C/CA/4245/2015 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD CIVIL APPLICATION (FOR STAY) NO. 4245 of 2015 In FIRST APPEAL NO. 552 of 2015 ========================================================== RELIANCE MEDIA WORKS LIMITED....Applicant(s) Versus NISHANT CONSTRUCTION PVT LTD....Respondent(s) ========================================================== Appearance: MR MIHIR JOSHI, SR.COUNSEL ASSISTED BY MR DHAVAL M BAROT, ADVOCATE for the Applicant. MR MIHIR THAKORE, SR.COUNSEL ASSISTED BY MR MANAV A MEHTA, CAVEATOR for the Respondent. ========================================================== CORAM: HONOURABLE MR.JUSTICE ANANT S. DAVE and HONOURABLE MR.JUSTICE G.R.UDHWANI Date : 05/05/2015 ORAL ORDER
(PER : HONOURABLE MR.JUSTICE G.R.UDHWANI)
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