Bombay High Court
Mahyco Monsanto Biotech (India) Pvt Ltd vs Nuziveedu Seeds Limited on 6 March, 2019
Author: G.S.Kulkarni
Bench: G.S.Kulkarni
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMMERCIAL ARBITRATION PETITION NO.312 OF 2019
Mahyco Monsanto Biotech (India) Pvt.Ltd. ...Petitioner
Versus
Nuziveedu Seeds Ltd. ...Respondent
---
Mr.Iqbal Chagla, Senior Counsel with Mr.Janak Dwarkadas, Senior Counsel with
Sharan Jagtiani with Shriraj Dhruv, Heeral Desai, Adarsh Ramanujan, Karan
Luthra, Shantanu Aggarwal, Rishi Aggarwal and Mansi Chheda I/b. Dhru & Co.,
for the Petitioner.
Mr.Aspi Chinoy, Senior Counsel with Aditya Mehta, Mr.Rohan Kadam,
Mr.Bhavik C.Mehta, Ms.Faiza Dhanani, Ms.Karishma Pandya I/b. Dhruve
Liladhar & Co., for the Respondent.
---
CORAM: G.S.KULKARNI, J.
DATED: 6 March 2019
---
P.C.:
1. This is a petition under Section 9 of the Arbitration and Conciliation
Act,1996 (for short 'the Act') of the petitioner/claimant who has
succeeded in its claim before the arbitral tribunal. By a majority award the
tribunal has held that the respondent is liable to pay to the petitioner
interalia an amount of Rs.117.46 crores towards trait value for sales
between 1 April 2015 to 14 November 2015 under Sub-licence
Agreement,2015. The petitioner has filed this petition praying for interim
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measures pending enforcement of award as per Section 36 of the Act. The
Arbitral Tribunal has passed the following final award in favour of the
petitioner.
"FINAL AWARD.
254. For the foregoing reasons, we pass the following Final Award:
(1) The Claim of the Claimant is partly allowed.
(2) The Claimant is entitled and the Respondent is liable to pay the
Claimant an amount of Rs.117.46 crores (Rupees One hundred seventeen
crores and forty six lakhs) towards Trait Value for sales between
01.04.2015 and 14.11.2015 under Sub-License Agreement,2015.
(3) The Claimant is entitled to receive and the Respondent is liable to
pay the Claimant interest on the aforesaid awarded amount at the
following rates:
(a) interest at the rate of 6% p.a. from the date of invocation of the
arbitration i.e. 23.02.2016 till the date of the Award; and
(b) interest at the rate of 12% p.a. from the date of the Award till the
date of payment/realization.
(4) The rest of the Claims of the Claimant are dismissed.
(5) Claim of the Respondent for refund of Rs.19.51 crores with interest
thereon is dismissed in entirety.
(6) The Counter-claim raised by the Respondent and set off pleaded by
the Respondent are dismissed as "not pressed".
(7) Both the parties shall bear their own costs in the present
proceedings."
2. Briefly the facts are:-
On 10 March 2015 a Sub-licence Agreement (for short 'the licence
agreement') was entered between the petitioner and the respondent
whereby the respondent was granted right to use "Monsanto Technology"
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as defined in the said agreement, registered trade mark etc. in
consideration of trait value payable by the respondent to the petitioner as
per Article 3.01 of the licence agreement. Between the period 1 April
2015 to 30 June 2015, the respondent produced and sold in the market
genetically modified hybrid cotton seeds, using the said technology. Sales
reports qua such sales were also issued to the petitioner, the respondent
also collected the sale proceeds. The petitioner as per the terms and
conditions of the said agreement had raised invoices/credit notes/debit
notes on the respondent who in turn made certain payments towards trait
value. However, between 1 July 2015 to 13 November 2015 the
respondent continued to produce and sell the said hybrid cotton seeds in
the market and collected proceeds of such sales. The respondent also
issued sales report qua these sales, however refused to make payments to
the petitioner towards trait value on the invoices as raised by the
petitioner. The petitioner consequently on 14 November 2015 terminated
the licence agreement on account of respondent's refusal to make
payment as per contractual conditions.
