Cfsit, Inc. vs Metenere Limited on 9 July, 2019

[Cites 5, Cited by 0]

Delhi High Court

Cfsit, Inc. vs Metenere Limited on 9 July, 2019

1. This petition has been preferred under Section 46 read with Section 47 of the Arbitration and Conciliation Act, 1996 (hereafter referred to as "the 1996 Act") for enforcement of a foreign award dated 4.4.2018.

2. Notice in this petition was issued on 10.8.2018 when directions were issued to the petitioner/decree holder to file the amended memo of parties. 2.1 Furthermore, the judgment debtor company was directed to file the list of its assets in Form 16A, Appendix E of the Code of Civil Procedure, 1908.

2.2 On the returnable date, that is, 1.10.2018, the judgment debtor company entered appearance via its advocate.

3. The record shows that, as directed, the judgment debtor company filed O.M.P.(EFA)(COMM.) No. 6/2018 Pg. 1 of 13 its asset-disclosure affidavit, which led to passing of the order dated 22.11.2018. Inter alia, via this order, the judgment debtor company was restrained from creating third party rights in the shares held by it in Met Trade UAE Fzc. A direction was also issued to the judgment debtor company to provide details of plant and machinery, reference qua which was made in paragraph 2 of its asset-disclosure affidavit. The judgment debtor company was directed to provide the depreciated value of plant and machinery as on 31.12.2018. In addition thereto, the judgment debtor company was also directed to provide details of trade receivables as on 31.12.2018.

4. On the next date of hearing, i.e., 25.2.2019, I was informed that the judgment debtor company had replaced its counsel, one, Ms. Prachi Gupta with Ms. Purti Marwaha, Advocate. Since there had been no compliance of the order dated 22.11.2018, a direction was issued that if no compliance was made within 10 days from that day, the Managing Director of the judgment debtor i.e. Mr. Raman Gupta, would remain present in Court on the next date of hearing. Accordingly, the matter was posted for hearing today i.e. 9.7.2019.

5. Given this preface, I may take up the objections raised in the reply to the petition by the judgment debtor company. Principally, on behalf of the judgment debtor company, Ms. Marwaha has raised the following objections to the enforcement of the subject award:

(i) That the petitioner/decree holder has not filed a certified copy and/or authenticated copy of the subject award.

(ii) The arbitral tribunal has re-written the award inasmuch as what was a purchase and supply agreement dated 4.3.2015 has been O.M.P.(EFA)(COMM.) No. 6/2018 Pg. 2 of 13 converted into a loan agreement.

(iii) The learned arbitrator failed to make the disclosures with regard to his independence and impartiality. In this behalf, reliance was placed on Rules 13.4 and 13.5 of the Singapore International Arbitration Centre Rules, 2016 (in short "SIAC Rules"). This apart, reliance was also placed on the provisions of Subsection (1) and (2) of Section 12 of the 1996 Act and Subsection (1) and (2) of Section 14 of Singapore Arbitration Act.

(iv) The subject award was violative of the public policy of India.

The submission was that since the learned arbitrator had treated the arrangement subsisting between parties as a loan transaction, it would, if this view were to be accepted automatically violate the following regulations framed by Reserve Bank of India (RBI) under Foreign Exchange Management Act (FEMA):

(a) Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000;

              (b)    Foreign Exchange Management (Transfer or Issue of
                     any Foreign Security) Regulations, 2004; and
              (c)    Foreign     Exchange        Management      (Guarantees)
                     Regulations, 2000.
      (v)     The learned arbitrator prematurely entered upon reference and

therefore, had no jurisdiction to adjudicate upon the disputes obtaining between the parties. In this behalf, reliance was placed on Clause 15 of the agreement obtaining between the O.M.P.(EFA)(COMM.) No. 6/2018 Pg. 3 of 13 parties.

6. Mr. Raunak Dhillon, who appears for the petitioner/decree holder submitted that each of these objections were unsustainable. In support of his submission, learned counsel largely placed reliance on the subject award.

