IN THE HIGH COURT OF DELHI AT NEW DELHI Date of decision : October 3, 2008 OMP NO. 182 of 2005
03.10.2008
# M/s Shin Satellite Public Company Limited ......... PETITIONER ! Through: Mr. Sanjay Jain Sr. Advocate with Mr.D.Singh Advocate for Petitioner Versus
$ M/s Jain Studios Limited ......... RESPONDENT Through: Mr. K.N.Bhatt Sr. Advocate with Mr. Vijay Gupta,Mrs. Geeta Goel and Mr. Ashish Gupta Advocates for the Respondent
OMP NO. 183 of 2005
# M/s Shin Satellite Public Company Limited ......... PETITIONER ! Through: Mr. Sanjay Jain Sr. Advocate with Mr.D.Singh Advocate for Petitioner Versus
$ M/s Jain Studios Limited ......... RESPONDENT Through: Mr. K.N.Bhatt Sr. Advocate with Mr. Vijay Gupta,Mrs. Geeta Goel and Mr. Ashish Gupta Advocates for the Respondent
OMP NO. 184 of 2005
# M/s Shin Satellite Public Company Limited ......... PETITIONER ! Through: Mr. Sanjay Jain Sr. Advocate with Mr.D.Singh Advocate for Petitioner Versus
$ M/s Jain Studios Limited ......... RESPONDENT Through: Mr. K.N.Bhatt Sr. Advocate with Mr. Vijay Gupta,Mrs. Geeta Goel and Mr. Ashish Gupta Advocates for the Respondent
CORAM :-
HON'BLE MR. JUSTICE ANIL KUMAR
1. Whether reporters of Local papers may be allowed YES to see the judgment?
2. To be referred to the reporter or not ? NO
3. Whether the judgment should be reported NO in the Digest?
ANIL KUMAR, J.
1. This order will dispose of three petitions filed by the petitioner being OMP No. 182 of 2005, OMP No. 183 of 2005 and OMP No. 184 of 2005, under
Section 9 of the Arbitration and Conciliation Act seeking appointment of
receiver in respect of the respondent?s moveable and immovable properties
situated in New Delhi or elsewhere in India and an injunction against the
respondent from selling, alienating, transferring possession, creating any
third-party right/claim/interest and/or creating charge or dealing with in any
manner whatsoever all the movable and immovable properties and in case the
respondent does not comply with the orders which may be passed for appointment
of receiver, to attach all the properties of the respondent. The petitioner has
also prayed for a direction to the respondent to disclose his movable and
immovable, tangible and intangible assets including any encumbrance thereon and
for a direction to the respondent to deposit with the Court all such sums
received by the respondent from its businesses pending disposal of the arbitral
proceedings.
2. The petitioner is a company registered under the laws of Thailand having its principal office in Thailand. The petitioner is engaged in the
business of providing transponder services under the concessions granted by the
Government of Thailand. The Petitioner has a satellite, ?THAICOM 3?, which is
operating in the Geo-Stationary Orbit and the transponder services are provided
particularly for the purposes of broadcasting, internet and telecommunication to
various firms and companies worldwide. The Petitioner is also stated to have a
well-equipped teleport up-linking station to provide up-linking services to the
customers and a satellite station to monitor and control its satellite in the
Orbit.
3. The Respondent is a public limited company incorporated under the Companies Act, 1956 having its registered office in New Delhi and is in the
business of broadcasting and other telecom services like internet services. It
also owns the cable TV known as ?Jain TV?.
4. The petitioner and the respondent entered into 3 agreements- (i) Internet Service Agreement No. SA-INT/09509-2000-4 dated 12th January, 2001 (IS
Agreement) (ii) Transponder Service Agreement No. SA-FC-09508-99-1 dated 10th
August, 1999 which agreement was amended vide Amendment Agreement No. A1-SA-
FC/09508-99-1 dated 14th July, 2000 and again amended vide Amendment Agreement
No. A2-SA-FC/09508-99-1, dated 16th January, 2002 (TS Agreement-I) (iii)
Transponder Service Agreement No. SA-FC/09501-2001-1 dated 5th January, 2001
which agreement was later on amended, the amended agreement No. being A1-SA-
FC/09501-2001-1, dated 16th January, 2002 (TS Agreement-II).
5. Under the IS Agreement, which was valid up to 24th January, 2004, the
respondent had hired the services of the petitioner for the purpose of accessing
the internet backbone by utilizing part of the transponder capacity and connectivity to the Global Internet Backbone of THAICOM-3 Satellite for a period
of three years. As per the clause 3 of the IS agreement service fee was payable @ US$ 3900/Mbps and US$ 4200/Mbps with a minimum commitment of 20 Mbps
per month and less than 20 Mbps respectively.
6. Under the TS Agreement-I, which was valid up to 18th September, 2002,
the respondent had availed the transponder services of the petitioner for the
purposes of television/broadcasting application. As per clause 5.1.1 read with
Appendix-A of the said agreement service fee was payable on a monthly basis in
advance before the due date @ US$ 58,333 for using 18MHz.
7. Under the TS Agreement-II, which was valid up to 14th January, 2004, the respondent had hired the services of the petitioner for the purpose of
transmitting one digital television channel through non-preemptible unprotected
extended C-Band regional Beam Transponder of THAICOM-3 Satellite. As per
clause 5 read with Appendix-A of the said agreement the quarterly service fee
payable was US$ 196,875 and US$ 370 000 per annum for using 4.5 MHz and 9 MHz
respectively.
8. The petitioner contended that despite using the services under the agreements, the respondent never paid the service fee as had been agreed and
kept on promising to pay the amounts which became due under the terms of the
agreements time and again. The petitioner has filed three different applications
seeking appointment of receiver and injunction in respect of the properties of
the respondent as the respondent failed to pay the amounts due to the petitioner
in respect of above mentioned three agreements.
9. It is averred by the petitioner that after repeated communications regarding the non-payment of dues by the respondent, a meeting was held at the
office of the petitioner on 17th September, 2001 where the President of the
respondent company lamented about his poor financial condition. The petitioner
made a proposal to the respondent during the meeting which the President of the
respondent company agreed to discuss with his associates and revert by 21st
September, 2001. However the President of the respondent intimated the President
of the Petitioner, by communication dated 19th September, 2001, about the
problems confronting the respondent on account of non-availability of the
support of Banks and Financial Institutions and requested the petitioner to
restructure the payment schedule and proposed to review the situation on 2nd
October, 2001. Since the petitioner had already extended several relaxations
and could not suffer any further loss on account of the respondent, by an e-mail
dated 21st September, 2001, the petitioner reminded the President of the
respondent that he was to revert by 21st September, 2001 on the proposal made by
the petitioner and warned that they may have to suspend its services to the
respondent in case no response is received from the respondent by 5.00 pm on
21st September, 2001.
10. The president of the Respondent vide his fax dated 21st September, 2001 agreed that a monthly payment of US$ 58333 would be made starting from the
month of October 2001 till the month of December 2001 which would be revised to
US$ 100000 per month thereafter. It was stated by the petitioner that the
respondent again sent an e-mail dated 23rd January, 2002 acknowledging the
payment scheduled agreed between them on 17th September, 2001. However in the
said e-mail the respondent also expressed its inability to make payment of US$
100000 per month with effect from January 2002. It is asserted by the petitioner
that the President of the respondent had intimated to the Chief Financial
Officer of the petitioner by communication dated 9th July, 2002 that the
petitioner was rightly interested in recovery of all its outstanding dues and
referring to the last visit of the President of the respondent, it was reiterated that the respondent would start clearing the dues on regular basis
and would also reduce its transponder utilization by going digital and efforts
would be made to increase the utilization of its teleport by up-linking more
THAICOM-3 customers and will use the proceeds to clear backlog of petitioner?s
payment.
11. Since the respondent failed to make the payments, the petitioner by a letter dated 11th July, 2002 communicated to the respondent that the outstanding dues of the respondent in respect of all the three agreements
aggregated to US$ 571215.75 and that if the same was not paid by 12.00 clock
(Bangkok time) on Friday, 12th July, 2002 the petitioner would be left with no
alternative but to suspend the services of the respondent. Since the payment was
not made within the stipulated time, the petitioner by a letter dated 17th July,
2002 terminated all the three agreements entered with the respondents and
intimated that the outstanding dues on account of all the three services
amounted to US$ 729,870.25 on the said date.
