Ashim Kumar Banerjee, J.
FACTS:
1. Parties entered into a contract under which the respondent was to supply coal to the appellant for its power plant. Under the agreement, the price of coal would vary as per the specifications, the variance would principally relate to moisture content. The dispute arose when the appellant declined to pay as per the bill raised by the respondent on the ground, the coal supply was not as per specification, it would carry more moisture than what was specified and billed for.
2. Matter was referred to arbitration and at the stage of filing of the pleadings, appellant filed an application under Section 9 of the Arbitration and Conciliation Act 1996 inter-alia, praying for examination of the sample that they collected from the consignment supplied by the respondent. The respondent also filed an application under Section 9 inter-alia, praying for direction upon the appellant to show cause why they would not be asked to furnish security for a sum of Rs. 1,67,42,692 coupled with an order of injunction restraining the appellant from dealing with and/or disposing and/or alienating and or encumbering and/or creating any third party interest in respect of assets and properties as also from operating their bank accounts leaving apart the said sum of Rs. 1,67,42,692. The learned Judge heard the applications and disposed of the same on the first day without calling for affidavits. While dealing with the appellant''s application the learned Judge observed, it was not in dispute that the samples had been drawn and sent to an inspection agency namely Inspectorate Griffith and subsequently to SGS. Perusing both the reports, the learned Judge found no variance and thus rejected the contention of the appellant.
3. With regard to the prayer for security made by the respondent, His Lordship observed as follows:
"Now the question that comes up for consideration is what kind of relief can be given in favour of Naresh Dhanraj Jain, at this stage. If this Court directs attachment of assets and properties of Dhariwal infrastructure Limited and the amount lying in its bank account before an award is passed, it will tantamount to the arbitration proceedings being reduced to an otiose level. However, some interim protection is required to be given to Naresh Dharaj Jain, being the sole proprietor of M/s. K.K. Enterprise. As such, let there be an order directing Dhariwal Infrastructure Limited to set apart a sum of Rs. 1,67,42,692/-, being the claim of Naresh Dhanraj Jain and keep the said amount in a fixed deposit account to be opened in a nationalized bank, jointly by Dhariwal Infrastructure Limited and M/s. K.K. Enterprise. Such fixed deposit shall be renewed from time to time till the arbitration proceedings between the parties are finally concluded."
4. Being aggrieved, both parties filed the instant appeals that we heard on the above mentioned date.
CONTENTIONS:
5. Mr. S.N. Mookherjee learned Senior Counsel appearing for the appellant would contend, learned Judge should have called for affidavit, before directing the appellant to set apart and deposit a sum of Rs. 1,67,42,692. According to Mr. Mookherjee, the procedural law would suggest, before directing security to be furnished His Lordship should have recorded reasons as to why security was directed to be furnished on the first day of making of the application without calling for affidavit granting opportunity to the appellant to contest the prayer by placing their version. The provision of Order XXXVIII Rule 5 of the Code of Civil Procedure was not followed. Mr. Mookherjee would further contend, the appellant was a wholly owned subsidiary of the CESC Limited, a cash rich Company entrusted to supply power in the city of Calcutta and suburbs. Hence, it could not be said, the appellant company would not satisfy the criteria under which a prayer for security could be denied. The power plant itself was owned by the appellant hence, there was no possibility of any money decree or award being made infructuous in case it is passed and/or published in favour of the respondent.
6. On his application Mr. Mookherjee would submit, under Order XXVI Rule 10A he would be entitled to have the samples inspected and/or examined. Whether the arbitral Tribunal would rely upon such report or not, would depend upon the Tribunal, the learned Judge could not have refused such prayer. According to him, as per the calculation of the appellant, only a sum of Rs. 4.94 lacs was left outstanding. He would rely upon the following decisions to support his contention:
1.
2.
3.
7. Per contra, Mr. Jishnu Chowdhury learned Counsel appearing for the respondent would submit, the provisions of Order XXXVIII Rule 5 would not apply while dealing with an application under Section 9 of the said Act of 1996. In any event, such principle were watered down by the Apex Court in the recent decisions. He would further contend, the principles of Order XXXIX would also permit the Court to give interim protections to the parties hence, learned Judge did not commit any error while giving interim protection to the parties. He would rely upon the decisions to support his contention:
1. Delta Construction System Limited, Hyderabad Vs. Narmada Cement Company Limited, Mumbai reported in 2002 Volume-II Arbitration Law Reporter Page-47.
2. National Shipping Company of Saudi Arbia Vs. Sentrans Industries Limited reported in 2004 Volume-I Arbitration Law Reporter (Bombay) Page-409.
3. Nimbus Communications Limited Vs. Board of Control for Cricket in India and Another reported in 2012 Volume-IV Arbitration Law Reporter (Bombay) Page-113.
OUR VIEW:
8. Before we go into the merits of the matter, let us deal with the decisions cited at the bar.
9. In the case of Prem Raj (supra) the learned Single Judge of this Court prescribed a guiding principle to deal with an application of the like nature under Order XXXVIII Rule 5.
10. In the case of Delta Construction (supra), the learned Single Judge of the Bombay High Court observed, the corresponding power in the Court under Section 9 would be of securing the amount in dispute in the arbitration. The power of the Court to secure the amount in dispute under arbitration is not hedged by the predicates as set out in Order XXXVIII. All that the Court must be satisfied is that an interim measure is required. In other words, the party coming to the Court must show that if it is not secured, the award which it may obtain, would result in a paper decree or a decree which cannot be enforced on account of acts of a party pending arbitral process.
