Gujarat High Court
Napin Impex Limited vs Ongc Petro Additions Limited Opal on 25 March, 2022
Author: N.V.Anjaria
Bench: N.V.Anjaria
C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 1922 of 2021
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2021
In R/FIRST APPEAL NO. 1922 of 2021
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE N.V.ANJARIA
and
HONOURABLE MR. JUSTICE SANDEEP N. BHATT
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1 Whether Reporters of Local Papers may be allowed Yes
to see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy No
of the judgment ?
4 Whether this case involves a substantial question No
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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1 (FORMERLY NAPIN IMPEX PRIVATE LIMITED) REG OFFICE
AT H 1419 BASEMENT DSIIDC NARELA NEW DELHI 110040
ALSO WAREHOUSE AT KILLA NO 9718/2/1,6-2 HARIKISHAN
INDUSTRIAL AREA KUNDLI TEHSIL RAI SONIPAT HARYANA
131028
Appellant(s)
VERSUS
1 AT 4TH FLOOR 35 NUTAN BHARAT CO-OPERATIVE
HOUSING SOCIETY LTD R C DUTT ROAD ALKAPURI
VADODARA 390007
Defendant(s)
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Appearance:
MR VIKRAM J THAKOR(2221) for the Appellant(s) No. 1,2,3,4,5
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C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022
ROBIN PRASAD(9344) for the Appellant(s) No. 1,2,3,4,5
MR. DHAVAL G BAROT(6546) for the Defendant(s) No. 1
RAJDEEPSINH R JODDHA(8855) for the Defendant(s) No. 1
SANKET K PANDYA(9451) for the Defendant(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA
and
HONOURABLE MR. JUSTICE SANDEEP N. BHATT
Date : 25/03/2022
CAV JUDGMENT
(PER : HONOURABLE MR. JUSTICE SANDEEP N. BHATT) 1.1 By preferring the present appeal under Section 37 of the Arbitration and Conciliation Act, 1996 read with Section 13 of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, read with Section 96 of the Code of Civil Procedure, 1908, the appellants seek to quash and set aside the order dated 21.01.2021 passed by the Commercial Court 6th Additional District Judge, Vadodara, partially allowing the application of the respondent herein under Section 9 of the Arbitration and Conciliation Act, 1996.
1.2 By the impugned order, the Commercial Court has directed the appellants to furnish bank guarantee from the nationalized bank for a period of one year from the date of issue of the amount of Rs.3,78,71,569/- (Rupees Three Crores Seventy Eight Lakhs Seventy One Thousand Five Hundred Sixty Nine Only) in favour of the present respondent within a period of 30 days from the date of order passed by the Trial Court.
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2. Before hearing of this appeal, the parties filed the relevant pleadings and documents on record about the contents of which they were ad idem. The learned advocates for both the parties stated that no further pleadings were to be added or supplemented. They argued the appeal finally and with consent and request of the parties, the appeal was accordingly heard finally.
3.1 Shorn off unnecessary details, it transpires that in the year 2015, the respondent-OPaL has appointed the present appellant as one of the Del Credre Agent. The relevant facts involved in the dispute are inter alia that the respondent herein is a company viz., ONGC Petro Additions Limited (OPaL), who has invited Consignment Stockiest Agent (for short, 'CSA') and Del Credre Agent (for short, 'DCA') for marketing and distribution of its product of polymer including poly-ethylene and poly-propylene manufactured by it and ultimately, two separate contracts were executed between the respondent-OPaL and the appellant No.1- Napin Impex Limited (for short 'Napin'), for a period of three years from 11.04.2017 to 10.04.2020 both companies are registered under Companies Act.
3.2 Thereafter, appellant No.1 was appointed as a 'CSA' by Domestic Channel Partner Agreement (for short 'CSA Agreement') dated 11.04.2017 for marketing and distribution of the products of OPaL through Napin's Depot, including making of storage as stockiest. Clause 8 of CAS Agreement is pertaining to security deposit of such as per which CSA had to make cash deposit of sum Page 3 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 which may be determined by OPaL to protect the interest of OPaL. Clause 26 of the said CSA Agreement is in respect of termination/expiry of the agreement on the grounds mentioned in the said Clause. Clause 30 of the said CSA Agreement pertains to conferring the jurisdiction of the Courts at Vadodara and Clause 31 is for alternative dispute resolution in respect of any dispute between the parties.
3.3 According to the case of the respondent herein that the respondent-OPaL has filed an application being Civil Miscellaneous No.97 of 2020 under Section 9 of the Arbitration and Conciliation Act, 1996 before the learned Commercial Court, Vadodara, inter alia praying as under:
"i. to appoint a Reeiver(s) to take custody of petitioner products lying at depot/godown of the Respondent No.1 and 5 and/or any other place or warehouse of anyone else as traced by the Receiver in this regard;
ii. to pass an order, direction, etc. restraining Respondents to dispose/remove/ sell/ embezzle/ misappropriate/ transfer/ alienate Petitioner's products or to create any third party interest on the same;
iii. to direct Respondent(s) to furnish bank guarantee from a nationalized bank to the tune of Rs. 6,50,00,000/(Rupees Six Crore Fifty Lakh only) to be recovered along'; with pendent lite interest, damages for loss of market value of products in favour of Petitioner with a minimum validity of 2 (two) years from the date of issue, alternatively to direct Respondent(s) to deposit the-amount of Rs. 6,50,00,000/(Rupees Six Crore Fifty Lakh only) with the present Hon'ble Court;
iv. to direct Respondent(s) to also pay pendent-lite interest, damages for loss of market value of products, with the present Hon'ble Court;"
The present respondent has submitted its pleadings before the Trial Court and has drawn the attention towards some of the important terms and conditions of CSA Agreement as under:
Page 4 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 "Ld. Advocate for the petitioner submits that, some of the important terms and conditions of CSA Agreement are that :
(A) the Respondent No.1 agreed to provide it's services for the purpose of storage of goods/ products and delivery of the petitioner products for the territory and also ensure sales order booking and direct delivery of the goods at the customer site for the petitioner; (B) the respondent No.1 was responsible to ensure collection of payments from the customers and deposit them to the Petitioner against the commission; (C) That upon requisition from the respondent No.1, the Petitioner at it's discretion can effect stock transfer of its products from its plant at Dahej, Gujarat to the Depot of the Respondent No.1, who was solely liable and responsible to keep the petitioner products at it's depot carefully and in safe condition and protect the same from any loss, destruction, deterioration or otherwise from the date of its receipt; (D) petitioner's products lying at the respondent No.1's depot will remain under ownership of petitioner and respondent No.1 is merely the custodian of the petitioner's products and petitioner shall be entitled to recall the unsold stock; (E) Petitioner is within its rights to formulate guidelines from time to time with regard to sale of the product, quantitative restrictions etc. to specific customers, which shall be binding on the Respondent No.1 as CSA; (F) In this regard on 3.4.2018, petitioner issued a guideline to all channel partners including the Respondent no.1, effective from 1.4.2018, wherein several guideline for order processing was issued, wherein it was categorically mentioned that, "Material shall be stock transferred to the CS -- warehouse based on the indent received from CS to Zonal Office.
- any sale from the CS-warehouse shall be done with the prior permission and confirmation from the respective Zonal Officer of the Petitioner".
- Custody & Ownership : The custody of the material shall remain with the CSA until invoiced. The ownership of material shall remain with OPaL.
- Invoicing from CSA depot : CSA shall raise invoice as per the standard format as per the prevailing OPaL stock point price list. Material shall be sold only to the actual customers.
- Reporting : Consignment Stockists shall sent the stock statement and the sales register on daily basis before the closure of working hours by Email as per the standard format provided. CSA shall also submit daily sales report as per the format placed at Annexure B."
The Petitioner also issued Price Circular for Polymers DTA Sales for each month to its channel partners, wherein some relevant terms and Page 5 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 conditions are also placed hereunder :
"B. Delayed Payment Charges : If payment is not received as per the payment terms interest will be charged as below :
I. For Cash Sale @ 36% per annum for the delayed period from the date of Invoice.
II. For Credit Sale : In case Cheque / E-payment, First 15 days after IFC: 21% per annum (After IFC Period) 16 days to 30 days : 24% per annum (from the date of invoice) >30 days : 27% per annum (From the Date of Invoice)"
3.4 Thereafter, in month of June, 2018, the present respondent has received an undated letter from the present appellant No.1 requesting for approval to shift its depot/warehouse from Gurugram Haryana to Kundli-Sonipat. The present respondent has allowed the present appellant No.1 on 29.08.2019 for changing its local warehouse to Kundli, Sonipat keeping in view its storage capacity and better connectivity with its customers. The present appellant No.1 after shifting the said depot/warehouse from Gurugram to Kundli-Sonipat, had stopped submitting stock register and daily sales report to the present respondent on and from 15.10.2019 and thereby defaulted the monthly payment and/or over-utilized the credit limits. Further, on 01.11.2019, about 132 metric ton product of the present respondent worth Rs.1,06,58,399/- (as per invoice), were lying in the depot/warehouse of the present appellant No.1. Further, on 01.11.2019 also, a principle sum of Rs.3,78,71,569/- is due and payable by the appellant No.1 herein, on account of sales, overdues and default.Further, the appellant No.1 had transferred the said stock of 132 metric ton of present respondent to its sister concern-the Respondent No.5 herein, without any knowledge, consent and/or Page 6 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 permission of the present respondentand thereby in connivance and collusion with each other, the appellants herein have played mischief and cheated the present respondent. Hence, the present respondent has initiated proceedings by filing application under Section 9 of the Arbitration & Conciliation Act, 1996 for interim injunction against the present appellants for appointment of receiver, etc., as indicated in abovementioned prayers.
4.1 The Commercial Court, Vadodara has issued the notices, which were served upon the original respondents. Respondent Nos.1 and 2 have appeared and filed their reply at Exh.8, denying almost all the facts and had submitted that application is not maintainable and liable to be dismissed, as there is no legal and valid arbitration agreement between the parties. They have further contended that the Respondent Nos.2 to 5 are the necessary and proper party to the proceedings and Respondent Nos.2 to 5 have not personally acted or transacted with the present respondent. Furthermore, they have denied all the allegations of the OPaL and has stated that Respondent No.2 in his personal capacity and Respondent Nos.3 to 5 are not party and signatory to CSA Agreement and Domestic Channel Partner Agreement for Del Credre Agent (for short, "DCA Agreement"). Further, it was averred that the facts alleged by the OPaL are disputed and require evidence and the disputed facts cannot be decided in the said application.
4.2 Further, it is averred by the Napin in the reply that the application filed by the OPaL is liable to be dismissed, as they have Page 7 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 no intention to render Arbitration and Conciliation Act, 1996 as it being, infructuous, since the Napin has legally sold 132 metric ton products to Respondent No.5. The Respondent No.5 in turn has legally sold the said products further, and as such they are not in possession of the said 132 metric ton product of the OPaL product and said products are not lying at the godown/warehouse of the Napin. Further, the OPaL has not passed any resolution to the effect that the arbitration proceedings are to be invoked/instituted against the Napin & Ors. Further, the claim of the OPaL for sum of Rs.6,56,24,398/- is without any evidence. Further, the competency of the person, who has filed the application under Section 9 of the Arbitration and Conciliation Act, 1996 is also challenged by the present respondents in that application.