12. Petitioner has alleged that despite the termination of all the agreements the respondent illegally continued up-linking its signal to the
petitioner?s satellite forcing the petitioner to file a petition under Section 9
of the Arbitration and Conciliation Act, 1996 being OMP NO.102/2003 seeking
restraint against the respondent from transmitting any signal to any transponder
of THAICOM-3 Satellite. During the course of hearing of the said petition, the
learned counsel for the respondent made a statement on instructions from the
General Manager (Commercial) of the respondent that the respondent is no longer
using the transponders of the petitioner and shall not use the same in future.
In view of the above-said statement of the learned counsel for the respondent,
the petition was disposed of.
13. The petitioner has contended that the respondent has failed to pay the amounts, which had become due from respondent, despite several notices being
sent by the petitioner to the respondent. In the circumstances, the petitioner
has also claimed late payment charges on the outstanding dues from 17th July,
2002 @ 1.5% per month as per clause 3 of all the three agreements. The petitioner has also claimed that the respondent is also liable to pay 50% of the
unpaid service fees as per clause 14.2 of the TS Agreement-II. It is further
asserted by the petitioner that as per the terms of the three agreements, since
there is a breach on the part of the respondent, the respondent is also liable
to pay other damages incurred by the petitioner.
14. On the failure of the respondent to pay the dues, a notice under Section 434 of the Companies Act, 1956 was also given by the petitioner, dated
7th June, 2004 calling upon the respondent to pay US$ 213,182.30 due under the
IS Agreement, US$ 443,382.50 due under the TS agreement-I and US$ 71,640.62
under the TS Agreement-II.
15. The petitioner has averred that a very cryptic reply was received to
the said notice stating that no amount is due from respondent to the petitioner
and therefore, the petitioner was forced to invoke the arbitration clauses in
the respective agreements (clause 14 of IS Agreement, clause 23 of TS Agreement-
I and clause 22 of the TS Agreement-II) vide letters dated 9th September, 2004
16. An Arbitral Tribunal comprising of the Former Chief Justice of India,
Mr. Justice R. S. Pathak (Retd.), Former Chief Justice Mr. Justice M.L. Pandse
(Retd.) and Hon?ble Mr. Justice Sat Pal Arora (Retd.) has been constituted to
resolve the disputes between the parties arising out of the IS Agreement and
the preliminary hearing took place on 30th April, 2005 in London. Another
Arbitral Tribunal comprising of Former Chief Justice of India Mr. Justice R.S.
Pathak (Rtd.), the Presiding Arbitrator/Chairman, Former Chief Justice Mr.
M.L.Pendse (Rtd.) and Mr. Justice Sat Pal Arora (Retd.) was constituted to
resolve the disputes arising out of the TS Agreement-II and the hearing was
fixed for the 5th and 6th February, 2005 in Singapore.
17. The petitioner has further averred that the respondent admitted his precarious financial position by their letter dated 2nd February, 2005 and
showed unwillingness to attend the arbitration proceedings in Singapore. It is
further averred that during the preliminary meeting on 5th February, 2005 the
Tribunal had asked the petitioner to bear the entire expenses of the said
meeting and directed the respondent to reimburse 50% of the total expenses
incurred by the petitioner towards the said meeting. Even though the petitioner
had called upon the respondent by letter dated 21st March, 2005 to pay a sum of
Rs. 1, 26,369.66, being half of the amount of Rs. 2, 52,739.33, which is the
total expenses incurred by the petitioner in arranging the preliminary meeting
in Singapore, the respondent has failed to pay the said amount.
18. As far as the TS Agreement-I is concerned it is averred that though the petitioner had served upon the respondent a notice of demand for arbitration
vide letter dated 9th September, 2004 and intimated the respondent about its
intention to nominate the former Judge, Bombay High Court and the former Chief
Justice, Karnataka High Court Mr. Justice M.L. Pendse as their arbitrator, the
respondent has refused to appoint an arbitrator. It is submitted that since the
respondent failed to appoint its arbitrator, the petitioner filed an Arbitration
Application No. 1/2005 in the Hon?ble Supreme Court of India under Section 11(6)
of the Arbitration and Conciliation Act, 1996 and that the same was allowed by
the Supreme Court of India on 31st January, 2006.
19. Petitioner's plea is that the respondent never had any intention whatsoever from the commencement of services under the three agreements to pay
the outstanding dues. The petitioner has further contended that he has a claim
of US$ 351831.77 under the IS Agreement; US$1378141.40 under the TS Agreement-I
and US$ 243676.56 under the TS Agreement-II till 28th February, 2005 and that
the respondent is also liable to pay 18% interest per annum on the outstanding
bills from 1st March, 2005. The petitioner has asserted that they seriously
apprehend that the respondent in order to defeat and defraud the petitioner will
sell, transfer, dispose of or create third-party rights in respect of its
properties situated at New Delhi or elsewhere in India thereby making the
arbitration awards which will be passed in favor of petitioner non-executable
and they will become paper decrees. The petitioner also contended that there
are serious disputes between the respondent and the other creditors and in the
circumstances the respondent may even go in liquidation.
20. In the circumstances, the petitioner has prayed for appointment of court receiver since the respondent?s financial position is precarious and the
respondent is likely to sell, dispose of its properties. The petitioner has
also prayed that the respondent be restrained from selling, assigning and
entering, transferring possession, letting out, creating third-party rights or
creating charge or dealing in any manner with movable and immovable properties
in New Delhi or elsewhere in India.
21. The petitioner has also prayed that the respondent be directed to deposit US$ 351831.77 in OMP No. 182 of 2005; US$1378141.40 in OMP No. 183 of
2005 and US$ 243676.56 in OMP No. 184 of 2005 along with interest @ 18% per
annum from 1st March, 2005 till the date of realization or to furnish security
to the satisfaction of the Court for the above said amounts. In the circumstances, petitioner has also prayed that grave and irreparable loss, harm
and injury will be caused to the petitioner in case the reliefs as prayed by the
petitioner are not granted and the loss which will be caused to the petitioner
cannot be compensated in terms of money and therefore, it is averred that the
balance of convenience is in favor of petitioner.
22. The petitions are contested by the respondent contending, inter alia,
that the grant of an order of injunction, attachment or appointment of a
receiver is not justified on the basis of averments made in the petition.
Relying on Section 2 (2) of the Arbitration and Conciliation Act, 1996, it was
contended that the Courts at Delhi has no jurisdiction to entertain the petitions - OMP No. 182 of 2005 and OMP No. 184 of 2005, as the place of
arbitration in the above mentioned cases is at London and Singapore respectively
and an application under Section 9 of the Arbitration and Conciliation Act can
be made only if the place of arbitration is in India. The respondent also
pleaded that principle governing the grant of any interim protection under the
English Law has to be resorted to as the parties agreed in the contract that the
arbitration will be subject to English Laws and, therefore, Indian Law has no
applicability to the present dispute. In OMP No. 183 of 2005 the respondent
contended that the arbitration clause contained in TS Agreement I is invalid as
it ousts the jurisdiction of Indian Courts to the challenge of any award. The
respondent has also contested the petitions on the ground that the petitioner
has not exhausted his remedy under Section 17 of the Act and has wrongly and
maliciously chosen to file the present petitions. The respondent also contended
that the disputes referred for arbitration are without any merit and the
respondent has filed a counter claim and is hopeful of succeeding in its counter
claim.
23. The respondent also pleaded that petitioner is trying to frame the respondent for the second time as earlier also OMP No.102/2003 was filed and
considering the facts and circumstances there are no fresh circumstances
warranting any petition under Section 9 of the Act. It was contended on behalf
of the respondent that it is a widely held public listed company with over 10000
shareholders, listed in 7 stock exchanges including the National and Bombay
Stock Exchanges and it has over 150 employees and a dealer network of over 1000
entrepreneurs. Relying on its audited balance sheet, it is stated that its
sales are over 44 crores whereas the current liabilities of the company are
merely 9 crores and the company had declared operating profits as on 31st March,
2005 of 1.26 crore and holds investments of around 3.6 crore.
