Supreme Court of India
SANGHI INDUSTRIES LIMITED versus RAVIN CABLES LTD., AND ANR on 30 September 2022
SUPREME COURT REPORTS[2022] 4 S.C.R. 850
[2022] 4 S.C.R.
SANGHI INDUSTRIES LIMITED
A
v.
RAVIN CABLES LTD., AND ANR.
(Civil Appeal No. 6908 of 2022)
SEPTEMBER 30, 2022
B
[M. R. SHAH AND KRISHNA MURARI, JJ.]
Arbitration and Conciliation Act, 1996 – s.9 – Code of CivilProcedure, 1908 – Or.XXXVIII, r.5 – Application u/s.9 – Power ofCommercial Court – Appellant invoked performance bankguarantees issued by respondent no.1 – Thereafter, it invokedCarbitration – Respondent No.1 filed application u/s.9 beforeCommercial Court regarding the bank guarantees, pending whichthe bank realized the payments under the bank guarantees invokedby the appellant – Commercial Court passed order u/s.9(ii)(e) tosecure the amount in dispute and directed the appellant to depositDthe amount of bank guarantees – Order confirmed by High Court –Held: Bank guarantees were already invoked and the amountsthereunder were already paid by the bank much prior to theCommercial Court passed the order u/s.9 – Unless and until thepre-conditions u/Or.XXXVIII, r.5, CPC were satisfied and unless therewere specific allegations with cogent material and prima-facie theECourt was satisfied that the appellant was likely to defeat the decree/award that may be passed by the arbitrator by disposing of theproperties and/or in any other manner, the Commercial Court couldnot have passed such an order in exercise of powers u/s.9 – Orderpassed by the Commercial Court in an application u/s.9 is mainlyFby way of interim measure – In a given case if all the conditions ofOr.XXXVIII, r.5, CPC are satisfied and the Commercial Court issatisfied as aforesaid, it may pass an appropriate order includingthe restrain order and/or any other appropriate order to secure theinterest of the parties – Further, in the present case even otherwisethere are serious disputes on the amount claimed by the parties –GImpugned order passed by the High Court and the order of theCommercial Court, set aside – Commercial Courts Act, 2015.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6908of 2022.
H
From the Judgment and Order dated 11.02.2022 of the High Courtof Gujarat at Ahmedabad in R/First Appeal No. 3253 of 2021.
Vivek Chib, Sr. Adv., Anirudh Wadhwa, Shaishir Divatia, VipulKumar, Abhishek Kumar, Bikram Dwivedi, Shivendra Singh, Advs. forthe Appellant.
K. V. Viswanathan, Sr. Adv., Ms. Malvika Kapila, Arvind Raj,Ms. Tanwangi Shukla, Krishan Kumar, Atul Sheopuri, Nitin Pal, KartikSarsoonia, Swikiritimala Dubey, Swati Jindal Garg, Advs. for theRespondents.
The Judgment of the Court was delivered by
M. R. SHAH, J.
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1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 11.02.2022 passed by the High Court of Gujarat atAhmedabad in Regular First Appeal No. 3253 of 2021, by which, theHigh Court has dismissed the said appeal confirming the order passedby the Commercial Court in an application under Section 9 of theArbitration and Conciliation Act, 1996 (hereinafter referred to as theArbitration Act, 1996), by which the Commercial Court directed theappellant herein – original opponent/respondent No. 1 to deposit theamount of performance bank guarantees pertaining to purchase orderNos. 01, 02 and 03 invoked by it, the original opponent/respondent No. 1has preferred the present appeal.
2. We have heard Shri Vivek Chib, learned Senior Advocateappearing on behalf of the appellant and Shri K.V. Viswanathan, learnedSenior Advocate appearing on behalf of respondent No. 1 herein – themain contesting party.