5.1 Thereafter, the Trial Court has, after hearing the parties at length, partly allowed the said application, vide order dated 21.01.2021 by directing the present appellants, to furnish bank guarantee of Rs.3,78,71,569/- from the nationalized bank for a period of one year of the amount 5.2 Being aggrieved and dissatisfied with the impugned order, the the appellants-original respondents have preferred the present appeal under Section 37 of Arbitration and Conciliation Act, 1996 read with Section 13 of Commercial Courts Act, 2015.
6. The learned advocate for the respective parties have argued at length. The sum and substance of their arguments, which are relevant for consideration of this appeal, which are noted Page 8 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 hereinabove, have been taken into consideration by this Court.
7.1 Learned advocate Mr. Vikram Thakar for the appellants- original respondents has mainly submitted about the (i) CSA Agreement and (ii) DCA Agreement. He has submitted that and submitted as per Clause 31(b) of CSA Agreement, arbitration can be invoked by giving invocation notice only after expiry of 60 days period from disputed notice. In the present case, only one notice dated 05.12.2019 has been sent to the appellants which permits to sell of 132 MT of polymer stock to the sister concern, which as per them, is contrary to the terms of CSA Agreement. Further, he has submitted that the sale has taken place in compliance of all the Clauses of CSA Agreement. Further, he has submitted that in the copy of DCA Agreement dated 11.04.2017, provided to the appellants, there is no arbitration clause. Therefore, non-existence of the arbitration clause debars the respondent from initiating the proceeding under Section 9 of the Arbitration Act. The Trial Court has not properly appreciated that the application under Section 9 of the Arbitration and Conciliation Act, 1996 is not maintainable at all. He has also submitted that the pleadings of the present respondent- original petitioner is not in accordance with the provisions of the Commercial Courts Act, 2015, which should be in prescribed manner as epr the newly inserted provision of Order VI Rule 15(A) of C.P.C. Therefore, in the absence of this verification of pleadings it cannot be relied as evidence. He has submitted that as per Clause 26 of the CSA Agreement, DCA Agreement dated 11.04.2017, it can be terminated by either of the party by giving three months' notice, Page 9 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 however, since there was no violation in performance of the present appellants, no such unilateral termination clause was necessary to invoke. The OPaL has straight way instituted against the present appellants.
7.2 He has also submitted that as per Clause 8 of the CSA Agreement and Clause 5 of the DCA Agreement, the appellant No.1 has deposited Rs.2,00,00,000/- as security for the due performance of the terms and conditions of the agreements and the said deposit is with the respondent. He has submitted that when sufficient security in the form of cash deposit of Rs.2,00,00,000/- is already with the respondent-company, the respondent ought not to have initiated petition under Section 9 of the Arbitration and Conciliation Act, 1996 for interim measures, since the interest of the respondent is already protected and the Trial Court ought not to have directed all the appellants to furnish bank guarantee, without considering the fact that sufficient security in the form of cash deposit of Rs.2,00,00,000/- by the appellant No.1 is lying with the respondent. He has submitted that, the respondent has suppressed this vital material facts before the trial court. Therefore, on this ground alone, this application was not maintainable and ought to have been rejected. Attention of this Court is invited to the decision of the Division Bench of this Court in the case of Essar Oil Ltd. Vs. United India Insurance Co. Ltd. reported in 2005 (3) GLH 28 where this Court has held that the power under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred as "the Arbitration Act") are akin to the provisions of Order-38(XXIIX), Rule-5 and Order Page 10 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 39(XXIX), Rule 1, 2 of C.P.C.
7.3 He has further submitted that under the powers under Section 9 of the Arbitration Act, the Court is required to be guided by the principles of grant of such reliefs under the Code of Civil Procedure, 1908 and the Court is required to be bear in mind the celebrated principles while passing such orders. He has relied upon the decision of the Hon'ble Apex Court in the case of National Aluminum Vs. Presstill and Fabrications reported in (2004) 1 SCC 540 and has submitted that the respondent was required to aver and prove the alleged losses occurred to it and to satisfy essential requirement of order 38 Rule 5 of C.P.C.
7.4 Further, he has submitted that when there are two separate agreements for two different types of work, one petition in respect of alleged breach of two contracts was not maintainable since there were two separate cause of action. He has submitted that the CSA Agreement is an agreement under which the appellant No.1 had to work as stockiest agent of the respondent, whereas under the DCA Agreement, the appellant no.1 was to work as marketing agent of the respondent and had to collect the payment from the customers of the respondent for the goods sold by respondent directly to them. Further, under the contract, even if the payment is not received from the customers, the appellant No.1 has to pay such amount to the respondent, within the time stipulated in the contract. The trial Court has not considered the fact that the appellant No.1 could not fulfill its obligation to make the payment to the respondent, as the Page 11 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 circumstances were beyond the control of the appellant. Therefore, non-payment of amount because of unforeseen circumstances of prohibition of polymer material by the action of the state which was occurred subsequent to execution of the contract, cannot be considered as willful default of the appellant No.1 in performing its obligation. He has submitted that the trial Court, while exercising the powers under Section 9 of the Arbitration and Conciliation Act, 1996, ought to have considered this aspect while passing the impugned order.
7.5 Further, it is submitted that there does not exist any agreement between the petitioner and key-managerial persons of the appellants in their personal capacity. Therefore, there is no privity of contract or specific agreement executed between the petitioner and key- managerial person of the appellants in their personal capacity. Therefore, no cause of action has been arisen against them and as such there exists no right to claim any relief against them. Both the agreement dated 11.04.2017 have been executed between the appellant No.1 and the respondent only. Hence, the petition impleading the party, who were not signatory of the contracts, is not maintainable. It is further submitted that Section 20 of C.P.C. prescribes territorial jurisdiction of institution of suit to be filed where defendants reside or work. In the instant case, all the appellants are residing and working for gain outside the territorial jurisdiction of the Commercial Court, Vadodara. Therefore, since all the appellants reside or work for gain in Northern India, the Commercial Court at Vadodara has no territorial jurisdiction to Page 12 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 entertain such application.
8. Per contra, the present respondent has filed its detailed written reply. The contention of the respondent in nutshell are as under:
8.1 The respondent has taken preliminary objection about the admission of this appeal, as the appellants have categorically and unequivocally admitted not only the claims of the respondent but also about its responsibility/role of DCA, since the Appellant No.1 was operating in the dual capacity as CSA as well as DCA. It is submitted that the appellants themselves have admitted that the appellant No.1 had to collect the payment from the customers of the respondent for goods being sold. Further, the appellants have categorically admitted the overdues to the tune of Rs.6,56,24,398/-
as on 31.08.2020, but with a malafide intention taken a subterfuge that the payment is outstanding/overdue to the respondent because they were not able to recover the same from its customers/public at large. In this regard, attention of this Court is invited to Clause [16(c) and 7(c)] of DCA and CSA agreements respectively, and he has submitted that the appellants are personally liable and responsible to pay the entire outstanding together with interest and charges. Therefore, entire dues of the respondent are recoverable from appellant No.1, which has not been denied.
8.2 Further, it is submitted that in view of the abovementioned facts, the appointment of appellant No.1 as DCA ipso facto assumed the liability of guarantor of credit extended to the buyer. Further, it is submitted that the appellants have admitted, in the appeal and also Page 13 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 before the trial Court, that they have sold 132 metric ton of respondent's product, which is illegal and against the terms of DCA and CSA agreements. Admittedly, the appellants never submitted or even whispered that they have made payment of the said 132 MT product to respondent. Further, it is submitted that appellants have also admitted that the payment of respondent is due on account of sales. The appellants crave leave of this Court to submit that there is no infirmity in the order dated 21.01.2021 passed by the 6 th Additional District Judge, Vadodara in Civil Miscellaneous Application No.97 of 2020, whereby directing the appellants to deposit a bank guarantee for the amount of Rs.3,78,71,569/-, which is admitted by the appellants. Further, it is submitted that the respondent has submitted stock ledger and copy of invoices berfore the Trial Court to show the transfer of 132 metric ton of respondent's product to appellant No.1 and the same was never rebutted by the appellants.
8.3 Further, it is submitted that the appellants, with malafied intention and ulterior motives, have submitted incorrect facts vis-a- vis the existence of arbitration clause in the DCA Agreement. It is submitted that the appellants have not filed complete copy of the said agreement as internal page No.16 contains arbitration clause, which is deliberately withheld by the appellants. It is also submitted that the malified and the conduct of appellants the proceedings writ under large. The same plea was taken by appellants in Section 9 of the Arbitration and Conciliation Act, 1996 and the trial Court has, in the impugned order, observed about the same. Further, it is Page 14 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 submitted that the appellants are trying to suppress or conceal material facts from this Court. It is submitted that the appellants are closely interconnected with each other. Further, it is submitted that the Hon'ble Courts have time and again held that even non-signatory or third party, who is connected/related to the main agreement, can be joined as party in the proceedings under the Arbitration and Conciliation Act, 1996.
8.4 It is submitted that, in the present case, the respondent has clearly and in unequivocal terms not only pleaded but also established that, the appellant Nos.1 to 5 are inter-connected with each other and respondent's product, which was in custody of the appellant No.1 was illegally, unauthorizedly and fraudulently transferred by appellant No.1 to appellant No.5 (having same directors and registered office as of Appellant No.1). Thereafter, the preliminary submissions were also made by the respondent and has submitted that the respondent had issued notice dated 05.12.2019 to Appellant Nos.1 to 3 showing the breach committed by them, which has automatically led to termination of both CSA and DCA agreements against the appellant No.1 in terms of various clauses of the agreements. Hence, there are no reason for the respondent to issue afresh letter of termination as alleged. Further, the appellant No.1 and respondent has entered into the commercial agreements with conscionable mind and were very well aware of each and every terms so agreed upon by them while executing the said documents. The termination clause expressly and explicitly provides for three situations through which the agreement/contract can be determined:-
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i) Automatic termination forthwith on the contingency so stipulated therein (a determination for cause)
ii) Either party by giving three months' written notice (determination without reasons on convenience),
iii) Determination by afflux of time (on completion of tenure of agreement/contract) 8.5 Further, it is submitted that the appellant No.1 was very much aware of the aforesaid clauses of termination and as such no notice was contemplated or required for the termination(s) of the agreement on the contingencies stipulated therein, as the terms were express and explicit. The respondent, vide its notice dated 05.12.2019, expressly pointed out the breaches and shown its intention not to continue with the agreement(s) and called upon the appellant No.1 to make the payment as envisaged in sub-clause of the clause " In the event of termination of the agreement...".
9.1 We have heard the learned advocates of the respective parties.
Both the parties have submitted its written submissions that the appellant Nos.3 to 5 are not seeking signatory of agreement dated 11.04.2017. Therefore, in absence of any contract or agreement between the respondent on the one hand and the appellant Nos.3 to 5 on the other hand, the arbitration proceedings against appellant Nos.3 to 5 is not maintainable and consequently, application under Section 9 is also not maintainable. Further, it is submitted that appellant No.2-Mr. Gaurav Singhal is also not party to the said agreement(s) dated 11.04.2017 and he has signed the said contract Page 16 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 only as a Director of appellant No.1-Napin Impex Ltd. Further, it is submitted that as per Section 2(h) of the Arbitration Act, which defines the word arbitration agreement, which means a party to an arbitration agreement. Further, section 2(b) of the Arbitration Act defines word arbitration agreement which means an agreement referred to in Section 7.