24. The respondent further contended that the petitioner has not been able
to make out a prima facie case against respondent and the alleged apprehension
shown by the petitioner about the respondent?s selling or disposing of all
properties are baseless and irresponsible. It was stated that the allegation
made by the petitioner are factually incorrect and no basis for the allegations
have been disclosed. In the circumstances the respondent stated that the balance
of convenience is in favor of respondent. It was also contended that the
respondent has not used the service as envisaged under TS Agreement-II and that
the petitioner had failed to deliver the commercially acceptable quality of
service as promised under the IS Agreement and TS Agreement-I and that the
petitioner has failed to adduce any evidence to substantiate their claims under
the said agreements. It is also contended that the petitioner has claimed US$
343676 as outstanding dues under the TS Agreement-II in the arbitral proceedings
in Singapore, whereas, in OMP No.184 of 2005 the amount claimed is US$ 243676
and that the inconsistency reflects lack of bona fide on behalf of the petitioner.
25. The respondent has further averred that as per the terms of the agreements, the place for arbitration in respect of disputes arising out of IS
Agreement is London; in respect of TS Agreement-I, it is New Delhi and in
respect of TS Agreement-II it is Singapore. The respondent has pleaded that it
has all along been requesting the petitioner to have all the disputes arising
out of the three agreements to be settled by the same set of arbitrators in
India, as the three agreements relate to identical transactions with no major
difference as far as dispute resolution is concerned. In the circumstances it is
alleged that due to the unreasonable attitude adopted by the petitioner, the
same arbitrators and their lawyers travel to Singapore and come back and then
again travel to London and this involves enormous expenditure which is avoidable
and unnecessary. It is contended that this unreasonable attitude of the petitioner is a relevant consideration for refusing any assistance in the form
of injunction to the petitioner.
26. The petitions were filed by the petitioner in May, 2005 and by an ex-
parte order dated 23rd May, 2005 the respondent was restrained from selling,
alienating or parting with possession of his moveable as well as immoveable
properties. The petitioner filed rejoinder denying the allegations made by the
respondent and contended that the ex parte order dated 23rd May, 2005 restraining the respondent from selling, alienating or parting with possession
of the moveable and immovable properties belonging the respondent is liable to
be confirmed. Relying on Section 9, it was contended that it is applicable to
international arbitrations and the arbitrations held outside India and therefore, it has been contended that the Court in India has jurisdiction.
Refuting the alleged counter claim, it is contended that counter claim is being
raised for the first time in the present proceedings and the respondent has not
acted in the letter and spirit of the agreement and has even failed to pay the
arbitration expenses.
27. I have heard the learned counsel for the parties in detail on two occasions. The counsel for the petitioner had also sought time once to take
instructions regarding giving up the prayers regarding appointment of receiver
and attachment of all the properties of the respondent. Thereafter an additional
affidavit of the authorized representative of the respondent company dated 6th
September, 2005 was filed deposing that the TDS liability of the respondent
company as on 20.12.2004 was Rs.16,07,887/- as per the Income Tax department and
part of the dues had been cleared and after adjustment of the amount to be
refunded the liability is Rs.8,21,224/- only. It was also stated that the market
capitalization of the respondent company is Rs.32.53 crores as on 5th August,
2005. A copy of the certificate of the Chartered Accountant has also been filed
showing the status of assets and liabilities.
28. During the arguments by the parties, another additional affidavit was
filed by the authorized representative of the respondent dated 2nd November,
2007 contending that the respondent company has made payments of not less than
US$ 1.4 million (Rs.6.5 crores at the prevailing currency exchange rates) to the
petitioner in the course of its business for using his services. A certificate
of Chartered Accountant in this regard was also filed by the respondent. The
respondent disclosed its networth at Rs.36.40 crores as on 31st March, 2007 and
its assets as per the audited balance sheet of Rs.63.72 crores on the said date.
The respondent also disclosed that it is listed on National Stock Exchange and
Bombay Stock Exchange and five other stock exchanges in India and its market
capitalization as on 9th October, 2007 was Rs.30.28 crores. The respondent also
disclosed its profit for financial year ended on 2006-07 as Rs. 2.61 crores
before tax and net profit of Rs.2.1 crores. The respondent also filed its 17th
Annual Report, 2006-2007. Yet another additional affidavit dated 11th December,
2007 was filed by the authorized representative of the respondent detailing the
payments made by the respondent to the petitioner.
29. The petitioner filed an affidavit of its authorized signatory dated 2nd January, 2008 in reply to the affidavit of the respondent detailing the
payments made to the petitioner and gave the details of payments received from
the respondent under TS Agreement-1 dated 10th August, 1999 amended on 14th
July, 2000 and again amended on 16th January, 2001. It was deposed that said
payments have been accounted for and are not the subject matter of the claim of
the petitioner. According to the petitioner the outstanding under the TS
Agreement I as set out in the petition are US$ 1,378,141.70 amounting to
Rs.5,99,49,163.55. It was specifically averred that the invoices which have been
settled and paid have not been included in the claim of US$ 1,378,141.70. The
petitioner also filed another statement giving the total payment received from
the respondent. The petitioner had claimed termination fees of 149,722.21under
clause 13.6 (a) and late payment fees of 210,583.54 and Cost of Arbitration fees
of 100,000 in Annexure P which was filed with the petition.
30. The plea of the respondent is that the Courts at Delhi do not have jurisdiction to entertain the petitions, OMP No.182/2005 (IS Agreement) and OMP
No.184/2005 (TS II Agreement) as the place of arbitration in the above cases is
at London and Singapore respectively. According to the respondent an application
under Section 9 of the Arbitration and Conciliation Act, 1996 can be made only
if the place of arbitration is in India.
31. It has been held in a number of cases that the power of the Court to
grant injunctions under Section 9 of the Arbitration and Conciliation Act, 1996
would also extend to international arbitrations. Reliance for this can be placed
on Kitechnology NV and Another v. Union Gmbh Rahn Plastmaschinen and Another,
77(1999) DLT 813; Suzuki Motor Corporation v. Union of India and Another,
68(1997) DLT 827; Dominant Offset Pvt. Ltd. v. Adamovske Strojirny A.S, 68(1997)
DLT 157 and Marriott International Inc. and Ors. v. Ansal Hotels Ltd. and Anr.,
82 (1999) DLT 137. On perusal of the provisions of the Arbitration and Conciliation Act, 1996, it is apparent that there is no justification to
restrict the application of Part I only to domestic arbitrations. So long as the
territorial jurisdiction of the Court is present on account of properties of the
respondent within the jurisdiction of the Court, relief cannot be denied on
technicalities. The Supreme Court in Bhatia International Vs Bulk Trading S.A
and Anr., (2002) 4 SCC 105 had held that a party could apply to the Court under
Section 9 before, during arbitral proceeding or after making of the arbitral
award. An application for interim measures can be made to the Courts in India,
whether or not the arbitration takes place in India, before or during arbitral
proceedings. This cannot be disputed that awards covered by Part II are deemed
to be decrees. Section 9 does not suggest that once an award is made, an
application for interim measure can only be made if the award is a domestic
award as defined in Section 2(7) of the said Act. In Bhatia International
(Supra) at page 123 in para 32, the Apex Court held that provisions of Part I
would apply to all arbitrations and to all proceedings relating thereto and that
in the case of international commercial arbitrations held out of India, provisions of Part I would apply unless the parties by agreement, express or
implied exclude all or any of its provisions. The said paragraph 32 is as
below:-
32. To conclude, we hold that the provisions of Part I would apply to all
arbitrations and to all proceedings relating thereto. Where such arbitration is
held in India the provisions of Part I would compulsorily apply and parties are
free to deviate only to the extent permitted by the derogable provisions of Part
I. In cases of international commercial arbitrations held out of India provisions of Part I would apply unless the parties by agreement, express or
implied, exclude all or any of its provisions. In that case the laws or rules
chosen by the parties would prevail. Any provision, in Part I, which is contrary
to or excluded by that law or rules will not apply.
32. Though the IS Agreement dated 12th January, 2001 and TS Agreement II
dated 5th January, 2001 and their amendments contemplate place of arbitration at
London and Singapore respectively, however, neither the agreements nor their
amendments incorporate express or implied exclusion of the provisions of Part I
of the Arbitration and Conciliation Act, 1996 or any other provision. The
respondent is working for gain at Delhi and this fact that the immovable and
movable properties of the respondent are at Delhi has not been denied. In the
circumstances it cannot be denied that the cause of action against the respondent has arisen at Delhi. Thus the plea of the respondent that the
petitions, under Section 9 of the Arbitration and Conciliation Act, 1996 being
OMP No.182/2005 and OMP No.184/2005 are not maintainable at Delhi is not
sustainable and is rejected.
