposits of Essar Steel with Essar House Private and Essar ServicesEhad at the instructions of Essar Steel, been discharged to liquidate duesof Essar Steel to creditors.

30. Mr. Shyam Divan further argued that, to grant discretionaryinterim relief under Section 9 of the Arbitration Act, the Court wouldhave to satisfy itself that the applicant for interim relief, i.e., ArcellorFhad a bona fide and strong claim and that Essar House Private and/orEssar Services was about to remove or dispose of whole or part of itsproperty with intent to obstruct or delay the execution. Mr. Divan arguedthat the Court erred in not considering the requisites of Order XXXVIII,Rule 5 of the Code of Civil Procedure, 1908 (CPC) for grant of interimGrelief. In support of his submissions, Mr. Divan cited Raman Tech. &Process Engg. Co. & Anr. v. Solanki Traders[2] where this Court held:- mechanically or merely for the asking. It should be usedsparingly and strictly in accordance with the Rule. Thepurpose of Order 38 Rule 5 is not to convert an unsecureddebt into a secured debt..”

31. Mr. Neeraj Kishan Kaul, learned Senior Counsel appearingon behalf of the Respondent in the two appeals argued that the defenceof the Essar House Private/Essar Services of set off was a sham defence.He argued that Essar House Private/Essar Services had not brought asingle document on record to support the assertions made by them. It iswell settled that novation of an agreement cannot be brought about bythe unilateral action of a party to an agreement. Consent of Arcellorwas necessary.

32. In Citibank N.A. v. Standard Chartered Bank & Ors.[3]cited by Mr. Kaul, this Court held :- “47. Novatio, rescission or alteration of a contract underSection 62 of the Indian Contract Act can only be done withthe agreement of both the parties of a contract. Both the partieshave to agree to substitute the original contract with a newcontract or rescind or alter. It cannot be done unilaterally...”

33. In any case, obligations under a contract cannot be assigned,without consent of the counterparty, as laid down by this Court inKhardah Company Ltd. v. Raymon & Co. (India) Pvt. Ltd.[4] :- “... An assignment of a contract might result by transfer eitherof the rights or of the obligations thereunder. But there is awell-recognised distinction between these two classes ofassignments. As a rule obligations under a contract cannot beassigned except with the consent of the promisee, and whensuch consent is given, it is really a novation resulting insubstitution of liabilities...”

34. In any case, novation of contract or set off is not allowed inrespect of a corporate entity undergoing CIRP without the consent ofthe Resolution Professional. Section 14 of the IBC bars action toforeclose, recover or enforce any security interest created by a CorporateDebtor undergoing CIRP.

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35. Admittedly, the CIRP of Essar Steel commenced on 2[nd] August2017 when the Resolution Professional took over the management ofthe affairs of Essar Steel under the IBC.

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36. Even if any prior inter se arrangement existed between theparties, Essar Services could not have adjusted the security deposit payableBto Essar Steel under the amended agreement against the alleged dues ofEssar Steel to a third party during the CIRP.

37. Mr. Shyam Divan argued that while deciding a Section 9application filed under the provisions of the Arbitration Act, the principlesof the CPC are to be strictly followed. The principles enunciated by thisCCourt in Raman Tech. & Process Engg. Co. & Anr. (supra) wererequired to be followed in letter and spirit.

38. In this case, however, the High Court has taken note of thepleadings for invoking the principles of Order 38 Rule 5 CPC andobserved:- D

“31. In our view, the paragraphs of the aforesaid pleadingsof the respondent in arbitration petition filed under section 9filed by the respondent were sufficient to secure the claim ofthe respondent under section 9 of the Arbitration Act and toinvoke the principles of Order 38 Rule 5 of the Code of CivilEProcedure even if it is strictly made applicable to the facts ofthis case.”

39. In deciding a petition under Section 9 of the Arbitration Act,the Court cannot ignore the basic principles of the CPC. At the sametime, the power Court to grant relief is not curtailed by the rigours ofFevery procedural provision in the CPC. In exercise of its powers togrant interim relief under Section 9 of the Arbitration Act, the Court isnot strictly bound by the provisions of the CPC.

