This case is a part of our Annual Arbitration Review 2020.

Judgement Name: Goodwill Non-Woven (Pvt.) Limited v. Xcoal Energy & Resources LLC

Citation: 2020 SCC OnLine Del 631

Court: High Court of Delhi

Coram: V. Kameswar Rao, J.

Date: 9th June 2020

Keywords: Section 9, Arbitration and Conciliation Act, bank guarantee, foreign seated, Law Commission.

Facts

The parties entered into a Contract dated March 10th 2020 (“the Contract”) for sale and delivery of Thermal Coal at the designated port. As per Clause 12 of the Contract, the Petitioner was to make the requisite payment to the Respondent and, in turn, the Respondent was to make the delivery of the coal to the Petitioner upon receipt of such payment. Pursuant to receiving the letter of credit, the respondent issued a commercial invoice on March 27th 2020. The Respondent received payment under the said Letter of Credit on April 21th 2020. The Petitioner was informed on April 22th 2020, via the said Pre-Arrival Notice, that the vessel was scheduled to arrive at the designated port on May 4th 2020, where the coal would be discharged in accordance with the Contract.

In response to the aforementioned Notice, the Petitioner emailed the Respondent on April 23th 2020, stating, inter alia, that it had performed its respective obligations, including making the full payment under the Contract on April 21th 2020, and requesting Respondent to ensure immediate unloading and delivery of the Coal, which was due to arrive on May 4th 2020. Even after emphasizing that it had fulfilled all the contractual obligations, the Respondent failed to discharge the coal, and the respondent informed the Petitioner via telephonic conversation on May 8th 2020, that the shipped quantity of coal would not be discharged at the designated port until certain third parties, all of whom had purportedly entered into separate agreements, all of whom had purportedly entered into separate agreements.

Following the issuance of the default notice on May 9th 2020, the Petitioner terminated the contract via letter dated May 19th 2020, and thus filed the present suit claiming interim relief against the Respondent to secure the amount due to reasonable apprehension that the Respondent may attempt to obstruct the satisfaction of the decree which may be awarded to the petitioner in the arbitration proceedings.

Issue

1. Whether the petition under Section 9 of The Arbitration and Conciliation Act, 1996 (“the Act”) is maintainable?
2. Whether the Petitioner has made out a case for granting of the relief as prayed for in this petition?

Analysis

With respect to the first issue, the Petitioner relied upon the case of Raffles Design International v. Educomp Professional Education Limited and BCCI v. Kochi Cricket Pvt. Ltd. to hold that the proviso under Section 2(2) makes Sections 9, 27, 37(1)(a) and 37(3) of the Act applicable to foreign seated arbitration. Furthermore, analyzing the ambit of the Respondent not having assets in the State of India may so happen that the Indian party may not be successful in the arbitration proceedings for it to have an Award in its favour, to execute against a foreign party in India. In its defence, the Respondent stated that the arbitration under the Contract is an International Commercial Arbitration, seated in New York, and the applicable law would be the laws of the State of New York, and that only when the counterparty’s asset against which an order is sought is based in India, an Indian Court can evince jurisdiction. The advocate on behalf of the Respondent pointed that in the case of Bharat Aluminum and Co. v. Kaiser Aluminium and Co., wherein the apex court held that in a foreign seated international commercial arbitration, no application for interim relief would be maintainable under Section 9 or any other provision, as applicability of Part I of the Arbitration Act, 1996 is limited to all arbitrations which take place in India. Lastly, relying on the 246th Law Commission Report, the counsel for Respondent stated that the court has the authority to use Law Commission Reports as external aids as held in Mithilesh Kumar and Ors. v. Prem Behari Khare [i].

As a result, the court rejected the asset-based jurisdiction argument, holding that under Section 9 of “A party” refers to any party who may file an application under the said Section. This Section is for order/interim measures. In either case, an award is required to be enforced against any asset in India. (The availability of assets in India becomes irrelevant). The court held that Section 9 includes furnishing the amount in dispute as a bank guarantee of the arbitration as an interim measure. A foreign party can deposit the claim amount in the Court even if there is no existence of assets of the foreign party.

Regarding the second issue at hand, the court determined that the Petitioner failed to establish a prima facie case, and that, based on the respective positions of the parties, there are disputed facts that cannot be resolved in this petition. The existence of averments in the petition made it tough for the court to decide the matter through the present petition and it held that the same had to be decided by the Arbitral Tribunal.

Conclusion

A foreign party need not have any assets in India and still be a part of the proceedings under Section 9 of the Act, because it can still furnish a bank guarantee. Due to the existence of averments, the petition was dismissed because the Petitioner failed to prove a prima facie case.

[i] Mithilesh Kumar and Ors. v. Prem Behari Khare, AIR 1989 SC 1247.