7. Notably, insofar as the first objection is concerned, learned counsel for the petitioner/decree holder submitted that the original award could not be filed in view of this Court being an e-court and therefore, an attested true copy of the same was filed, which was scanned and uploaded by the Registry of this Court. Counsel for the petitioner/decree holder says that he has carried to the Court the original award which he is willing to show not only to this Court, but also to the counsel for the judgment debtor company.

8. I may note that both this Court as well as Ms. Marwaha has been shown the original award. Ms. Marwaha has satisfied herself that the true attested copy of the award placed before this Court, tallies with the original award, which has been brought to the Court by the counsel for the petitioner/decree holder.

9. As regards other objections, learned counsel for the petitioner/decree holder relies upon the subject award. In particular, with regard to the objection taken by Ms. Marwaha as to the arbitrator's impartiality and independence, counsel for the petitioner/decree holder submitted that the learned arbitrator, had at the very beginning, not only signed a code of ethics but also furnished a declaration to the Registry of SIAC with regard to his impartiality and independence. Reference in this regard has been made to the relevant parts of the award which I would extract shortly to demonstrate this aspect of the matter.

9.1 At this juncture, I must note that Ms. Marwah has not placed anything O.M.P.(EFA)(COMM.) No. 6/2018 Pg. 4 of 13 on record which would contradict the observations made in the award by the learned arbitrator with regard to the correspondence exchanged with the judgment debtor's counsel which would show that the assertions of the learned counsel for the petitioner/decree holder with regard to the impartiality and independence of the arbitrator were inaccurate.

10. With this preface, let me deal with each of the objections raised by the judgment debtor company.

11. As regards the first objection, it is quite clear that the same is not sustainable in view of what is recorded hereinabove that a true attested copy of the award is on record of this Court. The original award has been shown to me. Ms. Marwaha has satisfied herself that the true attested copy tallies with the original award.

12. As regards the objection taken by the judgment debtor company that the learned arbitrator has converted the purchase and supply agreement dated 4.3.2015 into a loan agreement, to my mind, is an objection which is completely untenable. If one were to carefully read the subject award, it would show that the learned arbitrator after appreciating, analyzing and perusing the evidence before him, reached a conclusion that the transaction which obtained between the parties was one of repayment of advance made over by the petitioner/decree holder to the judgment debtor company under the purchase and supply agreement dated 4.3.2015. It is not the arbitrator's conclusion as portrayed by Ms. Marwaha that transaction entered into between the parties was a loan transaction. In this behalf, I may refer to the finding of fact returned by the learned arbitrator in paragraph 350 of the award:

"350. In the Tribunal's judgment, rejection of the Respondent's O.M.P.(EFA)(COMM.) No. 6/2018 Pg. 5 of 13 interpretation of the Contract does not involve transmutation of the Contract into a simple loan. The Tribunal holds and records: (i) That both parties were in fact ad idem in their primary positions that the Contract is not a lending transaction.

(ii) At paragraph 23 of its Opening Submissions, the Respondent states " The Transaction between the parties was for the supply and sale of goods; it was not a lending transaction" and makes submissions to like effect at paragraphs 25(a) (i) and (iii) of its opening. (iii) The Claimant does not by its claimed construction of the Contract attempt to "re-

characterise" the Contract as a loan transaction and it is not reduced to one by the Tribunal's acceptance of that construction. (iv) The Tribunal is satisfied it was not intended to be a loan agreement with only the commonly recognised terms of such an agreement but exactly what it is described to be by its label, viz. an "ADVANCE PAYMENT AND SUPPLY CONTRACT". (v) It is a Contract which conforms with its summary description in the preamble to its terms; with provisions requiring repayment of a Prepayment for goods by supply of goods paid for up front; or, if no goods are supplied for whatever reason, with terms requiring repayment of the Prepayment in cash. (vi) The operation of one of its provisions, dealing with a party's failure to perform its obligation under the contract to repay the Prepayment in cash by the Maturity Date, in the event that no supply orders/ Confirmation/s were agreed and issued, does not reduce the Contract to a loan agreement - as if its other detailed provisions and options had never existed. The Tribunal accordingly rejects the suggestion that acceptance of the Claimant's interpretation of the Contract reduces the contract to a loan agreement. The Contract and all of its terms subsisted throughout and it continues to define the parties' obligations until it is discharged."