9.2 Further, it was submitted by the appellants that Section 7 defines word arbitration agreement which means an agreement by the parties and such agreement is required to be in writing and signed by the parties. In the instant case, indisputably neither appellant Nos.2 to 5 have signed any arbitration agreement nor there is any arbitration agreement in writing between the appellant Nos.2 to 5 and the respondent. The Court has passed the order against all the appellants mainly on the ground that as per the legal position about joining of the parties in arbitral proceedings, it is not necessary that party should be signatory to the agreement and appellant Nos.2 to 4 the are Directors of appellant No.1 and also the respondent No.5. Further, it is submitted against the that the said reasonings are contrary to law, more particularly, against the law laid down by the Hon'ble Apex Court in the case of Indowind Energy Ltd. Vs. Wescare (I) Ltd. resorted in (2010) 5 SCC 306 , more particularly para 15 thereof.
9.3 Further, learned counsel for the appellants has submitted that it is undisputed fact that appellant Nos.2 to 5 are joined in the application under Section 9 of the Arbitration and Conciliation Act, Page 17 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 1996, mainly on the ground of alleged illegal sale of 132 MT of the respondent's product by appellant No.1-Napin to appellant No.5 Emgreen, but the appellant Nos.2 to 5 are not concern in respect of any liability arising from DCA agreement. Therefore, on this ground alone, the appeal is required to be allowed so far as appellant Nos.2 to 5 are concerned. Further, learned advocate Mr. Thakor for the appellants has submitted that it is pertinent to note that in the instant case, even the respondent has filed Arbitration Petition No.71 of 2021 before this Court for appointment of Arbitrator only against the appellant No.1-Napin Impex Ltd. This Court, by oral order dated 11.06.2021, has issued notice. Therefore, he submitted that now it is in view of the arbitration petition filed only against appellant No.1, now it is clear that the arbitration proceeding is only between the respondent and appellant No.1. Therefore, in view of such fact, the impugned order passed by the Court directing the appellant Nos.2 to 5 to furnish bank guarantee as interim measure, under Section 9 of the Arbitration and Conciliation Act, 1996, is not sustainable since the same is without authority, power and jurisdiction. Further, he has relied upon the decision of Hon'ble Apex Court in the case of Vimal Kishor Shah Vs. Jayesh Dinesh Shah reported in (2016) 8 SCC 788 and contended that in order to constitute a valid binding enforceable arbitration agreement, the requirements in Section 7 have to be satisfied strictly and these requirements are (i) there has to be an agreement, (ii) it has to be in writing, (iii) parties much signed such agreement or in other words, the agreement much bear the signatures of the parties concerned and (iv) such agreement must contain arbitration clause and these four conditions are sine qua non for Page 18 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 constituting valid and enforceable arbitration agreement.
9.4 Further, he has relied upon the decision of the Hon'ble Apex Court in the case of Benarasi Krishan Committee Vs. Karmyogi Shelters Pvt. Ltd. reported in (2012) 9 SCC 496 , wherein the Hon'ble Apex Court has held that expression "party" as defined in Section 2(h) of the Act clearly indicates person, who is party to arbitration agreement but not agent of the party. Thus, as per the facts and circumstances of the case and as per the principles of law, in absence of any arbitration agreement between the respondent and the appellant Nos.2 to 5, the impugned, order directing to furnish bank guarantee as interim measure under Section 9 Arbitration and Conciliation Act, 1996, is without jurisdiction. Further, he has contended that so far as the appellant No.1 is concerned, even as per the application under Section 9 of the Arbitration and Conciliation Act, 1996 filed by the respondent, more particularly Para-13 of the petition, respondent has claimed Rs.3,74,14,954/- on account of DCA Agreement and Rs.4,56,615/- on account of CSA Agreement. Further, as per the prayer clause made in Para-28 of the application, the respondent has claimed pendent lite interest, damages for loss of market value also. It is submitted that so far as DCA is concerned, as per the copy supplied to the appellants, it does not contain any arbitration clause. Thus, again if DCA Agreement does not contain any arbitration clause then in that case, the respondent is not entitled to file petition under Section 9 before the Commercial Court by invoking DCA agreement. Thus, the claim of Rs.3,74,14,954/- under DCA agreement should not have been considered by the Page 19 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 Commercial Court for passing the order under Section 9 of the Act, 1996.
9.5 Further, DCA agreement contains, clause of security deposit for the due performance of the terms and conditions of DCA Agreement. The respondent was required to opt for either cash deposit by the appellant No.1 or bank guarantee. In the instant case, the respondent opted for cash deposit and accordingly, cash deposit of Rs.2,00,00,000/- was deposited and the same is lying with the respondent. Thus, since the respondent opted the option of cash deposit for security purpose, it is not entitled now to file petition under Section 9 of the Arbitration and Conciliation Act, 1996 and seek for furnishing bank guarantee. Further, he has submitted that the prayer made by the respondent even against the appellant No.1, is contrary to Clause 5 of agreement. Further, he has pointed out that it is pertinent to note that the security deposit of Rs.2,00,00,000/- along with accrued interest of Rs.13,95,452/- is lying with the respondent. Further, he has relied on the letter dated 07.10.2021, which is addressed by OPaL to the appellant No.1, which is produced alongwith the copy of the written statement filed by the appellants. Further, he has submitted that this act was not disclosed by the respondent while filing the application under Section 9 and therefore, on the ground of suppression of material fact, the said application was liable to be dismissed.
9.6 Further, he has argued that in view of the averments made at page 11 of the application, the claim is based on the basis of contents Page 20 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 of email referred to in para 13. Therefore, the said claim is required to be proved by the cogent and valid evidence by the respondent in appropriate proceedings. Therefore, unless the said claim is adjudicated and proved, the respondent is not entitled for seeking direction to furnish bank guarantee to secure the claim, which is yet to be adjudicated and proved. Further, he has argued that in the prayer clause, the claim includes pendent lite interest and damages for loss of market value. Further, he has submitted that as per the settled legal proposition and more particularly in view of the decision of this Court in the case of Essar Oil Ltd. Vs. United Insurance Co. Ltd. reported in (2015) 3 GLH 28, the trial Court, while passing the interim measures under Section 9 of the Arbitration and Conciliation Act, 1996 ,is required to be guided by the provisions of C.P.C., more particularly Order 38, Rule 5 of C.P.C. However, in the instant case, the Commercial Court has not considered very important aspect that the claim put forwarded by the respondent includes damages and also interest, which is yet to be adjudicated. Therefore, such amount cannot be said to be a sum due in presence nor to be a sum payable.
9.7 Therefore, the Commercial Court has committed serious error in directing to furnish bank guarantee to protect the claim of damages and interest, which is yet to be adjudicated. Further, he has relied upon decision of the Hon'ble Apex Court in the case of Gangotri Enterprise Ltd. Vs. Union of India reported in (2016) 11 SCC 720 and also decision of this Court in the case of Eassar Oil Ltd. Vs. United India Insurace Co. Ltd. reported in (2015) 3 GLH Page 21 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022
28. Further, he has submitted that it is also pertinent to note by notice dated 05.10.2019, the appellant No.1 was specifically directed not to represent itself DCA and/or CSA of OPal-respondent to anyone including actual user customer of OPaL respondent, till further orders. Thus, on the one hand, the appellant No.1 was restrained from working as DCA and/or CSA and on the other hand, it is alleged that appellant No.1 has committed breach of contract by not collecting payment of the customer. Further, he has relied on Clause 4, by which the procedure was adopted by the parties, therefore, he has submitted that entire control on working system of contract was with the OpaL-respondent and not with the appellant No.1-Napin.
9.8 Further, he has submitted that the appellant No.1 was getting commission from the OPaL-the respondent, as it was submitted by the learned counsel for the respondent during the course of hearing. Therefore, it is unbelievable that if appellant No.1 has committed breach by not depositing the entire payment as per Clause 4(b), how the commission was paid by the OPal to the appellant No.1-Napin. He has relied upon the decisions in the case of (i) Indowind _Energy Ltd. V/s. Wescare (I) Ltd. reported in (2010) 5 SCC 306, (ii) Vimal Kishore Shah V/s. Jayesh Dinesh Shah reported in (2016) 8 SCC 788, (iii) Sterling and Wilson International Fze and Others V/s. Sunshakti Solar Power Projects Pvt. Ltd. and Others., (SJ) (Delhi High Court). Therefore, he has prayed to quash and set aside the impugned order passed by the trial Court.
Page 22 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 10.1 Per contra, Ms. Manjula Gandhi with Mr. Sanket K. Pandya, Shivanshu Kumar & Rahul Dubey, learned advocates for the respondent, had contended that the present appeal is ill-presented and required to be dismissed. Further, she has filed her submission by way of convenience notes on behalf of respondent. Further, she has submitted by pointing out from the memo of appeal [page O-the second last para, page P-fourth last line from bottom] that, the appellants have admitted the liability of outstanding dues. Further, she has pointed out in view of the provisions of Order VIII, Rule 5 of the Civil Procedure Code, 1908, the vague and evasive reply should be considered as deemed admission by the party. For this purpose, she has pointed out of para 13 and 15 of Section 9 of the petition at page 9 & 10 and their corresponding reply at page 155- 157 of the New Paper Book filed by the appellant. At page 4, 5, 6, 16, 26, 27, 33 & 34 as per New Paper Book of the appellant. She has submitted that Clause 4(b)&(c) prescribed about the procedure. . Further, she has indicated that Clause 5 is for the security deposit and relevant is sub-clause (b) & (d). Further, she has pointed out that Clause 16 provides termination. Further, she has pointed out that from sub-clause (f) at page 34 of New Paper Book that if the DCA commits breach of any of the terms and conditions of the agreement. The agreement shall stands terminated and in the event of termination of the agreement, the DCA shall in sub-clause (b)-the company has two remedies.
(i) It has liberty to forfeit the security deposit.
(ii) Right to adjust any amount due from the DCA Page 23 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 against any amount payble to the DCA in connection with any transaction under this agreement.
Further, she has pointed out Clause 21, which refers about alternative dispute resolution. Notice of dispute dated 05.12.2019 at page Nos. 130-132, which is reproduced on record is also relied by the learned advocate for the respondent. Further, she has submitted that in the memo of appeal, the appellant has tried to conceal and mislead the Court by making misleading statement. Further, she has pointed out from 9th line at the bottom at page No.J of memo of appeal and 5th line from top at page No.O of memo of appeal and therefore, submitted that appellants have deliberately did not file two Annexure H & J, which were filed after the said fact, was pointed out as part of new paperbook.
10.2 Further, she has submitted for the contention raised by learned advocate for the appellants regarding security deposit. She has submitted that no concealment by the respondent in Section 9 petition and she has controverted the contention of the appellant viz a viz concealment/suppression by the respondent, of the security deposit lying with it in the light of the relevant provisions of Clause 5 & 16, the respondent has all rights to set off/adjust the amount of security deposit on the contrary. It is further contended that appellants themselves were held guilty of concealment and suppression viz a viz the security deposit solely for the reason that the said amount was yielding interest. Hence, the appellants cannot be permitted to take advantage of their own wrong. Further, she has Page 24 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 argued that the question of adjusting the security deposit does not arise since the outstanding dues of the appellants are more than Rs.6,95,83,869/- (principle Rs.5,09,15,110/- plus Rs.1,86,68,759/-) as on 01st October, 2021. There was no infirmity in the impugned order directing the appellants to deposit a sum of Rs.3.78 crores, which is nothing but the admitted amount and not the total amount as alleged by the appellants.
