Bombay High Court
Aircon Beibars Fze vs Heligo Charters Pvt. Ltd on 28 April, 2017
Author: G. S. Patel
Bench: G.S. Patel
Aircon Beibars FZE v Heligo Charters Pvt
Ltd
925-CARBPL208-17.DOC
ATUL
REPORTABLE
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMM ARBITRATION PETITION (L) NO. 208 OF 2017
Aircon Beibars FZE ...Petitioners
~ versus ~
Heligo Charters Pvt Ltd ...Respondents
Mr Aspi Chinoy, Senior Advocate, with Prashant Asher, & Bulbul
Singh Rajpurohit, i/b Crawford Bayley & Co., for the Petitioner.
Mr Vikram Nankani, Senior Advocate, with Akshay Kishore,
Nishant Shah, Abhished Dwivedi, Vaishnavi Chillakuru &
Supreme Kothari, i/b Economic Laws Practice, for the
Respondent.
CORAM: G.S. PATEL, J
DATED: 28th April 2017
ORAL ORDER:
1. The Petitioners ("Aircon") made an urgent application for ad-interim reliefs on 17th April 2017. Aircon holds a foreign award in the amount of approximately US$ 7 million in relation to a contract with the Respondents ("Heligo") for the sale of a helicopter by Aircon to Heligo. The only significant asset that Heligo has in India, Aircon said, was another helicopter it uses for ONGC operations. This second helicopter is valued approximately at US$ 10 million. I Page 1 of 12 28th April 2017 ::: Uploaded on - 02/05/2017 ::: Downloaded on - 03/05/2017 00:08:57 ::: Aircon Beibars FZE v Heligo Charters Pvt Ltd 925-CARBPL208-17.DOC granted an the ad-interim injunction but clarified that Heligo could use the helicopter for ONGC operations.
2. Having heard Mr Chinoy for Aircon, and Mr Nankani for the Heligo, and having considered the Affidavits in Reply and Rejoinder, as also an Additional Affidavit in Reply, I propose to confirm that ad-interim order but make it subject to a first charge that the Union Bank of India holds over it. This charge is created as security for borrowings by Heligo from the Union Bank of India. That charge is registered. I will also clarify that this order is not to be read as a restraint against the Union Bank of India from enforcing its security, should that occasion arise.
3. The Award itself is dated 25th January 2017. 1 The arbitration clause (page 67) said that the contract would be governed and construed in accordance with Singapore law and be referred to arbitration in Singapore in accordance with the Rules of the Singapore International Arbitration Centre ("SIAC").
4. In the Petition, jurisdiction of this Court is invoked on the basis that the second helicopter in respect of which a restraint is sought is within the jurisdiction of this Court. Paragraphs 4 and 7 of the Petition say this:
"4. Apart from the said Augusta Helicopter AW-139 bearing registration number VT-HLD and Call Sign - AW139/SN31281, which has been valued in the 1 There were certain typographical errors in the final award, and there is an addendum dated 7th March 2017, but that is inconsequential for the present purposes.Page 2 of 12
28th April 2017 ::: Uploaded on - 02/05/2017 ::: Downloaded on - 03/05/2017 00:08:57 ::: Aircon Beibars FZE v Heligo Charters Pvt Ltd 925-CARBPL208-17.DOC Respondent's Contract at USD 11.25 million, the Respondent owns no other substantial/real asset. The Petitioner apprehends that the Respondent may remove the Augusta Helicopter from the jurisdiction of this Hon'ble Court, or may encumber or alienate the same, in order to prevent the same from being proceeded against in enforcement of the said Award. The Petitioner accordingly says and submits that orders be made under Section 9 of the Arbitration & Conciliation Act 1996 (as amended by the Amendment Act 2015) to secure the amount in dispute in the arbitration/the amount of the award dated 25 January 2017, by restraining the Respondent from disposing off, alienating, encumbering, parting with possession or removing the said helicopter from the jurisdiction of this Hon'ble Court except for trips made in the usual course of operations from its present base in Mumbai.
7. The Respondent's registered office is in Mumbai. They carry on business in Mumbai. The Augusta Helicopter is currently based at Juhu Aerodrome, Mumbai. In the circumstances, this Hon'ble Court has the jurisdiction to entertain the present Arbitration Petition."