(emphasis is mine)

13. Besides this, I must also note that in this connection, Ms. Marwah has argued that the judgment debtor company had raised a counterclaim in view of the fact that no supply orders were raised by the petitioner/decree holder O.M.P.(EFA)(COMM.) No. 6/2018 Pg. 6 of 13 contrary to the provisions of the purchase and supply agreement dated 4.3.2015. In this behalf, I may refer to the following findings of fact returned by the learned arbitrator:

"154. With regard to the counterclaim that the Respondent acted in reliance on the alleged representations and promises, the Tribunal finds as follows:

a. If and insofar as the Respondent did acquire raw materials or produce work-in-progress in anticipation of Confirmations and supply orders which likewise has not been demonstrated to the satisfaction of the Tribunal by 21 random selection of purchase orders of its ordinary stock-in-trade); it did so entirely of its own volition, at its own risk and for its own opportunity.

b. The risk the Respondent took and the opportunity it availed itself of was that outstanding contractual elements for a sale or sales of goods might or might not be agreed between it and the Claimant.

c. The Tribunal rejects the Respondent's case and evidence that in reliance on representations or promises of the Claimant, it manufactured Rs65.4 Crores of work-in-progress specifically to meet orders promised by the Claimant. In circumstances where there was such a range of different commodities that might be ordered and supplied, it is a highly improbable suggestion, which the Tribunal does not accept, that the Respondent had decided, without any orders being issued, what would be ordered by the Claimant and then proceeded to manufacture product to fill the orders to an unknown and undemonstrated degree.

d. The Tribunal is wholly unimpressed by the oral and documentary evidence put forward to support this part of the Respondent's case. The Journal Voucher produced at [C/27/149/1] allocating an amount of work-in-progress to the Claimant is nothing more than a document created by the Respondent's management to meet an accounting requirement at the year-end (31 March 2016), to avoid showing a debt owed to the Claimant .This was let slip by Mr. Raman Gupta when the Tribunal was asking questions trying to ascertain the actual O.M.P.(EFA)(COMM.) No. 6/2018 Pg. 7 of 13 market value of the work-in-progress allegedly created at [Day 2/91/19-92/1] when he said:

A. No, because we already have enough work in process, which is to be used for other customers. So if we look at this, this was only some portion of that. But as an accounting standard, we have to - either when we owe somebody, we have to show their credit, or if we have something which we have to give to them, we show the credit to be written off. So this is part of the accounting standards.

e. It is a completely inadequate mode of proof of the claimed fact the Respondent manufactured Rs65.4 Crores of work-in- progress specifically and only for the Claimant, for the Respondent to do no more than point to a document which was created for an accounting purpose and is entirely self-serving to deny a debt owed to the Claimant by reference to an entry showing goods part-manufactured for uplift by the Claimant. Its deficiency as proof is not improved to say it (and the accounts which include it as work-in-progress) were compiled in accordance with proper Indian accounting practice. In a case where this alleged fact of part-manufacture is the basis of a claimed right to retain USD10,000,000,000.00, it is astonishing (if it were valid and true) that the Respondent has not supplied evidence from such as manufacturing records or an independent accountant or its auditors to substantiate: {i) the fact that such a quantity of work in progress was manufactured specifically for the Claimant; and, (ii) the validity of this allocation and entry in its accounts.

f. The fact that as demonstrated by cross-examination of Mr. R K Gupta at [Day 2/126/16-131/13] the accounts at [C/30/170/8] actually showed a decline from the previous year in work-in-progress; together with his entirely unconvincing attempts to sustain the case that Rs.65.4 Crores of work-in- progress of particular commodities he mentioned were part- manufactured specifically for the Claimant; serve only to reinforce the Tribunal's rejection of the Respondent's case on this issue."