40. While it is true that the power under Section 9 of the ArbitrationAct should not ordinarily be exercised ignoring the basic principles ofprocedural law as laid down in the CPC, the technicalities of CPC cannotGprevent the Court from securing the ends of justice. It is well settled thatprocedural safeguards, meant to advance the cause of justice cannot beinterpreted in such manner, as would defeat justice.

41. Section 9 of the Arbitration Act provides that a party mayapply to a Court for an interim measure or protection inter alia to (i)H

secure the amount in dispute in the arbitration; or (ii) such other interimmeasure of protection as may appear to the Court to be just andconvenient, and the Court shall have the same power for making ordersas it has for the purpose of, and in relation to, any proceedings before it.

42. As argued by Mr. Kaul, besides the specific power of securingthe amount in dispute, the Courts have been empowered to pass anyinterim measure of protection, keeping in view the purpose of theproceedings before it. The said provision confers a residuary power onthe Court to pass such other interim measures of protection as mayappear to be just and convenient.

43. Many High Courts have also proceeded on theprinciple thatthe powers of a Court under Section 9 of the Arbitration Act are widerthan the powers under the provisions of the CPC.

44. In Ajay Singh & Ors. v. Kal Airways Private Limited andOrs.[5] the Delhi High Court correctly held :

“...Section 9 grants wide powers to the courts in fashioningan appropriate interim order, is apparent from its text.Nevertheless, what the authorities stress is that the exerciseof such power should be principled, premised on some knownguidelines - therefore, the analogy of Orders 38 and 39.Equally, the court should not find itself unduly bound by thetext of those provisions rather it is to follow the underlyingprinciples...”

45. In Jagdish Ahuja & Anr. v. Cupino Limited[6], the BombayHigh Court correctly summarised the law in Paragraph 6 extractedhereinbelow :-

“6. As far as Section 9 of the Act is concerned, it cannot besaid that this court, while considering a relief thereunder, isstrictly bound by the provisions of Order 38 Rule 5. As heldby our Courts, the scope of Section 9 of the Act is very broad;the court has a discretion to grant thereunder a wide rangeof interim measures of protection “as may appear to the courtto be just and convenient”, though such discretion has to beexercised judiciously and not arbitrarily. The court is, nodoubt, guided by the principles which civil courts ordinarily 5 (2017) SCC Online Del 8934

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Aemploy for considering interim relief, particularly, Order 39Rules 1 and 2 and Order 38 Rule 5; the court, however, is notunduly bound by their texts. As this court held in NimbusCommunications Limited v. Board of Control for Cricket inIndia(Per D.Y. Chandrachud J, as the learned Judge thenwas), the court, whilst exercising power under Section 9, “mustBhave due regard to the underlying purpose of the confermentof the power under the court which is to promote the efficacyof arbitration as a form of dispute resolution.” The learnedJudge further observed as follows:

“Just as on the one hand the exercise of the power underCSection 9 cannot be carried out in an uncharted territoryignoring the basic principles of procedural law contained inthe Code of Civil Procedure 1908, the rigors of everyprocedural provision in the Code of Civil Procedure 1908cannot be put into place to defeat the grant of relief whichDwould subserve the paramount interests of justice. A balancehas to be drawn between the two considerations in the factsof each case.”

46. In Valentine Maritime Ltd. v. Kreuz Subsea Pte. Ltd. &Anr.[7], the High Court held :- E

“88. ...It is now a well settled legal position, that at least withrespect to Chartered High Courts, the power to granttemporary injunctions are not confined to the statutoryprovisions alone. The Chartered High Courts had an inherentpower under the general equity jurisdiction to grant temporaryFinjunctions independently of the provisions of the Code ofCivil Procedure, 1908...”