10.3 Thereafter, she has further submitted the legal submissions regarding joinder of non-signatory. She has relied upon the decision of Hon'ble Apex Court in the case of Firm Ashok Traders & Anr. Vs. Gurumukh Das Saluja & Ors. reported in (2004) 3 SCC 155, more particularly para 13 of that judgment, which pertains lifting of corporate veil & doctrine of group companies. Further, she has cited the judgment of Hon'ble Apex Court in the case of Cheran Properties Ltd. Vs. Kasturi and Sons. Ltd. & Ors. reported in (2018) 16 SCC 413 whereby, she has contended that the Hon'ble Apex Court in these judgments, followed the Doctrine of Group Companies and alter ego i.e., Piercing of Corporate Veil as law laid down in the case of Chloro Controls Pvt. Ltd. Vs. Severn Trent Purification Inc. & Ors. reported in (2013) 1 SCC 641. Further, she has relied upon the decisions of Hon'ble Apex Court in the Case of
(i) Girish Mulchand Mehta & Anr. Vs. Mahesh S. Mehta & Anr. reported in 2010 (2) Mh.L.J. 657, more particularly para 12 and 13.
(ii) Arcelor Mittal India Pvt. Ltd. Vs. Satish Kumar Gupta & Ors. reported in (2019) 2 SCC 1, more particularly para 33 to 37 (the six principles for Piercing of Corporate Veil-para:35), (iii) Mahanager Page 25 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 Telephone Nigam Ltd. Vs. Canara Bank & Ors. reported in (2020) 12 SCC 767, more particularly para 10.7, 10.8 & 10.9,(iv) Sterling & Wilson International Fze Vs. Sunshakti Solar Power Projects Pvt. Ltd. & Ors. reported in OMP(I) (COMM.) 460/2018 more particularly para 63, 71 and 82 and and has submitted that all the abovementioned judicial pronouncement, is viz a viz the directions of deposit against the appellants, suffers with no infirmity.
10.4 Further, she has submitted that all the movables of the appellants are under the charge. Further, she has pointed out that both the appellant Nos.1 and 5 have their registered office/godown/ warehouse at Napin Impex Ltd. Killa No.97/18/2/1, 6-2, Harikrishan Industrial Area, Kundli, Tehsil-Rai, Sonipat, Haryana 131028, which is evident from the affidavit of service filed by the respondent before this Court. This clearly shows that the appellants are destroying/doing away their valuable assets/properties solely for the purpose of delaying and defeating the payment of legitimate dues of the respondent. Further, she has argued on the point that objection regarding non-maintainability of one petition viz a viz there are two agreements:, and she has relied upon the decisions of Hon'ble Apex Court in the case of (i) Ameet Lalchand Shah & Ors. Vs. Rishabh Enterprises & Anr. reported in (2018) 15 SCC 678, more particularly para 13 & 14 at page 688, (ii) Mahanagar Telephone Nigam Ltd. Vs. Canara Bank & Ors. reported in (2020) 12 SCC 767, more particularly para 19 to 23. Further, she has submitted that in the present case, in both the agreements, the party is appellant No.1, who has entered into two different agreements with respondent and Page 26 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 relying on the analogy laid down by the Hon'ble Apex Court, both the object and purpose of Arbitration can only be achieved that the disputes should be resolved as far as possible in one arbitral proceedings to avoid any inconsistent findings and parallel arbitral proceedings.
10.5 Further, she has submitted with regard to contention raised about the security deposit by the appellants. She has submitted that in view of Section 60 of Contract Act, the respondent can exercise its rights under Clause 5 & 16 of the DCA Agreement and as per the provisions of Section 60 of Contracts Act, 1872, the respondent has set off the security deposit against the outstanding dues. Further, she has relied upon the decisions of the Hon'ble Apex Court in the case of (i) Industrial Credit & Development Syndicate Now called as ICDS Ltd. Vs. Smithaben H. Patel (SMT) & Ors. reported in (1999) 3 SCC 80, more particularly para 9, 14, (ii) Gurpreet Singh Vs. Union of India reported in (2006) 8 SCC 457, more particularly paras 20, 25, 26 & 53 and has submitted that in view of the abovementioned facts and submissions,the appeal of the present appellants is meritless and contentions raised in the memo of appeal are not in consonance with law. No interference by this Court should be called for, therefore, she prays that the present appeal may be dismissed with exemplary costs against appellants and moreover, there is no infirmity or illegality committed by the Commercial Court while passing the impugned order.
11.1 We have heard learned advocates Mr. Vikram J. Thakor for Page 27 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 the appellants and Ms. Manjula Gandhi for the respondent at length. We have perused the materials available on record of the present appeal. The facts of the case and the dispute emerging therefrom has been attentively noticed by this Court. We have considered the elaborate submissions made by the learned counsels for the respective parties, specially, the provisions of Section 9 of the Arbitration and Conciliation Act, 1996. By keeping in mind, the provisions of Order 39 read with Order 38 of the C.P.C., and the powers have been exercised by the trial Court, which has also been considered by us. Section 9 of the Arbitration Act, 1996 provides for interim measures, which may be applied by a party before the Court, which reads as under:
"Section 9: Interim measures, etc., by Court (1) A party may, before, or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a Court-
(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
(ii) for an interim measure of protection in respect of any of the following matters, namely:-
(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or Page 28 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
(d) interim injunction appointment of a receiver; or the
(e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.
(2) Where, before the commencement of the arbitral proceedings, a court passes ... ... ...
(3) Once the arbitral tribunal has been constituted, the court shall not entertain ... ... ..."
11.2 We gathered the contours of the controversy. The main controversy agitated by the appellants is that the Commercial Court has no jurisdiction to entertain the application under the provisions of Section 9 of the Arbitration and Conciliation Act, 1996, for interim measures, in absence of any arbitration clause, more particularly as, the appellant Nos.3 to 5 are indisputably not the signatory of the agreement(s) dated 11.04.2017. Therefore, it is contended that the appellants in absence of any contract or agreement between the respondent on the one hand and appellant No.3 to 5 on the other hand, arbitration proceedings against the appellant Nos.3 to 5 is not maintainable and petition under Section 9 of the Arbitration and Conciliation Act, 1996, is not maintainable. In support of his submissions, learned advocate has tried to rely on Section 2(h) and Section 7 of the Arbitration and Conciliation Act, Page 29 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 1996. Further, learned advocate for the appellants has relied upon the decision of the Hon'ble Apex Court in the case of Indowind Energy Ltd., (supra), more particularly para 15, which is as under:
"Para-15.
It is not in dispute that Subuthi and Indowind are two independent companies incorporated under the Companies Act, 1956. Each company is a separate and district legal entity and the mere fact that two companies have common shareholders or common Board of Directors, will not make the two companies a single entity. Nor will existence of common shareholders or Directors lead to an inference that one company will be bound by the acts of the other. If the Director who signed on behalf of Subuthi was also a Director of Indowind and if the intention of the parties was that Indowind should be bound by the agreement, nothing prevented Wescare insisting the Indowind should be made a party to the agreement and requesting the Director who signed for Subuthi also to sign on behalf of Indowind. The very fact that parties carefully avoided making Indowind a party and the fact that the Director of Subuthi though a Director of Indowind, was careful not to sign the agreement as on behalf of Indowind, shows that the parties did not intend that Indowind should be a party to the agreement. Therefore the mere fact that Subuthi described Indowind as its nominee or as a company promoted by it or that the agreement was purportedly entered by Subuthi on behalf of Indowind, will not make Indowind a party in the absence of a ratification, approval, adoption or confirmation of the agreement dated 22/2/2006 by Indowind."
Therefore, in view of the above judgment, he has contended that the appellant Nos.2 to 5 are joined in the petition under Section 9, mainly on the ground of alleged illegal sale of 132 MT. product of Page 30 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 petitioner by appellant No.1-Napin to appellant No.5-Emgreen. Therefore, he has contended that the appellant Nos.2 to 5 are not concerned in respect of any liability arising from DCA Agreement. To Counter this contention, learned advocate for the respondent has submitted that appellant Nos.1 and 5 are Group Companies, which is discussed in the decision of the Hon'ble Apex Court in the case of Cheran Properties Ltd. (supra). Further, she has submitted that the lifting of corporate veil also comes in the play in the present matter, as the respondent Nos.2 to 4 are the Directors of the company Nos.1 and 5, and the companies have a common registry address also.
11.3 Further, she has relied upon the decision of the Hon'ble Apex Court in the case of Firm Ashok Traders & Anr. (Supra), more particularly para 13 is important, which is as under:
"13. A & C Act, 1996 is a long leap in the direction of alternate dispute resolution systems. It is based on UNCITRAL Model. The decided cases under the preceding Act of 1940 have to be applied with caution for determining the issues arising for decision under the new Act. An application under Section 9 under the scheme of A & C Act is not a suit. Undoubtedly, such application results in initiation of civil proceedings but can it be said that a party filing an application under Section 9 of the Act is enforcing a right arising from a contract? Party is defined in Clause (h) of sub-section (1) of Section 2 of A & C Act to mean a party to an arbitration agreement. So, the right conferred by Section 9 is on a party to an arbitration agreement. The time or the stage for invoking the jurisdiction of Court under Section 9 can be (i) before, or (ii) during arbitral proceedings, or (iii) at any time after the making of the arbitral Page 31 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 award but before it is enforced in accordance with Section 36. With the pronouncement of this Court in M/s. Sundaram Finance Ltd. vs. M/s. NEPC India Ltd. - AIR 1999 SC 565 the doubts stand cleared and set at rest and it is not necessary that arbitral proceedings must be pending or at least a notice invoking arbitration clause must have been issued before an application under Section 9 is filed. A little later we will revert again to this topic. For the moment suffice it to say that the right conferred by Section 9 cannot be said to be one arising out of a contract. The qualification which the person invoking jurisdiction of the Court under Section 9 must possess is of being a party to an arbitration agreement. A person not party to an arbitration agreement cannot enter the Court for protection under Section 9. This has relevance only to his locus standi as an applicant. This has nothing to do with the relief which is sought for from the Court or the right which is sought to be canvassed in support of the relief. The reliefs which the Court may allow to a party under clauses (i) and (ii) of Section 9 flow from the power vesting in the Court exercisable by reference to contemplated, pending or completed arbitral proceedings. The Court in conferred with the same power for making the specified orders as it has for the purpose of and in relation to any proceedings before it though the venue of the proceedings in relation to which the power under Section 9 is sought to be exercised is the arbitral tribunal. Under the scheme of A & C Act, the arbitration clause is separable from other clauses of the Partnership Deed. The arbitration clause constitutes an agreement by itself. In short, filing of an application by a party by virtue of its being a party to an arbitration agreement is for securing a relief which the Court has power to grant before, during or after arbitral proceedings by virtue of Section 9 of the A & C Act. The relief sought for in an application under Section 9 of A & C Act is neither in a suit nor a right arising from a contract. The right arising from the partnership deed or Page 32 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 conferred by the Partnership Act is being enforced in the arbitral tribunal; the Court under Section 9 is only formulating interim measures so as to protect the right under application before the arbitral tribunal from being frustrated. Section 69 of the Partnership Act has no bearing on the right of a party to an arbitration clause to file an application under Section 9 of A & C Act."