(emphasis is mine) O.M.P.(EFA)(COMM.) No. 6/2018 Pg. 8 of 13

14. In my view, apart from anything else, this objection pertains to the merits of the case. I have only referred to the relevant part of the award to demonstrate the fact that this was not a case of no evidence. In my opinion, if this Court could not have looked at either the quality or quantity of the evidences which were placed before the learned arbitrator (who, upon appreciation of the same, has come to a definitive conclusion) had it been the Supervisory Court, it cannot, undoubtedly examine this aspect of the matter in its capacity as the executing court.

15. Insofar as the third objection is concerned, the objection of the judgment debtor company is simply this: the learned arbitrator should have, in consonance with the provisions of Rule 13.4 and 13.5 of the SIAC Rules, made a declaration with regard to any "justifiable doubts" with respect to his impartiality and/or independence. As noted above, in support of this submission reference has also been to pari materia provisions incorporated in Section 12(1) of the 1996 Act and Section 14 (1) and (2) of the (Singapore) Arbitration Act. For the sake of convenience, Rule 13.4 and 13.5 of the SIAC Rules, 2016 are extracted hereafter:

"13.4 A nominated arbitrator shall disclose to the parties and to the Registrar any circumstances that my give rise to justifiable doubts as to his impartiality or independence as soon as reasonably practicable and in any event before his appointment.

13.5 An arbitrator shall immediately disclose to the parties, to the other arbitrators and to the Registrar any circumstances that may give rise to justifiable doubts as to his impartiality or independence that may be discovered or arise during the arbitration."

16. In this behalf, it would be relevant to glean from the record as to what has transpired with regard to the purported failure on the part of the learned O.M.P.(EFA)(COMM.) No. 6/2018 Pg. 9 of 13 arbitrator to file a declaration with respect to his impartiality and/or independence.

17. The record shows that the learned arbitrator had not only signed, at the very beginning (i.e. in and around 17.4.2014), the code of ethics and declaration, but had also called upon the counsel for the judgment debtor company via communication dated 24.11.2017 to consider the same and respond by 27.11.2017 as to whether he would still persist with his stand that he had not made the relevant declaration.

17.1 Concededly, the counsel for the judgment debtor company chose not to send a response by 27.11.2017. However, after more than a week, the judgment's counsel reiterated this very objection via e-mail dated 2.12.2017. 17.2 It is this conduct of the judgment debtor company which led the learned arbitrator, in a nutshell, to conclude that this was a disruptive move to derail the arbitration proceedings.

17.3 The learned arbitrator has dealt with this aspect of the matter in great detail in paragraphs 63 to 78 of the award. I have perused these paragraphs of the award. I have no hesitation in observing that the conclusion reached by the arbitral tribunal that the email sent by judgment debtor company's counsel was a disruptive move, which was made only to derail the arbitral proceedings. To avoid prolixity, I am not extracting the aforementioned paragraphs of the award.

18. This brings me to the other objection which Ms. Marwah has raised which is that the award is contrary to the public policy of India. This objection was found on the contention, which was dealt with in earlier part of my judgment, that the learned arbitrator has treated the purchase and supply agreement dated 4.3.2015 as a loan agreement.

O.M.P.(EFA)(COMM.) No. 6/2018 Pg. 10 of 13

19. As noted hereinabove, in paragraph 350 of the subject award, the learned arbitrator has, as a matter of fact, returned a finding of fact that the transaction in issue was not a loan transaction and that in fact, the agreement obtaining between the parties envisaged repayment of sums paid as advance for supply of goods by the petitioner/decree holder by a particular maturity date if goods were not supplied. Therefore, the objection raised by Ms. Marwaha that it violated various regulations framed by RBI under FEMA, to my mind, is unmerited and is, accordingly, rejected.

