Arbitral Tribunals Exercising Power U/S 17 Not Strictly Bound By CPC: Calcutta High Court

The bench of Justice Shekhar B. Saraf has extended the reasoning adopted by the Apex Court, in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited, 2022 (SC) LiveLaw 765 wherein the SC held that Court exercising powers under Section 9 of A&C Act is not strictly bound by CPC, to Section 17 also by observing the scope of both the Sections is now almost pari passu.

The Court further observed that to prevent the arbitral proceedings from becoming infructuous and to balance the convenience between the parties, the tribunal can grant a relief that may not be contemplated in the agreement so long as the relief does not explicitly stand contrary to the contract.

Facts

The parties entered into an agreement dated 10.05.2019 wherein the petitioner was to supply a High Wall Mining System (HMW) for a consideration of Rs. 60,12,93,000/- (excluding taxes). Clause 4 provided for the payment mechanism that was to be released in stages.

A dispute arose between the parties that was referred to arbitration. The arbitrator vide an order dated 22.12.2021 directed the entire balance amount of HMW system in an escrow account to be maintained by the advocates for both parties and that entire amount would be released in favour of the petitioner after the HMW performs satisfactorily for a continuous period of 96 hours. Vide an order dated 14.02.2022, the tribunal laid down the modus operandi for transport of HWS system and direct the Special Officer to oversee the transport and re-assembly and testing of the system.

The tribunal, upon the oral representation of the parties, vide an order dated 07.03.2022 modified the orders dated 22.12.2021 and 14.02.2022 and directed that instead of entire balance amount, the respondent to open an interest-bearing fixed deposit account comprising 50% of the basic contract value plus 100% of taxes and duties payable on the HWM System in favour of the petitioner's advocate and that the amount would be released as an when it makes any further order in that regard.

Thereafter, the petitioner made another application under Section 17 for a direction upon its advocate to encash the fixed deposit and to release the amount in favour of the petitioner. Subsequently, the respondent also filed an application for restraining the petitioner's advocate from encashing the FD.

Both the applications were disposed of vide the impugned order dated 13.06.2022. The tribunal directed the petitioner's advocate to encash the FD amount and release it in favour of petitioner subject to it furnishing a Bank Guarantee of the same amount.

Aggrieved by the condition of furnishing a bank guarantee, the petitioner challenged the order under Section 37 of the Act.

Contention of the Parties

The petitioner challenged the order on the following grounds:

• The order of the tribunal in as much as requiring the petitioner to deposit a bank guarantee is against the terms of the contract as the agreement between the parties provided for no such stipulation.
• The tribunal, vide the impugned order, has re-written the contract between the parties.
• The order is also against the provision of CPC in as much as the respondent has failed to display any circumstance that might suggest that the petitioner would not be able to meet its alleged liability, if any arises in the future owing to non-functionality of the HWM System.
• The impugned order is passed upon allegations made out in the application of the respondent that was never moved or heard and the same is not even included in the minutes of meeting of the same date.
• The order is passed without giving the petitioner a chance to reply to the allegations made in the application of the respondent as the order was passed on the same day on which the application was moved, therefore, the principles of natural justice are violated.
• No reasons are given for placing an additional requirement of bank guarantee.

The respondent made the following submissions against the appeal:

• There is a delay in the delivery of the machine. Moreover, the petitioner has a history of supplying items with cheap, inferior, and duplicate characteristics.
• The application is merely an attempt to delay the arbitral proceedings and refuse inspection, testing, reassembly and commissioning of HMW system.
• The advocates from both parties were heard before the impugned order was passed, therefore, the petitioner was given a fair opportunity to refute the allegations made in the application of the respondent.
• The petitioner in another contract with the respondent has defaulted upon its obligations, therefore, there are reasonable apprehensions that it would repeat its conduct.

Analysis by the Court

Firstly, the Court dealt with the challenge regarding the non-compliance with the rigours of Order XXXVIII Rule 5 CPC on the ground that the respondent in its application did not indicate that the petitioner would not be able to meet its alleged liability, if any arises in the future owing to non-functionality of the HWM System.

The Court that the arbitral tribunals while exercising powers under Section 17 of the A&C Act are not strictly bound by the technicalities of CPC. The Court held that the ambit of power given to the tribunals for grant of interim relief is to be guided by the basic principles of CPC, however, the strict technicalities cannot prevent the tribunal from securing the ends of justice, accordingly, the Court rejected the objection.

The Court has extended the reasoning adopted by the Apex Court, in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited, 2022 (SC) LiveLaw 765 wherein the SC held that Court exercising powers under Section 9 of A&C Act is not strictly bound by CPC, to Section 17 also by observing the scope of both the Sections is now almost pari passu.

Next, the Court decided on the challenge regarding the requirement of bank guarantee being against the terms of the agreement, particularly clause 4 of the agreement.

The Court observed that the order dated 22.12.2021 was also not rigidly as per the agreement wherein the tribunal had directed the entire balance amount to be deposited in the escrow account, however, both parties had accepted and acted upon the order. The Court held that the objection raised by the petitioner seem hypocritical.

Similarly, the impugned order might not be strictly in accordance with the agreement, however, is necessary to prevent the arbitration from being infructuous and for facilitating the contract. The Court observed that both the orders were passed to facilitate the undertaking of the contractual obligations.

The Court held that to prevent the arbitral proceedings from becoming infructuous and to balance the convenience between the parties, the tribunal can grant a relief that may not be contemplated in the agreement so long as the relief does not explicitly stand contrary to the contract.

The Court observed that the condition imposed by the tribunal on the release of FD amount was in view of the apprehensions raised by the respondent in its application under Section 17 of the Act.

Lastly, the Court dealt with the objections regarding insufficiency of reasons in the order. The Court observed that the order elaborately discusses the history of dispute but the apprehensions of both the parties are discussed in brief. However, this does not indicate that the parties were not given a fair opportunity.

Accordingly, the Court dismissed the appeal.

Case Title: Gainwell Commosales Pvt Ltd v. Minsol Limited, APO 74 of 2022

Date: 15.12.2022

Counsel for the Petitioner: Mr. Surajit Nath Mitra, Sr. Adv. Mr. Anirban Ray, Adv. Mr. Shaunak Mitra, Adv. Mr. Anupam Dasadhikari, Adv. Mr. Rishav Dutta, Adv. Mr. Shayak Mitra, Adv. Ms. Prerona Banerjee, Adv

Counsel for the Respondent: Mr. Ranjan Bachawat, Sr. Adv. Mr.0Debnath0Ghosh,0Adv. Ms. Rajshree Kajaria, Adv. Mr. Sayan0Roy Chowdhury, Adv. Mr. Kushal Bhattacharjee, Adv

Citation: 2022 LiveLaw (Cal) 371 

Click Here To Read/Download Order