3. On 23 February 2016 the petitioner invoked arbitration seeking
recovery of unpaid contractual dues. Also a petition under Section 9 of the
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Act was filed by the petitioner in this Court which was disposed of by an
order dated 22 December 2016, permitting the petitioner to treat the said
petition as an application under Section 17 of the Act. The Arbitral
Tribunal entered a reference. The respondent participated and contested
the arbitral proceedings. The Arbitral Tribunal accordingly published the
aforesaid majority award on 16 January 2019. Consequent to the arbitral
award, the petitioner by its Advocate's letter dated 25 January 2019
addressed to the respondent raised a demand for the award amount,
interalia recording that the petitioner was entitled for payment of total
amount of Rs.138,19,73,217/- and called upon the respondent to make
payment of the said amount.
4. The case of the petitioner is that this letter of the petitioner was not
responded. The petitioner therefore was required to make a survey of the
current financial condition of the respondent. According to the petitioner
the financial health of the respondent is not so sound, and hence the
petitioner decided to file the present petition, seeking interim measures
before the enforcement of the award in accordance with Section 36 of the
Act.
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5. From the facts as set out in the memo of the petition, it is the case
of the petitioner that the financial condition of the respondent has
deteriorated, the petitioner is apprehensive that the respondent may bring
about a situation that the petitioner is deprived of the monetary
entitlement under the award in question being the fruits of successful
conclusion of the arbitral proceedings. The relevant averments in this
regard as made in the petition are required to be noted:
(I) In paragraph 9 of the petition the petitioner has stated that the
documents available suggest that the financial condition of the
respondent is frail and suspicious and it is strongly apprehended that
before the machinery of execution is set into motion, the respondent will
dissipate its assets and render the award passed in favour of the petitioner
a paper award.
(II) In paragraph 9.1 it is stated that in the last four financial
years i.e. Financial Years 2014-15, 2015-16, 2016-17 and 2017-18 the
profits of the respondent have reduced by more than 75% even though its
turnover is approximately the same. Such a huge reduction in profits
without there being a consequent reduction in the turnover is clearly
suggestive of diversion of funds by the respondent and the respondent is
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manipulating its books/accounts and arranging its affairs in a manner so
as to ensure that the proceeds from its business are not retained by the
respondent.
(III) In paragraph 9.2 the petitioners has averred that it is strongly
suspected that the respondent is being stripped of its funds through
diversion or siphoning off, based on a prima facie assessment of the
respondent's balancesheet of last four years. The respondent has reported
75% decline in its net profit before tax in Financial Year 2017-18 as
compared to Financial Year 2014-15. There is sudden and sharp decrease
of 61% in its net profit before tax in Financial Year 2017-18 as under:
FY FY FY FY
14-15 15-16 16-17 17-18
Net Profit before tax (in Crores INR) 173.08 130.57 108.56 42.01
Year on year change(%) - -25% -17% -61%
in net profit before tax
(IV) In paragraph 9.3 it is stated that the decline in profits has occurred
despite the cost of materials remaining constant or declining as seen from
the following table:-
FY FY FY FY
14-15 15-16 16-17 17-18
Cost of material (in Crores INR) 498.34 335.56 335.39 329.06
Year on year change(%) - -33% -0% -2%
in cost of material
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(V) It is stated that the respondent's decrease in profit margin does not
align with the decrease in the total income as seen from the following
statement:-
FY FY FY FY
14-15 15-16 16-17 17-18
Total Income (in Crores INR) 1306.85 1054.18 758.15 750.72
Year on year change - -19% -28% -1%
(%)in total income
(VI) The petitioner contends that the respondent's income has remained
almost constant in Financial Year 2016-17 and 2017-18 and there is 61%
decline in net profit before tax. It is contended that financial position of
the subsidiaries in which investments have been made by the respondent
show that 8 out of 10 companies wherein investments have been made
have been incurring losses year after year.