20. As regards the last objection that the learned arbitrator entered upon reference prematurely, and therefore, had no jurisdiction in the matter is also an objection, which cannot stand scrutiny. For the sake of ease of reference, the relevant clause i.e. Clause 15 of the Contract is extracted hereafter:

"15. Governing Law This contract shall be governed by and construed in accordance with English Law. Any dispute arising out of or in connection with the validity, interpretation, performance, non-performance, breach, termination or any other matter of this Contract shall first be resolved negotiations between the parties. In the event that such negotiations fail to resolve the disputes, such dispute shall initially be decided by a single member arbitral tribunal according to the arbitration rules of Singapore International Arbitration Council (SIAC), which rules are deemed to be incorporated by reference in this clause. The arbitral award so made by the arbitral panel shall be final, enforceable and binding upon the parties, and any right or claim of appeal or contention by either party is hereby waived or, if arising or to be arisen in the future shall be agreed to be waived. The language for arbitration shall be English."

21. A plain reading of Clause 15 extracted hereinabove would show that in the event disputes arose between the parties with regard to the matters adverted to in the Clause, parties were, in the first instance, required to O.M.P.(EFA)(COMM.) No. 6/2018 Pg. 11 of 13 resolve the same by engaging in negotiations. It is only when negotiations failed that the disputes could be referred to a single member arbitral tribunal under the SIAC Rules. Here again, the learned arbitrator in paragraph 295 of the award has returned with the following finding of fact:

"295. Accordingly, (i) on the basis of the facts found concerning the negotiations that took place; and (ii) for the reasons of its construction of the limited requirements of the clause (in the alternative to the holding it is void for uncertainty); and (iii) if in case it should be held elsewhere that the Tribunal has erred in holding and that the clause is unenforceable at law; then (iv) the Tribunal holds and decides that the Claimant's alternative case of compliance with it, succeeds. The Tribunal is satisfied that the parties did negotiate to the extent required by the clause; and that the Claimant was entitled to commence this reference when, in the Tribunal's judgment, it was justified in concluding that negotiations had failed. The Tribunal specifically rejects the Respondent's contention that a face-to-face meeting was a requirement of the clause, necessary for compliance with it. It follows that the Respondent's challenge to the jurisdiction of this Tribunal fails and is rejected. The Tribunal decides and holds that the reference was validly commenced and that it has jurisdiction to determine the claims and counterclaims made in it."

(emphasis is mine)

22. Thus, while keeping in mind the aforementioned findings of fact, I have examined the award from this angle as well. I am not persuaded to hold that the learned arbitrator entered upon reference prematurely. I am also inclined to agree with the arbitral tribunal that Clause 15 of the agreement did not require the parties to enter into a face-to-face negotiation.

23. Thus, for the foregoing reasons, in my opinion, none of the objections have any merit. The objections are accordingly rejected.

24. Since Ms. Marwah is not able to inform me about the value of O.M.P.(EFA)(COMM.) No. 6/2018 Pg. 12 of 13 investment made in Met Trade UAE Fzc., as referred to in order dated 22.11.2018 passed by this Court, the interim order passed to that effect is made absolute.

25. List on 24.9.2019.

I.A. No.10671/2018

26. Learned counsel for the petitioner says that he will be satisfied if the judgment debtor company were to be directed not to create any encumbrance on assets which are free from encumbrance, without leave of the Court.

27. Given the fact that the objections to the award raised by judgment debtor company have been rejected, I direct the judgment debtor company not to create hereafter any encumbrance qua its unencumbered assets, if any, without the leave of this Court. This direction is given as Ms. Marwah is not able to inform me as to whether or not any assets of the judgment debtor company are unencumbered. This, however, will not impede the judgment debtor company from utilizing funds towards day to day-to-day business, which would include payment of salaries to employees. If the judgment debtor company wishes to seek variation of this direction, it will approach this Court in this behalf.

27. The captioned application is disposed of in the aforesaid terms.





                                             RAJIV SHAKDHER, J
JULY 09, 2019/pmc




O.M.P.(EFA)(COMM.) No. 6/2018                                    Pg. 13 of 13

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