Section 9 Of The A&C Act Is A Provision In Aid Of The Arbitration, Applies To Foreign Seated Arbitration Also: Calcutta High Court Reiterates

The bench of Justice Shekhar B. Saraf held that Section 9 is a provision that is in aid of the arbitration proceedings in contrast to other provisions of Part-I that relates to the conduct of the arbitration proceedings and has been mandated to apply to foreign seated arbitrations as well.

The Court further held that merely because the parties have chosen a foreign seat of arbitration, it does not translate into an agreement to exclude the applicability of Part-I of the A&C Act. It also held that in proviso to Section 2(2) of the Act, the terms 'seat' and 'venue' are interchangeable.

Facts

The parties entered into an agreement dated 31.05.2022 for the sale and purchase of crude glycerine of certain specifications for a total price of US$ 190,000. As per the agreement, the petitioner was to open a Letter of Credit (L.C) with respondent no. 2 (Bank) in favour of respondent no. 1. The L.C. could be redeemed/honoured after the expiry of the date of issuance of Bill of Lading.

As per the terms of L.C., respondent no. 1 was to give a Certificate of Analysis of the shipped glycerine. The purpose of the certificate was to ensure that the specifications were met. Accordingly, the respondent no.1 shared the certificate by an email. However, after the glycerine was shipped, the respondent no.1 informed the petitioner that the shipped glycerine does not match the given specifications. Consequently, the petitioner expressed its unwillingness to accept the cargo and requested the forwarder to return it to respondent.

In the meantime, the petitioner was informed by the Respondent No. 2 that respondent no. 1 has presented the forms and documents for the invocation of the L.C. Accordingly, the petitioner approached the Court for an injunctive relief under Section 9 of the A&C Act.

Note: The Seat of arbitration is Singapore.

Contention Of The Parties

The petitioner sought the relief on the following grounds:

• Post the 2015 Amendment to the Act, the relief under Section 9 of the Act is also available to parties in a foreign seated arbitration unless the parties, by an express agreement, have excluded the applicability of part-I of the Act.
• The provisions of part-I that are in aid of arbitration proceedings, for example, Sections 9 (interim relief), 27 (Court assistance in taking evidence), 37(1)(b) (appeal against order under Section 9), also applies to foreign seated arbitration, however, other provisions of part-I that governs the conduct of arbitration do not apply to foreign seated arbitration.

The respondent objected to the maintainability of the petition on the following grounds:

• Section 9 of the Act forms part of Part-I of the A&C Act while foreign seated arbitration is governed by part-II of the Act, thus, Section 9 does not apply to an arbitration with a seat outside India.
• The agreement of the parties to have a foreign seat of arbitration is sufficient to exclude the applicability of Section 9 as provided proviso to Section 2(2) and there is no requirement of an express agreement.

Analysis By The Court

The Court observed that the Supreme Court in its judgment in Bhatia International [(2002) 4 SCC 105] had extended the application of part-I of the Act, including Section 9, to foreign seated arbitrations on the ground that otherwise the parties in an arbitration with a seat outside India would be rendered remediless. However, the Constitution bench of the Supreme Court in BALCO [(2012) 9 SCC 552] overruled the judgment in Bhatia International (supra), thereby, excluding the applicability of entire part-I to foreign seated arbitrations.

Thereafter, on the recommendations of the 246^th Law Commission Report, the parliament by the 2015 Amendment Act made applicable certain provisions of part-I, including Section 9, to foreign seated arbitrations as well.

The Court held that the position as it stands today is crystal clear that Section 9 of the Act also applies to foreign seated arbitration, thus, the Court has the power to grant interim relief in arbitrations with a foreign seat. The Court held that Section 9 is a provision that is in aid of the arbitration proceedings as against the other provisions of part-I that deals with the conduct of the arbitration proceedings.

The Court also rejected the argument that merely because the parties have agreed to have a foreign seat of arbitration that in itself is an agreement as provided under the proviso to Section 2(2) of the Act. The Court held that the parties, if they intend to do so, must by an express agreement exclude the applicability of part-I, the same cannot be presumed from the mere agreement to have a foreign seat of arbitration.

The Court also held that the use of the word 'place' under the proviso to Section 2(2) is synonymous to 'Seat' of arbitration.

The Court observed that respondent no.1 has admitted that the shipped glycerine does not match with the required specifications, therefore, there is a prima facie case in favour of the petitioner. Also, the balance of convenience lies in its favour for the reason that if the injunction is not granted, respondent no. 1 would invoke the L.C which will result in an irreparable loss to the petitioner.

Accordingly, the Court allowed the petition and directed respondent no. 2 to not encash the L.C. for a given period of time.

Case Title: Chemex Oil Private Limited v. Seastarr International Pvt. Ltd. AP 707 of 2022

Date: 30.11.2022

Counsel for the Petitioner: Mr. Krishnaraj Thaker, Adv. Mr. Rupak Ghosh, Adv. Mr. Varun Kothari, Adv. Mr. Rajesh Upadhyay, Adv. Mr. B. Gupta, Adv. Mr. A. Shaw, Adv.

Counsel for Respondent No. 1: Mr. Jishnu Chowdhury, Adv. Mr. Aritra Basu, Adv. Mr. Shayak Mitra, Adv. Mr. Abhijit Sarkar, Adv. Mr. Abhik Chitta Kundu, Adv

Counsel for Respondent No. 2: Mr. Avishek Guha, Adv. Ms. Akansha Chopra, Adv.

Citation: 2022 LiveLaw (Cal) 350  

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