(VIII) The petitioner contends that there is also a serious concern by exit
of a reputed and global capital venture company namely the Blackstone
Group, form the respondent at a significant loss, which is resulted into
60% decline in share value of the respondent, raising serious doubts as to
the strength and sustainability of the respondent.
(IX) The petitioner then has averred that the respondent's borrowings
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stood at Rs.41.8 crores as on 31 March,2018 and its current financial
liabilities were at 111.38 crores and trade payable at Rs.247.8 crores,
whereas the assets comprising its trade receivables are only to the tune of
Rs.196.6 crores which is only 49% of the liabilities and accordingly the
respondent is not in a position to pay its debts. That there are tax dues of
Rs.281 crores which are alone at 70% more than the net profit before tax
of Financial Year 2017-18.
(X) It is next contended that the respondent is recently found to have
indulged in unethical and illegal practice of producing and selling seeds
containing unapproved technologies, resulting in the State of Andhra
Pradesh suspending the manufacturing/selling license of the respondent
pending further inquiry. The main business of the respondent is of sale of
seeds for its income.
6. The petitioner therefore contends that the above instances are
clearly indicative of and gives rise to justifiable apprehension and
likelihood of the award being rendered into a paper decree unless
appropriate interim measures are granted in the present proceedings.
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7. It is submitted that there is genuine and real apprehension that the
respondent, being a part of a large group of companies, in order to defeat
the present award, will adopt means and methods of playing financial
jugglery and remove assets from the respondent into other associate
companies to prevent and frustrate execution and enforcement of the
award. It is contended that the respondent has a depleting asset base
which makes chances of recovery of the dues of the petitioner, extremely
bleak. Accordingly the petitioner has prayed for the following interim
reliefs pending the enforcement of the Award:-
"a. That this Hon'ble Court be pleased to direct the
Respondent to furnish such security in the form of cash or such
other equivalent as this Hon'ble Court may deem fit to secure the
amount payable by the Respondent in terms of the Demand Letter
dated January 25, 2009 (Exhibit C hereto) wihtin such time and
on such terms as this Hon'ble Court may deem fit and or proper;
b. Without prejudice to prayer (a) above and strictly in the
alternative thereto, this Hon'ble Court be pleased to direct the
Respondent to collect and deposit in this Hon'ble Court the
amounts receivable/received by the respondent from its
distributors to the extent of securing the amount payable by the
Respondent in terms of the Demand Letter dated January 25,
2019 (Exhibit C hereto) within one week from the date of receipt
of such amount with intimation of such deposit to the Petitioner
on such terms as this Hon'ble Court may deem fit and or proper;
c. That this Hon'ble Court be pleased to direct the respondent
to render and or disclose on oath:
(i) the details of all its assets (including Bank Accounts)
within such time as this Hon'ble Court may deem appropriate;
(ii) the names and addresses of all its distributors through
which it sells and distributes its products across the Country
within such time as this Hon'ble Court deem appropriate.
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(iii) a true correct and faithful account of all the sales
transactions undertaken by the Respondent with all its distributors
from January 16, 2019 (being the date of the Award) backed with
SAP or equivalent ERP Reports on a daily basis so as to enable
deposit of the amounts into this Hon'ble Court as per prayer (b)
above;"
8. Respondent has appeared and has contested this petition by filing a
reply affidavit as also a sur rejoinder both of Mr.N.Murali Krishna, the
authorised signatory. At the outset the case of the respondent is that the
petitioner had earlier filed a petition (Arbitration Petition no.1550 of
2015) under Section 9 of the Act and no reliefs were granted on the said
petition. The respondent contends that the said petition was disposed by
an order dated 22 December 2016, permitting the petitioner to treat the
said petition as an application under Section 17 of the Act to be
adjudicated by the arbitral tribunal. The arbitral proceedings although
commenced in February 2016 and culminated in passing of the award on
16 January 2019 by the arbitral tribunal, however, during this entire
period there were no reliefs as sought by the petitioner. It is then
contended that the case of the petitioner that the respondent is in a frail
and suspicious financial condition, that it has depleting assets base and
that the respondent's profit have reduced by 75% in 2017-18 or that there
is diversion of funds by manipulation of books/accounts, which would
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render the award as a paper decree, is stated to be a false and
baseless case. The respondent contends that it is one of the leading
seeds company in the country and in business for over three decades.
