Court Won’t Insist For Bank Guarantee If Enforcement Of Award Is Not Frustrated In Section 9 Petition: Delhi High Court

The High Court of Delhi has held that the Court exercising powers under Section 9 of the A&C Act would not order furnishing of Bank Guarantee (BG) to secure the claims of a party pending the arbitration proceedings, unless it shown that the order party is alienating its assets or acting in a manner that would frustrate the enforcement of the Arbitral Award.

The bench of Justices Vibhu Bakhru and Amit Mahajan held that an order under Section 9 directing furnishing bank guarantee to secure the claims is akin to an order of attachment before judgment as provided under Order XXXVIII Rule 5 of CPC. It held that the Court under Section 9 of the A&C Act is not unduly bound by texts of CPC, however, it cannot pass any order in disregard to the principles of CPC.

The Court held that a Court while ordering security for the amount in dispute in the arbitration, it has to ascertain that whether the petitioner has a prima facie case, balance of convenience, and if the respondent is acting in a manner that would defeat the realization of the award.

Facts

The parties entered into an Offshore Supply Agreement dated 19.05.2017. It contained an arbitration clause.

A dispute arose between the parties in relation to the alleged breach of payment terms by the appellants. Accordingly, the respondent filed an application under Section 9 of the A&C Act for securing the amount in dispute. The ld. Single Judge vide the impugned order directed the appellants to furnish bank guarantee to secure 50% of the disputed amount. Aggrieved thereby, the appellant preferred an appeal under Section 37 of the A&C Act.

Contention of the parties

The appellant challenged the impugned order on the following grounds:

• The direction by the Ld. Single Judge to furnish the bank guarantee to secure the amount in dispute is akin to an attachment before judgment, however, this direction was in contradiction to the principles laid down in Order XXXVIII Rule 5 of the CPC.
• The ld. Single Judge failed to appreciate that the pre-requisites of Order XXXVIII Rule 5 were not fulfilled as there was no assertion or proof to show that the appellants were acting in a manner that would render the award unenforceable.
• The Ld. Single Judge could not have passed the said direction when the pre-conditions to such relief was not fulfilled.

The respondent made the following counter-submissions:

• They argued that the court's powers under Section 9 of the A&C Act are more extensive than those under the CPC. This is in reference to the decision in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited, therefore, the Court can secure the amount in dispute even when there was assertion regarding dissipations of the assets or any other conduct on the part of the opposite/opponent party which may tantamount to any attempt on the part of the opponent/opposite party to defeat the award that may be passed in the arbitral proceedings

Analysis by the Court

The Court observed that the direction by the Ld. Single Judge to furnish a bank guarantee to secure the amount in dispute is akin to a direction that can be passed under Order XXXVIII Rule 5 of CPC. It also observed that while passing the impugned order, the Court made no observations or findings to the effect that if the orders for furnishing of the bank guarantee are not granted, the respondent would be unable to enforce the Arbitral Award against appellants.

The Court held that a Court while ordering security for the amount in dispute in the arbitration, it has to ascertain that whether the petitioner has a prima facie case, balance of convenience, and if the respondent is acting in a manner that would defeat the realization of the award.

The Court observed that there was no material on record to even remotely suggest that appellants are alienating their assets or acting in a manner that would frustrate the enforcement of the Arbitral Award, if the respondents prevail in the arbitral proceedings. The Court held that the impugned order militates against the principles of Order XXXVIII Rule 5 of the CPC.

The Court held that a the Court exercising powers under Section 9 of the A&C Act would not order furnishing of Bank Guarantee (BG) to secure the claims of a party pending the arbitration proceedings, unless it shown that the order party is alienating its assets or acting in a manner that would frustrate the enforcement of the Arbitral Award.

The Court held that an order under Section 9 directing furnishing bank guarantee to secure the claims is akin to an order of attachment before judgment as provided under Order XXXVIII Rule 5 of CPC. It held that the Court under Section 9 of the A&C Act is not unduly bound by texts of CPC, however, it cannot pass any order in disregard to the principles of CPC.

Accordingly, the Court allowed the to the limited extent of setting aside the direction to the appellants to provide a bank guarantee to secure the claims of the respondent.

Case Title: Skypower Solar India Pvt Ltd v. Sterling and Wilson International FZE

Citation: 2023 LiveLaw (Del) 1123

Date: 10.11.2023

Counsel for the Appellants: Mr. Dayan Krishnan and Mr. Rajiv Nayar, Senior Advocates with Mr. Tishampati Sen, Ms. Riddhi S, Mr. Anurag Anand & Mr. Himanshu Kaushal, Advs.

Counsel for the Respondents: Mr. Darpan Wadhwa, Sr. Adv. with Mr. Jaiyesh Bakshi, Mr. Ravi Tyagi, Ms. Manmilan Sidhu, Mr. Sameer Patel, Ms. Sudiksha Saini & Mr. Ankit Tyagi, Advs

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