SEPCO ELECTRIC POWER CONSTRUCTION CORPORATION versus POWER MECH PROJECTS LTD. on 19 September 2022

SEPCO ELECTRIC POWER CONSTRUCTION CORPORATION

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POWER MECH PROJECTS LTD.

(Civil Appeal No. 6789 of 2022)

SEPTEMBER 19, 2022

[INDIRA BANERJEE AND KRISHNA MURARI, JJ.]

Arbitration and Conciliation Act, 1996: ss. 36 and 9 –Arbitration award – Interference with – On facts, award of Rs 142cr in favour of the respondent – Challenge to, by the appellantbefore the High Court u/s. 34 – Same day the appellant filed interimapplication u/s. 36(2) seeking stay of the arbitral award –Subsequently, the respondent filed an application u/s. 9 seekingorders on the appellant to furnish security against the amountawarded – Thereafter, appellant directed to deposit 10% of theamounts in its bank accounts, at interval of every 15 days –Respondent filing another application seeking directions to theappellant to deposit the awarded amount alongwith interest – SingleJudge of the High Court disposed of the application u/s. 9 alongwiththe connected interim applications – Single Judge passed anotherorder issuing notice on respondents on the application of theappellant u/s. 36(2) for stay of the award and issued directions thaton deposit of the award amount, the enforcement of the award wouldremain stayed – Interference with – Held: Not called for – No hardand fast rule that an application made earlier in point of time mustbe heard before an application made later in point of time – Boththe applications u/s. 9 filed by the respondent and the applicationfor stay u/s. 36(2) filed by the appellant even though independentapplications, relate to the same impugned award – Prima facie, thereis an award for a huge amount of Rs. 142 crores against theappellant – Respondent has a strong case for interim relief – Nocogent ground made out even prima facie, for interference with theaward – High Court acted within the scope of its powers u/s.9 inpassing the impugned order.

Dismissing the appeals, the Court

HELD: 1.1 There is no hard and fast rule that an applicationmade earlier in point of time must be heard before an application

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344SUPREME COURT REPORTS

Amade later in point of time. Both the applications under Section 9of the Arbitration and Conciliation Act, 1996 filed by therespondent and the application for stay u/s. 36(2) filed by theappellant relate to the same impugned award. Even though, theapplications may be independent applications, there are commonfactors required to be considered for both the applications of theBrespondent under Section 9 and the application of the Appellantunder Section 36(2). The jurisdiction of this Court under Section9 is wide. A party may apply to a Court for interim measuresbefore the commencement of Arbitral proceedings, during Arbitralproceedings or at any time after the making of the Arbitral Award,Cbut before it is enforced in accordance with Section 36 of theArbitration Act. Section 9 expressly empowers the Court to passorders securing the amount in dispute in the arbitration and/orany interim measure or protection as may appear to the Court tobe just and convenient. For grant of interim relief under Section9, the Court would have to consider the prima facie case, whetherDthe balance of convenience is in favour of interim relief as prayedfor being granted and whether the applicant has approached thecourt with reasonable expedition. In this case, prima facie thereis an award for a huge amount of Rs. 142 Crores against theappellant. The respondent has a strong case for interim relief.E[Para 21-25][352-A-F]

1.2 The grounds for interference with an award is restricted.Even before this Court, the Appellant has not been able to advertto any cogent and glaring error which goes to the root of theaward. The contention of the award being opposed to the publicFpolicy of India, is devoid of any particulars whatsoever. [Para26][352-F-G]

1.3 Under Section 36, where the time for making anapplication to set aside arbitral award has expired, the award mightbe enforced in accordance with the provisions of the CPC in theGsame manner as it were a decree of the Court. Section 36(2)makes it clear that filing an application for setting aside of anaward under Section 34 is not to render the award unenforceable,unless the Court expressly grants an order of stay of operationof the arbitral award in accordance with the provisions of sub-section (3) of Section 36, on a separate application made for thatH

SEPCO ELECTRIC POWER CONSTRUCTION CORPORATIONv. POWER MECH PROJECTS LTD.