It is stated that the respondent is in the business of supply of seeds to over
2 million farmers all over the country, having its operation in 19 states
and dealing in hybrid and varietal seeds of 29 crops. It is contended that
the respondent invests an amount of Rs.20 crores in research and
development every year and having on its rolls about 1350 employees and
engages about 35,000 to 50,000 seed growers. Also it has a 10 member
board of directors and has engaged the Big Four auditors. Respondent
contends that as per latest audited financial statement as on 31.3.2018 the
respondent has asset base of Rs.893 crores, a net worth of Rs.268 crores
and the book value (purchase value minus depreciation) of the fixed
assets infrastructure is of Rs.95 crores of which the market value is more
than Rs.200 cores. It is stated that the unencumbered fixed assets of
the respondent namely building, land, plant and machinery is
approximately Rs.140 crores. It is further stated that fixed liquidity
ratio of the respondent has always been more than 1 which establishes
that all current liabilities are covered by the current assets.
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9. As regards the petitioner's contention that there is reduction in the
revenue, in paragraph 5.4 of the reply the respondent states that the
reduction in the sale price of the seeds is one of the contributors for the
reduction of revenue. It is stated that the prices of the seeds per packet is
reduced by the Central Government. It is stated that reduction in sale
price coupled with the annual increasing cost due to inflation and other
factors has resulted in significant fall in the respondent's net profit. It is
stated that in fact this is a period during which the dispute arose between
the petitioner and respondent, when the respondent requested the
petitioner to charge the trait value as per Government notification and
settle the issue of excess trait value charged on an on account basis, since
the financial year 2010-11. In para. 5.6 of the affidavit the respondent has
commented about change of accounting norms under the law and that the
financial statement are being presented as per IND AS accounting norms
from the financial year 2016-17, under which the revenue (turnover) are
presented net of discounts, instead of gross value under earlier (IGAAP)
practice. This according to the respondent is significant factor in
reduction of the revenues in terms of value. In para.5.7 the respondent
has stated as under:-
5.7. As stated above with the introduction of IND AS from the
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financial year 2016-17 the respondent has adopted more stringent
and conservative provisioning policies for accounting inventory
and receivables and hence the profits of 2016-17 and 2017-18 are
lower. Under such conservative provisioning policies, the
Respondent Company provides for a reserve in the profits for the
unsold Inventory and unrealized receivables within a specific
period of time even though the said inventory is saleable and the
unrealized receivables are recoverable at a future point of time.
However, this effect is both temporary and notional in nature.
Therefore, despite the profits being high, the same does not reflect
due to such provisions being made in accordance with the policies
adopted by the Respondent Company as shown below:
Particulars FY FY FY FY
14-15 15-16 16-17 17-18
Profit Before Tax 17308 13057 10808 4210
Add:Provisions 4087 6425 5070 10322
Profit excluding 21395 19483 15878 14532
Provisions
10. As regards the petitioner's contention that the subsidiary companies
of the respondent are also not in sound financial position, it is stated that
these subsidiaries were acquired by respondent in the last 6 years, and due
to their scale of operations coupled with price regulation of the cotton
seeds, some of them are yet to make profit and in any case they do not
have any bearing on the award. As regards the exit of Blackstone in
paragraph 6 of the reply affidavit, the respondent has stated that the
Blackstone's decision to exit its investments was due to their internal
protocol on the time frame for investment which was about six to seven
years. It is stated that in order to give Blackstone an exit option an IPO
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process was initiated in the financial year 2014-15 by the respondent
under which a DRHP was filed successfully with SEBI in April 2015 and
which also received clearance from SEBI in August, 2015. It is stated that
Blackstone's exit proposal was honoured by the respondent as per a
mutually agreed valuation. The respondent also had paid yearly dividend
approximately Rs.40 crores to Blackstone.