5. Mr Nankani says the Petition is not maintainable. According to him, Section 9 has no application whatever to a foreign award that has already been made and which is governed by Part II of the Arbitration & Conciliation Act, 1996 ("the Arbitration Act") in the present situation. This submission is based on two distinct formulations. First, that there is an 'agreement to the contrary', one that excludes the operation of Section 9, and the proviso to Section 2(2) of the Arbitration Act, newly introduced by a statutory amendment, is subject to a contract to the contrary. The section says that Part I applies to domestic arbitrations, where the place of Page 3 of 12 28th April 2017 ::: Uploaded on - 02/05/2017 ::: Downloaded on - 03/05/2017 00:08:57 ::: Aircon Beibars FZE v Heligo Charters Pvt Ltd 925-CARBPL208-17.DOC arbitration is in India. Then comes the proviso introduced by the amending Act of 2016 with effect from 23rd October 2015. This is how the proviso reads:
"Provided that subject an agreement to the contrary, the provisions of sections 9, 27 and clause (a) of sub- section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act."
(Emphasis added)
6. Mr Nankani says there is indeed an agreement to the contrary. It is of 2014. It clearly specifies that the governing law is Singapore and the arbitration situs is in Singapore. This is a complete exclusion of the application of Part I, and in fact of the entire Arbitration Act.
7. I must reject this submission, for accepting it would be to defeat the purpose of the entire proviso altogether. That is not how this proviso can be read. The proviso is clearly in relation to foreign awards, and the exclusionary agreement, if there is to be one, must be one, as Mr Chinoy says, that in terms says that Section 9 will not apply. A general arbitration agreement that provides for an overseas venue and law is not ipso facto outside the sweep of Section 2(2) and its proviso as Mr Nankani suggests. To accept that would be to render the amendment to Section 2(2) utterly otiose. Therefore, the Page 4 of 12 28th April 2017 ::: Uploaded on - 02/05/2017 ::: Downloaded on - 03/05/2017 00:08:57 ::: Aircon Beibars FZE v Heligo Charters Pvt Ltd 925-CARBPL208-17.DOC exclusion must be in specific words, saying that Part I (or some sections of it) will not apply to the arbitration between the parties.
8. Mr Nankani's second submission is this: even if there is no exclusionary agreement, Section 9 still cannot be invoked until the foreign award is made enforceable, that is to say, until it passes through the discipline and rigour of Section 48 of the Arbitration Act. Section 48 is entirely discretionary. It permits an Indian court to refuse enforcement of a foreign award if it is satisfied about the existence of one or more of various conditions set out in that section. According to Mr Nankani, the words used in the proviso to Section 2(2) are that the award made or to be made must be one that "is enforceable and recognized". In his reading of it, this can only be a reference to a foreign award that passes through Section 48 and emerges enforceable in India and thus recognized. Until that happens, no relief under Section 9 can be claimed. A protective order under Section 9 may be sought by a holder of a foreign award that has become enforceable and recognized under Section 48, i.e., in the period between the time of that Section 48 order and the time of its execution.2
9. The procedure of Section 48, Mr Nankani says (and correctly), is in direct contract to the procedure followed for a domestic award. There, once a challenge under Section 34 fails, or the time available for that challenge passes, the award automatically becomes enforceable as a decree of the Court without anything 2 This is of course to be read as Sections 48 and 49. Section 49 only says that once an award is held to be enforceable, the award will be deemed to be a decree of the Court.
Page 5 of 1228th April 2017 ::: Uploaded on - 02/05/2017 ::: Downloaded on - 03/05/2017 00:08:57 ::: Aircon Beibars FZE v Heligo Charters Pvt Ltd 925-CARBPL208-17.DOC further being needed. This is what Section 36(1) says. Section 9 relief, therefore, is always available after a domestic award is made but before it is put into execution. This is untrue of a foreign award, for that has to go through one more step of being rendered enforceable and being recognized. Plainly, in his view, Section 2(2)'s proviso limited itself to that period between the time when a foreign award being made enforceable under Section 48 and it being put into execution.
