Delhi High Court provides ‘Interim Measure’ (Arbitration) in Post-Award Stage

On Wednesday, the High Court of Delhi (“Delhi HC”), in the case of Organising Committee Commonwealth Games, 2010 v. M/s Nussli (Switzerland) Ltd., has allowed a petition under section 9 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) thereby granting injunction against the Respondent [“M/s Nussli (Switzerland) Ltd.)] in ‘post-award’ stage. In reaching its conclusion, Delhi HC had declined to consider a judgment of the High Court of Bombay (“Bombay HC”), on a similar point, as a precedent.

Facts:

In 2010, the Respondent was awarded a turnkey contract for providing overlays on rental basis for the Commonwealth Games, 2010 (“Games”). In order to secure the contract’s performance, the Respondent was required to furnish a ‘performance bank guarantee’ (“PBG”) equivalent to the 10 % of the contract value (which Respondent furnished). Following the conclusion of the Games, disputes arose between the parties and the matter was referred to arbitration (in 2012). From time to time, the Respondent was restrained to encash PBG; first as a result of petition (sec.9) filed by the Petitioner and then because of a direction issued by the Arbitral Tribunal.

Partly allowing the claim of the Respondent and further allowing Appellant’s claim to a small extent, Arbitral Tribunal made an award in Respondent's favour (after adjusting amount). At this juncture, the Petitioner made a counter-claim seeking refund of a certain amount on the ground that contract was vitiated by fraud; this claim was rejected.

Following this, as Petitioner intended to challenge the arbitral award, it filed the present petition under section 9 of the Arbitration Act for keeping PBG alive. Initially, Delhi HC passed an order thereby ordering the Respondent to keep PBG alive and listed the matter for next hearing. Against this order, the Respondent preferred an appeal before the division bench of the Delhi HC - this appeal was disposed off when the Respondent agreed to keep PBG alive for certain period and the hearing of the present petition was re-opened.

Contentions:

On behalf of the Petitioner, it was contended that since PGB would lapse before the Petitioner challenges award under section 34 of the Arbitration Act, PBG should be kept alive. It was further contended that since the Respondent is a ‘foreign entity’ with no assets in India, the Petitioner would be left remediless if its application under section 34 succeeds. Further, it was contented that in a different proceeding, PGB has been attached by the Income Department; hence, the Respondent was only interested in getting PBG released.

On behalf the Respondent, it was contended that as contemplated under section 9 of the Arbitration Act, interim measures in post-ward stage are for  the  benefit  of  the  party  who  seeks  enforcement  of  the Award. To substantiate this, reliance was placed on the decision of Bombay HC in Dirk India Pvt. Ltd.(DIPL)  Vs. Maharashtra State Electricity Generation Company Limited,  MANU/MH/0268/2013 (Appeal  No.114/2013). In Dirk (supra), it was held by the Bombay HC that once an award is rendered by the arbitral tribunal, interim measures under section 9 of the Arbitration Act cannot be sought by the party against whom award has been made. Holding otherwise, in the opinion of the court, would negate the sanctity and efficacy of arbitration process:

“.....the object and purpose of an interim measure after the passing of the arbitral award but  before  it  is  enforced  is  to  secure  the  property,  goods  or  amount for the benefit of the party which seeks enforcement....”

“.....to hold  that  a  petition  under  Section  9 would  be  maintainable  after  the  passing  of  an  arbitral award at the behest of DIPL whose claim has been rejected would  result  in  a  perversion  of  the  object  and  purpose underlying Section 9 of the Arbitration and Conciliation Act, 1996.....”

“.....What such  a  litigating  party  cannot  possibly  obtain  even  upon completion  of  the  proceedings  under  Section  34,  it  cannot possibly secure in a petition under Section 9 after the award....”

(Note: Against the above-mentioned judgment of the Bombay HC, an appeal is pending before the Supreme Court)

Against this point, it was contended by the Petitioner that because of different facts and circumstances, the Bombay HC’s judgment in Dirk (supra) would not be applicable to the present case.

On behalf of the Respondent, it was further contend that, (i) as a result of award being passed against it, prima facie case has been established against the Petitioner; (ii) the Respondent is incurring heavy losses in keeping PBG alive; (iii) attachment of PBG by the Income Tax Department is illegal.

Findings of the Delhi HC:

The Delhi HC decided in favour of the Petitioner. In the opinion of the court, the Bombay HC’s decision in Dirk (supra) cannot be relied since the same was rendered in entirely different factual context. In Drik (supra), the party was seeking interim measure for continuing the contract; however, in the present case, Petitioner had been challenging the validity of the contract itself.

While granting interim measure in the present case, a reference was also made to Order XXV Rule of Code of Civil Procedure, 1908 (“CPC”). According to this provision, plaintiff, who is a 'foreign party', is required to furnish security for costs. In the present case, the Respondent was a foreign party; hence, petitioner’s right to challenge arbitral award cannot be rendered otiose by allowing the Respondent to encash PBG.

Conclusion: The Respondent was required to keep PBG alive till the disposal of the objection petition under Section 34 of the Act that may be preferred by the petitioner within the period of limitation.