11. As regards the petitioner's contention that the respondent's seed
licence was cancelled by Govt. of Andhra Pradesh, it is stated that it was
cancelled not only of the respondent but of 13 other companies for a
period of one year on the allegation that seeds samples procured by the
department from the farmer fields, ginning units etc. were allegedly
found to be contaminated with HT cotton. It is stated that this was no
fault of the respondent and the other companies, and that the cancellation
was not valid in law. The respondent contends that the decision to cancel
the license is also challenged by the respondent before the appropriate
authority and the matter is subjudice. As regards the allegation of the
petitioner that the respondent has income tax dues of Rs.281 crores as on
31 March 2018, it is stated that favourable orders are obtained by the
respondent from Income Tax Tribunal and the respondent does not have
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any dues towards the income tax department. The allegation of diversion
and siphoning of funds and dissipation of assets and funds are also denied
to be false.
12. There is rejoinder affidavit filed on behalf of the petitioner,
denying the case of the respondent in the reply affidavit. The petitioner in
this affidavit contends that the respondent has deliberately not disclosed
its latest financial position and reason for such deliberate omission is
obvious and not far to see. It is denied that the market value of the
respondents fixed assets is more than Rs.200 crores or that its fixed assets
worth Rs.140 crores are unencumbered. This also for the reason that no
supporting documents are furnished by the respondent to that effect. The
petitioner also contends that the respondent has also not denied about the
cancellation of its seed licence.
13. The respondent has filed a sur-rejoinder to contend that in the reply
affidavit the respondent has referred to the figures from its accounts for
the year ending 31 March 2018 as since these were the latest available
audited accounts of the respondent company. It is submitted that in the
most recent accounts as on 31 December 2018, the same would show that
the respondent is even in a more healthy financial position than what is
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reflected in the audited accounts for year ending 31 March 2018.
However, the same are not referred and relied as they are unaudited. The
respondent has further stated that the earlier credit facility of Rs.440
crores availed by respondent was repaid in full. It is stated that the
modification of the charge in the form CHG-1 (Ex.A to the affidavit in
rejoinder) is to reflect the reduction in the overall working capital facility
of the respondent from 440 crores to Rs.52 crores. It is submitted that the
said document does not show any additional borrowing by the respondent
but instead reflects reduction in the respondent's borrowings. It is stated
that out of the total sanctioned working capital facility of Rs.63 crores, the
respondent as on date has drawn only Rs.11 crores approximately from
the lenders. In regard to the charge created as stated in Exhibit B to the
affidavit in rejoinder , it is stated that the respondent has availed of an
inter-corporate loan of Rs.50 crores in respect of which it has pledged
certain equity shares held by it, and as on date the respondent has already
repaid an amount of Rs.25 crores out of Rs.50 crores. It is thus stated that
the respondent's total borrowing outstanding as on the date is Rs.36
crores.
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14. On the above pleadings, I have heard Mr.Chagla, learned Senior
Counsel for the petitioner and Mr.Chinoy, learned Senior Counsel for the
respondent.
15. Mr.Chagla, learned Senior Counsel for the petitioner referring to the
pleadings and documents on record would contend that the petitioner by
virtue of the arbitral award has become entitled for protective reliefs
under section 9 of the Act. It is submitted that the respondent is not in a
sound financial condition and the petitioner's contention of insufficient
value of the respondent's assets to honour the award, is clearly borne out
from the pleadings. It is submitted that the respondent has failed to
provide any details of the latest financial condition as also has not
supported its contentions on any documentary material. It is thus
submitted that the petitioner has a reasonable apprehension that the
respondent may not be in financial position to pay the award/decreetal
amounts to the petitioner. It is hence submitted that if protective reliefs as
prayed for, are not granted till the enforcement of the award in
accordance with Section 36 of the Act, it will render the award into a
paper decree. In support of his contention that the jurisdiction of this
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Court under Section 9 of the Act would be eminently available and is
required to be exercised in such a situation, Mr.Chagla has relied on the
decision of the Division Bench of this Court in Dirk India Pvt. Ltd. Vs.