33. The learned counsel for the respondent contended that in none of the
petitions, the petitioner has given the details and full account of how the
amounts paid were adjusted and did not disclose facts correctly before seeking
an equitable relief from this Court. Mr. Bhatt, learned Senior Counsel for the
respondent, asserted that the failure to disclose the particulars of payments
received in the petition was an attempt to project that no payments at all had
been made by the respondent and this action on the part of the petitioner
disentitles him to benefit of injunction. According to him, the petitioner first
time admitted that some payments were made only in its affidavit dated 2nd
January, 2008. The justification given for not disclosing earlier the payments
made is that those payments related to other bills which should not be accepted.
It was further contended on behalf of the respondent that the entry regarding
the receipt of US$ 1.75 lakhs has also not been disclosed in the petition and
therefore, the injunction already granted should be vacated on this ground also.
34. It is no more res integra that the principles applicable to the exercise of the general power to grant interim relief, including specific
injunctive relief, under Order XXXIX of Code of Civil Procedure and the Specific
Relief Act would be applicable while exercising the powers under Section 9 of
Arbitration and Conciliation Act, 1996. Though the arbitration proceedings are
pending, the powers under Section 9 available to the Court and the powers under
Section 17 available to the Arbitral Tribunal to make interim measures are
independent despite some degree of overlap between the two provisions. The court
is empowered to appoint a receiver in respect of property which is the subject
matter of arbitration and take such interim measures or protections as may be
just and convenient. Reliance can be placed on Adhunik Steels Limited v. Orissa
Manganese and Minerals Pvt. Limited, (2007) 7 SCC 125; Escorts Finance Limited
v. Mohd. Hanif D. Khan, 2001(1) RAJ 546; Atul Limited v. Prakash Industries
Limited, 2003 (2) RAJ 409; National Highways Authority of India v. China Coal
Construction Group Corporation, 2006(1) RAJ 621 and Modi Rubber Limited v.
Guardian International Corporation, 2007(2) RAJ 556.
35. The Supreme Court in Adhunik Steels Limited (supra) had considered the
scope of power of court to pass interim orders and had held that the well
recognized principles applicable to the exercise of general power to grant
interim relief including specific injunctive relief under Order XXXIX of Code of
Civil Procedure and the Specific Relief Act would be applicable to exercise of
power under Section 9 of Arbitration and Conciliation Act. The Apex Court had
held that at the initial stage mere consideration of existence of arbitration
clause is not justified as no special condition is contained in Section 9 of the
Act and no special procedure is indicated. It was held that the grant of relief
by way of injunction is, in general, governed by the Specific Relief Act and,
therefore, the provisions of Specific Relief Act cannot be kept out of consideration. In para 11 at pages 132-133 of the judgment, the Apex Court had
held as under:-
11. It is true that Section 9 of the Act speaks of the court by way of an
interim measure passing an order for protection, for the preservation, interim
custody or sale of any goods, which are the subject-matter of the arbitration
agreement and such interim measure of protection as may appear to the court to
be just and convenient. The grant of an interim prohibitory injunction or an
interim mandatory injunction are governed by well-known rules and it is difficult to imagine that the legislature while enacting Section 9 of the Act
intended to make a provision which was dehors the accepted principles that
governed the grant of an interim injunction. Same is the position regarding the
appointment of a receiver since the section itself brings in the concept of
?just and convenient? while speaking of passing any interim measure of protection. The concluding words of the section, ?and the court shall have the
same power for making orders as it has for the purpose and in relation to any
proceedings before it? also suggest that the normal rules that govern the court
in the grant of interim orders is not sought to be jettisoned by the provision.
Moreover, when a party is given a right to approach an ordinary court of the
country without providing a special procedure or a special set of rules in that
behalf, the ordinary rules followed by that court would govern the exercise of
power conferred by the Act. On that basis also, it is not possible to keep out
the concept of balance of convenience, prima facie case, irreparable injury and
the concept of just and convenient while passing interim measures under Section
9 of the Act.
36. In Escorts Finance Limited (supra) a Division Bench of this Court had
held that the mere fact that the arbitrators had been appointed who also could
exercise power to appoint a receiver could not be a ground to dismiss the
petition under Section 9 of Arbitration and Conciliation Act summarily. Another single Judge of this Court in Atul Limited (supra) had held that
recourse under Section 17 of Arbitration and Conciliation Act, 1996 is an
enabling additional recourse and is not in substitution of Section 9 and,
therefore, Section 17 cannot operate as an ouster of jurisdiction of court
granted under Section 9 of the Act and, therefore, the court would have powers
to pass appropriate orders under Section 9 of the Act notwithstanding the
pendency of the arbitral proceedings. Similarly, in National Highways Authority
of India (supra), it was held that despite the overlap between the powers under
Section 17 and Section 9 of the Arbitration and Conciliation Act, 1996, it is
apparent that the powers under Section 9 of the Act are much wider inasmuch as
they extend to period ? pre and post the award ? as well as with regard to
subject matter and nature of orders and, therefore, pendency of application
under Section17 does not oust the jurisdiction of the court under Section 9 of
the Arbitration and Conciliation Act, 1996 to pass interim orders. Another
Learned single Judge of this Court in Modi Rubber Limited v. Guardian International Corp, 141 (2007) DLT 822 had held that the proceedings under
Section 9 are concerned only with preservation of property and to prevent
violation of claimed rights of the parties so that no irreparable loss and
damage inures to the parties till the arbitration results in a dispute redressal. It was also held that the issues which are to be decided in the
substantive arbitration proceedings cannot be gone into in a petition under
Section 9 of the Arbitration and Conciliation Act, 1996. In the said judgment
relying on various other judgments, the principle, manner and limitation of
exercise of discretion while appointing a receiver or an injunction has been
culled out in paragraph 209, as also the effect of suppression of material facts
and delay. The relevant paras 209 and 210 enumerating the principle for exercise of discretion are as under:- ?209. It is also necessary to examine the parameters within which the Court
shall exercise such power. The manner and limits of exercise of such discretion
have fallen for consideration in several judicial pronouncements and the
principles laid down can be usefully called out thus: (i) Even though Section 9 does not embody the ingredients of Order 38 Rule 5
of the Code of Civil Procedure, 1908 nor the conditions of the Order 38 Rule 5
can be read into it, however for the exercise of discretion thereunder, the
Court can take guidance from the provisions of Order 39 as well as Order 38 of
the Code of Civil Procedure, 1908 [Ref. 2004 (111) DLT 816 : 2004 (4) AD (Delhi)
618 : 2004 (75) DRJ 104, Rite Approach Group Ltd. v. Rosoboron Export]. (ii) The scope of Section 9 of the Arbitration and Conciliation Act, 1996 is in
pari meteria with the provisions of Order 39 of the Code of Civil Procedure,
1908. The power vested in the Court by virtue of Section 9 must be exercised in
consonance with equity which tempers the grant of discretionary relief as the
relief of interim injunction is wholly equitable in nature. [Ref. (1995) 5 SCC
545, Gujarat Bottling Co. Ltd. v. Coca Cola and Ors.; 2004 (115) DLT 219=2004
(8) AD (Delhi) 361, Reliance Infocomm Ltd. v. Bharat Sanchar Nigam Ltd.]
(iii) The intention of the defendant is a sine qua non for invoking Section 9
where the claim is to secure the amount in dispute in arbitration. The Court can
take guidance from Order 38 Rule 5 of the CPC and Sections 18 and 41 of the
Arbitration Act, 1940 for considering whether such a relief as has been prayed
for in the petition under Section 9 deserves to be granted [Ref. AIR 1998 Delhi
397=1998 (3) RAJ, M/s. Global Co. v. M/s. National Fertilisers Ltd.; 2005 (117)
DLT 183 : 2005 (2) AD (Delhi) 592, Mala Kumar Engineers Pvt. Ltd. (MKE) v. B.
