Main Search Premium Members Advanced Search Disclaimer
Cites 1 docs
M/S Arvind Constructions Co. Pvt. ... vs M/S Kalinga Mining Corporation & ... on 17 May, 2007

User Queries
Try out the Virtual Legal Assistant to take your notes as you use the website, build your case briefs and professionally manage your legal research. Also try out our Query Alert Service and enjoy an ad-free experience. Premium Member services are free for one month and pay only if you like it.
Gujarat High Court
Reliance Media Works Limited vs Nishant Construction Pvt Ltd on 5 May, 2015
         C/CA/4245/2015                                 ORDER


          CIVIL APPLICATION (FOR STAY) NO. 4245 of 2015

                     In FIRST APPEAL NO. 552 of 2015

           RELIANCE MEDIA WORKS LIMITED....Applicant(s)
          NISHANT CONSTRUCTION PVT LTD....Respondent(s)
ADVOCATE for the Applicant.
CAVEATOR for the Respondent.


                            Date : 05/05/2015

                              ORAL ORDER


1. Rule. Respondent appears on caveat waives service.

2. The   applicant/original   respondent   has   assailed   the  judgment and order dated 10.03.2015 passed by the learned  trial   Judge,   City   Civil   Court,   Ahmedabad   in   Civil   Misc.  Application No.21 of 2015 under Section 9 of the Arbitration  and Conciliation Act, 1996 ( for short "the Act" ) whereby the  applicant/original respondent is directed to furnish   a solvent  surety of the claim amount of Rs.6006.93 lacs in the trial court  Page 1 of 13 C/CA/4245/2015 ORDER within 30 days of the date of order.

3. The background under which the case arises can thus be  stated:

3.1 The  respondent  herein (the  original   applicant)   and  the  applicant   (original   respondent)   had   entered   into   a  Memorandum   of   Understanding     (for   short   "MOU")  whereunder the respondent/original applicant  was to develop  non­agricultural commercial use land situate, lying and being  at   Mouje   Jodhpur   bearing   Revenue   Survey   No.46   ad­ measuring   9105   sq.mts   and   Final   Plot   No.83   ad­measuring  7010 sq.mts  of Vejalpur  Town Planning Scheme No.4 situate  at Regency Centre, Near Prahlad Nagar, Satellite, Ahmedabad  380 015 by raising  a commercial complex of an approximate  area of 1,75,000 sq. ft (built up area) to be known as "Regency  Centre"   or   by   such   name   as   may   be   solely   decided   by   the  developer   at   its   sole   discretion.     Out   of   the   said   area,  approximately     32,000   sq.   ft   (carpet   area)   with   an   area  efficiency   of   83.33%   i.e.   the     built­up/chargeable   area   of  38,400   sq.   ft     was     proposed   to   be   allocated   to   Multiplex  Theater  comprising of 5 screens  as per the drawings prepared  by   the   developer   in   consultation   with   the   architects   of   the  Adlabs which is known as "Adlabs Cinemas" or any other name  as may be decided by Adlabs.  The said property was proposed  to   be   developed   and    agreed   to   be   leased   to   the    applicant  herein on the agreed terms and conditions;  one of which was  Page 2 of 13 C/CA/4245/2015 ORDER a locking period of 10 years from the commercial operation  date during which the arrangement (MOU) was not terminable  except on failure of payment of monthly compensation/lease  rent/CAM  charges    as  mentioned  in the  arrangement     for  a  continuous period of three months and absence of ratification  thereof within 60 days from the date of receipt of the notice  from the developer.   In the event of Adlabs terminating     the  Long Form Agreement/MOU without breach of its terms or any  other   reason   not     attributable   to   the   developer,   the     MOU  entitled   the   developer   a   lease   rent   and   arrears   for   the  unexpired remaining locking period of the lease.   The agreed  term   of   the   lease   between   the   parties   was   20   years   in   two  blocks   of   10   years   each   on   the   same   terms   and   conditions.  Other     factual   aspects   emerging   from   the   MOU   not   being  relevant for the purpose of this application, are not deliberated  herein.

3.2 The     respondent­original   applicant,   while   alleging   the  breach   of   MOU,   has   made   a   claim   before   the   arbitrator   as  contemplated   in   Clause   23   of   the   MOU   which   is   pending  adjudication.

3.3 In   the   meanwhile   the   respondent­original   applicant  learnt about sale of Multiplex business to Carnival Cinema for  Rs.700/­ crores.  The respondent­original applicant, therefore,  moved the trial court with an application under Section 9(ii) Page 3 of 13 C/CA/4245/2015 ORDER

(b) of the Act seeking a security of the amount in dispute in  the   arbitration.     The   case   of   the   respondent   was   that   its  interest   was     required   to   be   protected     under   the   said  provisions in view of the fact that the assets were sought to be  sold and the applicant   herein was constantly incurring loses  in its business.