Maharashtra State Electricity Generation Company Ltd. & Anr.
2013(7) Bom C.R. 493.
16. On the other hand, Mr.Chinoy, learned Counsel for the respondent
would submit that the case of the petitioner is ex facie untenable.
Mr.Chinoy referring to the reply affidavit of the respondent and the
affidavit in sur rejoinder, would submit that the respondent stands in an
adequately good financial condition. It is a profit making company. There
is no tax liability as alleged by the petitioner as also the financial condition
of the respondent was sufficiently strong, not only on 31 March 2018 but
also in December 2018. It is submitted that the contention of the
petitioner to have respondent's financial information would be prejudicial
to the respondents as this information would be available to the
competitors. Mr.Chinoy would then submit that the reliefs as sought by
the petitioner can only be granted on the principles of law falling under
Order 38 Rule 5 of the Code of Civil Procedure when an attachment
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before judgment is sought. In support of his contention Mr.Chinoy has
placed reliance on the decision of the learned Single Judge of this Court in
Mahaguj Collieries Limited. Vs. Adani Enterprises Ltd. In Commercial
Arbitration Petition No.681 of 2018 rendered on 25 February 2019 and
more particularly the observations in paragraph 21 and 23 of the said
decision.
17. Having heard the learned Counsel for the parties and having
perused the record, at the outset it needs to be observed that the arbitral
tribunal has published an award of Rs.117 crores in favour of the
petitioner and as on 25 January 2019 the respondent is liable to pay to the
petitioner an amount of Rs.138,19,73,217/- which is alongwith interest
till the said date. From a reading of the provisions of Section 9 of the Act
which is a special Act, it is clear that the Court would have jurisdiction to
grant interim measures after the arbitral tribunal makes an award but
before it is enforced in accordance with Section 36 of the Act. The reliefs
which may be granted by the Court under Section 9 would be of the
nature as specified in Section 9(1)(ii) (d) and (e). Under Section 9 the
Court has the same power for making orders as it has for the purpose of,
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and in relation to, any proceedings before it.
18. On a perusal of the contentions and the pleadings as noted above,
in my prima-facie opinion the following position in regard to the financial
health of the respondent is reflected:-
(i) The book value, (purchase value minus depreciation) of the fixed
assets infrastructure is Rs.95 crores only, though it is stated that the
market value is more than Rs.200 croers. (para 5.1(c) of the reply
affidavit)
(ii) The fixed unencumbered assets namely the building, land, plant
and machinery etc. is worth approximately Rs.140 crores. (para 5.1(d) of
the reply)
(iii) The outstanding borrowings as on 31 March 2018 are about 49
crores. (para 5.3 of the reply)
(iv) There is reduction in revenues as admitted by the respondent
(para. 5.4 of the reply), reasons apart.
(v) Respondent has stated that with the introduction of IND AS from
the financial year 2016-17, the respondent has adopted more stringent
and conservative provisioning policies for accounting inventories and
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receivables and hence profits for the years 2016-17 and 2017-18 are
lower. Pertinently it is also stated that despite profit being high the same
does not reflect in the accounts, due to such provision being made in
accordance with the policies adopted by the respondent company (para
5.7 of the reply).
(vi) On the respondent's own showing there is a reduction in the profit
(excluding provisions) from Rs.213,95 lakhs in the financial year 2014-15
to Rs.194,93 lakhs in financial year 2016-17 to Rs.15,878 lakhs in
financial year 2017-18 to Rs.14,532 lakhs (para 5.7 of the reply).
(vii) As on 31 March 2018 the respondent has a disputed liability of
Rs.281 crores of the income tax department and it was stated that there
are favourable orders. However, no details in that regard are submitted
and as to whether any further proceedings are adopted by the revenue.
(viii) As seen from paragraph 3 of the Sur rejoinder of the respondent,
out of the total sanctioned working capital facility of Rs.63 crores the
respondent has drawn Rs.11 crores from his lenders. This is also a
liability.