3. At the outset it is required to be noted that in the present casethe dispute is with respect to three purchase orders, namely, purchaseorder Nos. 01, 02 and 03. It appears that the appellant served a noticeupon respondent No. 1 vide notice dated 11.06.2021 claiming a loss ofINR 29.31 crores (approximately) owing to the defective quality of thecables supplied. The said notice was replied by respondent No. 1 videreply dated 19.06.2021. That thereafter, respondent No. 1 served a legalnotice dated 13.07.2021 on the appellant claiming for outstanding paymentof INR 1.30 crores (approximately). That the appellant videcommunication/letter dated 21.07.2021 invoked the bank guaranteesissued by respondent No. 1 herein, which according to respondent No. 1
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Awere by way of performance bank guarantees. That thereafter, theappellant invoked the arbitration on 22.07.2021. Immediately on the nextday i.e., 23.07.2021, respondent No. 1 herein filed two applications/petitions under Section 9 of the Arbitration Act, 1996, being applicationNo. 438/2021 before the Commercial Court at Ahmedabad and anotherapplication No. 88/2021 before the Commercial Court at Bhuj. ApplicationBNo. 88/2021 under Section 9 of the Arbitration Act, 1996 filed byrespondent No. 1 herein was regarding three bank guarantees, which isthe subject matter of present case. At this stage, it is required to benoted that by the time any further order could be passed the bank realizedthe payments under the bank guarantees invoked by the appellant. ThatCthe Commercial Court passed an order dated 13.10.2021 under Section9(ii)(e) of the Arbitration Act, 1996 to secure the amount in dispute anddirected the appellant herein to deposit the amount of respectiveperformance bank guarantees, which as such has already been invokedand for which the payments were already made by the bank. The orderpassed by the Commercial Court under Section 9 of the Arbitration Act,D1996, directing the appellant to deposit in the court the amount ofrespective bank guarantees pertaining to purchase order Nos. 01, 02and 03 was the subject matter of appeal before the High Court underSection 13 of the Commercial Courts Act, 2015. By the impugnedjudgment and order, the High Court has dismissed the said appeal whichEhas given rise to the present appeal.
4. Having heard learned counsel appearing on behalf of therespective parties and in the facts and circumstances of the case, moreparticularly, when the bank guarantees were already invoked and theamounts under the respective bank guarantees were already paid by theFbank much prior to the Commercial Court passed the order under Section9 of the Arbitration Act, 1996 and looking to the tenor of the order passedby the Commercial Court, it appears that the Commercial Court hadpassed the order under Section 9(ii)(e) of the Arbitration Act, 1996 tosecure the amount in dispute, we are of the opinion that unless and untilthe pre-conditions under Order XXXVIII Rule 5 of the CPC are satisfiedGand unless there are specific allegations with cogent material and unlessprima-facie the Court is satisfied that the appellant is likely to defeat thedecree/award that may be passed by the arbitrator by disposing of theproperties and/or in any other manner, the Commercial Court could nothave passed such an order in exercise of powers under Section 9 of theHArbitration Act, 1996. At this stage, it is required to be noted that even otherwise there are very serious disputes on the amount claimed by therival parties, which are to be adjudicated upon in the proceedings beforethe arbitral tribunal.
4.1 The order(s) which may be passed by the Commercial Courtin an application under Section 9 of the Arbitration Act, 1996 is basicallyand mainly by way of interim measure. It may be true that in a givencase if all the conditions of Order XXXVIII Rule 5 of the CPC aresatisfied and the Commercial Court is satisfied on the conduct of opposite/opponent party that the opponent party is trying to sell its properties todefeat the award that may be passed and/or any other conduct on thepart of the opposite/opponent party which may tantamount to any attempton the part of the opponent/opposite party to defeat the award that maybe passed in the arbitral proceedings, the Commercial Court may passan appropriate order including the restrain order and/or any otherappropriate order to secure the interest of the parties. However, unlessand until the conditions mentioned in Order XXXVIII Rule 5 of the CPCare satisfied such an order could not have been passed by the CommercialCourt which has been passed by the Commercial Court in the presentcase, which has been affirmed by the High Court.
5. In view of the above and for the reasons stated above, thepresent appeal succeeds. The impugned judgment and order passed bythe High Court and that of the order dated 13.10.2021 passed by theCommercial Court in an application under Section 9(ii)(e) of theArbitration Act, 1996 directing appellant to deposit the amount ofperformance bank guarantees pertaining to purchase order Nos. 01, 02and 03 already invoked by the appellant herein, are hereby quashed andset aside.
However, at the same time to protect the interest of the parties,we direct that the appellant herein shall furnish an undertaking backedby the Resolution of the appellant’s company before the CommercialCourt that in case any award is passed by the learned Arbitrator inarbitration proceedings, the same shall be paid/honoured by the appellantsubject to the challenge before the higher forum. Such undertaking backedby the Resolution of the appellant’s company shall be filed before theCommercial Court within a period of four weeks from today, with thisthe present appeal is allowed. No costs.
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