Jurisdiction of High Courts Under Section 37 Of Arbitration Act Is Limited To Arbitrary, Capricious And Perverse Orders: Bombay High Court

Section 37 of the Arbitration Act allows appeals against specific orders related to arbitration, including refusals to refer to arbitration, measures under Section 9, and decisions on arbitral awards under Section 34.

Brief Facts:

M/s Halliburton Indian Operations (“Halliburton/Appellant”) won a tender from the Oil and Natural Gas Corporation (“ONGC”) and entered into a contract to charter hire a stimulation vessel for Mumbai Offshore for three years. Halliburton further subcontracted the work to Vision Projects Technologies Pvt. Ltd. (“Vision/Respondent”), which agreed to provide necessary services using its Platform Supply Vessel (PSV), which was to be converted into a Well Stimulation Vessel (WSV) by adding specialized equipment in the vessel. Halliburton was responsible for installing, maintaining, and eventually removing this equipment at its own cost.

Later, the Directorate General of Shipping notified a change in law, restricting Offshore Support Vessels from carrying Hydrochloric Acid unless reassessed and certified under the Offshore Service Vessel Chemical Code. Initially, an exemption was granted to the vessel for ONGC use, but later it required the installation of lifeboats by 31/03/2023. As further extensions were not granted, Vision invoked the Force Majeure clause on 03/04/2023. Halliburton also invoked the force majeure clause under both the main contract and the sub-contract, but Vision rejected this invocation on 15/05/2023.

Due to the refusal to extend the compliance time beyond 31/05/2023, the vessel was docked at the port on 01/06/2023. Subsequently, Halliburton issued a termination notice to Vision. ONGC rejected Halliburton's force majeure invocation, and Vision reiterated the rejection, stating that Halliburton was liable for charter payments from June 2023 until the equipment was removed.

In March 2024, Halliburton filed a petition before the commercial court under Section 9 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). It sought permission, as an interim relief, to remove its equipment from the vessel and to restrain Vision from cold laying the vessel. The single judge denied Halliburton's request, stating that the termination was not in accordance with Clause 6.1 of the sub-contract and that the relief sought was in the nature of final relief.

Aggrieved by the denial of interim relief by the single judge, Halliburton filed a commercial appeal under Section 37 of the Arbitration Act before the Bombay High Court (“High Court”).

Contentions of Halliburton India Operations (Appellant):

Halliburton argued that the lack of an extension from the Directorate General of Shipping necessitated invoking the force majeure clause, and since Vision did not challenge the termination, Halliburton was justified in seeking interim measures. Halliburton cited the Supreme Court decision in Indian Oil Corporation Ltd. vs. Amritsar Gas Service and Others [1991) 1 SCC 533], to argue that the action of termination would not fall even if a shorter notice period was given. Halliburton emphasized that no activities had been conducted since 01/06/2023, making it reasonable for Halliburton to remove its equipment.

Halliburton argued that the vessel could not meet the Directorate General of Shipping's requirements, necessitating the invocation of the force majeure clause. It terminated the sub-contract with Vision, providing fifteen days' notice instead of the ninety days as stipulated in the sub-contract. As a justification, it contended that the short notice could be monetarily compensated, a matter to be adjudicated in arbitration.

Contentions of Vision Projects Technologies (Respondent):

Vision argued that the appeal's scope was limited and that the interim measure sought was essentially a final relief, which was rightly denied by the single judge. The termination notice was defective due to insufficient notice period, and Vision had a possessory lien (security interest) on the vessel until dues were paid. Vision also argued that allowing the equipment removal would place it at a disadvantage in recovering its dues.

Vision maintained that it was owed dues from Halliburton from 01/06/2023 onwards, having maintained the vessel and specialized equipment, and incurred related expenditures including Goods and Service Tax liabilities. Further, Vision reiterated its rights as a bailee under Sections 148 and 170 of the Contract Act, 1872, claiming it could retain the equipment until dues were settled (Halliburton disputed this, stating Vision had no bailment rights over the specialized equipment since no services were being rendered).

Observations by the High Court:

The High Court observed that Halliburton sought permission under Section 9 of the Arbitration Act to remove its equipment from Vision's vessel, but the single judge viewed this as a request for final relief, inappropriate for interim measures. The High Court further held that Halliburton's appeal was against the exercise of discretionary jurisdiction under Section 9 of the Arbitration Act. According to established legal principles, the appellate court should not interfere with the lower court's discretion unless it was exercised arbitrarily, capriciously, or perversely, or if the lower court ignored settled legal principles governing interlocutory injunctions.

The High Court noted that the single judge's decision was reasonable and not perverse. The disputes regarding contract termination, force majeure invocation, and financial liabilities were issues for arbitration. The vessel had not been in use since 01/06/2023 due to non-compliance with shipping regulations. Both parties' rights could be resolved monetarily in arbitration.

The High Court concluded that there was no exceptional reason to interfere with the single judge's decision under Section 37(1)(b) of the Act. The single judge's observations were limited to the interim measure context and would not prejudice the arbitration. Consequently, the commercial appeal filed by Halliburton was dismissed.

Case Title: M/s Halliburton India Operations Private Limited vs Vision Projects Technologies Pvt. Ltd.

Case No.:Commercial Appeal (L) No. 17720 of 2024

Advocate for the Appellant: Mr Aspi Chinoy alongwith Mr Piyush Sharma, Mr Ativ Patel, Mr Shreyas Patel, Ms Viloma Shah and Mr Harshad Vyas instructed by M/s AVP Partners

Advocate for the Respondent: Mr Rahul Narichania alongwith Mr Prathamesh Kamat and Mr Kayush Zaiwalla instructed by Ms Priyanka Patel

Date of Pronouncement: June 19^th, 2024

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