(ix) As seen from para. 4 of the affidavit in sur rejoinder the respondent
has also availed of inter corporate loan of Rs.50 crores and had pledged
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certain equity shares held by it. And although an amount of Rs.25 crores is
repaid, there is outstanding balance liabilities of Rs.25 crores.
(x) In any case as per the averments in para 5 of the sur rejoinder, the
respondent's total borrowing outstanding is Rs.36 crores.
19. Thus on a plain appreciation and cumulative analysis of the above
financial position of the respondent, it cannot be concluded with certainty,
that the apprehensions of the petitioner are totally without any foundation
or are incorrect and rejected at the threshold, as argued on behalf of the
respondent. Further the reply affidavit and the affidavit in sur rejoinder as
placed on record on behalf of the respondent does not inspire a confidence
acceptable to a judicial mind, that the respondent's situation financially is
so comfortable that the petitioner need not be granted any interim
measures till the award is enforced as per the provisions of Section 36 of
the Act. The respondent is also not forthcoming as to how it would secure
the award amounts as any judgment debtor with sufficient means would
logically propound. There is not a whisper of such a language. These are
commercial transactions. The provisions of Section 9 entitle a party who
is beneficiary of an award to approach the court and seek interim
measures so that the fruits of the award/decree are available to the party
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in execution of the award/decree and that the award is not rendered
illusory or a mere paper decree. In a situation of the nature in hand, it
would certainly be the duty of the Court to protect the decreetal interest
of the petitioner, and more so considering the apprehensions of the
petitioner from the material on record.
20. The Division Bench in Dirk India Pvt. Ltd. (supra) considering the
object of section 9 in a situation as the present has held that an interim
measure of protection within the meaning of Section 9(2) is intended to
protect through the measure, fruits of a successful conclusion of the
arbitral proceedings. It is held that the object and purpose of an interim
measure after the passing of arbitral award, but before it is enforced, is to
secure the property, goods or amount for the benefit of the party which
seeks enforcement. The observations of the Division Bench in para 13 are
required to be noted which read thus:
""13. Two facets of Section 9 merit emphasis. The first relates to
the nature of the orders that can be passed under clauses (i) and
(ii). Clause (i) contemplates an order appointing a guardian for a
minor or a person of unsound mind for the purposes of arbitral
proceedings. Clause (ii) contemplates an interim measure of
protection for: (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 and (c) the
detention, preservation or inspection of any property or thing
which is the subject-matter of the dispute in arbitration; (d) an
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interim injunction or the appointment of a receiver; and (e) such
other interim measure of protection as may appear to the Court to
be just and convenient. The underlying theme of each one of the
sub-clauses of clause (ii) is the immediate and proximate nexus
between the interim measure of protection and the preservation,
protection and securing of the subject-matter of the dispute in the
Arbitral proceedings. In other words, the orders that are
contemplated under clause (ii) are regarded as interim measures of
protection intended to protect the claim in arbitration from being
frustrated. The interim measure is intended to safeguard the
subject-matter of the dispute in the course of the Arbitral
proceedings. The second facet of Section 9 is the proximate nexus
between the orders that are sought and the Arbitral proceedings.
When an interim measure of protection is sought before or during
Arbitral proceedings, such a measure is a step in aid to the fruition
of the arbitral proceedings. When sought after an Arbitral award is
made but before it is enforced, the measure of protection is
intended to safeguard the fruit of the proceedings until the
eventual enforcement of the award. Here again the measure of
protection is a step in aid of enforcement. It is intended to ensure
that enforcement of the award results in a realisable claim and that
the award is not rendered illusory by dealings that would put the
subject of the award beyond the pale of enforcement. Now it is in
this background that it is necessary for the Court to impart a
purposive interpretation to the meaning of the expression "at any
time after the making of the arbitral award but before it is enforced
in accordance with section 36". Under Section 36, an Arbitral
award can be enforced under the Code of Civil Procedure in the
same manner as if it were a decree of the Court. The Arbitral award
can be enforced where the time for making an application to set
aside the Arbitral award under Section 34 has expired or in the
event of such an application having been made, it has been refused.