purpose. Once an application under sub-section (2) of Section 36is filed for stay of operation of the arbitral award, the Court mightsubject to such conditions as it may deem fit, grant stay of theoperation of such award, for reasons to be recorded in writing.The Court is empowered to impose such conditions as it mightdeem fit and may grant stay of operation of the award subject tofurnishing of security covering entire amount of the awardincluding interest. The proviso to Section 36(3), makes it clearthat while considering an application for grant of stay in the caseof an arbitral award for payment of money, due regard has to begiven to the provisions for grant of stay of a money decree underthe provisions of the CPC. The proviso to Section 36(3) furtherstipulates that where the Court is satisfied that a prima facie caseis made out that (a) the arbitration agreement or contract whichis the basis of the award or, (b) the making of the award wasinduced or effected by fraud or corruption, it shall stay the awardunconditionally pending disposal of the challenge u/s. 34 of theaward. [Para 27-30][352-G-H; 353-A-E]

1.4 There is an award of Rs. 142 Crores in favour of therespondent. No cogent ground has been made out even primafacie, for interference with the impugned award. Order 41 Rule 5of the CPC provides for stay of decree upon furnishing of cashsecurity. The High Court acted within the scope of its powersunder Section 9 in passing the impugned judgment and order.Thus, there is no ground at all to interfere. However, the HighCourt is requested to dispose of the pending applications of theappellant u/s. 34 for setting aside the award as expeditiously aspossible. [Para 35-37][355-E-F]

Ajay Singh & Ors. v. Kal Airways Private Limited andOrs. (2017) SCC Online Del 8934; Jagdish Ahuja &Anr. v. Cupino Limited (2020) SCC Online Bom 849;Valentine Maritime Ltd. v. Kreuz Subsea Pte Ltd. & Anr.(2021) SCC Online Bom 75 – referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6789of 2022.

From the Judgment and Order dated 11.01.2021 of the High Courtof Delhi, at New Delhi, in FAO (OS) (Comm) 59 of 2020.

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Civil Appeal No. 6792 of 2022.

Ranjit Prakash, Gaurav Lavania, Saurabh Agrawal, Pai Amit, Advs.for the Appellant.

BDr. Abhishek Manu Singhvi, Sr. Adv., Dharmesh Misra, PrateekGupta, Krishna Dev Jagarlamudi, Azeem Samuel, Vishal Singh, Advs.for the Respondent.

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

1. Leave granted.

2. The Appellant, an entity incorporated in China was awardedcontracts in relation to various coal based power projects in India andthe Respondent, a company incorporated in India was engaged as asub-contractor of the Appellant. Disputes and differences between theDRespondent and the Appellant were referred to Arbitration. Suffice it tomention that the Arbitration culminated in an Award dated 17[th] October2017 of approximately Rs. 1,42,00,00,000/- (Rupees One Hundred andForty Two Crores) in favour of the Respondent.

3. On 3[rd] December 2017, the Appellant filed an application underESection 34 of the Arbitration and Conciliation Act, 1996 (hereinafterreferred to as the “Arbitration Act”) being O.M.P. (COMM) No. 432 of2017 challenging the Arbitral Award dated 17[th] October 2017 in theCommercial Division of the Delhi High Court, which is pending.

4. On the same day, that is, 3[rd] December 2017, the AppellantFfiled an interim application being I.A. No. 14342 of 2017 in the saidO.M.P. (COMM) No.432 of 2017 under Section 36(2) of the ArbitrationAct seeking stay of the arbitral award.

5. After about a week, on 11[th] December 2017, the Respondentfiled an application under Section 9 of the Arbitration Act being O.M.P.G(I) (COMM) No. 523 of 2017 in the High Court, inter alia, seekingorders on the Appellant to furnish security against the amount awardedby the Arbitral Tribunal.

6. On 14[th] December 2017, the High Court issued notice in theapplication filed by the Respondent under Section 9 of the Arbitration H

Act and directed the Appellant to file an affidavit of assets. In compliancewith the order dated 14[th] December 2017, the Appellant submitted itsaffidavit giving details of its assets.

7. On or about 10[th] May 2018, the Respondent filed an applicationbeing I.A. No. 6704 of 2018 praying for deposit of the entire amountdue from Talwandi Sabo Power Corporation Limited (TSPL). The saidapplication was disposed of by an order dated 15[th] May 2018 with theobservation that the Court did not see sufficient cause to allow the prayersmade by the Respondent.

8. By an order dated 24[th] July 2018, the High Court directed theAppellant to disclose better particulars of its assets in India. In themeanwhile, the Appellant was directed to deposit 10% of the amount inits bank accounts, which is referred to in its affidavit of assets in theHigh Court at intervals of every 15 days.

