Party Eligible For Interim Protection U/S 9(1) Arbitration & Conciliation Act, Regressive To Relegate To CPC Procedure: Calcutta High Court

The Calcutta High Court has recently allowed applications for appointment of arbitrator u/s 11 and for interim protection u/s 9(1) of the Arbitration & Conciliation Act, 1996 (“Act”) by Prathyusha- AMR, a Joint Venture.

In allowing the plea for appointment of an arbitrator u/s 11 of the Act, a single-bench of Justice Moushumi Bhattacharya noted that “a turning point” in negotiations between the parties may ‘re-vitalise’ limitation in order to sustain a ‘live claim.’

In further allowing the application for interim protection u/s 9(1) of the Act, the Court observed:

An applicant who comes to the Court for relief in time-sensitive matters cannot be drawn and quartered by being relegated to the stranglehold of Order 38 Rule 5. A party who seeks urgent intervention of the Court cannot be strung to the structure of the statute - which guards against errant defendants – and pilloried for want of incriminating evidence. If the Court drags its feet, the respondent may well deport and decamp with what was intended to be preserved. This would be regressive to the whole purpose of timely, effective and focussed interim relief under section 9(1) of the 1996 Act.

Brief facts of the Case

The present applications were moved by the petitioners under Sections 9 and 11 of the Arbitration Act, for the appointment of arbitrator and interim protection respectively.

Petitioners argued that the prayer for appointment of arbitrator was basis an EPC contract which was executed between the parties pursuant to a tender issued by the NHAI.

It was argued that the petitioner had performed work “to the extent possible” in complete adherence to the contractual terms agreed with the respondents.

Petitioners argued that they had delayed in executing the project due to the respondents “breach of fundamental terms of the contract,” and prayed for compensation due to the consequent loss and damage suffered by them.

Respondents opposed the prayer for appointment of arbitrator on the grounds that such a claim was “time-barred” and that the letters exchanged between the parties did not implicitly extend the period of limitation - a specific prayer for which was not included in the present application either.

Petitioners in defending their contention for appointment of arbitrator argued that not only was there an ongoing CIRP process on the lead-member in the JV, but that there was also another arbitral proceeding initiated by the respondents against the NHAI wherein the respondent had included the petitioners claims.

In their plea for interim protection, the petitioner prayed for an injunction restraining the respondents from withdrawing an amount of approx. Rs 76 crores out of the awarded sum of approx. Rs 322 crores deposited by the NHAI before the Delhi HC, seeking an alternative direction for deposit of the same before the Calcutta High Court.

The respondent had been awarded a sum of approx. Rs 322 crores in arbitral proceedings between the NHAI and the respondent in 2019.

The Delhi High Court had subsequently stayed the operation of the order upon directing for the entire amount to be deposited before it, as security, and permitted the respondent to withdraw the entire amount upon furnishing a bank guarantee of identical value.

The aforesaid order was subsequently recalled, and the Delhi HC permitted the respondent to initially withdraw approx. Rs 14 crores, followed by approx. Rs 35 crores, leading to the respondents withdrawing a sum of approx. Rs 49 crores pursuant to the Court’s orders.

Petitioner submitted that their claim of unpaid dues against the respondents was of approx. Rs 76 crores, and accordingly prayed for a restraint on the respondent to withdraw the aforesaid mount from the award obtained from the NHAI.

Respondent opposed such a prayer on the grounds that the petitioner would need to satisfy a “twin test” under Order 38 Rule 5 of the CPC, namely whether the respondent is about to dispose of the property or intends to remove the whole or any part of the property for obstructing execution of a decree.

Findings of the Court

In dealing with the application under Section 11 of the Act for appointment of arbitrator, the Court noted that there had been continued communication between the respondents and petitioners pertaining to the aforesaid subject.

Court observed that the petitioner being a Joint Venture, was facing insolvency proceedings in respect of its lead member M/S Prathyusha Resources & Infra, and that the liquidator had also issued a letter to the respondents reiterating the petitioner’s claims against them.

It was held that the respondent’s computation of the limitation did not account for correspondence between the parties, as well as the respondents own admittance of the petitioner’s claims in its reference against the NHAI.

The respondent admitted to the claims of the petitioner by way of a letter of 11.5.2018. The period of limitation were hence renewed and refreshed for another 3 years from 11.5.2018 i.e. the date from the respondent’s admission of the petitioner’s claims, it was held.

Court further held that the limitation period also stood extended in light of the moratorium imposed on the lead member of the JV petitioners in light of the ongoing insolvency proceedings against it, as well as in light of the Apex Court’s orders passed in wake of the COVID pandemic.

Court allowed the reference by appointing Justice (Retd) RK Bag as the arbitrator and observed that it is of utmost importance for the Court to assess the facts which are presented only to defeat limitation and those which constitute important bends in the flow of events leading to accrual or denial of valuable rights of the parties.

On the prayer for interim protection under Section 9 of the Act, the Court drew a distinction between the aforesaid section and Order 38 Rule 5 of the CPC.

While the latter falls under the chapter “Arrest and Attachment before Judgment” and contains certain safeguards before any orders can be passed by the Court, section 9(1) is a quick-relief measure before or during the arbitration and even after the passing of an award but before it is enforced, the Court observed.

It was noted that while the relief under the CPC could be at any stage in a suit, the plaintiff would have to show that the defendant sought to obstruct or delay the execution of a decree by alienating the suit property, the relief under the Arbitration Act is limited to preserving the subject-matter of the arbitration. It was held:

The Court will simply make a prima facie assessment of the application and whether refusal of an interim protection would frustrate the arbitration. Unlike Order XXXVIII Rule 5 where the Court intervenes to protect a decree, section 9(1) is simply an interim measure to protect and preserve the arbitration before it is finally adjudicated in the form of an award.

Accordingly, the petitioner was allowed interim protection and the respondent was directed to deposit the sum of approx. Rs 76 crores with the Registrar (Original Side) of the Calcutta High Court.

Citation: 2023 LiveLaw (Cal) 304

Case: Prathyusha- AMR JV vs Orissa Steel Expressway Private Limited

Case No: AP 863 of 2022 & AP 370 of 2023

Click Here To Read/Download Judgment