The enforcement of an award enures to the benefit of the party
who has secured an award in the Arbitral proceedings. That is why
the enforceability of an award under Section 36 is juxtaposed in the
context of two time frames, the first being where an application for
setting aside an Arbitral award has expired and the second where
an application for setting aside an Arbitral award was made but
was refused. The enforceability of an award, in other words, is
defined with reference to the failure of the other side to file an
application for setting aside the award within the stipulated time
limit or having filed such an application has failed to establish a
case for setting aside the Arbitral award. Once a challenge to the
Arbitral award has either failed under Section 34 having been
made within the stipulated period or when no application for
setting aside the Arbitral award has been made within time, the
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Arbitral award becomes enforceable at the behest of the party for
whose benefit the award enures. Contextually, therefore, the
scheme of Section 9 postulates an application for the grant of an
interim measure of protection after the making of an Arbitral
award and before it is enforced for the benefit of the party which
seeks enforcement of the award. An interim measure of protection
within the meaning of Section 9(ii) is intended to protect through
the measure, the fruits of a successful conclusion of the Arbitral
proceedings. A party whose claim has been rejected in the course of
the Arbitral proceedings cannot obviously have an Arbitral award
enforced in accordance with Section 36. The object and purpose of
an interim measure after the passing of the Arbitral award but
before it is enforced is to secure the property, goods or amount for
the benefit of the party which seeks enforcement".
21. Once the above position in law is clear, in the facts of the present
case, the reliance on behalf of the respondent on the decision of the
learned Single Judge in Mahaguj Collieries Ltd. (supra) may not be
applicable in the facts of the present case inasmuch as the observations as
made in the said decision referring to the provisions of Order 38 Rule 5
(attachment before judgment) are made in the context of an interim order
passed by the arbitral tribunal under Section 17 of the Act and the learned
Single Judge was considering a petition under Section 37 of the Act
challenging the said order of the arbitral tribunal. In the present case
there is a final award of the arbitral tribunal.
22. In the light of the above discussion, in my considered opinion, the
petitioner has made out a strong prima facie case for grant of interim
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measures before enforcement of the award under Section 36 of the Act.
Hence, the following order:-
ORDER
(i) The respondent is directed to deposit in this Court within a period of two weeks from today, an amount of Rs.138,19,73,217/- being the award amount alongwith accrued interest upto 25 January 2019, as per petitioner's demand letter dated 25 January 2019 ("Exhibit C" page 277) or furnish a bank guarantee of the said amount, of a nationalised bank, drawn in favour of the Prothonotary & Senior Master of this Court,. The validity of the bank guarantee shall initially be kept for a period of three months.
(ii) In case of deposit of the amount, the Prothonotary and Senior Master of this Court shall invest the said amount in a fixed deposit to be opened in a nationalised bank fetching maximum rate of interest initially for a period of three months.
(iii) The respondent is directed not to create any third party rights in any manner whatsoever or encumbrances of any nature in respect of its unencumbered immovable assets.
(iv) In the event the amount or the bank guarantee as directed in (I) above is deposited, the injunction as granted in (III) above shall cease to operate and the respondent shall be free to deal with the said assets.
::: Uploaded on - 06/03/2019 ::: Downloaded on - 14/03/2019 01:14:11 :::pvr 27 carbp312-19final.doc (v) In view of the above reliefs, I do not consider it to be necessary to
grant reliefs as prayed by the petitioner in prayer clause (c) of the petition.
(vi) If necessary, liberty to apply for extension of the fixed deposit/bank guarantee as the case may be, or for its return.
(vii) Needless to observe that the above order shall be subject to such orders which may be passed on any proceeding which the respondent may file under Section 34 of the Act and/or the proceedings under Section 36 of the Act.
17. The petition is disposed of in the above terms. No costs.
Parties to act on the authenticated copy of this order.
(G.S.Kulkarni,J.) ::: Uploaded on - 06/03/2019 ::: Downloaded on - 14/03/2019 01:14:11 :::