9. Pursuant to the aforesaid order dated 24[th] July 2018, theAppellant filed its supplementary affidavit of assets. Two days later, on20[th] August 2018, the Respondent filed an application being I.A. No.11128 of 2018 for directions on the Respondent to deposit the awardedamount of Rs. 142,41,14,499/- (Rupees One Hundred Forty-Two Crores,Forty One Lakhs, Fourteen Thousand, Four Hundred Ninety-Nine Only)along with interest @ 12% per annum from the date of the award tillrealisation of the awarded amount in the High Court.

10. Diverse interim applications were filed from time to time. On20[th] March 2019, the Respondent filed another application being IANo.4259 of 2019, seeking orders for deposit of the awarded amount ofRs. 142,41,14,499/- along with interest.

11. By a judgment and order dated 17[th] February 2020, a SingleJudge of the High Court disposed of the application filed by theRespondent under Section 9 of the Arbitration Act being O.M.P (I)(COMM) No.523 of 2017 along with connected interim applications.The operative part of the judgment and order dated 17[th] February 2020is set out hereinbelow:- “32. While it is true that in some of the orders shown by thelearned senior counsel for the petitioner, co-ordinate Benchesof this Court have been directing a deposit of 50%, but goingby the recent judgments of the Supreme Court as well as thefacts of the present case, I am of the opinion that the petitioner A

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must deposit 100% of the awarded amount of Rs.142 Crores(principal amount) to secure the respondent.

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33. Since the petitioner has already furnished BG of Rs.30Crores and has deposited a further amount of Rs.2.74 Crores,the said amount would be adjusted and the balance amountBfrom Rs.142 Crores will be deposited by the petitioner withthe Registry of this Court within a period of four weeks fromtoday. With the aforesaid directions, the present petition ishereby disposed of along with all the pending applications.”

12. On that same day, that is, 17[th] February 2020, the Single BenchCpassed another order directing notice be issued on respondents on theapplication of the Appellant under Section 36(2) of the Arbitration Actfor stay of the award. The Court directed that, on deposit of Rs.142Crores, as earlier directed in the application of the Respondent underSection 9 of the Arbitration Act, within four weeks, the enforcement ofthe award dated 17[th] October 2017 would remain stayed.D

13. Mr. K. V. Viswanathan, appearing on behalf of the Appellantsubmitted that the Appellant’s application for stay under Section 36(2)of the Arbitration Act had been filed before the Respondent filed itsapplication for interim relief under Section 9 of the said Act. Theapplication of the Appellant having been filed earlier, orders ought notEto have been passed on the application of the Respondent for interimrelief, without first considering the Appellant’s application for stay.

14. Mr. Viswanathan pointed out that the High Court had, byclubbing the order in the Appellant’s application under Section 36(2) ofthe Arbitration Act, with the order in the application of the RespondentFunder Section 9 of the said Act, deprived the Appellant of its legal remedyof appeal against any order passed under Section 9, since an order underSection 36 is not appealable. Had the later application filed under Section9 not been clubbed with the earlier application filed by the Appellantunder Section 36(2), the Appellant could have filed an intra court appealfrom the order under Section 9 of the Arbitration Act.G

15. Mr. Viswanathan argued that sub-section (3) of Section 36enables the court to grant stay of operation of the Award. The Courtcannot, however, stay an award for the asking. An award can only bestayed for reasons to be recorded in writing. Moreover, for grant of H

stay in the case of an arbitral award for payment of money, the Courtis to have due regard to the provisions for grant of stay in a moneydecree under the provision of the CPC.

16. The power under sub-section (3) of Section 36 to grant stayof an award is coupled with the duty to impose conditions which couldinclude the condition of securing the award by deposit in Court, of theamount of the Award. It may be true as argued by Mr. Vishwanathanthat the Court may not impose condition for stay, if it deems appropriatenot to do so. The power of Court to grant unconditional stay of anAward is not unfettered. The power of unconditional stay is subject tothe condition in the second proviso that is:- The Court is satisfied that a prima facie is made out that -

(i) the arbitration agreement or contract which is the basis ofthe award; or

(ii) the making of the award, was induced or effected by fraud orcorruption.

17. Mr. Viswanathan submitted that while the grant for stay maybe discretionary but the exercise of such power is mandatory. Theexercise of discretion requires ex facie consideration of the merits ofthe challenge and therefore a review of the award which regrettablyhas not been done.

