Constitution Of Arbitral Tribunal Is Not A Bar On A Party's Right To Approach Section 9 Court For Implementation Of Its Order: Calcutta High Court

The High Court of Calcutta has held that constitution of arbitral tribunal is not a bar on a party's right to approach Section 9 Court for implementation of its order.

The bench of Justice Sabyasachi Bhattacharyya held that bar under Section 9(3) which proscribe Section 9 remedy upon constitution of arbitral tribunal would not apply when the Court is reapproached for the enforcement of an order passed before the constitution of the tribunal.

The Court held that enforcement of an order passed by the Court under Section 9 cannot be sought before the arbitral tribunal under Section 17, therefore, the remedy before the tribunal would not be efficacious and bar under Section 9(3) would not apply.

Facts

The parties entered into a work agreement. Pursuant thereto, the petitioner had given 3 bank guarantees to the respondent. A dispute arose between the parties and the respondent invoked a bank guarantee on 25.09.2023 and terminated the agreement on 30.09.2023.

Thereafter, the petitioner approached the Commercial Court under Section 9 of the A&C Act seeking refund of the encashed amount and also restraining the respondent from acting on notice of invocation in respect of the remaining bank guarantees. Interestingly, the respondent had already issued directions to the bank to invoke the bank guarantee.

The Commercial Court vide an order dated 04.10.2023 restrained the respondent from encashing the bank guarantees. The order of the Court was communicated to the Branch Managers of the Park Street and Broad Street Branches of the PNB respectively.

Pursuant to the order of the Court, the branch manager at Broad Street branch reversed the invocation of the remaining two guarantees and returned the amount to petitioner's bank account. However, the branch manager at Park Street branch (Respondent No. 4) invoked the guarantee and classified the account of the petitioner as Non-Performing Asset (NPA).

Aggrieved thereby, the petitioner filed an application under Order XXXIX Rule 2A of CPC before the Commercial Court seeking action against respondent no. 4 for violation of its order. However, the application was not pursued due to constitution of arbitral tribunal.

Thereafter, it filed a writ before the High Court challenging the invocation of the bank guarantee by respondent no. 4 and consequent NPA declaration.

Contention by the Parties

The petitioner made the following submissions:

• The invocation of one of the remaining bank guarantees by respondent no. 4 was a blatant violation of the Commercial Court's order.
• That their account being classified as a Non-Performing Asset (NPA) was a direct result of the illegal invocation of the bank guarantee.
• That respondent no. 4, despite being aware of the Commercial Court's order, deliberately proceeded with the invocation of the bank guarantee.
• that since respondent no. 5 had reversed the process and re-credited the amount to the petitioners' account in a similar situation, respondent no. 4 should have done the same on parity.

The respondent made the following counter-submissions:

• The bank guarantee is an independent contract between the beneficiary and the bank, and the bank was duty-bound to honor the request of respondent no. 2 by invoking the guarantee.
• The bank had already invoked the bank guarantee prior to the intimation of the order to the bank.
• That there was no legal provision compelling the bank manager to reverse an already-invoked bank guarantee.
• The writ is not maintainable as the petitioners had other remedies available, such as approaching the court under Order XXXIX Rule 2A of the CPC or seeking interim orders from the Arbitral Tribunal under Section 17 of the 1996 Act.

Analysis by the Court

The Court noted that the Commercial Court at Rajarhat had jurisdiction to implement its own order under Section 9 of the A&C Act, even after the constitution of the Arbitral Tribunal.

The Court held that constitution of arbitral tribunal is not a bar on a party's right to approach Section 9 Court for implementation of its order.

The Court held that bar under Section 9(3) which proscribe Section 9 remedy upon constitution of arbitral tribunal would not apply when the Court is reapproached for the enforcement of an order passed before the constitution of the tribunal.

The Court held that enforcement of an order passed by the Court under Section 9 cannot be sought before the arbitral tribunal under Section 17, therefore, the remedy before the tribunal would not be efficacious and bar under Section 9(3) would not apply.

The Court held that the petitioner should have approached the Commercial Court under Section 9 for the enforcement of its order and for action against respondent no.4 for violation of the Court's order. It held the power to punish for its disobedience is inherent under Section 9 and is akin to Order 39 Rule 2A of CPC. Further, it held that it could alternatively approach the Court under Order 39 Rule 2A or approach the arbitral tribunal for the interim relief afresh.

The Court held that there is no reason why the writ court should permit itself to be substituted as an executing court to implement the order passed under Section 9.

Next, the Court addressed the question of whether the writ court could act as a fact-finding forum. It noted that while the writ court should not shirk its duty on the grounds of factual issues, it should also not interfere in cases where detailed evidence is required to ascertain factual disputes.

The Court observed that in its affidavit, respondent no.4 contended that the order of the Court was communicated to it at 8:26 PM on 04.10.2023 while the bank guarantee was invoked at 5:57 PM on the same date.

The Court found that there was insufficient evidence to hold respondent no. 4 guilty of deliberate violation of the Commercial Court's order. It noted that the exact timing of events and the actions taken by respondent no. 4 were not conclusively established.

The Court held that as a Writ Court it is not sufficiently equipped, since the statements are made on oats and the Court cannot get into examination of witnesses/documents, to conclusively decide if there was any wilful disobedience by respondent no.4 of the Court's order. It held that such an issue would require threadbare evidence to be adduced and appreciated which cannot be done in a writ jurisdiction.

Accordingly, the Court dismissed the writ petition.

Case Title: RKD Niraj JV & Ors v. Union of India & Ors, WPO No. 173 of 2024

Date: 23.04.2024

Counsel for the Petitioner: Mr. Soumya Majumder, Adv., Mr. Pratip Mukherjee, Adv., Mr. Tarun Chatterjee, Adv., Mr. Surajit Basu, Adv., Mr. Raju Mondal, Adv.

Counsel for the Respondents: Mr. Dhiraj Tribedi, Adv., Mr. Atarup Banerjee, Adv., Ms. Ranjana Chatterjee, Adv. For the respondent nos. 3,4,5 and 7 : Mr. Sakya Sen, Adv., Mr. Anirban Ghosh, Adv.

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