1 July 2020

INDIAN ARBITRATION UPDATE | THRESHOLD FOR INTERIM ORDERS IN AN INTERNATIONAL ARBITRATION MATTER

Delhi High Court (DHC) in a recent Case Goodwill Non-Wovens Private Limited v XCoal Energy & Resources LLC,clarifies the threshold required for obtaining interim reliefs under Section 9 of the Arbitration and Conciliation Act 1996 (Act) with respect to Arbitrations seated outside India. The Court held that along with a strong prima-facie case, the petitioner must also satisfy the Court that the Respondent is acting in a manner so as to defeat the realization of the future award which may be passed in favour of the petitioners.

FACTS OF THE CASE:

• Goodwill Non-Wovens Private Limited (Petitioner) being an Indian company and XCoal Energy & Resources LLC (Respondent) – being coal marketing and logistics company based out of United States of America (USA) entered into a contract for sale and delivery of 13,500MT of Consol BEFH US High CV Thermal Coal at the designated port.
• On alleged default of the Respondent, the Petitioner terminated the contract and intended to initiate arbitral proceedings at the International Chamber of Commerce (ICC) against the Respondent for the refund of monies remitted under the contract and for damages. The Petitioner, in the interim, sought to secure the dispute amount through Section 9 petition on the following grounds:
  
  
  • Section 9 of the Act is applicable to Part II arbitrations, and Indian Courts have time and again upheld this position;
  • In the wake of COVID-19 pandemic, it was difficult to obtain a speedy remedy under the ICC Rules, given the procedural timelines;
  • The provisions in ICC Rules do not oust the jurisdiction of any competent judicial authority, and thus the Petitioner had the liberty to approach this court even after considering the ICC Rules;
  • There was an apprehension that the Respondent may obstruct the realization of the final award which may be passed in favour of the Petitioner.


• Respondent offered a 3-fold objection to the Petitioners contentions:
  
  
  • The Petition was not maintainable, because the Act allows application of Section 9 to only such Part II arbitrations, the final award whereof would be enforceable in India. Contending that the court, under this provision, have asset-based jurisdiction, the Respondent challenged the maintainability of the petition itself, as the Respondent does not have any assets situated in India.
• Secondly, it was contended that the powers of the Court to grant interim relief has to be exercised scarcely and in accordance with the conditions laid down in Order 38 Rule 5 of the Code of Civil Procedure, 1908 (CPC).
• Thirdly, it was stated that the ICC Rules contained provisions for emergency arbitration whereby quick and speedy remedy can be availed by the Petitioner. The special conditions arisen due to the COVID-19 pandemic are not enough for the Petitioner to bypass that remedy and approach the Court under Section 9 of the Act.

ISSUES

• Whether the Petition was maintainable?
• Whether the Petitioners had a good prima facie case?
• Whether the interim relief could be granted in view of the spread of COVID-19?
• Whether Section 9 of the Act had to be read with Order 38 Rule 5 of the CPC?

HELD:

The Delhi High Court dismissed the petition on the following grounds:

• While upholding the maintainability of the Petition, the Court held that the exercise of powers of the Court under Section 9 of the Act did not explicitly require any assets of the Respondent to be situated within the jurisdiction of the Court.
• While examining the question of whether any interim relief could be granted in a Part II Arbitration, the Court set out 2-point threshold that must be satisfied by the Petitioner, viz:
  
  
  • The Petitioner must satisfy the Court that it has a good prima facie case.
• There must be a reasonable apprehension that the Respondent is acting in a manner so as to obstruct the satisfaction of the final award.

• As regards the prima facie case, the Court observed that there were disputed facts between the parties and required a consideration on merits, which cannot be done in the present petition and has to be decided by the Arbitral Tribunal during the Arbitration Proceedings.
• The Court cited a number of judgments of various High Courts and placing heavy reliance on Ajay Singh Case stating that the underlying principles of Order 38 Rule 5 of the CPC (i.e. attachment before judgement) must be borne in mind while exercising the power under Section 9 of the Act. The conditions imposed by Order 38 Rule 5 of the CPC are as follows:
  
  
  • That the Respondent is about to dispose of the whole or any part of his property, or
• That the Respondent is about to remove the whole or any part of his property from the local limits of the jurisdiction of the Court.
Since there was no material on record to substantiate such an apprehension, the court rejected this plea of the Petitioner.

• Thirdly, it was also held that the special circumstances arisen due to the COVID-19 pandemic did not have a bearing on the facts of the present case and thus the Petitioner was not entitled to any relief as prayed for.

MHCO Comment: In this Judgment the court has clearly spelt out the scope of its powers under Section 9 of the Act and has reaffirmed that the underlying principles of attachment before judgement must be kept in mind while exercising these powers. It has clearly pointed out the conditions which must be satisfied for obtaining relief under the said provision.

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