18. The Appellant has unsuccessfully made an attempt to evaluatethe impugned award to demonstrate that the award is against thefundamental policy of India. It is contended that no documents wereproduced during the arbitration proceedings. It is not for this Court to sitin appeal over the impugned award at this stage while deciding an appealunder Article 136 of the Constitution of India and examine the adequacyof the evidence before the Arbitral Tribunal.

19. Section 36 of the Arbitration Act Provides:-

“36. Enforcement.—(1) Where the time for making anapplication to set aside the arbitral award under Section 34has expired, then, subject to the provisions of sub-section (2),such award shall be enforced in accordance with the provisionsof the Code of Civil Procedure, 1908 (5 of 1908), in the samemanner as if it were a decree of the court.

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(2) Where an application to set aside the arbitral awardhas been filed in the court under Section 34, the filing ofsuch an application shall not by itself render that awardunenforceable, unless the court grants an order of stay ofthe operation of the said arbitral award in accordance withthe provisions of sub-section (3), on a separate applicationmade for that purpose.

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(3) Upon filing of an application under sub section (2) forstay of the operation of the arbitral award, the court may,subject to such conditions as it may deem fit, grant stay ofthe operation of such award for reasons to be recorded inwriting:

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Provided that the court shall, while considering the applicationfor grant of stay in the case of an arbitral award for paymentof money, have due regard to the provisions for grant of stayof a money decree under the provisions of the Code of CivilProcedure, 1908 (5 of 1908).

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Provided further that where the Court is satisfied that a primafacie case is made out that,—

(a) the arbitration agreement or contract which is the basisof the award; or E

(b) the making of the award,

was induced or effected by fraud or corruption, it shallstay the award unconditionally pending disposal ofthe challenge under Section 34 to the award.

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Explanation.—For the removal of doubts, it is hereby clarifiedthat the above proviso shall apply to all court cases arisingout of or in relation to arbitral proceedings, irrespective ofwhether the arbitral or court proceedings were commencedprior to or after the commencement of the Arbitration andGConciliation (Amendment) Act, 2015.”

20. On the other hand, Section 9 of the Act provides the amendmentas follows:- “9. Interim measures, etc. by Court.— (1) A party may, beforeor during arbitral proceedings or at any time after the making H

v. POWER MECH PROJECTS LTD. [INDIRA BANERJEE, J.]

of the arbitral award but before it is enforced in accordancewith Section 36, apply to a Court:—

(i) for the appointment of a guardian for a minor or a personof unsound mind for the purposes of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any ofthe following matters, namely:—

(a) the preservation, interim custody or sale of anygoods which are the subject-matter of the arbitrationagreement:

(b) securing the amount in dispute in the arbitration:

(c) the detention, preservation or inspection of anyproperty or thing which is the subject-matter of thedispute in arbitration, or as to which any questionmay arise therein and authorising for any of theaforesaid purposes any person to enter upon anyland or building in the possession of any party, orauthorising any samples to be taken or anyobservation to be made, or experiment to be tried,which may be necessary or expedient for the purposeof obtaining full information or evidence; (d)interim injunction or the appointment of a receiver; (e)such other interim measure of protection as mayappear to the Court to be just and convenient, andthe Court shall have the same power for makingorders as it has for the purpose of, and in relationto, any proceedings before it.

(2) Where, before the commencement of the arbitralproceedings, a court passes an order for any interimmeasure of protection under sub- section (1), the arbitralproceedings shall be commenced within a period ofninety days from the date of such order or within suchfurther time as the court may determine.

(3) Once the arbitral tribunal has been constituted, thecourt shall not entertain an application under sub-section(1), unless the court finds that circumstances exist which A

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21. There is no hard and fast rule that an application made earlierin point of time must be heard before an application made later in pointof time.

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22. Both the applications under Section 9 filed by the Respondentand the application for stay under Section 36(2) filed by the Appellantrelate to the same impugned award.

23. Even though, the applications may be independent applications,there are common factors required to be considered for both theCapplications of the Respondent under Section 9 and the application ofthe Appellant under Section 36(2). The jurisdiction of this Court underSection 9 is wide. A party may apply to a Court for interim measuresbefore the commencement of Arbitral proceedings, during Arbitralproceedings or at any time after the making of the Arbitral Award, butbefore it is enforced in accordance with Section 36 of the ArbitrationDAct.

24. Section 9 expressly empowers the Court to pass orders securingthe amount in dispute in the arbitration and/or any interim measure orprotection as may appear to the Court to be just and convenient.