Seenaiah and Co. (Projects) Ltd.]. (iv) Protection under Section 9 can be granted only when a prima facie case is
made out and balance of convenience and possibility of irreparable loss and
injury to the petitioner is made out. Section 23 of the Specific Relief Act,
1963 provides that the provision of liquidated damages is not a bar to the
specific performance of the contract. The general rule of equity is also that if
a thing is agreed to be done, though there is a penalty attached thereto to
secure its performance, yet the Court in its discretion enforces specific
performance thereof. The jurisdiction of the Court is discretionary and must be
exercised on such judicial principles when balance of convenience and possibility of irreparable loss and injury is shown to the plaintiff [Ref. 2005
(120) DLT 387, Geep Batteries (India) Pvt. Ltd. v. Gillette India Ltd.; 2005
(118) DLT 591 : 2005 (81) DRJ 233, Techno Construction v. Kunj Vihar Co-
operative Group Housing Society]. (v) The discretionary power of the Court under Section 9 has to be exercised
by the Court sparingly and cautiously, bearing in mind that the objective of the
Court is to create an alternative dispute redressal mechanism and, consequently,
the interference by the Court is not required at every stage [Ref. 2006 (128)
DLT 694 DB, Sanrachna (India) Inc. v. AB Hotels Ltd.]. Whenever the powers of the Courts are invoked under Section 9 with the objective
of supporting the arbitration, the Court must act with alacrity. However, this
would not justify grant of interim orders and relief on the mere asking [Ref.
2000 (87) DLT 449 : 2000 (6) AD (Delhi) 509 : 2000 (55) DRJ 750, CREF Finance
Ltd. v. Puri Construction Ltd.; 2006 (91) DRJ 83, Sea Transport Contractors Ltd.
v. Indian Farmers Fertilizers Co-operative Ltd.]. (vi) The scope and object of Section 9 of the statute is to grant such relief by
way of interlocutory injunction so as to mitigate the risk or injustice to the
petitioner during the period before that uncertainty can be resolved. Its object
is to protect the plaintiff against injury by violation of his right for which
he could not be adequately compensated in damages which would be recoverable in
the action if the uncertainty were resolved in his favour at the trial [Ref. AIR
1995 SC 2372, Gujarat Bottling Co. v. Coca Cola and Co.; 2006 (4) AD (Delhi) 38,
Country Development and Management Services Pvt. Ltd. v. Brookeside Resorts Pvt.
Ltd.]. In 2006 133 DLT 153, Shaw v. Him Neel Breweries Ltd., learned Single
Judge of this Court held that the interim orders are calculated to ensure that
the assets of the party are not dissipated or frittered away and that such
orders do not fall within the moratorium of Section 22. (vii) The application seeking interim measures of protection under Section 9 of
the Arbitration and Conciliation Act, 1996 pertaining to the preservation,
interim custody or sale of equipment which is the subject matter of the agreement would be covered under Section 9(ii)(a) as also under Sections
9(ii)(c), 9(ii)(d) and 9(ii)(e) of the Act [Ref. 2006 (3) AD (Delhi) 168 : 2006
(87) DRJ 225 : 2006 (127) DLT 776 : AIR 2006 Delhi 134, National Highways
Authority of India (NHAI) v. China Coal Construction Group Co.]. (viii) The Court has the power to pass an order under Section 9 during the
pendency of the arbitration or even after the arbitral award but before the
award is enforced in accordance with Section 36. Such order can be passed for
preservation, interim custody or sale of any goods which are the subject matter
of the arbitration agreement or securing the amount in the dispute and the like
[Ref. 2006 (128) DLT 694, Sanrachna (India) Inc. v. AB Hotels Ltd.; 2000 (87)
DLT 449, CREF Finance Ltd. v. Puri Construction and Ors.]. (ix) The power under Section 9 to grant interim relief is available to the Court
while under Section 17, such powers to make interim measures are made available
to the Arbitral Tribunal. Even though there may be some degree of overlap
between the two provisions, however, the powers under Section 9 are much wider
inasmuch as they extend to the pre and post award period as well as with regard
to the subject matter and the nature of the orders which the Court is empowered
to pass. Therefore, pendency of an application under Section 17 before the
Arbitral Tribunal does not denude the Court of its power to make an order for
interim measures under Section 9 of the statute [Ref. 2006 (3) AD (Delhi) 168 :
2006 (87) DRJ 225 : AIR 2006 Delhi 134 : 2006 (127) DLT 766, National Highways
Authority of India (NHAI) v. China Coal Construction Group Co.]. (x) It has been held that though Section 9 enables a party, before or during
arbitral proceedings or at any time after the making of the arbitral award but
before it is enforced under Section 36 of the Act, may apply to the Court for an
interim order under Section 9, however, without a substantive move for reference
or declaration on the petitioner?s stand on the substantive relief by an
appropriate forum, Section 9 cannot be invoked for grant of interim relief [Ref.
2004 (3) SCC 155, Firm Ashok Tralers and Another v. Gurmukh Das; AIR 1999 SC
565, Sudarshan Finance Ltd. v. NEPC; 1998 (1) AD (Delhi) 513 : 1998 (44) DRJ
399, National Building Construction Corporation Ltd. (NBCC) v. Ircon International Ltd.].
(xi) So far as the questions which can be considered in a petition under
Section 9 of the Arbitration and Conciliation Act, 1996 are concerned, certainly
issues which are to be decided in the substantive arbitration proceedings cannot
be gone into in a petition under Section 9 of the statute. Thus, a question as
to whether the agreement between the parties was validly entered into or whether
it was validly terminated has to be determined only in the arbitration proceedings and cannot be determined in a petition under Section 9 of the
statute [Ref. 2002 (8) AD (Delhi) 617 : 2003 (66) DRJ 239, S. Raminder Singh v.
NCT of Delhi].
A similar question had arisen before this Court in MANU/Del./1524/2001, D.R. Sondhi v. Hella K.G. Hueck and Co. In para 14 of the judgment, it was held
by this Court that the question as to whether the material breach has been
committed or not or if there is any breach at all was agitated but it was not
gone into for the reason that it is not the question for determination at
present.
210. This Court while considering the petition under Section 9 of the Arbitration and Conciliation Act, 1996, does not have the jurisdiction to return
a finding on the merits of a claim made or a dispute raised by the parties
before the arbitrator. However, there can be no dispute that this Court is
required to examine the existence of a prima facie case on the assertions of the
petitioner with regard to the termination of the agreement in the facts and law
applicable and as to strength in the petitioner?s case as to the bindingness and
subsistence of the SHA. ?
37. For appointment of a receiver, a person seeking appointment is to make out a case of waste or damage to the property. A receiver cannot be
appointed merely because it is expedient or convenient to one of the parties to
do so or because it will do no harm to do so. Though the appointment of receiver
is discretionary, exercise of such a discretion is to be based on sound judicial
principles. A receiver can be appointed in case no other adequate remedy or
means of accomplishing the desired object of the judicial proceeding is available. It is to be based on a very good prima facie case of plaintiff
succeeding in the legal proceeding. In order to have a receiver appointed
plaintiff not only has to show a conflicting claim to the property but must also
show some emergency or damage or loss demanding immediate action. It is also no
more res integra that normally receiver is not to be appointed where it has an
effect of depriving a defendant of a de facto possession which may cause
irreparable loss to the defendant. The conduct of the parties is also very
relevant. In Rajeshwar Nath Gupta v. Administrator General and Ors, AIR 1989
Delhi 179 it was held that where the defense set up is bona fide and the
proposition of law is arguable, it is not advisable for the Court to appoint a
receiver to take possession of immovable property from the defendants unless and
until the Court is of the opinion that there is well founded fear that the
property in question will be dissipated or that other irreparable mischief may
be done unless the Court gives a protection. It is only if more than a prima
facie case is made out by the plaintiff of the likelihood of the suit being
decreed and if there is no tangible defense raised by the defendants and if it
will lead to manifest injustice, then in exceptional circumstances the Court
would be justified in appointing a receiver and granting interim injunction. The
Court has enunciated five principles which can be described as the ?panch
sadachar? of our Courts exercising equity jurisdiction in appointing receivers
as:
?(1) The appointment of a receiver pending a suit is a mater resting in the
discretion of the Court. The discretion is not arbitrary or absolute. It is a
sound and judicial discretion, taking into account all the circumstances of the
case, exercised for the purpose of permitting the ends of justice, and protecting the rights of all parties interested in the controversy and the
subject matter and based upon the fact that there is no other adequate remedy or
means of accomplishing the desired objects of the judicial proceeding. (2) The Court should not appoint a receiver except upon proof by the plaintiff
that prima facie he has very excellent chance of succeeding in the suit.