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93. Insofar as judgment of Supreme Court in case of RamanTech. & Process Engg. Co.(supra) relied upon by Mr.GNarichania, learned senior counsel for the VML is concerned,it is held by the Hon’ble Supreme Court that merely having ajust or valid claim or a prima facie case, will not entitle theplaintiff to an order of attachment before judgment, unlesshe also establishes that the defendant is attempting to remove H7 2021 SCC Online Bom 75

or dispose of his assets with the intention of defeating thedecree that may be passed. The Hon’ble Supreme Court hasfurther held that the purpose of Order 38 Rule 5 is not toconvert an unsecured debt into a secured debt. The saidjudgment of the Hon’ble Supreme Court was not in respect ofthe powers of court under section 9 of the Arbitration andConciliation Act, 1996 but was in respect of power underOrder 38 Rule 5 of the Code of Civil Procedure, 1908 in asuit. Even otherwise, the said judgment is distinguishable inthe facts of this case.

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95. Insofar as judgment of this Court delivered by the DivisionBench of this court in case of Nimbus Communications Limitedv. Board of Control for Cricket in India (supra) relied uponby the learned senior counsel for the VML is concerned, thisCourt adverted to the judgment of Hon’ble Supreme Court incase of Adhunik Steels Ltd. v. Orissa Manganese andMinerals (P) Ltd., (2007) 7 SCC 125 and held that in view ofthe decision of the Supreme Court in case of Adhunik SteelsLtd., (supra) the view of the Division Bench in case of NationalShipping Company of Saudi Arabia (supra) that the exerciseof power under section 9(ii)(b) is not controlled by theprovisions of the Code of Civil Procedure, 1908 cannot stand.This court in the said judgment of Nimbus CommunicationsLimited (supra) held that the exercise of the power undersection 9 of the Arbitration Act cannot be totally independentof the basic principles governing grant of interim injunctionby the civil Court, at the same time, the Court when it decidesthe petition under section 9, must have due regard to theunderlying purpose of the conferment of the power upon theCourt which is to promote the efficacy of arbitration as aform of dispute resolution.

96. This court held that just as on the one hand the exerciseof the power under Section 9 cannot be carried out in anuncharted territory ignoring the basic principles of procedurallaw contained in the Code of Civil Procedure, 1908, the rigorsof every procedural provision in the Code of Civil Procedure, AB

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1908 cannot be put into place to defeat the grant of reliefwhich would sub-serve the paramount interests of justice. Abalance has to be drawn between the two considerations inthe facts of each case. The principles laid down in the Codeof Civil Procedure, 1908 for the grant of interlocutoryremedies must furnish a guide to the Court when it determinesan application under Section 9 of the Arbitration andConciliation Act, 1996. The underlying basis of Order 38 Rule5 therefore has to be borne in mind while deciding anapplication under Section 9(ii)(b) of the Arbitration Act.

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104. The Division Bench of this court in case of DeccanChronicle Holdings Limited v. L & T Finance Ltd., 2013 SCCOnLine Bom 1005 after adverting to the judgment of SupremeCourt in case of Adhunik Steel Ltd. (supra), judgment of theDDivision Bench of this court in case of NimbusCommunications Ltd. (supra) held that the rigors of everyprocedural provision of the Code of Civil Procedure cannotbe put into place to defeat the grant of relief which wouldsub-serve the paramount interests of the justice. The objectof preserving the efficacy of arbitration as an effective formEof dispute resolution must be duly fulfilled. This wouldnecessarily mean that in deciding an application under Section9, the Court would while bearing in mind the fundamentalprinciples underlying the provisions of the Code of CivilProcedure, at the same time, have the discretion to mould theFrelief in appropriate cases to secure the ends of justice andto preserve the sanctity of the arbitral process. The DivisionBench of this Court in the said judgment did not interferewith the order passed by the learned Single Judge directingthe parties to furnish security so as to secure the claim of theoriginal petitioner in arbitration by applying principles ofGOrder 38 Rule 5 of the Code of Civil Procedure. …”

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47. In Srei Infrastructure Finance Limited v. M/s. Ravi UdyogPvt. Ltd & Anr.[8], the Calcutta High Court, speaking through one of us(Indira Banerjee, J.), as Judge of that Court, said :- “An application under section 9 of the Arbitration &Conciliation Act, 1996 for interim relief is not to be judgedas per the standards of a plaint in a suit. If the relevant factspleaded, read with the documents annexed to the petition,warrant the grant of interim relief, interim relief ought not tobe refused by recourse to technicalities...”

