While Deciding Petition U/S 9 Of Arbitration Act, Court Cannot Ignore Basic Principles Of CPC: Andhra Pradesh HC

Brief Facts

On 19 December, 2023 the respondent and the appellant entered into a contract as per which the appellant agreed to supply iron ore of a specific quality.

Dispute arose as iron ore was found to be of a different quality than what was agreed upon.A formal notice was issued by the respondent when no reply was received to multiple emails sent. Although appellant intended to settle the dispute amicably, neither was payment made nor settled the dispute. Thereafter, petition under section 9 of the Arbitration Act was filed by the respondent, seeking attachment of iron ore lying at Vizag Port in order to secure the value of the award. The Single Judge allowed the application and directed the attachment of the said property.

Contentions

The appellant submitted that the Appellant is a well-reputed company having assets of around Rs.91 crores as on 31.03.2023 and the property which is attached is the trading commodity of the Appellant and their business has been badly hit in view of the attachment order passed by the learned single Judge.

Refuting the submissions, the respondent submitted that though the value of the company as on 31.03.2023 is shown as Rs.91 crores approximately, the Appellant company does not have any fixed assets and the only realizable source of amount is the property which is attached and that if the appeal is allowed, it would not be possible for the Respondent No.1 to realize the claimed amount as there are no immovable assets of the Appellant company.

Observations:

The issue before the court was 'whether the order of attachment of the learned single Judge calls for interference?

The court noted that in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited, 2022 the Supreme Court held that “in deciding a petition under Section 9 of the Arbitration Act, the Court cannot ignore the basic principles of the CPC. At the same time, the power of the Court to grant relief is not curtailed by the rigours of every procedural provision in the CPC. In exercise of its powers to grant interim relief under Section 9 of the Arbitration Act, the Court is not strictly bound by the provisions of the CPC.

If a strong prima facie case is made out and the balance of convenience is in favour of interim relief being granted, the Court exercising power under Section 9 of the Arbitration Act should not withhold relief on the mere technicality of absence of averments, incorporating the grounds for attachment before judgment under Order 38 Rule 5 of the CPC.”

The court noted that the Supreme Court while taking a contrary view in Sanghi Industries Limited, 2022 held that unless and until the pre-conditions under Order 38 Rule 5 CPC are specified and unless there are specific allegations with cogent material and unless prima facie case, the Court is satisfied that the Appellant is likely to defeat the decree/Award, the interim order under Section 9 of the Arbitration Act may not be passed.

It further observed that the power of attachment under Order 38 Rule 5 CPC was explained in Raman Tech. & Process Engg. Co. v. Solanki Traders, 2008 wherein it was held as a drastic and extraordinary power and that it should be used sparingly and strictly in accordance with the Rule.

It further added that considering the drastic and extraordinary power of attachment, it would be quite odd to say that such a power can be exercised de hors the pleadings just because the language of Section 9 of the Arbitration Act enables the civil Court to pass orders which are “just and convenient”.

In Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd.,2007 the Supreme Court held that “the grant of an interim prohibitory injunction or an interim mandatory injunction are governed by well-known rules and it is difficult to imagine that the legislature while enacting Section 9 of the Act intended to make a provision which was dehors the accepted principles that governed the grant of an interim injunction.”

While applying the above ratio to the facts of the present case, the court observed that the first principle for grant of interim order of attachment i.e pleadings is established, the next question would be to see if the procedure is adhered to before ordering attachment.

The court observed that the Order 38 Rule 5 CPC contemplates a notice to the defendant to furnish security within a specified time, either to furnish security in such sum as may be specified in the order, to produce and place at the disposal of the Court, when required, the said property or value of the same, or such portion thereof as may be sufficient to satisfy the decree, or to appear and show cause why he should not furnish security.

It also noted that the Order 38 Rule 5 CPC does not debar the Court to pass ex parte order of attachment if the Court is of the opinion that there is a requirement of doing so as the defendant might dispose of the property in the interregnum. On attachment, the defendant can appear before the Court and show cause as to why attachment should be removed.

It opined that though the Appellant contended that the net worth of the company is Rs.91 crores and is not a fly-by-night company, no physical assets or any other alternative security is provided either before the learned single Judge or before this Court. The plea of the Respondent No.1 in the application at paragraph 26(b) as extracted above that the appellant has no other asset than the iron ore attached appears not without any basis.

The court concluded that “in the absence of any alternative asset provided by the Appellant and in the light of undisputed fact that the Appellant has received 96% of the contract value, this Court is of the opinion that interim protection should be given to Respondent No.1 (a company based in Hong Kong) so that the arbitral award if passed in favor of Respondent No.1 does not become unrealizable.”

Case Title: Tuf Metallurgical Private Limited Vs. Bst Hk Limited and Others

Case Number: ICOMAA. No.2 of 2024

Judgment Date: 03/01/2025

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