(3) Not only must the plaintiff show a case of adverse and conflicting claims
to property, but, he must show some emergency or danger or loss demanding
immediate action and of his own right he must be reasonably clear and free from
doubt. The element of danger is an important consideration. A Court will not act
on possible danger only, the danger must be great and imminent demanding
immediate relief. It has been truly said that a Court will never appoint a
receiver merely on the ground that it will do no harm. (4) An order appointing a receiver will not be made when it has the effect of
depriving a defendant of a ?de facto? possession since that might cause irreparable wrong. If the dispute is as to title only, the Court very reluctantly disturbs possession by receiver, but if the property is exposed to
danger and loss and the person in possession has obtained it through fraud or
force the Court will interpose by receiver for the security of the property. It
would be different where the property is shown to be ?in medio? that is to say,
in the enjoyment of no one, as the Court can hardly do wrong in taking possession: it will then be the common interest of all the parties that the
Court should prevent a scramble as no one seems to be in actual lawful enjoyment
of the property and no harm can be done to anyone by taking it and preserving it
for the benefit of the legitimate who may prove successful. Therefore, even if
there is no allegation of waste and mismanagement the fact that the property is
more or less ?in medio? is sufficient to vest a Court with jurisdiction to
appoint a receiver. Otherwise a receiver should not be appointed in supersession
of a bona fide possessor of property in controversy and bona fides have to be
presumed until the contrary is established or can be indubitably inferred.
(5) The Court, on the application of a receiver, looks to the conduct of the
party who makes the application and will usually refuse to interfere unless his
conduct has been free from blame. He must come to the Court with clean hands and
should not have disentitled himself to the equitable relief by laches, delay,
acquiescence, etc.?
38. Regarding appointment of a receiver a Single Judge of the Bombay High
Court in Syed Khuwaja Syed Ahmed v. The Maharashtra Housing and Area Development
Authority, AIR 1983 Bombay 73 had held that it must be determined not only on
the facts of a particular case but also in the context of a social situation. A
Division Bench of this Court in Ravi Kumar v. Misha Vadhera and Ors. AIR 1995
Delhi 175 had held that the discretion to appoint a receiver is not arbitrary or
unregulated but has to be exercised cautiously, judicially and according to the
legal principles after consideration of the whole of the circumstances of the
case. A receiver cannot be appointed merely because it is expedient or convenient to one of the parties to do so or because it will do no harm. A
bonafide possessor of property should not be dispossessed pending suit unless
there is substantial reason such as, well founded fear that the property in
question being dissipated or that some other irreparable mischief may occur
unless the Court gives its protection. Before appointing a receiver the matter
should be considered judicially in all aspects including prima facie case that
is either a good title to the property or special equity in his favor requiring
immediate dispossession of the defendant or that the property in the hands of
the defendant is in the danger of being wasted.
39. The learned senior counsel for the respondent, Mr.Bhatt, has relied on
Mahadeo Savlaram Shelke and Others v. Pune Municipal Corporation and Another,
(1995) 3 SCC 33; Gujarat Bottling Co. Ltd. and Others v. Coca Cola Co. and
Others, (1995) 5 SCC 545 and Firm Ashok Traders and another v. Gurmukh Das
Saluja and Others, (2004) 3 SCC 155 to contend that in the facts and circumstances as alleged by the petitioner, he is not entitled to claim appointment of the receiver for running the business of the respondent. In Firm
Ashok Traders and Another (supra), Supreme Court had considered appointment of
a receiver of a running business. It was held that the appointment of a receiver on a running business is a serious matter and on the basis of bald and
general allegations of mis-management and siphoning of funds, it will not be
just and convenient to appoint a receiver. In this case, a group of persons `B'
were running a business. On the basis of bald and general allegations of mis-
management and siphoning of funds, the High Court had appointed the persons of
Group `A' as the Captain of the Ship. The Supreme Court had held that there was
no logic behind such a change as appointment of a receiver on a running business
is a serious matter. The apex Court held that High Court erred in appointment
of a receiver as the retail liquor trade has its own intricate parameters and is
a tricky trade and could not be entrusted to a third party.
40. The respondent business has its own typical parameters. The annual report for 2006-2007 filed on behalf of respondent reflects that the respondent
is in the business of broadcasting and related activities; training and education; third party video production; annual distribution of digital contents; digitization of all intellectual properties owned by company and
setting up of an international distribution channel and setting up of online
version of Jain TV. The audited balance sheet filed on behalf of the respondent
for the financial year ended on 31st March, 2007 reflects the net worth as
Rs.36.40 crores and the assets at Rs.63.72 crores. The petitioner had alleged
that ever since commencement of service, the respondent did not pay any service
fee in respect of TS Agreement II and claimed an outstanding aggregated to US$
571215.75. While terminating TS Agreement I, TS Agreement II and IS Agreement
by letter dated 17th July, 2002, the petitioner demanded payment of outstanding
dues aggregating to US$ 712870.25 as due under TS Agreement II. Similarly in
other petitions also it has been alleged that the petitioner has never paid the
service fees as per terms of the other agreements. But it has not been disclosed
as to what amounts have been paid and how those amounts have not been paid in
terms of the agreements executed between the petitioner and the respondent.
41. The petitioner has also claimed late payment charges and has claimed
US$ 243676.56 under the TS Agreement - II. In OMP No.182 of 2005, the petitioner
has claimed US$ 351831.77 till 28th February, 2005 and the invoices not paid are
detailed in para 17 which are as under: Sl.No.
Invoice No.
Due Date
Amount (US$)
1.
229001014
13.03.2001
27,022.4. (Balance)
2.
229001021
05.04.2001
27,300.00
3.
229001455
09.07.2001
23,660.00
4.
229001456
09.07.2001
31,200.00
5.
229001772
01.10.2001
31,200.00
6.
229001781
06.10.2001
7,800.00
7.
229001773
01.10.2001
31,200.00
8.
229001782
06.10.2001
7,800.00
9.
229001774
01.10.2001
20,800.00 (Balance)
10.
229001783
06.10.2001
5,200.00 (Balance)
42. Though in respect of some of the invoices, it has been contended that
the amount due is the balance amount, however, the petition is apparently silent
as to how much amount has been paid by the petitioner. Considering the entire
petitions, it appears that the allegation made by the petitioner is that
practically no amount has been paid by the respondent.
43. In respect of TS Agreement ? I, the petitioner has claimed the amounts
in respect of invoices as disclosed in para 17 which is as under and has claimed
a total amount of US$ 1378,141.70 till 28th February, 2005. Sl.No.
Invoice No.
Due Date
Amount (US$)
1.
229000554
19.10.2000
25001.99 (Balance)
2.
229000767
31.01.2001
58,333.00
3.
229000858
01.03.2001
58,333.00
4.
229000963
31.03.2001
58,333.00
5.
229001052
01.05.2001
58,333.00
6.
229001252
01.07.2001
51105.94 (Balance)
7.
229001392
31.07.2001
58,333.00
8.
229002078
14.12.2001
5,833.00
9.
229002703
13.03.2002
15635.95 (Balance)
10.
229002727
03.04.2002
16,406.25
11.
229002736
03.05.2005
16,406.25
12.
229002887
03.06.2002
16,406.25
13.
229003071
03.07.2002
4,921.87
44. Though the petitioner has contended that in view of past experience with the respondent it is inferable that with a view to defraud and defeat the
rights of petitioner, respondent will sell, transfer, dispose of or create third
party rights in respect of its properties situated at New Delhi and other
places. However, no such facts, particulars or details have been disclosed by
the petitioner which will show that the respondent has sold, transferred or
disposed of or created third party rights in respect of his properties with a
view to defeat the rights of the petitioner. Mere non-payment of dues of the
petitioner will not reflect conflicting claims in respect of the immoveable and
moveable properties of the respondent. The alleged fear of the petitioner is
also not founded on any material facts except that the respondent has not paid
the amount despite agreeing to do so and has not paid the statutory dues and
expenses for the Arbitration proceedings at Singapore. There are no such facts
disclosed by the petitioner that the properties of the respondent are in danger
of being wasted. In absence of any particulars or details about any transaction
done by the respondent with a view to sell, transfer, dispose of or create third
party rights in respect of its properties with a view to defeat the alleged
claims of the petitioner, the allegations by the respondent can only be termed
as bald.
