Unless and Until the preconditions under Order XXXVIII Rule 5 of the CPC are satisfied Commercial Court could not have passed an order under Section 9 of the Arbitration Act, 1996: Supreme Court
The Supreme Court ruled that Unless and Until the preconditions under Order XXXVIII Rule 5 of the CPC are satisfied the Commercial Court could not have passed an order under Section 9 of the Arbitration Act, 1996.
Background
Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court of Gujarat at Ahmedabad, by which, the High Court has dismissed the appeal confirming the order passed by the Commercial Court in an application under Section 9 of the Arbitration and Conciliation Act, 1996, by which the Commercial Court directed the appellant original opponent/respondent to deposit the amount of performance bank guarantees pertaining to purchase orders invoked by it, the original opponent/respondent has preferred the appeal.
Decision
The division bench of Justice M.R. Shah and Justice Krishna Murari noted that by the time any further order could be passed the bank realized the payments under the bank guarantees invoked by the appellant.
It further noted that the Commercial Court passed an order under Section 9(ii)(e) of the Arbitration Act, 1996 to secure the amount in dispute and directed the appellant to deposit the amount of respective performance bank guarantees, which as such has already been invoked and for which the payments were already made by the bank.
The bench after observing that the Commercial Court had passed the order under Section 9(ii)(e) of the Arbitration Act, 1996 to secure the amount in dispute, opined that unless and until the preconditions under Order XXXVIII Rule 5 of the CPC are satisfied and unless there are specific allegations with cogent material and unless prima facie the Court is satisfied that the appellant is likely to defeat the decree/award that may be passed by the arbitrator by disposing of the properties and/or in any other manner, the Commercial Court could not have passed such an order in exercise of powers under Section 9 of the Arbitration Act, 1996.
“It may be true that in a given case if all the conditions of Order XXXVIII Rule 5 of the CPC are satisfied and the Commercial Court is satisfied on the conduct of opposite/opponent party that the opponent party is trying to sell its properties to defeat the award that may be passed and/or any other conduct on the part of the opposite/opponent party which may tantamount to any attempt on the part of the opponent/opposite party to defeat the award that may be passed in the arbitral proceedings, the Commercial Court may pass an appropriate order including the restrain order and/or any other appropriate order to secure the interest of the parties” the court said.
The court added that unless and until the conditions mentioned in Order XXXVIII Rule 5 of the CPC are satisfied such an order could not have been passed by the Commercial Court which has been passed by the Commercial Court in the case, which has been affirmed by the High Court.
The court quashed and set aside the impugned judgment and order passed by the High Court and that of the order passed by the Commercial Court in an application under Section 9(ii)(e) of the Arbitration Act, 1996 directing appellant to deposit the amount of performance bank guarantees pertaining to purchase order already invoked by the appellant.
The bench directed that the appellant shall furnish an undertaking backed by the Resolution of the appellant’s company before the Commercial Court that in case any award is passed by the Arbitrator in arbitration proceedings, the same shall be paid/honoured by the appellant subject to the challenge before the higher forum. Such undertaking backed by the Resolution of the appellant’s company shall be filed before the Commercial Court within a period of four weeks.
Case title: Sanghi Industries Limited v/s Ravin Cables Ltd., and Anr.
Citation: Civil appeal no. 6908 of 2022
