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IN THE HIGH COURT OF CALCUTTA
Bhaskar Bhattacharya and Sambuddha Chakrabarti, JJ.
Rashmi Cement Limited – Appellant
Vs.
Trafigura Beheer B.V. – Respondent
G.A. No. 3352 of 2010, A.P.O.T. No. 591 of 2010 and A.P. No. 645 of 2010
Decided On: 29.11.2010
INTERIM RELIEF - ATTACHMENT BEFORE AWARD - ARBITRATION AND CONCILIATION ACT, 1996 - SECTION 9 - COURT PASSING INTERIM ORDER DIRECTING APPELLANT TO EXPORT CONTRACTED QUANTITY OF IRON BY 15TH OCTOBER, 2010 FROM ANY PORT WITHOUT PREJUDICE TO THE RIGHTS AND CONTENTIONS WITH FURTHER CONDITION THAT IF SUCH GOODS CANNOT BE SO EXPORTED WITHIN THE STIPULATED TIME, THE APPELLANT SHOULD FURNISH SECURITY BY WAY OF BANK GUARANTEE OF THE VALUE OF 20% OF THE SALE PRICE - HELD, ON THE BASIS OF AVERMENTS MADE IN THE APPLICATION FOR INTERIM RELIEF AS IT STOOD BEFORE THE LEARNED SINGLE JUDGE, NO CASE WAS MADE OUT FOR PASSING AN INTERIM ORDER DIRECTING ATTACHMENT BEFORE AWARD.
Fact of the Case:
RESPONDENT FILED AN APPLICATION UNDER SECTION 9 OF THE ARBITRATION AND CONCILIATION ACT, 1996 (ACT) AGAINST THE APPELLANT FOR BREACH OF AN AGREEMENT TO SUPPLY IRON BY WAY OF EXPORT. THE LEARNED SINGLE JUDGE PASSED AN INTERIM ORDER DIRECTING THE APPELLANT TO EXPORT THE CONTRACTED QUANTITY OF 40,000 METRIC TONNES OF IRON BY 15TH OCTOBER, 2010 FROM ANY PORT WITHOUT PREJUDICE TO THE RIGHTS AND CONTENTIONS WITH FURTHER CONDITION THAT IF SUCH GOODS CANNOT BE SO EXPORTED WITHIN THE STIPULATED TIME, THE APPELLANT SHOULD FURNISH SECURITY BY WAY OF BANK GUARANTEE OF THE VALUE OF 20% OF THE SALE PRICE.
Finding of the Court:
THE COURT HELD THAT THE LEARNED SINGLE JUDGE ERRED IN LAW IN PASSING A DIRECTION FOR DEPOSIT OF BANK GUARANTEE ON THE APPELLANT MERELY ON A PRIMA FACIE FINDING ON MERIT IN THE ABSENCE OF ANY FINDING THAT THE APPELLANT WAS EITHER TRANSFERRING OR ALIENATING HIS PROPERTY TO AVOID PAYMENT OF MONEY THAT MAY BE AWARDED AGAINST IT OR THAT IT WAS THREATENING OR INTENDING TO REMOVE OR DISPOSE OF HIS PROPERTIES WITH A VIEW TO DEFRAUDING HIS CREDITORS.
Issues: WHETHER THE LEARNED SINGLE JUDGE WAS JUSTIFIED IN PASSING THE INTERIM ORDER, WHICH IS AN ORDER IN THE NATURE OF ATTACHMENT BEFORE JUDGMENT, ON THE BASIS OF THE AVERMENTS MADE IN THE APPLICATION UNDER SECTION 9 OF THE ACT.
Ratio Decidendi: THE COURT RELIED ON THE SUPREME COURT'S OBSERVATIONS IN RAMAN TECH & PROCESS ENG. CO. V. SOLANKI TRADERS AND HELD THAT THE POWER UNDER ORDER 38 RULE 5 CODE OF CIVIL PROCEDURE IS A DRASTIC AND EXTRAORDINARY POWER AND SHOULD NOT BE EXERCISED MECHANICALLY OR MERELY FOR THE ASKING. IT SHOULD BE USED SPARINGLY AND STRICTLY IN ACCORDANCE WITH THE RULE. THE PURPOSE OF ORDER 38 RULE 5 IS NOT TO CONVERT AN UNSECURED DEBT INTO A SECURED DEBT.
Final Decision: THE COURT SET ASIDE THE ORDER IMPUGNED AND DISPOSED OF THE APPEAL WITH THE FINDING THAT ON THE BASIS OF AVERMENTS MADE IN THE APPLICATION FOR INTERIM RELIEF AS IT STOOD BEFORE THE LEARNED SINGLE JUDGE, NO CASE WAS MADE OUT FOR PASSING AN INTERIM ORDER DIRECTING ATTACHMENT BEFORE AWARD.
Bhaskar Bhattacharya, J.
1. This appeal is at the instance of a Respondent in a proceeding under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) and is directed against an order dated October 05, 2010 passed by a learned Single Judge of this Court by which His Lordship modified the earlier ad interim order of injunction passed by His Lordship dated October 01, 2010 and passed a fresh interim order directing the present Appellant to export to the Respondent the contracted quantity of 40,000 Metric tonnes of iron by 15th October, 2010 from any Port without prejudice to the rights and contentions with further condition that if such goods cannot be so exported within the stipulated time, the Appellant should furnish security by way of bank guarantee of the value of 20% of the sale price of US Dollar 4,864,000 at the conversion rate on the date of issue of the bank guarantee in favour of and to the satisfaction of the Registrar, Original Side. In default of furnishing such security, the Court proceeded, all immovable properties of the Appellant would be attached.
2. The learned Single Judge also passed direction for filing affidavit by the Appellant by 18th November, 2010.
3. Being dissatisfied, the Appellant has come up with the present appeal.
4. Mr. Banerjee, the learned Advocate appearing on behalf of the Appellant, at the very outset, has taken a pure question of law in support of this appeal.
5. According to Mr. Banerjee, the allegations of the Respondent being based on breach of an agreement to supply iron by way of export, its claim was really one for damages of unquantified amount. According to Mr. Banerjee, in such a case, a Court, by way of interim measure, cannot pass any direction which is in the nature of attachment before passing of award unless specific allegation is made in the application for interim relief that the Appellant had started transferring or had already taken step to transfer his assets for defrauding his creditors or for avoiding payment of the awarded amount that may be passed against him. Mr. Banerjee, therefore, prays for setting aside the modified interim order passed by the learned Single Judge in the impugned order on that ground alone.
6. Mr. Bose, the learned Senior Advocate appearing on behalf of the Respondent, on the other hand, has opposed the aforesaid contention advanced by Mr. Banerjee and has contended that his client having made a strong prima facie case, there was no illegality on the part of the learned Single Judge in passing the aforesaid order to protect the interest of his client. According to Mr. Bose, the learned Single Judge having exercised discretion in favour of his client by way interim measure and the main application being yet to be decided on merit on affidavit, this Court should not interfere with the discretion exercised by the learned Single Judge Mr. Bose, therefore, prays for dismissal of the present appeal.
7. Therefore, the only question that arises for determination in this appeal is whether on the basis of the averments made in the application under Section 9 of the Act, the learned Single Judge was justified in passing the interim order, which is an order in the nature of attachment before judgment.
8. In order to appreciate the question involved, it would be profitable to refer to the provisions contained in Section 9 of the Act, which is quoted below:
9. Interim measures, etc. by Court. - A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a Court:
(i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or
(ii) for an interim measure of protection in respect of any of the following matters, namely:
(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;
(b) securing the amount
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