3.4 In   response   to   the   notice,   the   applicant­original  respondent appeared before the trial court, filed a reply Exh.18  raising various contentions.   It was stated that the arbitration  proceedings   are   already   completed   and   are   at   final   hearing  stage.  It was also pointed out that the application was based  upon   assumption   and   presumption   as   if   the   respondent   has  succeeded  in the arbitral proceedings.  It was also stated that  the original applicant has made a counter claim before the sole  arbitrator.   The   applicant   attributed   to   the   respondent,   the  failure   of   performance   of   its   part   of     contract   leading   to  termination of MOU.   It was admitted before the trial court  that the assets were being sold and that it continues  to remain  responsible   and   all   the   legacy   issues   will   stay   with   the  applicant as a legal entity. It was pointed that while its legal  entity was to continue, but there was no justification with the  respondent herein to say that the deal of sale of assets was  intended to deprive the fruits of the award that may be passed  in his favour.

Page 4 of 13

C/CA/4245/2015 ORDER 3.5 The court below relied upon the MOU and also noticed  the rival allegations regarding non­performance of contract.  It,  however, abstained from  deliberating upon the issue at large  before   the   arbitrator   as   it  felt   that,   such   deliberation   would  tentamount to usurpation of his jurisdiction.  

3.6 The   main   contention  raised   before   the   trial   court   as  is  apparent from para 11 of the impugned judgment and order  was   that the assets were being sold, the applicant (original  respondent) was incurring huge losses, and   in the event of  respondent's succeeding before the arbitrator, nothing shall be  left for payment and therefore there should be at least some  security   to   secure   the   interest   of   the   respondent   (original  applicant).  Reliance was placed upon Adhunik Steels Limited  Vs. Orissa Manganese and Minerals Pvt. Ltd. [AIR 2007 SC  2563], Arvind Constructions Co.(P) Ltd vs. Kalinga Mining  Corporation and others [ (2007) 6 SCC 798] and First Appeal  No.2861 of 2014.

3.7 The   learned   trial   Judge   noticed   from   the   judgment   in  First Appeal No.2861 of 2014 that the powers under Section  9(ii)(b) of the Act were akin to Order 38 Rule 5 of the Code of  Civil   Procedure   (   for   short   "CPC"   ),   however,   it   finds   that  undisputed fact of the sale of property by the applicant was  distinguishing   feature   between   the   judgment   in  First   Appeal  aforesaid and the case on hand.    The trial court  also noticed  Page 5 of 13 C/CA/4245/2015 ORDER from   the   balance   sheet   the   fact   that   the   applicant   was  incurring   huge   loss   and   reserves   were   being   depleted   and  there were contingent liabilities.  On the basis of the aforesaid  facts   it  concluded   that     the   requirements   of  Section   9   were  fulfilled. The trial court therefore opined that the apprehension  shown by the respondent was not required to be discarded.  

3.8 Adhunik   Steels   Limited   Vs.   Orissa   Manganese   and  Minerals Pvt. Ltd. [AIR 2007 SC 2563], Arvind Constructions  Co.(P)   Ltd   vs.   Kalinga   Mining   Corporation   and   others  [ (2007) 6 SCC 798], Brand Value Communications Limited  Vs. Eskay Video Private Limited [ AIR 2010 Calcutta 166 ]  and  Raman Tech. and   Process Engg. Co. and another Vs.  Solanki Traders [ (2008) 2 SCC 302]   were cited before the  trial   court   on   different   proposition   of   law.     Thereafter   it  proceeded to record the following findings in para 20.

"In the  instant case, admittedly,  the  respondent has  entered into an agreement with third party for the sell  of   its   business   of   multiplex.     It   is   also   admitted  position   that   as   far   as   the   real   estates   or   other  properties is concerned, they are to be monetised for  Rs.200   crores.    But,   as   far   as   invoking   the   powers  under Order 38 Rule 5 of the Civil Procedure Code,  1908 are concerned,  in view of the judgments supra,  they   cannot   be   exercised   on   mere   asking.   The  description   of   the   assets   and   or   properties   of   the  respondent are not given by the applicant.  The basic  requirement for invoking the powers for attachment  of   properties   is   not   convincingly   established   by   the  Page 6 of 13 C/CA/4245/2015 ORDER applicant.   Under the circumstances, this court would  refrain itself from passing orders for attachment of the  properties and assets of the respondent.   In the case  on hand, the claim of the applicant is pending before  the arbitral tribunal.   Thus, the claim as well as the  counter claim is yet for consideration.  Neither of the  two probabilities i.e. allowing of the claim petition or  rejection of the claim petition can be denied at this  juncture. 