Further, she has relied on the decision of the Hon'ble Apex Court in the case of Girish Mulchand Mehta & Anr.(supra), more particularly paras 12 & 13 are important, which is as under:
"12. The next question is whether order of formulating the interim measures can be passed by the Court in exercise of powers under section 9 of the Act only against a party to an Arbitration Agreement or Arbitration Proceedings. As is noticed earlier, the jurisdiction under section 9 can be invoked only by a party to the Arbitration Agreement. Section 9, however, does not limit the jurisdiction of the Court to pass order of interim measures only against party to an Arbitration Agreement or Arbitration Proceedings; whereas the Court is free to exercise same power for making appropriate order against the party to the Petition under section 9 of the Act as any proceedings before it. The fact that the order would affect the person who is not party to the Arbitration Agreement or Arbitration Proceedings does not affect the jurisdiction of the Court under section 9 of the Act which is intended to pass interim measures of protection or preservation of the subject- matter of the Arbitration Agreement.
13. The appellants, however, place reliance on the decision of the Kerala High Court in the case of Shoney Sunil v. Coastal Foundations (P) Ltd., reported in AIR 2006 Kerala 206. In that case the question considered was whether the writ-petitioner, Page 33 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 admittedly, a third party to an alleged Arbitral Agreement between the respondents inter se, and who had in his favour a confirmed Court sale and certificate of such sale and delivery of possession, following and arising under an independent decree, could be dispossessed, injuncted or subjected to other Court proceedings under section 9 of the Act? The Kerala High Court held that orders under section 9(ii)(c) can be passed only in relation to subject-matter of dispute in arbitration which may be in possession of any party since it is not the intention of the Act or any arbitration proceedings as conceived by the law of Arbitration to interfere with or interpolate third party rights. It concluded that on a plain reading of section 9 of the Act and going by the Scheme of the said Act, there is no room to hold that by an interim measure under section 9, the rights of third party holding possession on the basis of Court sale could be interfered with, injuncted or subjected to proceedings under section 9 of the Act. Instead, it held that section 9 of the Act contemplates issuance of interim measures by the Court only at the instance of party to Arbitration Agreement with regard to the subject-matter of the Arbitration Agreement. The Court has, however, noted that such order can be only against the party to an Arbitration Agreement or at best against any person claiming under him. The Principle expounded in this decision is that if a third party has independent right in the subject-matter of the Arbitration Agreement, section 9 cannot be invoked to affect his rights. At the same time, the Kerala High Court has plainly opined that it is possible to pass orders under section 9 against a third party if such person is claiming under the party to the Arbitration Agreement. Thus understood, section 9 can be invoked even against a third party who is not party to an arbitration agreement or arbitration proceedings, if he were to be person claiming under the party to the arbitration agreement and likely to be affected by the interim measures. The appellants herein will have to substantiate that they were Page 34 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 claiming independent right in respect of any portion of the subject-matter of the Arbitration Agreement on their own and not claiming under the respondent No. 2 Society who is party to the Arbitration Agreement. In absence thereof, the Court would certainty have jurisdiction to pass appropriate order by way of interim measures even against the appellants herein, irrespective of the fact that they are not party to the Arbitration Agreement or the Arbitration Proceedings."
Further, she has relied on the decision of the Hon'ble Apex Court in the case of Arcelor Mittal India Pvt. Ltd., (supra) more particularly para 33 to 37 & para 71 is important (Six Principles for Piercing of Corporate Veil:- para 71), which is as under:
"33. Similarly in Delhi Development Authority v. Skipper Construction Company (P) Ltd. & Another, (1996) 4 SCC 622, this Court held:
"24. In Salomon v. Salomon & Co. Ltd. [1897 AC 22] the House of Lords had observed, "the company is at law a different person altogether from the subscribers ...; and, though it may be that after incorporation the business is precisely the same as it was before, the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee for them. Nor are the subscribers as members liable, in any shape or form, except to the extent and in the manner provided by that Act." Since then, however, the courts have come to recognise several exceptions to the said rule. While it is not necessary to refer to all of them, the one relevant to us is "when the corporate personality is being blatantly used Page 35 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 as a cloak for fraud or improper conduct". [Gower: Modern Company Law -- 4th Edn. (1979) at p. 137.] Pennington (Company Law -- 5th Edn. 1985 at p. 53) also states that "where the protection of public interests is of paramount importance or where the company has been formed to evade obligations imposed by the law", the court will disregard the corporate veil. A Professor of Law, S. Ottolenghi in his article "From peeping behind the Corporate Veil, to ignoring it completely"
says "the concept of 'piercing the veil' in the United States is much more developed than in the UK. The motto, which was laid down by Sanborn, J.
and cited since then as the law, is that 'when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons'. The same can be seen in various European jurisdictions." [(1990) 53 Modern Law Review 338] Indeed, as far back as 1912, another American Professor L. Maurice Wormser examined the American decisions on the subject in a brilliantly written article "Piercing the veil of corporate entity" [published in (1912) XII Columbia Law Review 496] and summarised their central holding in the following words:
"The various classes of cases where the concept of corporate entity should be ignored and the veil drawn aside have now been briefly reviewed. What general rule, if any, can be laid down? The nearest approximation to generalisation which the present state of the authorities would warrant is this: When the conception of corporate entity is employed to defraud creditors, to evade an existing obligation, to circumvent a statute, to achieve or perpetuate monopoly, or to protect knavery or crime, the courts will draw aside the Page 36 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 web of entity, will regard the corporate company as an association of live, up-and-doing, men and women shareholders, and will do justice between real persons."
25. In Palmer's Company Law, this topic is discussed in Part II of Vol. I. Several situations where the court will disregard the corporate veil are set out. It would be sufficient for our purposes to quote the eighth exception. It runs:
"The courts have further shown themselves willing to 'lifting the veil' where the device of incorporation is used for some illegal or improper purpose.... Where a vendor of land sought to avoid the action for specific performance by transferring the land in breach of contract to a company he had formed for the purpose, the court treated the company as a mere 'sham' and made an order for specific performance against both the vendor and the company." Similar views have been expressed by all the commentators on the Company Law which we do not think necessary to refer to.
26. The law as stated by Palmer and Gower has been approved by this Court in TELCO v. State of Bihar [(1964) 6 SCR 885]. The following passage from the decision is apposite:
"... Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But, it would not be possible to evolve a rational, consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. Broadly stated, where fraud is intended to be prevented, or trading with an enemy is sought to be defeated, the veil of a corporation is lifted by judicial decisions and the shareholders are held to be the persons who actually work for the corporation."Page 37 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022
C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022
27. In DHN Food Distributors Ltd. v. London Borough of Tower Hamlets [(1976) 3 All ER 462] the court of appeal dealt with a group of companies. Lord Denning quoted with approval the statement in Gower's Company Law that "there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group".
The learned Master of Rolls observed that "this group is virtually the same as a partnership in which all the three companies are partners". He called it a case of "three in one" -- and, alternatively, as "one in three".
28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud people." (emphasis supplied)
34. It is thus clear that, where a statute itself lifts the corporate veil, or where protection of public interest is of paramount importance, or where a company has been formed to evade obligations imposed by the law, the court will disregard the corporate veil. Further, this principle is applied even to group Page 38 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 companies, so that one is able to look at the economic entity of the group as a whole.
35. The expression "acting jointly" in the opening sentence of Section 29A cannot be confused with "joint venture agreements", as was sought to be argued by Shri Rohatgi. He cited various judgments including Faqir Chand Gulati v. Uppal Agencies Pvt. Ltd. & Anr., (2008) 10 SCC 345, and Laurel Energetics Private Limited v. Securities and Exchange Board of India, (2017) 8 SCC 541, to buttress his submission that a joint venture is a contractually agreed sharing of control over an economic activity. We are afraid that these judgments are wholly inapplicable. All that is to be seen by the expression "acting jointly" is whether certain persons have got together and are acting "jointly" in the sense of acting together. If this is made out on the facts, no super added element of "joint venture" as is understood in law is to be seen. The other important phrase is "in concert". By Section 3(37) of the Code, words and expressions used but not defined in the Code but defined inter alia by the SEBI Act, 1992, and the Companies Act, 2013, shall have the meanings respectively assigned to them in those Acts. In exercise of powers conferred by Sections 11 and 30 of the SEBI Act, 1992, the 2011 Takeover Regulations have been promulgated by SEBI.
36. Originally, the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994, defined "persons acting in concert" as follows:
"(d) "person acting in concert" comprises persons who, pursuant to an agreement or understanding acquires or agrees to acquire shares in a company for a common objective o purpose of substantial acquisition of shares and includes:Page 39 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022
C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 i. a company, its holding company, or subsidiaries of such companies or companies under the same management either individually or all with each other. ii. a company with any of its directors, or any person entrusted with the management of the funds of the company;
iii. directors of companies, referred to in clause (i) and his associates; and iv. mutual fund, financial institution, merchant banker, portfolio manager and any investment company in which any person has an interest as director, fund manager, trustee, or as a shareholder having not less than 2% of the paid-up capital of that company. Explanation - For the purposes of this clause "associate" means:-
A. Any relative of that person within the meaning of section 6 of the Companies Act, 1956 (1 of 1956);
B. the director or his relative whether individually or in aggregate holding more than 2% of the paid-up equity capital of such company." This was replaced in 1997 by the Regulations of 1997, and then further by the 2011 Takeover Regulations.
37. The Justice P.N. Bhagwati Committee Report on Takeovers, 1997, pursuant to which the Regulations of 1997 were framed, stated as follows:
"2.22 Definition of 'Persons acting in concert' "Persons acting in concert" have particular relevance to public offers, for often an acquirer can acquire shares or voting rights in a company "in concert" with any other person in a manner that the acquisitions made by him remain below the threshold limit, though taken together with the voting rights of persons in concert, the threshold Page 40 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 may well be exceeded. It is therefore, important to define "persons acting in concert".
To be acting in concert with an acquirer, persons must fulfil certain "bright line" tests. They must have commonality of objectives and a community of interests which could be acquisition of shares or voting rights beyond the threshold limit, or gaining control over the company and their act of acquiring the shares or voting rights in a company must serve this common objective. Implicit in the concerted action of these persons must be an element of cooperation. And as has been observed, this cooperation could be extended in several ways, directly or indirectly, or through an agreement - formal or informal. The committee was of the view that the present definition of "persons acting in concert" in sub-clause (d) of regulation 2 needed to be strengthened by incorporating all the ingredients discussed in the foregoing paragraph to bring out clearly the import of acting in concert.