10. I do not believe this to be a correct reading of the proviso. If this was so, then between the time of passing a foreign award and until an order is made on it under Section 48, the only remaining asset in India might well be dissipated if not protected by order under Section 9. What the proviso seeks to do by amendment is to make available a remedy or recourse under Section 9 as a transitory provision pending the process contemplated by Section 48. This is obviously intended to ensure that a court can step in to protect an asset from being diverted or dissipated, and to ensure that the holder of a foreign award has, if he is able to get his foreign award pronounced enforceable, an asset against which he can proceed. If the foreign award does not result in an order of enforceability, then of course a protective order under Section 9 cannot continue. But equally, it cannot have been the statutory intent to the amendment that should the holder of a foreign award obtain an order pronouncing it enforceable and recognizing it, he finds in his hands nothing but paper, since, for want of a protective order under Section 9, or something like it, the only available asset has been lost. This might actually happen more often that one imagines: it is entirely conceivable that in anticipation of losing a Section 48 Page 6 of 12 28th April 2017 ::: Uploaded on - 02/05/2017 ::: Downloaded on - 03/05/2017 00:08:57 ::: Aircon Beibars FZE v Heligo Charters Pvt Ltd 925-CARBPL208-17.DOC litigation, a party that has suffered an award might take rapid steps to dissipate and distribute assets to frustrate the execution of a foreign award. That, it seems to me, is precisely what the proviso to Section 2 sought to avoid.
11. I believe think Report No. 246 of the Law Commission actually supports this. In paragraph 41(i) and (ii) this is what the Law Commission said:
"41. While the decision in BALCO is a step in the right direction and would drastically reduce judicial intervention to foreign arbitrations, the commission feels that there are still a few areas that are likely to be problematic.
(i) Where the assets of a party are located in India, and there is a likelihood that that party will dissipate its assets in the near future, the other party will lack an efficacious remedy if the seat of the arbitration is abroad. The latter party will have two possible remedies, but neither will be efficacious. First the latter party can obtain an interim order from a foreign Court or the arbitral tribunal itself and file a civil suit to enforce the right created by the interim order. The interim order would not be enforceable directly by filing an execution petition as it would not qualify as a "judgment" or "decree" for the purposes of sections 13 and 44A of the Code of Civil Procedure (which provide a mechanism for enforcing foreign judgments). Secondly, in the event that the former party does not adhere to the terms of the foreign Order, the latter party can initiate proceedings for contempt in the foreign Court and enforce the judgment of the foreign Court under sections 13 and 44A of the Code of Civil Procedure. Neither of these remedies is likely to provide a Page 7 of 12 28th April 2017 ::: Uploaded on - 02/05/2017 ::: Downloaded on - 03/05/2017 00:08:57 ::: Aircon Beibars FZE v Heligo Charters Pvt Ltd 925-CARBPL208-17.DOC practical remedy to the party seeking to enforce the interim relief obtained by it.
That being the case, it is a distinct possibility that a foreign party would obtain an arbitral award in its favour only to realise that the entity against which it has to enforce the award has been stripped of its assets and has been converted into a shell company.
(ii) While the decision in BALCO was made prospective to ensure that hotly negotiated bargains are not overturned overnight, it results in a situation where Courts, despite knowing that the decision in Bhatia is no longer good law, are forced to apply it whenever they are faced with a case arising from an arbitration agreement executed pre- BALCO."
(Emphasis added)
12. Mr Nankani counters this by inviting attention to Chapter III of the Report in regard to the proposed amendment to Section 2 and the introduction of the proviso. Sub-paragraph (vi), which deals with the proviso, reads:
"(vi) In sub-section (2), add the word "only" after the words "shall apply" and delete the word "place" and insert the word "seat" in its place.
NOTE: This amendment ensures that an Indian Court can only exercise jurisdiction under Part I where the seat of the arbitration is in India. To this extent, it over-rules Bhatia International v Bulk Trading S.A. And Anr., (2002) 4 SCC 105, and re-enforces the "seat centricity" principle of Bharat Aluminium Company and Ors. etc v. Kaiser Aluminium Technical Service, nc. And Ors. etc., (2012) 9 SCC 552 Page 8 of 12 28th April 2017 ::: Uploaded on - 02/05/2017 ::: Downloaded on - 03/05/2017 00:08:57 ::: Aircon Beibars FZE v Heligo Charters Pvt Ltd 925-CARBPL208-17.DOC Also insert the following proviso "Provided that, subject to an express agreement to the contrary, the provisions of sections 9, 27, 37 (1)(a) and 37(3) shall also apply to international commercial arbitration even if the seat of arbitration is outside India, if an award made, or that which might be made, in such place would be enforceable and recognized under Part II of this Act."
NOTE: This proviso ensures that an Indian Court can exercise jurisdiction with respect to these provisions even where the seat of the arbitration is outside India."