48. Section 9 of the Arbitration Act confers wide power on theCourt to pass orders securing the amount in dispute in arbitration, whetherbefore the commencement of the arbitral proceedings, during the arbitralproceedings or at any time after making of the arbitral award, but beforeits enforcement in accordance with Section 36 of the Arbitration Act.All that the Court is required to see is, whether the applicant for interimmeasure has a good prima facie case, whether the balance ofconvenience is in favour of interim relief as prayed for being grantedand whether the applicant has approached the court with reasonableexpedition.

49. If a strong prima facie case is made out and the balance ofconvenience is in favour of interim relief being granted, the Courtexercising power under Section 9 of the Arbitration Act should notwithhold relief on the mere technicality of absence of averments,incorporating the grounds for attachment before judgment under Order38 Rule 5 of the CPC.

50. Proof of actual attempts to deal with, remove or dispose ofthe property with a view to defeat or delay the realisation of an impendingArbitral Award is not imperative for grant of relief under Section 9 ofthe Arbitration Act. A strong possibility of diminution of assets wouldsuffice. To assess the balance of convenience, the Court is required toexamine and weigh the consequences of refusal of interim relief to theapplicant for interim relief in case of success in the proceedings, againstthe consequence of grant of the interim relief to the opponent in case theproceedings should ultimately fail.

51. It is not in dispute that a sum of about Rs.35 crores odd waspaid by Essar Steel to Essar House Private and Rs.47 crores odd toEssar Services, being the appellants in the respective appeals, by way ofsecurity deposit which is a refundable security deposit. Prima facie, therefundable security deposit is not being released to Arcellor on thepurported ground of a convoluted series of internal arrangements between AB

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Agroup companies for diversion of the security deposits towards liquidationof alleged dues of Essar Steel to third parties.

52. The Division Bench considered this contention of the Appellantand rightly held :- “33. The affidavit of disclosure filed by the appellant on 21[st]January, 2021 annexed at Ex.B also clearly indicates thatthe appellant was heavily indebted and did not have assetother than the asset disclosed in the affidavit in reply.

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39. There is no substance in the submission made by thelearned counsel for the appellant that since the appellanthad already disclosed in the reply to the petition under section9 that there was only one asset in the hands of the appellantand the same was also mortgaged, learned single Judge couldnot have passed an order of deposit or to furnish a bankguarantee in lieu of the order of deposit under section 9 ofthe Arbitration Act. In our view, the Court has ample powerunder Section 9 to secure the claim of the applicant inarbitration. Merely because the appellant has disclosedbefore the learned Single Judge that it does not have anyasset other than one asset and that also is fully encumbered,that does not preclude the Court under Section 9 of theArbitration Act to pass an equitable order by securing theclaim of the applicant in arbitration by directing the opponentto deposit such amount to furnish a bank guarantee oncehaving rendered a prima-facie finding that the applicantwould have good chances of succeeding in the arbitrationand if the claim made by the applicant is not secured, he wouldnot be able to enjoy fruits of the arbitral award on itsexecution.

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43. If the Court is required to dismiss the petition under section9 of the Arbitration Act on the ground that the opponent hasno assets at all or the assets of the opponent are fullyencumbered, it will be against the principles of equitable H

justice required to be exercised by the Court while exercisingpowers under section 9 of the Arbitration Act so as to securethe claim of the applicant in the arbitral proceedings thoughhe may have prima-facie good chances of succeeding inarbitration.”

53. We find no infirmity in the well-reasoned judgment and orderof the Division Bench. The appeals are, accordingly, dismissed.

Divya Pandey(Assisted by : Deepak Panwar, LCRA)

Appeals dismissed.

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