Any person fulfilling the "bright line" tests would be acting in concert. But there could also be certain persons who, by their position in relation to an acquirer or by the very nature of their business, could be generally presumed to be acting in concert, unless proved to the contrary. In other words, a rebuttable presumption of being persons in concert with burden of proof cast on them will be raised against these persons. The Committee was of the view that while the net of presumption should be cast to include all such persons, it should not be cast too widely so as to impinge on the freedom of any person to carry on his normal business activities. In other words, there should be well defined bounds of presumption.
xxx xxx xxx 2.23 Burden of proof on 'persons acting in concert' The Committee further noted that in the existing Regulations, there is no burden of proof on the 'persons acting Page 41 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 in concert'. Once the burden of proof is cast on the persons presumed to be acting in concert, it would be important to ensure that the persons are grouped in categories such that the persons may be presumed to be acting in concert only with another person belonging to the same category. A general reading of the existing provisions implies that a person belonging to any one of the categories mentioned in sub-clauses
(i) to (iv) of clause (d) of regulation 2 could be presumed to be acting in concert with a person belonging to any other category. Thus, a company could be presumed to be acting in concert with a merchant banker, mutual fund, or any other body even though they may all be distinctly independent entities without any connection whatsoever. Such irrebuttable presumption of a common motive amongst unrelated parties would be illogical and not legally tenable. A distinction must be made between persons who could be presumed to be acting in concert unless proved to the contrary and others who may be acting in concert even though such a presumption cannot be raised against them. In this context, it may be noted that the UK City Code of Takeovers and Mergers, for this very reason, has divided the persons acting in concert into groups in such a manner that these persons would in the natural course of affairs be presumed to be acting in concert only with another person in the same group. This served to set the pattern for raising rebuttable presumptions.
The Committee recommends that .In the definition of persons acting in concert, the persons be grouped in such a manner in the same group or category that they bear such relationship amongst themselves as could justify raising of a presumption in the normal course of affairs that they are acting in concert. For example, a sponsor of a mutual fund could be presumed to be acting in concert with the trustee company or asset management company of the same mutual fund; similarly a merchant banker Page 42 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 may be presumed to be acting in concert with his client as acquirer. But no presumption may be made that persons in one group are acting in concert with persons in another group. It has to be proved by evidence that they are acting in concert. (Reference: Part II of the Report - sub-clause (e) of sub- regulation (1) of regulation
2) .
The definition of the persons acting in concert as defined above would imply a rebuttable presumption. The question which arises is who would rule whether the presumption has been rebutted. The responsibility of ruling will lie with SEBI and over a period of time, jurisprudence on the subject will develop."
Further, she has relied on the decision of the Hon'ble Apex Court in the case of Mahanagar Telephone Nigam Ltd., (supra), more particularly para 10.7, 10.8 & 10.9 is important, which is as under:
"10.7 The group of companies doctrine has also been invoked in cases where there is a tight group structure with strong organisation and financial links, as as to constitute a single economic unit, or a single economic reality. In such a situation, signatory and non-signatories have been bound together under the arbitration agreement. This will apply in particular when the funds of one company are used to financially support or restructure other members of the group.
10.8 The "group of companies" doctrine has been invoked and appreciated by this Court in Chloro Controls (India) (P) Ltd. Vs. Severn Trent Water Purification Inc., with respect to an international commercial agreement. Recently, this Court in Ameet Lalchand Shah Vs. Rishabh Enterprises, invoked the Page 43 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 group of companies doctrine in a domestic arbitration under Part I of the 1996 Act.
10.9. Coming to the facts of the present case, CANFINA was set up as a wholly owned subsidiary of Canara Bank. This is evident from the Report of the Joint Committee to Enquire into Irregularities in Securities and Banking Transactions, 1993,14 which states as follows :
"Canbank Financial Services Ltd.11 ICC Case No. 4131 of 1982, ICC Case No. 5103 of
1988.
12 (2013) 1 SCC 641.
The Madras High Court has invoked the Group of Companies Doctrine in a foreign seated arbitration in SEI Adhavan Power Pvt. Ltd. v. Jinneng Clean Energy Technology Ltd. & Ors.2018 (4) CTC 46.
13 (2018) 15 SCC 678.
14 Report, Presented to the Lok Sabha on 21st December, 1993.
6.14 CANFINA was set up as a wholly owned subsidiary of Canara Bank and it commenced its operation with its Head Office at Bangalore on 1 st June, 1987. Its authorized and paid up capital are Rs. 50 crores and Rs. 10 crores respectively. It was staffed mostly be personnel from Canara Bank and has branches at Ahmedabad, Bombay, Calcutta, Hyderabad, Madras and New Delhi besides Bangalore. As the Board comprised mostly of senior executives of Canara Bank and its Chief Executive is also a senior official of that bank (on deputation) the company functioned under the umbrella of the parent bank; besides it submits Page 44 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 periodical returns on its functioning to the Board of Canara Bank for information.
6.15 The activities authorized to be conducted by the Company are equipment leasing, merchant-banking, venture capital and consultancy services. The Company, initially deployed a major portion of its owned funds and deposits in equipment leasing business and obtained the classification of an 'Equipment leasing company' from the Department of Finance Companies of RBI; this classification entitles the company to mobilize public deposits to the extent of ten time its owned funds.
6.25 The Committee hope that the nature and extent of the financial assistance being provided by Canara Bank to its subsidiaries are such as could be justified on prudent commercial norms. Further the parent bank cannot be absolved of the responsibility for various irregularities of its subsidiary. " (emphasis supplied) 10.8. The disputes between the parties emanated out of the transaction dated 10.02.1992, whereby CANFINA has subscribed to the bonds floated by MTNL. CANFINA subsequently transferred the Bonds to its holding Company - Canara Bank. It is the contention of MTNL, that since CANFINA did not pay the entire sale consideration for the Bonds, MTNL eventually was constrained to cancel the allotment of the Bonds."
Further, she has relied upon the decision of the Hon'ble Apex Court in the case of Sterling & Wilson International Fze (supra), more particularly para 63, 71 & 82 are important, which is as under:
"63. Two-fold issues arise for consideration by the Court in the present petition. The first issue that arises is whether any Page 45 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 directions can be issued by the Court under Section 9 of the Act, against Respondent Nos. 2 to 8 and the second is the relief to which the Petitioner is entitled, keeping in view the principles governing the exercise of power of a Court, under Section 9 of the Act.
71. Learned Senior Counsels for the Petitioner have rightly relied on the Doctrine of piercing the Corporate veil. Relevant paras of the judgment explaining the doctrine in the case of Arcelormittal (supra) are as under:-
"33. The doctrine of piercing the corporate veil is as well settled as the Salomon [Salomon v. A. Salomon & Co. Ltd., 1897 AC 22 (HL)] principle itself. In LIC v. Escorts Ltd. [LIC v. Escorts Ltd., (1986) 1 SCC 264 ], this Court held: (SCC pp. 334-36, para 90):
"xxx xxx xxx In Palmer's Company Law (23rd Edn.), the present position in England is stated and the occasions when the corporate veil may be lifted have been enumerated and classified into fourteen categories. Similarly in Gower's Company Law (4th Edn.), a chapter is devoted to "lifting the veil" and the various occasions when that may be done are discussed.
In TELCO Ltd. [TELCO Ltd. v. State of Bihar, (1964) 6 SCR 885 : AIR 1965 SC 40 ] the company wanted the corporate veil to be lifted so as to sustain the maintainability of the petition, filed by the company under Article 32 of the Constitution, by treating it as one filed by the shareholders of the company. The request of the company was turned down on the ground that it was not possible to treat the company as a citizen for the purposes of Article 19. In CIT v. Sri Meenakshi Mills Ltd. [CIT v. Sri Meenakshi Mills Ltd., (1967) 1 SCR Page 46 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 934 : AIR 1967 SC 819 ] the corporate veil was lifted and evasion of income tax prevented by paying regard to the economic realities behind the legal facade.
In Workmen v. Associated Rubber Industry Ltd. [Workmen v. Associated Rubber Industry Ltd., (1985) 4 SCC 114 : 1985 SCC (L&S) 957] resort was had to the principle of lifting the veil to prevent devices to avoid welfare legislation. It was emphasised that regard must be had to substance and not the form of a transaction. Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected, etc."
71. In recent times, the law has been crystallised around the six principles formulated by Munby, J. in Ben Hashem v. Ali Shayif [Ben Hashem v. Ali Shayif, 2008 EWHC 2380 (Fam) : (2009) 1 FLR 115]. The six principles, as found at paras 159-64 of the case are as follows:
(i) Ownership and control of a company were not enough to justify piercing the corporate veil;
(ii) The court cannot pierce the corporate veil, even in Page 47 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 the absence of third-party interests in the company, merely because it is thought to be necessary in the interests of justice;
(iii) The corporate veil can be pierced only if there is some impropriety;
(iv) The impropriety in question must be linked to the use of the company structure to avoid or conceal liability;
(v) To justify piercing the corporate veil, there must be both control of the company by the wrongdoer(s) and impropriety, that is use or misuse of the company by them as a device or facade to conceal their wrongdoing;
and
(vi) The company may be a "façade" even though it was not originally incorporated with any deceptive intent, provided that it is being used for the purpose of deception at the time of the relevant transactions. The court would, however, pierce the corporate veil only so far as it was necessary in order to provide a remedy for the particular wrong which those controlling the company had done.
36. Similarly in DDA v. Skipper Construction Company (P) Ltd. [DDA v. Skipper Construction Company (P) Ltd., (1996) 4 SCC 622 ], this Court held: (SCC pp. 637-39, paras 24-28) xxxx xxxx xxxx
26. The law as stated by Palmer and Gower has been approved by this Court in TELCO Ltd. v. State of Bihar [TELCO Ltd. v. State of Bihar, (1964) 6 SCR 885 : AIR Page 48 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 1965 SC 40 ] . The following passage from the decision is apposite: (AIR p. 47, para 27) 27. ... Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But, it would not be possible to evolve a rational, consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. Broadly stated, where fraud is intended to be prevented, or trading with an enemy is sought to be defeated, the veil of a corporation is lifted by judicial decisions and the shareholders are held to be the persons who actually work for the corporation.?
27. In D.H.N. Food Distributors Ltd. v. Tower Hamlets London Borough Council [D.H.N. Food Distributors Ltd. v. Tower Hamlets London Borough Council, (1976) 1 WLR 852 (2) : (1976) 3 All ER 462 (CA)] the Court of Appeal dealt with a group of companies. Lord Denning quoted with approval the statement in Gower's Company Law that„there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group?.
The learned Master of Rolls observed that „this group is virtually the same as a partnership in which all the three companies are partners?. He called it a case of "three in one" -- and, alternatively, as "one in three".
28. The concept of corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character Page 49 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned. The fact that Tejwant Singh and members of his family have created several corporate bodies does not prevent this Court from treating all of them as one entity belonging to and controlled by Tejwant Singh and family if it is found that these corporate bodies are merely cloaks behind which lurks Tejwant Singh and/or members of his family and that the device of incorporation was really a ploy adopted for committing illegalities and/or to defraud people."
(emphasis supplied)
37. It is thus clear that, where a statute itself lifts the corporate veil, or where protection of public interest is of paramount importance, or where a company has been formed to evade obligations imposed by the law, the court will disregard the corporate veil. Further, this principle is applied even to group companies, so that one is able to look at the economic entity of the group as a whole.
82. Reading of the judgments shows that while exercising power under Section 9, the Court has to be mindful of the trinity principles under Order XXXIX Rule 1 & 2 CPC and the underlying principles of Order XXXVIII Rule 5 CPC. Examining the present case on the touch stone of these principles in my view, the Petitioner has established a prima facie case in its favour. The factors which persuade this Court to hold so, are the undisputed facts that (a) obligations of the Petitioner under the OSA were limited to Offshore Supplies (b) Petitioner fulfilled the obligations (c) no Offshore Security cover was given to the Petitioner (d) despite complete supplies Page 50 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 having been made and achieving the COD under the OSA, no monies have come to the Petitioner and (e) OSA for Offshore Supplies was independently executed between the Petitioner and Respondent No. 1."
