Sanghi Industries Ltd. vs Ravin Cables Ltd.

Sanghi Industries Limited ...Appellant(s)

Versus

Ravin Cables Ltd., and Anr. …Respondent(s)

JUDGMENT

M.R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned

judgment and order dated 11.02.2022 passed by the High

Court of Gujarat at Ahmedabad in Regular First Appeal

No. 3253 of 2021, by which, the High Court has dismissed

the said appeal confirming the order passed by the

Commercial Court in an application under Section 9 of the

Arbitration and Conciliation Act, 1996 (hereinafter referred

to as the Arbitration Act, 1996), by which the Commercial Signature Not Verified

Court directed the appellant herein – original Digitally signed by SNEHA Date: 2022.09.30 16:26:25 IST Reason:

opponent/respondent No. 1 to deposit the amount of

1 performance bank guarantees pertaining to purchase order

Nos. 01, 02 and 03 invoked by it, the original

opponent/respondent No. 1 has preferred the present

appeal.

2. We have heard Shri Vivek Chib, learned Senior Advocate

appearing on behalf of the appellant and Shri K.V.

Viswanathan, learned Senior Advocate appearing on behalf

of respondent No. 1 herein – the main contesting party.

3. At the outset it is required to be noted that in the present

case the dispute is with respect to three purchase orders,

namely, purchase order Nos. 01, 02 and 03. It appears

that the appellant served a notice upon respondent No. 1

vide notice dated 11.06.2021 claiming a loss of INR 29.31

crores (approximately) owing to the defective quality of the

cables supplied. The said notice was replied by respondent

No. 1 vide reply dated 19.06.2021. That thereafter,

respondent No. 1 served a legal notice dated 13.07.2021

on the appellant claiming for outstanding payment of INR

1.30 crores (approximately). That the appellant vide

communication/letter dated 21.07.2021 invoked the bank

guarantees issued by respondent No. 1 herein, which

2 according to respondent No. 1 were by way of performance

bank guarantees. That thereafter, the appellant invoked

the arbitration on 22.07.2021. Immediately on the next

day i.e., 23.07.2021, respondent No. 1 herein filed two

applications/petitions under Section 9 of the Arbitration

Act, 1996, being application No. 438/2021 before the

Commercial Court at Ahmedabad and another application

No. 88/2021 before the Commercial Court at Bhuj.

Application No. 88/2021 under Section 9 of the Arbitration

Act, 1996 filed by respondent No. 1 herein was regarding

three bank guarantees, which is the subject matter of

present case. At this stage, it is required to be noted that

by the time any further order could be passed the bank

realized the payments under the bank guarantees invoked

by the appellant. That the Commercial Court passed an

order dated 13.10.2021 under Section 9(ii)(e) of the

Arbitration Act, 1996 to secure the amount in dispute and

directed the appellant herein 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 order passed by the

3 Commercial Court under Section 9 of the Arbitration Act,

1996, directing the appellant to deposit in the court the

amount of respective bank guarantees pertaining to

purchase order Nos. 01, 02 and 03 was the subject matter

of appeal before the High Court under Section 13 of the

Commercial Courts Act, 2015. By the impugned judgment

and order, the High Court has dismissed the said appeal

which has given rise to the present appeal.

4. Having heard learned counsel appearing on behalf of the

respective parties and in the facts and circumstances of

the case, more particularly, when the bank guarantees

were already invoked and the amounts under the

respective bank guarantees were already paid by the bank

much prior to the Commercial Court passed the order

under Section 9 of the Arbitration Act, 1996 and looking to

the tenor of the order passed by the Commercial Court, it

appears that the Commercial Court had passed the order

under Section 9(ii)(e) of the Arbitration Act, 1996 to secure

the amount in dispute, we are of the opinion that unless

and until the pre­conditions under Order XXXVIII Rule 5

of the CPC are satisfied and unless there are specific

4 allegations with cogent material and unless prima­facie 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. At this stage, it is required to be

noted that even otherwise there are very serious disputes

on the amount claimed by the rival parties, which are to be

adjudicated upon in the proceedings before the arbitral

tribunal.

4.1 The order(s) which may be passed by the Commercial

Court in an application under Section 9 of the Arbitration

Act, 1996 is basically and mainly by way of interim

measure. 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

5 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. However, 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 present case, which has been

affirmed by the High Court.

5. In view of the above and for the reasons stated above, the

present appeal succeeds. The impugned judgment and

order passed by the High Court and that of the order dated

13.10.2021 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

Nos. 01, 02 and 03 already invoked by the appellant

herein, are hereby quashed and set aside.

6 However, at the same time to protect the interest of the

parties, we direct that the appellant herein 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 learned 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 from today, with this

the present appeal is allowed. No costs.

………………………………….J. [M.R. SHAH]

NEW DELHI; ………………………………….J. SEPTEMBER 30, 2022 [KRISHNA MURARI]

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