45. From the perusal of petitions filed by the petitioner the impression
which one gets is that no amount had been paid by the respondent under the three
agreements executed between the petitioner and the respondent. From the details
of invoices whose balance price is claimed, it is not apparent as to how much
amount had been received by the petitioner. The petitioner has very deftly
avoided to disclose as to how much amount had already been paid under agreements. This information was material to infer the conduct of the respondent. After an additional affidavit was filed by the respondent contending
that about US$ 13 lakhs has already been paid, it was admitted by the petitioner
that it had received the said amount. The details of the amount received and its
appropriation was, however, not given. The justification given by the petitioner
for non disclosure of the amounts received by the petitioner in the petitions is
that they related to other bills. Thereafter, petitioner filed details of the
amounts adjusted, however, again the petitioner has not disclosed about the
security deposit of US $ 1.75 lakh which was given by the respondent. In case
the petitioner is entitled for the amounts as claimed and the respondent has
paid a security deposit of US$ 1.75 lakh, the petitioner ought to have disclosed
as to how much amounts the petitioner would be entitled for from the security
deposit and after adjusting the amount of the security deposit, what would be
the balance amount due from the respondent. Another relevant fact is that on
behalf of respondent, Dr.J.K. Jain had agreed to the conditions and the payment
schedule which was to be put in effect from January 2002 onwards and the
disagreement, as per letter dated 19th September, 2001 was limited to the period
from September 2001 to the year 2002. The petitioner wanted that the respondent
should pay US$ 53000 per month and US$ 100,000 from January, 2002 and the
respondent was not agreeable for the same. It is not that the respondent did not
pay any amount. Perusal of the statement of payments made by the respondent
reveals that the payments were made from September, 2001 till 9th July, 2002. In
most of the months payments were made on more than one occasion except in April
and May, 2002. After July, 2002 no payments have been made and the petitioner
also terminated all the agreements with the respondent. The petitioner has also
not disclosed whether the petitioner is liable to pay interest to the respondent
on the security deposit.
46. The amounts claimed by the petitioner in the notice which was given under Section 434 of the Companies Act, the amounts claimed in the petitions and
the amounts claimed before the arbitrator are also different. The explanation
given is that the difference in the amounts is on account of the amounts
becoming due at different points of time and on account crystallizing of other
amounts in the meantime to which the petitioner became entitled. The amounts
claimed include the penal interest and the damages. Merely on the basis of the
alleged agreements between the parties and the pleas raised by the petitioner,
the amounts which the petitioner is entitled for cannot be decided conclusively.
From the consideration of the pleas of the respondent it is apparent that some
of the amounts as claimed by the petitioner may not be due to him. What exact
balance amount the petitioner is entitled to in respect of three agreements is
to be decided by the Learned arbitrators. Exact liability of the respondent in
the facts and circumstances is a substantive issue which is to be decided in the
Arbitration proceedings. The respondent has also taken the plea that the
petitioner failed to deliver the commercial acceptable quality of service as had
been promised under the agreements. The respondent has also filed a counter
claim which is also pending adjudication before the Learned Arbitrators.
47. In the facts and circumstances it is also apparent that for securing
the alleged amount in dispute, the power under section 9 should not be exercised
to enable the petitioner to recover the sums on account of damages in advance of
the hearing even if a part of the liability is undisputed and monetary award for
some amount may be made. The learned senior counsel, Mr.Bhatt has relied on, The
Law and Practice of Commercial Arbitration in England, Second Edition by Sir
Michael J.Mustill and Stewart C.Boyd regarding securing the sum in dispute. It
has been held that the expression `Amount in dispute? is not equivalent to the
claim in arbitration as the expression ` amount in dispute? has a totally
different connotation. Relevant para (iv) regarding securing the sum in dispute
at page 332 is as under:-
32. (iv) Securing the sum in dispute:- Where the right of a party to a specific fund is in dispute in a reference, the Court has power to order the
fund to be paid into Court or otherwise secured. The forms of security most
likely to be ordered are the provision of a bank guarantee or the payment of the
fund into a bank account in the joint names of the parties or their advisers. It
is probable that the Court alone, and not the arbitrator, has power to make such
an order.
It will be noted that this power does not enable a party to recover sums
on account of damages in advance of the hearing, even if liability is undisputed
and it is clear that some monetary award will be made. The power exists only
where an identified fund is in dispute-as where, for example, it is alleged that
the respondent is trustee for the claimant in respect of a specific sum of
money.?
48. This also cannot be disputed by the petitioner that a notice under Section 434 of the Companies Act was given on 7th June, 2004 calling upon the
respondent to pay US $ 213,182.30 under IS Agreement; US $ 443,382.50 under TS-
II Agreement and US $ 71,640.62 under TS-II Agreement. Despite the notice under
Section 434 of the Companies Act the respondent allegedly did not pay the
amounts claimed. Under said section a presumption is raised if the debtor
company does not pay the amount within the stipulated time that it is unable to
pay its debits unless company is able to show some bonafide disputes. No
proceedings have been initiated against the respondent for its winding up. In
the circumstances it would be unreasonable to draw any inference prima facie
that the respondent company is unable to pay its debts or the defense raised by
the respondent is such that it can be ignored and does not require consideration. The respondent has also filed a counter claim and the plea of the
petitioner is that the counter claim is not sustainable. However, prima facie
nothing has been shown that the counter claim of the respondent is not sustainable or that the entire claim of the petitioner prima facie has excellent
chance of succeeding despite counter claim of the respondent. Applying the
principles for appointment of receiver as enunciated by this Court also known as
?Panch Sadachar? it is apparent that the Court does not act on possible danger
only. Rather the danger must be great and imminent demanding immediate relief.
The petitioner has alleged the case of imminent danger mainly on account of
respondent not paying the amounts as had been agreed, non-payment of the
statutory dues, dues of other creditors and non-payment of arbitration fees and
expenses. The learned Senior counsel for the petitioner, Mr.Jain had laid great
emphasis on the fact that the arbitration fees was not paid and the petitioner
is unable to pay its due to other creditors and has not been able to meet its
statutory demands. According to the respondent its TDS liability as on 20th
December, 2004 was Rs.16,07,887/- as per Income Tax Department demand note.
Later this demand had been met and the liability was cleared. The respondent has
also produced the payment challans to show that the payments were made by the
respondent. It is also contended that whatever is left unpaid could be paid
before 30th September, 2005. According to the respondent after adjusting the
amount which is liable to be refunded, its liability is only Rs.8,21,224/-. The
plea of the respondent that since all the three arbitration are between the same
parties and therefore, in order to minimize the expenses they be held at one
place and on that ground not paying the arbitration fee in the first instance,
cannot be termed malafide or such an act which will entail appointment of a
receiver of running business of the respondent. In any case it is contended that
the part of the expenses have since been paid. Therefore on this ground the
petitioner shall not be entitled for appointment of a receiver of the business
of the respondent. The pleas as raised by the petitioner do not show such damage
or loss to him which will entail appointment of receiver. It is stated that
respondent is a widely held public listed company with over 10000 shareholders,
listed in 7 stock exchanges including the National and Bombay Stock Exchanges
and it has over 150 employees and a dealer network of over 1000 entrepreneurs.
It is also stated that its sales are over 44 crores whereas the current liabilities of the company are merely 9 crores and the company had declared
operating profits as on 31st March, 2005 of 1.26 crore and holds investments of
around 3.6 crore. The market capitalization of the respondent company is alleged
to be Rs.32.35 crores as on 5th August, 2005. The respondent also disclosed its
networth at Rs.36.40 crores as on 31st March, 2007 and its assets as per the
audited balance sheet of Rs.63.72 crores on the said date. The respondent also
disclosed that it is listed on National Stock Exchange and Bombay Stock Exchange
and five other stock exchanges in India and its market capitalization as on 9th
October, 2007 was Rs.30.28 crores. The respondent also disclosed its profit for
financial year ended on 2006-07 as Rs. 2.61 crores before tax and net profit of
Rs.2.1 crores. In Rajeshwar Nath Gupta (supra) the Court had held that it is
only if more than prima facie case is made out, then in exceptional circumstances the Court will be justified in appointing a receiver. The business
of the respondent is a running business is apparent from these facts as detailed
hereinabove. It has been held that a Court should not appoint a receiver on the
ground that it will not do any harm. It has also been held that an order
appointing a receiver is not to be made when it has an effect of depriving a
defendant of ?de facto? possession. From the facts alleged by the petitioner it
cannot be inferred that the properties in the hands of the respondent is in
danger of being wasted, dissipated or frittered away. The properties of the
respondent are also not the subject matter of arbitration. In the circumstances
for the foregoing reasons there are no such facts and pleas disclosed by the
petitioner which will entitle him for appointment of a receiver of the running
business of the respondent. Therefore the prayer of the petitioner to appoint a
Court receiver in respect of all the properties, moveable and immoveable of the
respondent in New Delhi or elsewhere in India is declined.