3.9 It  is  apparent  from   the   discussion   by  the   trial  court   in  para 20 that it was   not convinced for   issuance of any order  under Order 38 Rule 5 of the CPC. It was, however, convinced  by     the   only   arguments   that   in   case   of   succeeding   of   the  respondent before the arbitrator, a decree would be a paper  decree   and   that   applicant   herein   had   failed   to   satisfy   the  conscious of the court as to the manner in which said award  would be satisfied by it if passed against it and that applicant  was incurring huge losses.

4. Many   fold   contentions   have   been   raised   by   the   parties  primary against whom by the learned senior counsel for the  applicant are that Section 9(ii)(b) of the Act is applicable only  to   the   monetary   claim   in   dispute   and   not   other   claims   for  unliquidated   amounts   arising   under   tortuous   or   contractual  liabilities   and   that   the   CPC   is   applicable   to   the   proceedings  under Section 9 of the Act, and in view of decision rendered in  Essar Oil Limited Vs. United India Insurance Company Limited  (First Appeal No.2861 of 2014) by this Court, the provision of  Page 7 of 13 C/CA/4245/2015 ORDER Section 9(ii)(b)  of the Act are akin to Order 38 Rule 5 of CPC,  and therefore, the orders under that provision can be passed  only on the principle settled  in relation to Order 38 Rule 5 of  CPC, and that it was  misconception on  the learned trial Judge  to  have distinguished the aforesaid case, and thus, the learned  trial Judge committed a grave error going to the root of the  matter in finding that the facts and circumstances of the case  were sufficient enough to establish the case under Section 9 of  the Act.

It is next contended that, while relying upon Brand Value  Communications   Limited   Vs.   Eskay   Video   Private   Limited  (supra),      that   where   rival   monetary   claims   are   made,   the  injunction contemplated under Section 9 of the Act should not  be issued.  

It is next argued that after having found no case under  Order 38 Rule 5 of CPC for asking the applicant to furnish the  security,   the   learned   trial   Judge,   contrary   to   such   finding  ordered security in absence of any legal provision. 

It  is next  contended   that in  absence  of  the   findings  as  regards the applicant's likelihood of disposing of the property  with a sole object of defeating the award that may be passed in  favour of the respondent, solvent security should not be sought  from the applicant.

Page 8 of 13

C/CA/4245/2015 ORDER It is   next contended that in absence of recording   of a  chance of respondent's success before the arbitrator, no orders  requiring   the   applicant   to   furnish   the   solvent   security   could  have been passed.

It is also argued that the impugned order is based upon  surmises   and   conjectures   with   no   basis   for   exercise   of   the  power under Order 38 Rule 5 of CPC or Section 9(ii)(b) of the  Act. 

5. Learned   Senior   Counsel   Mr.Mihir   Thakore   with  Mr.Manav   Mehta,   learned   advocate   appearing   on   caveat   for  the   respondent   vehemently   argued   that   the   impugned  judgment and order is well considered and is in accordance  with   law   requiring   no   interference   from   this   Court   in   the  discretion exercised by the learned trial Judge.   The fact that  the property is being disposed of by the applicant and it was  incurring losses as reflected in the balance sheet could not be  disputed  by  the   applicant,  and   therefore,   the   interest of  the  applicant was required to be protected by passing necessary  orders under Section 9(ii)(b) of the Act and the trial court has  rightly granted such a relief.   It is contended that the claim  before   the   arbitrator   is   not   for   damages   but   is   as   regards  liquidated amount of rentals for locking period of 10 years to  which the respondent is entitled under the agreed terms and  Page 9 of 13 C/CA/4245/2015 ORDER conditions   of   the   MOU,   and   therefore,   the   trial   court   was  justified in invoking Section 9(ii)(b) of the Act.  Drawing  the  attention of this Court   to Section 7, and while relying upon  the expression "whether contractual or not" in sub­sec.(1) of  Section 7, the argument  is that the said phrase would include  even non­contractual claims i.e. claims arising out of tort, and  therefore,   in   his   submission,   even   if   the   claim   before   the  Tribunal   is   treated   as   the   claim   for   damages   the   court   is  authorised to issue necessary orders under Section 9(ii)(b) of  the Act.

It  is also  contended  by  the  learned senior counsel that  unlike Order 39 of CPC where one of the criteria for issuance  of   injunction   is   the   intent   of   the   defendant   to   defraud   its  creditors, exercise of powers under Order 38 Rule 5 of CPC not  dependent upon  such condition and the orders under the said  provision can be passed once the court is satisfied about the  intention   of   the   defendant   of   obstructing   or   delaying   the  execution of a decree likely to be passed against him.  It is the  submission of the learned counsel that the likelihood has to be  inferred   from   the   emerging   circumstances   as   no   evidence   is  possible   on   such   aspects,   and   therefore,   the   trial   court   has  drawn lawful inferences from the facts presented before it and  has justifiably exercised its jurisdiction. 