The abovementioned decision is cited regarding directions of deposit against the appellants, who does not suffer any infirmity.
11.3 Further, she has submitted that all the movables of the appellant are under charge, which is apparently by the document from the MCA, which clearly depicts that all the movables (current assets) of the appellant Nos.1 and 5 are under the charge. Further, she has pointed out that both the appellant Nos.1 and 5 have their registered office/godown/warehouse at Napin Impex Ltd. Killa No.97/18/2/1, 6-2, Harikrishan Industrial Area, Kundli, Tehsil-Rai, Sonipat, Haryana 131028, which is evident from the affidavit of service filed by the respondent before this Court. This clearly shows that the appellants are destroying/doing away with their valuable assets/properties solely for the purpose of delaying and defeating the payment of legitimate dues of the respondent. We have considered the submissions of the rival parties on the above aspect regarding joinder of non-signatory i.e. appellant Nos.2 to 4. The decision is relied by learned advocate Mr. Thakur in the case of Indowind Energy Ltd., (supra) which arose from a application under Section 11 of the Arbitration and Conciliation Act, 1996, which clearly dealt with by the decision of the Hon'ble Apex in the case of Cheran Properties Ltd. Vs. Kasturi (supra), where the Hon'ble Apex Court has followed the Principle of Doctrine of Group Companies and alter Page 51 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 ego i.e., Piercing of Corporate Veil. Therefore, the judgment cited by the appellants cannot come to the rescue of the appellant and judgment cited by the respondents which indicates that the Principle of Group Companies i.e. the appellant Nos.1 and 5 are having the corporate registered office at same address. Moreover, the directors of both the companies are same and when they are trying to destroying or disposing of their properties, the action taken by the respondent against the appellant Nos.1 and 5 by impleading appellant Nos.2 to 4, who are the Directors, cannot be held erroneous. More particularly, in view of the following principles of Group Companies alter ego i.e., Piercing of Corporate Veil, the Piercing of Corporate Veil is required to be considered in the present case. For the purpose, if we refer to the Black's Law Dictionary , the principle of Piercing of Corporate Veil is as under:
"The judicial act of imposing personal liability on otherwise immune corporate officers, directors, and shareholders for the corporation's wrongful acts. -- Also termed disregarding the corporate entity; veil- piercing. See CORPORATE VEIL. [Cases: Corporations =1.4(1). C.J.S. Corporations 9, 13] "Courts sometimes apply common law principles to 'pierce the corporate veil' and hold shareholders personally liable for corporate debts or obligations. Unfortunatey, despite the enormous volume of litigation in this area, the case law fails to articulate any sensible rationale or policy that explains when corporate existence should be disregarded. Indeed, courts are remarkably prone to rely on labels or characterizations of relationships (Such as 'alter ego,' 'instrumentality,' or strumentality,' or 'sham') and the decisions offer little in the way of predictability or rational explanation of why enumerated factors should be decisive." Barry R. Furrow et al., Health Page 52 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 Law § 5-4, at 182 (2d ed. 2000)."
It is also fruitful to refer the book Law Lexicon with Maxims of Eastern Book Company, where the lifting of the Corporate Veil is defined and discussed, which is as under:
" 1. The doctrine that the corporation or a company has a legal and separate entity of its own has been subjected to certain exceptions by the application of the fiction that the veil of the corporation can be lifted and its face examined in substance. The doctrine of the lifting of the veil thus marks a change in the attitude that law had originally adopted towards the concept of the separate entity or personality of the corporation. As a result of the impact of the complexity of economic factors, judicial decisions have sometimes recognised exceptions to the rule about the juristic personality of the corporation. It may be that in course of time these exceptions may grow in number and to meet the requirements of different economic problems, the theory about the personality of the corporation may be confined more and more. The doctrine of lifting of the veil postulates the existence of dualism between the corporation or company on the one hand and its members or shareholders on the other. The doctrine of the lifting of the veil has been applied in the words of Palmer in five categories of cases; where companies are in the relationship of holding and subsidiary (or sub- subsidiary) companies; where a shareholder has lost the privilege of limited liability and has become directly liable to certain creditors of the company on the ground that, with his knowledge, the company continued to carry on business six months after the number of its members was reduced below the legal minimum; in certain matters pertaining to the law of taxes, death duties and stamps, particularly where the question of the "controlling interest" is in issue; in the law relating to exchange control; and in the law relating to trading with the enemy where the test of control is adopted. (Palmer's Company Law, 20th Edn.) At present, the judicial approach in cracking open the corporate shell is Page 53 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 somewhat cautious and circumspect. It is only where the legislative provision justifies the adoption of such a course that the veil has been lifted. In exceptional cases where courts have felt "themselves able to ignore the corporate entity and to treat the individual shareholder as liable for its acts", (Gower's Modern Company Law, 2nd Edn.), the same course has been adopted, Tata Engg. and Locomotive Co. Ltd. Vs. State of Bihar, AIR 1965 SC 40: (1964) 6 SCR 885: 1964 BLJR 834: (1964) 34 Comp Cas 458: (1964) 1 Comp LJ 280. 2. Under the expression "lifting the veil", the law either goes behind the corporate personality to the individual members or ignores the separate personality of each company in favor of the economic entity constituted by a group of associated companies. This course is adopted when it is found that the principle of corporate personality is too flagrantly opposed to justice, convenience or the interest of the Revenue, New Horizons Ltd. v. Union of India, (1995) 1 SCC 478. 3. The principle of lifting the corporate veil is to find out as to who was responsible for committing the fraud and diverting the assets of the Company. It is not necessary that recovery has to be made against the Director or a promoter shareholder. The purpose of lifting the veil is to find out the person, who was operating behind the corporate personality for his personal gain, R.K Chaddha v. State of U.P., 2014 SCC OnLine All 6248."
Therefore, the contention regarding the joinder of non- signatory is not well founded in the facts. Now, if we consider the other submission of the appellant regarding the non-maintainability of one petition viz. a viz., there are two agreements. For that purpose, we straightaway consider learned advocate Ms. Gandhi has relied on the decision of the Hon'ble Apex Court in the case of Ameet Lalchand Shah & Ors. (supra), more particularly para 13 and 14 is important, which is as under:
"13. The averments in the plaint also prima facie indicate that all the Page 54 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 four agreements are inter-connected and that appellant No.1 - Ameet Lalchand Shah is stated to be the promoter and controlling man of both Astonfield as well as Dante Energy. We may usefully refer to the relevant averments in the plaint which read as under:-
"Defendant No.1, Mr. Ameet Lalchand Shah, is the Promoter of the Defendant Nos. 2 and 3 Companies. Through his other group companies, Defendant No.1 is also the controlling shareholder of Defendant Nos. 2 and 3. He is involved in running the day to day affairs of the said companies and it is on his instructions and directions and under his overall control and dictation that the said companies are run. He is the co-founder and the co-chairman of the "Astonfield Group" consisting of various companies incorporated both outside of and in India (www.astonfield.com). Defendant No.1 is the main brain behind the serious fraud that has been perpetuated upon the Plaintiffs and the prima donna, mind, body, soul and controlling entity of all other defendants to this suit. If the corporate veil is lifted by this Hon'ble Court (and, this is an appropriate case for lifting of the corporate veil), it will be found that it is, in fact, Defendant No.1 only who is the real entity behind all the other defendants and it is on his directions that the others have made, played their respective roles in and/or participated in the transactions in question....... Further, Defendant No.1 has also been corresponding with the plaintiffs on behalf of Defendant Nos.2 and 3. ......... The said Defendant No.1 is also responsible for running the day to day affairs of this Company which is run on his directions and under his control. Defendant No.2 entered into a Sale and Purchase Agreement with the Plaintiffs, the transaction under which is vitiated by serious fraud. ......" Though there are two agreements, individual parties to the Sale and Purchase Agreement (05.03.2012) and the Equipment Lease Agreement (Dante Energy) are one and the same,. Though Juwi India is not the defendant, as discussed infra, Equipment and Material Page 55 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 Supply Contract and Engineering, Installation and Commissioning Contract with Juwi India itself were for the purpose of commissioning Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh.
14. The clauses in the Equipment and Material Supply Contract (01.02.2012) between Rishabh and Juwi India clearly indicate that the Rishabh has entered into Lease Agreement with Dante Energy and that the Rishabh proposes to source Photovoltaic products/panels etc. and similar Solar Power generating equipments for onward lease of those goods to Dante Energy. The following clauses in the said Equipment and Material Supply Contract would clearly establish the link of Equipment and Material Supply Contract with the main Lease Agreement with Dante Energy:-
"This Equipment and Material Supply contract is between M/s Rishabh Enterprises.............. (the 'Client') AND Juwi India Renewable Energies Private Limited ........(the 'Supplier') Whereas:-
A. The Client (Rishabh) is entering into Lease Agreement with M/s Dante Energy Pvt. Ltd. ('Lessee') and the Lessee (Dante Energy) has necessary authorizations to develop, own, operate and commercially exploit a 2 MWp thin-film photovoltaic solar plant at Dongri, Raksa, District-Jhansi, UP (Plant Site), transmission line from power plant to the Grid Substation, bay extension work at the Grid Substation, including all of the infrastructure and relevant installations required to connect the electricity- producing equipment to the distribution/transmission grid at the Grid Substation in UP, India (the 'Facility'). B. The Client (Rishabh) proposes to source Photovoltaic Products/Panels, Inverters, Transformers and similar solar power generating equipments, etc. for sale of goods to the Client (Rishabh) and the Client (Rishabh) will onward lease these goods to M/s Dante Energy Pvt. Ltd.Page 56 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022
C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 (Lessee).
C. The Client (Rishabh) wishes to engage the Supplier (Juwi India) for supply of Equipment (as defined below) and materials with respect to the development of the Solar Park. D. The M/s Dante Energy Private Limited (Lessee) will have the right to inspect the respective goods to be sourced by the Client (Rishabh) and based on the confirmation from the M/s Dante Energy Private Limited (Lessee), the respective goods will be purchased by the Client (Rishabh) for onward sale to M/s Dante Energy Private Limited (Lessee) and will be consigned to the project site.
The Supplier (Juwi India) is aggregable to supply the Equipment and Materials to the Client (Rishabh) in accordance with the terms of this Contract."
For that purpose, we straightaway consider the abovementioned judgment. And another decision of Honb'le Apex Court in the case of Mahanagar Telephone Nigam Ltd. (supra), more particularly para 19 to 23 are important.