49. The petitioner has also sought a direction to the respondent to deposit with the Courts all such sums received by him from its business and
attachment of all the amounts. The petitioner has claimed different amounts, in
notices, in petitions before this Court and in Arbitration proceedings which are
pending. The amounts claimed by the petitioner are yet to be adjudicated. Though
the respondent in September, 2001 had admitted a part of the amount to be paid
in installment, but later on even those amounts have been denied. Rather a
counter claim for the substantial amount has been filed. The apprehension of the
petitioner is only that the respondent shall dispose of its properties. However,
no instances have been given where the immovable properties or substantial
movable properties have been disposed of or transferred by the respondent in
order to defeat the alleged amounts which the petitioner may be entitled to
recover. Merely on account of an arbitration clause between the parties and
merely because the respondent refused to pay the arbitration fees and expenses
in the first instance, as the respondent wanted that all the arbitration
proceedings be conducted at one place in order to minimize the expenses, it
cannot be inferred that the respondent is unable to pay its debts and is
striving to dispose of its properties. Before the principles of Rule 5 of order
38 of the Code of Civil Procedure can be invoked it must inter alia, be shown by
the petitioner that respondent has acted or is about to act with intent to
obstruct or delay the execution of any decree that may be passed against him.
The Court must be satisfied that all the ingredients of the rule exist. Mere
fact that no harm would be caused to defendant or that defendant would not be
prejudiced by such an order could be no ground to pass order under Order 38 Rule
5 of the Code for attachment before judgment. It must be shown by the petitioner
that the respondent is about to dispose of the whole or any part of his property
or is about to remove the whole or any part of his property from the local
limits of the jurisdiction of the Court. It is only on the satisfaction of all
these conditions that the petitioner can be said to be entitled to an order of
attachment before judgment in terms of Order XXXVIII Rule 5 of the Code. From
the allegations made by the petitioner it cannot be inferred that the respondent
is trying to dispose of its properties and is unable to pay the alleged amounts
due from him or that the plea raised by the respondent are not bona fide. Any
disposal of the moveable properties in the usual course of business cannot be
termed as defrauding the petitioner and other creditors. The plea of the
petitioner that the three agreements are similar and are between the same
parties and in the circumstances Arbitration proceedings be conducted at one
place, cannot be termed ex-facie not bonafide or such a plea that on account of
it petitioner should be granted attachment of the properties of the respondent
on the principles of Order 38 rule 5 of the Code of Civil Procedure. The other
pleas raised by the petitioner are also not sufficient to grant attachment to
the petitioner in the facts and circumstances. In the circumstances, it will not
be appropriate to attach the properties of the respondent on the principles of
Order 38 Rule 5 of the Code of Civil Procedure nor the petitioner is entitled
for a direction to the respondent to deposit with the Court all such sums which
are received by the respondent from the business. Consequently the prayer of the
petitioner to attach the properties of the respondent is declined.
50. It has already been held that the petitioner is not entitled for appointment of receiver of the business and properties of the respondent nor
for attachment of its properties. It has been held that for appointment of
receiver something more than the prima facie case is required and there should
have been substantive reasons as well as well-founded fear that the properties
are being dissipated or some other irreparable mischief may occur. Nevertheless, it cannot be held that there is no case in favor of the petitioner
and the petitioner does not require any protection. This cannot be disputed
that on behalf of respondent, Dr.J.K. Jain had agreed to the conditions and the
payment schedule which was to be put in effect from January 2002 onwards and the
disagreement, as per letter dated 19th September, 2001 was limited to the period
from September 2001 to the new year. The petitioner wanted that the respondent
should pay US$ 53000 per month and US$ 100,000 from January, 2002 and the
respondent was not agreeable for the same. It is not that the respondent did not
pay any amount. Perusal of the statement of payments made by the respondent
reveals that the payments were made from September, 2001 till 9th July, 2002. In
most of the months payments were made on more than one occasions except in April
and May, 2002. After July, 2002 no payments have been made and the petitioner
also terminated all the agreements with the respondent. In these circumstances
it was contended by communication dated 9th July, 2002 that the respondent is
clearing the dues regularly and that the respondent has been able to implement
its decisions of going digital.
51. Learned senior counsel for the respondent has painstakingly compared
Annexure P with the petition and the Annexure A to the affidavit dated 2nd
January, 2008 filed by the respondent and the discrepancies between the two.
However, despite the alleged discrepancies between the two statements, it cannot
be denied that as per the payment statement filed by the respondent along with
the affidavit dated 11th December, 2007, the last payment was made on 9th July,
2002 of Rs.3,00,930/- and a total sum of about Rs.6,25,83,092.47 has been paid
by the respondent to the petitioner. In the circumstances, it is apparent that
after the determination of the agreements by communication dated 17th July, 2002
no payments have been made by the respondent though till July 2002 the payments
were made by the respondent which may not be in accordance with the representations made on behalf of the respondent in September, 2001. In the
circumstances, it cannot be held that there is no case in favor of the petitioner. The petitioner also has grievance about non-payment of his dues. The
petitioner is also entitled for some protection in the present facts and
circumstances and for the reasons above noted. This is also noticed from the
various documents filed on record that the respondent has a running business.
By an ex parte interim order dated 23rd May, 2005, the respondent was restrained
from selling, alienating or parting with the possession of movable as well as
immovable properties belonging to the respondents. Since the respondent has a
running business, it will not be appropriate to continue the order of restrain
against the movable properties of the respondent in the present facts and
circumstances and for the above noted reasons. Learned counsel for the petitioner has also made a grievance about the fact that on the appointment of
the Local Commissioner at the first instance he was not allowed to prepare the
inventories. From the record of the petitions it is apparent that there are no
details of the immovable properties of the respondent. In case the respondent
does not make available the details of his immovable properties and some or any
of the properties are disposed of by the respondent, it may cause irreparable
loss to the petitioner as amounts admittedly are due to the petitioner and after
sale or transfer of properties, the petitioner may not be able to recover the
amounts awarded to him. In the circumstances, considering the prima face case,
balance of convenience and irreparable loss, it will be just and appropriate to
direct the respondent to give complete details of its immovable properties and
to restrain the respondents from selling, alienating or encumbering his immovable properties without the prior permission of the court or of the learned
Arbitrators before whom the arbitration proceedings in respect of the three
agreements are pending. However, the order regarding the restrain from selling,
alienating or parting with the possession of the movable properties of the
respondent is vacated as the respondent is carrying on its business and such a
restrain may hamper its business activities which will be detrimental to the
interest of the respondent and in a way be also detrimental to the interest of
the petitioner who has allegedly to recover substantial amounts from the
respondent according to his own allegations.
52. Therefore, it the totality of facts and circumstances, the prayer of
the petitioner to appoint a receiver is declined and the prayer for attachment
of all the properties and assets of the respondent is also declined. The prayer
for direction to the respondent to deposit all the amounts received by the
respondent in his business is also declined. The respondent is, however,
directed to give the details of all its immovable properties to the petitioner
within four weeks and is also restrained from selling, alienating or encumbering
its immovable properties without the prior permission of this court or the
learned Arbitrators before whom the Arbitration proceedings are pending pertaining to three agreements. The order dated 23rd May, 2005 regarding
restrain from selling, alienating or parting with possession with the movable
properties of the respondent is, however, vacated. The respondent shall be
entitled to deal with his moveable properties and can sell, transfer or alienate
the moveable properties in due course of his business. With these directions
the ex-parte order dated 23rd May, 2005 is partly modified and the petitions are
disposed of. However, considering the facts and circumstances, the parties are
left to bear their own costs.
October 3, 2008 ANIL KUMAR J.
'Dev/k'
Page 23 of 23
OMP No. 182/2005, 183/2005 and 184/2005