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25. For grant of interim relief under Section 9, the Court wouldhave to consider the prima facie case. In this case, prima facie there isan award for a huge amount of Rs. 142 Crores against the Appellant.The Respondent has a strong case for interim relief.

26. It is settled law that grounds for interference with an award isFrestricted. Even before this Court, the Appellant has not been able toadvert to any cogent and glaring error which goes to the root of theaward. The contention of the award being opposed to the public policyof India, is devoid of any particulars whatsoever.

27. Under Section 36, where the time for making an application toGset aside arbitral award has expired, the award might be enforced inaccordance with the provisions of the CPC in the same manner as itwere a decree of the Court. Section 36(2) makes it clear that filing anapplication for setting aside of an award under Section 34 is not to renderthe award unenforceable, unless the Court expressly grants an order ofstay of operation of the arbitral award in accordance with the provisionsH

SEPCO ELECTRIC POWER CONSTRUCTION CORPORATIONv. POWER MECH PROJECTS LTD. [INDIRA BANERJEE, J.]

of sub- section (3) of Section 36, on a separate application made for thatpurpose.

28. Once an application under sub-section (2) of Section 36 isfiled for stay of operation of the arbitral award, the Court might subjectto such conditions as it may deem fit, grant stay of the operation ofsuch award, for reasons to be recorded in writing. The Court isempowered to impose such conditions as it might deem fit and maygrant stay of operation of the award subject to furnishing of securitycovering entire amount of the award including interest.

29. The proviso to Section 36(3) of the Arbitration Act, makes itclear that while considering an application for grant of stay in the caseof an arbitral award for payment of money, due regard has to be given tothe provisions for grant of stay of a money decree under the provisionsof the CPC.

30. The proviso to Section 36(3) further stipulates that where theCourt is satisfied that a prima facie case is made out that (a) thearbitration agreement or contract which is the basis of the award or, (b)the making of the award was induced or effected by fraud or corruption,it shall stay the award unconditionally pending disposal of the challengeunder Section 34 of the award.

31. In Ajay Singh & Ors. v. Kal Airways Private Limited andOrs.[1 ]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...”

32. In Jagdish Ahuja & Anr. v. Cupino Limited[2], the BombayHigh Court correctly summarised the law in Paragraph 6 extractedhereinbelow:- 1 2017 SCC Online Del 8934

2 2020 SCC Online Bom 849

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A“ 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 courtBto 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 ordinarilyemploy for considering interim relief, particularly, Order 39Rules 1 and 2 and Order 38 Rule 5; the court, however, isCnot unduly 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,“must have due regard to the underlying purpose of theconferment of the power under the court which is to promoteDthe efficacy of arbitration as a form of dispute resolution.”The learned Judge further observed as follows:

“Just as on the one hand the exercise of the power underSection 9 cannot be carried out in an uncharted territoryignoring the basic principles of procedural law containedEin the 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 whichwould subserve the paramount interests of justice. Abalance has to be drawn between the two considerationsFin the facts of each case.”

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33. In Valentine Maritime Ltd. v. Kreuz Subsea Pte Ltd. &Anr.[3], the Bombay High Court held :- “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,1908 cannot be put into place to defeat the grant of relief G

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SEPCO ELECTRIC POWER CONSTRUCTION CORPORATIONv. POWER MECH PROJECTS LTD. [INDIRA BANERJEE, J.]

which 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 interlocutory remediesmust furnish a guide to the Court when it determines anapplication under Section 9 of the Arbitration and ConciliationAct, 1996. The underlying basis of Order 38 Rule 5 thereforehas to be borne in mind while deciding an application underSection 9(ii)(b) of the Arbitration Act.”

34. 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.

35. It is not in dispute that there is an award of Rs. 142 Crores infavour of the Respondent. No cogent ground has been made out evenprima facie, for interference with the impugned award.

36. Order 41 Rule 5 of the CPC provides for stay of decree uponfurnishing of cash security. The High Court acted within the scope of itspowers under Section 9 in passing the impugned judgment and order.

37. We find no ground at all to interfere. The Appeals aredismissed. We, however, request the High Court to dispose of the pendingapplications of the Appellant under Section 34 for setting aside the awardas expeditiously as possible, preferably within 3 months from the date ofcommunication of this judgment and order.

Nidhi Jain

Appeals dismissed.

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