11. In the case of National Shipping Company (supra), the Division Bench of the Bombay High Court observed, the Court would not be bound by the requirement of Order XXXVIII rule 5 while dealing with an application under Section 9, the provision contained in Section 9 was a self-operative code and the provisions of Civil Procedure Code would not be applicable.
12. In the case of R.B.M. Pati Joint Venture (supra), the Division Bench of this Court observed, the provisions of Order XXXVIII Rule 5 would require satisfaction to be accorded. The materials-on-record should satisfy the Court that an Order was necessary under the provision.
13. In the case of Raman Tech (supra), the Apex Court observed, the power under Order XXXVIII Rule 5 CPC is a drastic and extraordinary power. Such power 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 XXXVIII Rule 5 is not to convert an unsecured debt into a secured debt.
14. In the case of Nimbus Communications Limited (supra), the Division Bench of the Bombay High Court in paragraph 24 relied on an Apex Court decision and observed, the power under Section 9 was not independent of the principles of the Code. Section 9 was guided by the underlying principle which governed the exercise of an analogous power in the Code of Civil Procedure. The Division Bench observed, a balance has to be drawn between two considerations, the principles laid down in the Code and the scope of Section 9. The principles laid down under the Code of Civil Procedure while granting interlocutary reliefs must furnish a guide to the Court while dealing with an application under Section 9. The underlying basis of Order XXXVIII Rule 5 therefore, has to be borne in mind while deciding an application under Section 9(ii)(b).
15. In the unreported decision of the learned Single Bench of this Court in the case of Sourav Ganguly Vs. Mahuaa Media Private Limited (A.P. No. 480 of 2012), the learned Judge relied upon a passage of the Division Bench where the Division Bench observed, the Courts must strive to find out ways and means to do substantial justice instead of going into the niceties of law and extend support to those who wish to take shelter under the flaws of the law and remain scot free despite wrong being committed.
16. Section 9 of the said Act of 1996 would provide protection to the parties whoever had an arbitration agreement with his opponent and a dispute arose that was either referred to arbitration or was likely to be referred. Such interim protection was to preserve the interest of the parties during pendency of the arbitration. It is true, Section 9 is an independent provision and would have no nexus with the Code however, when the substantive law being the said Act of 1996, was silent, the Code of Civil Procedure would have a role to play. The genesis of the procedural part of the said Act of 1996 would lie with the principles of natural justice. Our Code would also prescribe procedures that would conform to the principles of natural justice. Section 9 could provide interim result for preservation, custody of the subject matter. Section 9(ii)(b) would also provide for securing the claim during arbitration. However, such order could only be passed upon affording opportunity to the respondent to place their version before the Court. The said Act of 1996 did not specify the process of securing hence; we draw support from Order XXXVIII Rule 5 that is a substantive provision under the Code dealing with security. The claim of the respondent was an unsecured one. Unsecured claim would have a risk of not being recovered when assets would fall short that would not per se permit the claimant to pray for such relief as a matter of course. The security could only be directed when Court is satisfied that the claimant has a prima facie case to succeed and in case, he ultimately gets a decree or award as the case may be, it is likely to be infructuous as the respondent would be dealing with his assets to frustrate such decree and/or award. These factors could only be considered once parties would file their rival pleadings. In the instant case, even if we hold, the claimant has a good case to succeed, in absence of materials to support the ingredients referred to above, the Order for security on the first day, would be little harsh. Before passing such drastic order, an opportunity, in our view, should have been given to the appellant to place their version through affidavit. The learned Judge did not do so.
17. Let us now deal with the issue of sample. Mr. Mookherjee would strenuously contend, samples were drawn in presence of both parties. Mr. Chowdhury would dispute such contention. He would submit, even if it was drawn because of long passage of time, the coal might have been dried up that would not give the correct result. We do not wish to go into such question. Mr. Mookherjee would contend, samples were drawn, it was not seriously disputed. Mr. Chowdhury would submit, the appellant themselves agreed to clear off the dues as per the report of SGS. Hence, further drawing of sample would not at all help the situation. We do not wish to make any comment. If the appellant would be happy to have those sample tested let them do so. The admissibility would however, be dependent on consideration of the Tribunal at the time of final hearing of the controversy.
RESULT:
18. Appeals thus succeed in part and are allowed. The judgment and order impugned herein is set aside. We grant liberty to the appellant to have the samples drawn by them, tested through any approved analyzing agency and obtain report in a sealed cover to be submitted to the Tribunal. We make it clear, admissibility of such report would be dependent upon consideration by the Tribunal upon hearing both parties.
19. There would be an order of injunction restraining the appellant from dealing with and/or disposing of any of its fixed assets until disposal of the application pending before the learned Judge under Order XXXVIII Rule 5 that would be heard upon completion of affidavit. Affidavit-in-opposition to the said application be filed by the appellant within one week after summer vacation. Reply, if any, within one week thereafter. The parties would be at liberty to apply for fixation of an early date of hearing before His Lordship upon completion of affidavits. The other application made by the appellant for testing of the samples would stand disposed of in terms of the above direction.
20. We make it clear, our observations, if any, must not prejudice the hearing of the Section 9 proceeding on the question of furnishing of security.
21. The appeal is disposed of without any order as to costs.
Shivakant Prasad, J.
I agree.