11.4 It is clear from the record that in both the agreements that appellant No.1 herein is party, who has entered into two different agreements with the present respondent and if we consider the analogy, the law laid down by the Hon'ble Apex Court in the abovementioned both the judgments, the object and purpose of arbitration can only be achieved that the disputes should be resolved as far as possible in one arbitral proceedings, to avert any inconsistent findings and parallel arbitral proceedings. This argument of respondents are acceptable and we find that there is no Page 57 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 need in view of peculiar facts and circumstances that both the appellant Nos.1 and 5 can be considered as Group of Companies and though there are two distinct agreements but they are interconnected with, in view of the subject matter of the present petition. Then, the single petition is filed for two distinct agreements, in our view, it can be maintainable. Thereafter, another contention which pertains to security deposit with the respondent, as per the say of appellants, Rs.2,00,00,000/- in reply to that the respondent has contended that in view of Section 60 of the Contract Act, the respondent in exercise of its rights under Clause 5 & 16 of the DCA Agreement, the respondent has set off their security deposits against the satisfaction of the outstanding dues. Further, in support of his contentions, she has relied on the decision of Hon'ble Apex Court in the case of Industrial Credit & Development Syndicate Now called as ICDS Ltd (supra), more particularly para 9 & 14 are important, and another judgment of the Hon'ble Apex Court in the case of Gurpreet Singh (supra), more particularly paras 20, 25 , 26 & 53 are important, which is as under:
"20. Thus, in cases of execution of money decrees or award decrees, or rather, decrees other than mortgage decrees, interest ceases to run on the amount deposited, to the extent of the deposit. It is true that if the amount falls short, the decree holder may be entitled to apply the rule of appropriation by appropriating the amount first towards the interest, then towards the costs and then towards the principal amount due under the decree. But the fact remains that to the extent of the deposit, no further interest is payable thereon to the decree holder and there is no question of the decree holder claiming a re-appropriation when it is found that more amounts are due to him and the same is also deposited Page 58 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 by the judgment debtor. In other words, the scheme does not contemplate a reopening of the satisfaction to the extent it has occurred by the deposit. No further interest would run on the sum appropriated towards the principal.
25. Under Section 54 of the Act, a person, still not satisfied with the decree of enhancement in his favour on the reference under Section 18 of the Act, has a right to file an appeal to the High Court and from the decision of the High Court in such an appeal, an appeal to the Supreme Court. If one were to go by the definition of 'Court' occurring in Section 3(d) of the Act, Section 28 providing for payment of interest on excess compensation may not apply to an appeal under Section 54 of the Act on the excess, if any awarded by the High Court or in subsequent appeal by the Supreme Court. But when in an appeal under Section 54 of the Act, the appellate court further enhances the compensation, it awards the compensation that the reference court ought to have awarded and so understood, Section 28 of the Act may be applied at the appellate stage. If the expression 'Court' used in Section 28 of the Act is understood in the generic sense, (on the basis that the context otherwise requires it), the result would be the same. The other provision relevant to be noted is Section 53 of the Act which makes the Code of Civil Procedure applicable to all proceedings before the Court under the Act save in so far as the provisions of the Code are found to be inconsistent with anything contained in the Act. Section 54 also does not keep out the Code, but makes the appeal under it subject to the provisions of the Code applicable to appeals from original decrees.
26. On the scheme of the Act, it is seen that the award of compensation is at different stages. The first stage occurs when the award is passed. Obviously, the award takes in all the amounts contemplated by Section 23(1) of the Act, Section 23(1A) of the Act, Section 23(2) of the Act and the interest contemplated by Section 34 of the Act. The whole of that amount is paid or deposited by the Collector in terms of Section Page 59 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 31 of the Act. At this stage, no shortfall in deposit is contemplated, since the Collector has to pay or deposit the amount awarded by him. If a shortfall is pointed out, it may have to be made up at that stage and the principle of appropriation may apply, though it is difficult to contemplate a partial deposit at that stage. On the deposit by the Collector under Section 31 of the Act, the first stage comes to an end subject to the right of the claimant to notice of the deposit and withdrawal or acceptance of the amount with or without protest.
53. Thus, on the whole, we are satisfied that the essential ratio in Prem Nath Kapur on appropriation being at different stages is justified though if at a particular stage there is a shortfall, the awardee-decree- holder would be entitled to appropriate the same on the general principle of appropriation, first towards interest, then towards costs and then towards the principal, unless, of course, the deposit is indicated to be towards specified heads by the judgment-debtor while making the deposit intimating the decree-holder of his intention. We, thus, approve the ratio of Prem Nath Kapur on the aspect of appropriation."
Thereafter, she has submitted that the right to set off is exercised by the respondent, which is permissible under the law. For this purpose, by considering this submission, it is fruitful to refer Section 60 of the Indian Contract Act, 1872, which is as under:
"Section 60:-
Application of payment where debt to be discharged is not indicated.-- Where the debtor has omitted to intimate, and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitations of suits. --Where the debtor has omitted to intimate, and there are no other circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt Page 60 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitations of suits."
And to consider this submission of Section 60, if we consider that the respondent in claiming of Rs.6,95,82,869/- on 01.10.2021 by way of principle and interest, thereon. Even if, the adjustment of security deposit, the Commercial Court has directed to give the bank guarantee of Rs.3,78, 71,569/-, which is found just and proper and the security deposit, which is forfeited by exercising the rights or set off by respondent. At this stage, it is found just and proper. However, the appellants themselves have concealed and suppressed the factum of the security deposit before the trial Court and in our opinion, the respondent is as per the provisions of Clause 5 & 16 of the DCA Agreement, the respondent had all rights to set off/adjust the amount of security deposit.
11.5 We have also considered the pleadings of the party, where it is crystal clear from the pleadings and even memo of appeal that the appellant has admitted the liability of outstanding dues of the respondents. Moreover, in view of the provisions of Order VIII, Rule 5 of C.P.C., the vague and evasive reply can be considered as deemed admission and we have considered para 13 and 15 of the Section 9 application by the respondent before the trial Court, then, which was replied by the present appellant, which is produced in the New Paper Book. We found that in the event of termination of the agreement, the DCA Agreement shall be as per Clause 16, sub- clause (b) of the DCA Agreement, the company has two remedy:
Page 61 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022
(i) It has liberty to forfeit the security deposit.
(ii) Right to adjust any amount due from the DCA against any amount payble to the DCA in connection with any transaction under this agreement.
It further transpires from Clause 21 of that agreement that it is regarding Alternative Dispute Resolution and in view of notice of dispute dated 05.12.2019, such right is exercised by the respondent. In view of abovementioned discussion, we have considered, the reasoning part of the trial Court and that the Trial Court has rightly held in this background.
11.6 In view of abovementioned discussions, we have considered, that the trial Court has given cogent and convincing reasons by considering submissions of the rival parties and the trial Court has rightly found, after perusing the details with the application filed under Section 9 of the Arbitration and Conciliation Act, 1996, as per the CSA and DCA Agreements, the Arbitration Clause is already there and as per para 21 of the Alternative Dispute Resolution and as per para 20 of the Governing Law, the jurisdiction is at Vadodara, Gujarat. It is also found that first requirement for the just decision of this interim measure application and on the available fact on record, the trial Court has found that the petitioner had appointed respondent No.1 for sales of marketing of polymers and chemical produce, and in 2015, petitioner has invited on line application form from prospective domestic channel partners for appointing its DCA Agent and CSA Agent, for different territories in India. Wherein, the Page 62 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 appellant No.1, who is present respondent No.1 in that application under Section 9, got selected as one of the DCA Agent as well as CSA Agent of the petitioner for a period of three years from 11.04.2017 to 10.04.2020, for marketing and distribution of the product in Gurugram region territory, Haryana. It is also considered by the trial Court that the respondent No.1 has illegally sold the 132 MT to Respondent No.5 and Respondent No.5 has sold the said product and as such, the respondent No.1 and 2 in that application under Section 5 have filed reply and Respondent Nos.3 and 4 are Directors of that company, not only that but also, respondent 2, 3 and 4 are also Directors of respondent No.5 company in that application, who are the present appellants. And therefore, the reasons given by the trial Court in para 6 and 7 of the judgment are in accordance with law. We found no infirmity and illegality in the impugned judgment given by the trial Court, which is subject matter of the trial Court.
11.7 It is further noteworthy, that in such application filed under Section 9 of the Arbitration and Conciliation Act, 1996, the consideration of equity is find consideration, as also in exercise of powers under Order XXXIX, Rule 1 & 2 of C.P.C., while considering prayer for injunction in Civil Suit. As the injunction is equitable relief, the measures which are provided or directed by Court exercising powers under Section 9 of the Arbitration and Conciliation Act, 1996, would also be intended to secure equity in relation to the rights of the parties are determined in the arbitration.
Page 63 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 11.8 The principles relate to scope and application of Section 9 of the Arbitration Act, 1996 came to be dismissed and highlighted by the co-ordinate bench of this Court in Sanghi Industries Ltd. Vs. Ravin Cable Ltd. being First Appeal No.3253 of 2021 rendered as per the judgment dated 11.02.2022 in which this Court observed as under:
"In Section 9 of the Arbitration Act, 1996, as noticed above, it is clause (e) of Section 9(ii) which covers all measures, are just and convenient to be applied. Ensuring equity between the parties to the arbitration would be a measure, indeed falling within this sub-clause. It is discretionary power, conferred on the Court while deciding the application under Section 9 to order equitable interim measures."
11.9 It was also observed and held as under:
"In the facts and circumstances of the case, the impugned directions are a blend of powers exercised. The order can be said to be a harmony struck between Section 9(ii)(b) and 9(ii)
(e) of the Act, although for all purposes, the Commercial Court has invoked Section 9(ii)(e). The order would fundamentally fall within the scope and ambit of clause (e) of Section 9(ii) of the Act. For, essentially, the order is an equitable order ensuring equity between the parties in their lis. It is a prime principle applied under Order XXXIX, CPC while granting injunction that equity is achieved. The analogous powers are exercised by the Court which are entirely justified under Section 9(ii)(e). When equities are balanced, protection Page 64 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022 C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 of rights is best secured."
12. We do not find any material irregularity on the part of the Commercial Court in passing the impugned order. The discretion is exercised in due regard to the totality of facts. The Apex Court in the case of Wonder Limited v. Antox India P. Limited reported in [1990 (Supp.) SCC 727] observed as under:
"The appeals before the Division Bench were against the exercise of discretion by the Single Judge. In such appeals, the Appellate Court will not interfere with the exercise of discretion of the court of first instance and substitute its own discretion except where the discretion has been shown to have been exercised arbitrarily, or capriciously or perversely or where the court had ignored the settled principles of law regulating grant or refusal of interlocutory injunctions. An appeal against exercise of discretion is said to be an appeal on principle. Appellate Court will not reassess the material and seek to reach a conclusion different from the one reached by the court below if the one reached by the court was reasonably possible on the material. The appellate court would normally not be justified in interfering with the exercise of discretion under appeal solely on the ground that if it had considered the matter at the trial stage it would have come to a contrary conclusion. If the discretion has been exercised by the Trial Court reasonably, and in a Judicial manner the fact that the appellate court would have taken a different view may not justify interference with the trial court's exercise of discretion."
13. In view of above factual and legal discussion, the impugned order passed by the Commercial Court, we do not think that on any count, the order books any error. No interference is warranted.
14. The appeal is meritless and is accordingly dismissed.
Page 65 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022C/FA/1922/2021 CAV JUDGMENT DATED: 25/03/2022 Consequently, the Civil Application is disposed of.
15. As the appeal is dismissed, the direction in the impugned order regarding furnishing of the bank guarantee, shall stand modified and the time to comply with by furnishing of the bank guarantee is extended by four weeks from today.
(N.V.ANJARIA, J) (SANDEEP N. BHATT,J) DIWAKAR SHUKLA Page 66 of 66 Downloaded on : Mon Mar 28 21:36:50 IST 2022