13. Mr Nankani is at some pains to emphasize that the recommendation of the Law Commission was in respect of a foreign award that "would be enforceable and recognized", i.e., a foreign award even potentially enforceable, whereas the final amendment speaks of a foreign award that "is enforceable and recognize", a reference, in his submission, to a foreign award that has survived the test of Section 48 and become enforceable. It is between "would be"
and "is", according to Mr Nankani, that the discrepancy lies; and, in his formulation, the final amendment does not permit the holder of a foreign award to apply for protection till he has obtained an order of enforceability under Section 48.
14. Again, I think this would be an unfair way of approaching the statutory intent given what the Law Commissioner itself said especially in the note below the very portion Mr Nankani emphasizes. If there is an ambiguity about this, it is eliminated by the fact that this is not the only departure in the amendment from the recommendation. The phraseology has slightly changed from "if an award made or that might be made" to "an arbitral award made Page 9 of 12 28th April 2017 ::: Uploaded on - 02/05/2017 ::: Downloaded on - 03/05/2017 00:08:57 ::: Aircon Beibars FZE v Heligo Charters Pvt Ltd 925-CARBPL208-17.DOC or to be made". It seems to me that the amendment and introduction of the proviso was nothing but a linguistically more compact rewording of the recommendation, and not an attempt to curtail or limit the Law Commission's proposal.
15. The preliminary objection, therefore, is not one that I am able to accept.
16. The other submission that Mr Nankani makes is that there is no averment in the Petition that the Respondent is likely to deal with the helicopter sought to be subjected to restraint in order to defeat or delay anyone. This is incorrect. The averments in paragraph 4 are more than sufficient.
17. As to the question of foreign award excluding wholly the application of Part I, Mr Nankani relies on the decision of the Supreme Court in Reliance Industries Ltd & Anr v Union Bank of India3 and Eitzen Bulk A/S v Ashapura Minechem Ltd & Anr.4 This was well settled but this does not affect or materially impact the decision in this matter.
18. On the question of whether such an order ought to be made on merits, Mr Nankani says that Heligo is good for the money. Given that this is about a helicopter, he succumbs to temptation in describing his client as being "not a fly-by-night operator". If that is so, Mr Nankani's client's option is simple: his client must make available by a deposit in Court sufficient money or security to secure 3 (2014) 7 SCC 603.
4 (2016) 11 SCC 508.
Page 10 of 1228th April 2017 ::: Uploaded on - 02/05/2017 ::: Downloaded on - 03/05/2017 00:08:57 ::: Aircon Beibars FZE v Heligo Charters Pvt Ltd 925-CARBPL208-17.DOC a potential enforcement of the foreign award that has been rendered against it. If not, I see no reason why a limited injunction of the nature that I have described, i.e., subject to a prior claim by a secured creditor ought not to be made. Certainly I am not able to see any prejudice being caused to the Respondent. On the other hand, as I have noted, if an injunction is refused, there is every possibility of irreparable prejudice to Aircon. In my view, there is not only prima facie case, but the balance of convenience also favours the Petitioner.
19. The ad-interim injunction is confirmed in the foregoing terms set out above.
20. It is also clarified that Heligo is not restricted to using that helicopter only for ONGC operations. It may use it for other operations as well.
21. Mr Chinoy states that his clients will apply by 9th June 2017 under Section 48. Mr Chinoy has also placed on record Heligo's balance sheet. The hypothecation document between the Respondent and the Union Bank of India is also on record.
22. The Petition is disposed of in these terms. As to costs, I am required by the provisions of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015 ("the Commercial Courts Act"), which has by Section 16, extensively amended the Code of Civil Procedure, 1908 ("CPC") to follow a general rule of awarding costs to the successful party, and to Page 11 of 12 28th April 2017 ::: Uploaded on - 02/05/2017 ::: Downloaded on - 03/05/2017 00:08:57 ::: Aircon Beibars FZE v Heligo Charters Pvt Ltd 925-CARBPL208-17.DOC give reasons where I do not. This is not a matter in which I believe I should make such an order of costs. The arguments were on statutory interpretation and were fairly placed. Hence, no costs.
(G. S. PATEL, J.) Page 12 of 12 28th April 2017 ::: Uploaded on - 02/05/2017 ::: Downloaded on - 03/05/2017 00:08:57 :::