6. This Court is conscious of the fact that at this stage of the  Page 10 of 13 C/CA/4245/2015 ORDER proceedings no final and conclusive judgment can be passed  on   the   rival   contentions.     The   only   question   that   requires  consideration at this stage is as to whether the applicable legal  provision rendered any justification to the learned trial Judge  to pass the impugned judgment and order. If the judgment and  order is   without authority of law, it cannot be   allowed to  operate during the pendency of appeal.  The proposition of law  emerging from the various decisions cited at the bar in relation  to Order 38 Rule 5 of CPC vis­a­vis Section 9 of the Act is that  the   principles   underlying   Order   38   Rule   5   of   CPC   must   be  applied   by   the   court   to   the   proceedings   under   Section   9   or  9(ii) or 9(ii)(b) of the Act, and a sole ground of protection of  financial   interest   of   the   applicant   cannot   be   the   reason   for  exercising   the   powers   under   Section   9   of   the   Act.  ( M/s.Global Company Vs. M/s.National Fertilizers Limited [  AIR 1998 Delhi 397 ],  Rashmi Cement Limited Vs. Trafigura  Beheer   B.V.     [   AIR   2011   Calcutta   37   ]   and   Brand   Value  Communications   Limited   Vs.   Eskay   Video   Private   Limited  (supra).

7. This   Court   in   First   Appeal  No.2861   of   2014   (Essar   Oil  Limited   Vs.   United   India   Insurance   Company   Limited)   held  that   the   powers   to   be   exercised   by   the   court   under   Section  9(ii)(b) of the Act would be akin to the provisions of CPC more  particularly Order 38 Rule 5 of thereof.  However, the Bombay  High Court in  National Shipping Company of Saudia Arabia  Page 11 of 13 C/CA/4245/2015 ORDER Vs. Sentrans Industries Limited [ AIR 2004 Bombay 136 ]  expressed   the   opinion   that   the   powers   of   the   court   to   pass  interim   protection   under   Section   9   of   the   Act   cannot   be  restricted by importing   provisions of Order 38 Rule 5 of the  CPC.   There are  various other authorities relied upon by the  rival parties on different propositions, however,   we are not  inclined to express our final verdict on the principles emerging  from the authorities in view of the factual finding rendered by  the trial court in relation to Order 38 Rule 5 of CPC vis­a­vis  Section 9 of the Act.

8. As   noticed   above,   the   trial   court   was   conscious   about  applicability   of   Order   38   Rule   5   of   CPC   or   its   principles   to  Section 9(ii)(b) of the Act but it did not find any reason to  exercise   the   powers   under   Order   38   Rule   5   of   CPC.     That  would mean that no case for seeking a security or attachment  of the property before  judgment  was made  out.   This Court  wonders as to how then, in the light of such finding, a solvent  security could have been sought from the applicant on a mere  plea of applicant incurring losses and the mere plea that it has  not come out  with any proposal of securing the interest of the  respondent   in   the   event   of   his   success   in   the   arbitral  proceedings   and   on   the   mere   fact   that   the   properties   were  sought to be sold by the respondent.   The trial court did not  render   any   finding   about   fair   chance   of   success   of   the  respondent in the arbitral proceedings which finding was sine­ Page 12 of 13 C/CA/4245/2015 ORDER qua­non in view of the language of Order 38 Rule 5 of CPC as  interpreted by the Apex Court in  Raman Tech. and   Process  Engg. Co. and another Vs. Solanki Traders (supra).     The  trial   court   also   did   not   find   that   the   proposed     sale   of   the  properties by   the applicant was intended to   obstruct or to  delay the execution of any award  that may be passed against  the applicant.  Thus without satisfying itself on the prima facie  case and the basic requirements for seeking a security   under  Order 38 Rule 5 of CPC or under Section 9(ii)(b) of the Act,  the impugned order has been passed which is apparently prima  facie illegal.  We are, therefore, inclined to stay the impugned  order and accordingly the impugned order dated 10.03.2015  passed   by   the    learned   trial   Judge,   City   Civil   Court,  Ahmedabad in Civil Misc. Application No.21 of 2015   is stayed  until final hearing of First Appeal No.552 of 2015.

9. Rule is made absolute.  Direct service is permitted.

(ANANT S.DAVE, J.) (G.R.UDHWANI, J.) syed/ Page 13 of 13