Standard Is Higher For Post-Award Section 9 Relief, Order To Deposit Amount Not Passed In Routine Manner: Delhi HC

The Delhi High Court Bench of Justice Hari Shankar held that the standard required to be met by a post-award Section 9 relief is higher than that required by pre-award Section 9 reliefs. In this case, interim relief under section 9 of the Arbitration and Conciliation Act was sought to secure the awarded amount.

Brief Facts

This matter is between National Highways Authority of India (NHAI), the petitioner and IRB Vadodara Super Express Tollways Pvt. Ltd. (IRB), the respondent. The dispute stemmed from a concession agreement executed between the parties on July 25, 2011. In the agreement, improvement of the Ahmedabad-Vadodara Expressway had to be made.

The IRB was empowered to collect tolls for 25 years and was also given responsibility to develop a project under a design, build, finance, operate, and transfer model. The IRB had to pay a premium as per the agreement with an increment at 5% per annum. It had to maintain an escrow account by using a waterfall mechanism for payment prioritisation.

Thereafter, the IRB sought for premium deferment in March 2014 due to financial difficulties. The deferment request was approved for the amount of Rs. 1740 crores for 11 years in which a clause was added that the repayment will start from FY 2024-25. The deferment agreement was further formalised by a supplementary agreement executed in June, 2014 for which the IRB provided a bank guarantee of Rs. 315.7 crores.

The NHAI imposed a penalty on the IRB for revenue deficit which increased the threshold limit of 5 % per annum. This penalty was contested on the ground that foreign exchanges losses had not been included. However, this argument was rejected. The IRB further contested that Savli Road in Gujarat was a competing road under the concession agreement which was the main reason for losses in the revenue. This argument was also rejected by the Bombay High Court. The matter went to the Supreme Court.

In the proceedings before the arbitral tribunal, an award was passed in which the claims of the IRB to the tune of Rs. 1.9 crores was awarded and counter claims were deferred. The NHAI filed this petition under section 9 of the Arbitration Act in which the awarded amount of Rs. 1586,25,75,403 was sought to be secured.

Contentions

The petitioner contended that the awarded amount must be secured by directing the IRB to deposit the same in the court so that the award could be enforced in an effective manner. It was further argued that there are reasonable apprehensions that the respondent could dissipate the assets rendering enforcement of the award difficult. It was further submitted that section 9 petition is filed to protect the fruits of the award after the award is passed but before the enforcement of the award.They relied on the Supreme Court judgment in Hindustan Construction Co. Ltd. v. Union of India (2020). It was further argued that the respondent must be directed to disclose its asset so that enforcement of the award could be secured.

Per contra, the respondent argued that no enforceable award for the amount claimed exists and the conditions for seeking relief under section 9 of the arbitration act to deposit the amount have not been met. It was further submitted that the deferment agreement executed has been complied with coupled with a personal guarantee given for securing the amount. It was further submitted that the argument of the petitioner with respect to precarious financial condition of the respondent is baseless. It was further contended that the respondent failed to avoid competing road under the concession agreement due to which it faced a significant loss. Based on this, it was submitted that the petitioner was not entitled to any reliefs under section 9 of the act. It was further argued that assets evaporation arguments are baseless and do not meet the test of section 9 of the act for securing the interim reliefs.

Court's Analysis

The court observed that although a petition under section 9 of the arbitration act can be filed for obtaining interim reliefs after passing of an award. However, it does not mean that a direction to deposit the awarded amount can be passed in a casual manner. The court further observed that such a direction should be passed in extraordinary cases. Only when deposit of the awarded amount is indispensable for securing the product of the award.

The court referred to the Supreme Court judgment in Hindustan Construction Co. Ltd. v. Union of India (2020) in which it was held that it is not envisaged, in every case where there is a money award in favour of one party, a direction by the Court to the other party to deposit the said award by way of security, in proceedings under Section 9. The court observed that in the present case, it was not clearly demonstrated that the respondent was trying to evade its responsibilities or lacked sufficient funds or was trying to dissipate its assets. Therefore, this argument of the petitioner is rejected.

The court further observed that two conditions must be satisfied before a relief can be granted. Firstly, there must be an enforceable award in existence. Secondly the risk must be genuine that if the relief is not granted, the award will become unenforceable

The court further noted that amendment in 2015 has removed the provision of automatic stay on the enforcement of the award when it is challenged under section 34 of the arbitration act. Therefore, a shortcut method in the form of section 9 petition to secure the awarded amount cannot bypass provisions of section 34 and 36 of the Act. The court held that even if the award was challenged by the award debtor under Section 34, there is no automatic stay of the award. It nonetheless remains enforceable in law, unless a stay is granted by the Court under Section 36(3). To an extent, therefore, this reduces the urgency of passing protective postaward Section 9 orders, securing the awarded amount.

The court further analysed the clauses of the agreement and observed that there was no bounden duty of the respondent to pay the awarded amount immediately. The court further observed that the tribunal had not specified a particular amount in the award to be recovered. It just determined that a particular interest would be paid by the respondent for not paying the premium. Based on this, the court held that it does not indicate that the payment had to be made on a particular date.

Conclusion

The court concluded that the standard required to be met by a post-award Section 9 reliefs is higher than pre award section 9 reliefs. The pleadings in the petition do not meet that standard. Accordingly, the present petition was, therefore, dismissed.

Case Title: NATIONAL HIGHWAYS AUTHORITY OF INDIA V. M/S IRB AHMEDABAD VADODARA SUPER EXPRESS TOLLWAYS PVT. LTD

Citation: 2024 LiveLaw (Del) 1154

Case Reference: OMP (I) (COMM) 172/2024

Court: Delhi High Court

Judgment Date: 18/10/2024

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