Sepco Electric Power Construction Corporation Versus Power Mech Projects Ltd.

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISIDICTION

CIVIL APPEAL NO. OF 2022

(Arising out of SLP(C) No. 4511 of 2021)

Sepco Electric Power Construction

Corporation ….Appellant

Versus

Power Mech Projects Ltd. ….Respondent

WITH

CIVIL APPEAL NO OF 2022

(Arising out of SLP(C) No. 5322 of 2021)

J U D G M E N T

Indira Banerjee, J.

Leave granted.

2. The Appellant, an entity incorporated in China was awarded

contracts in relation to various coal based power projects in India and the

Respondent, a company incorporated in India was engaged as a subcontractor of the Appellant. Disputes and differences between the

Respondent and the Appellant were referred to Arbitration. Suffice it to

mention that the Arbitration culminated in an Award dated 17th October

2017 of approximately Rs. 1,42,00,00,000/ (Rupees One Hundred and

Forty Two Crores) in favour of the Respondent.

3. On 3rd December 2017, the Appellant filed an application under

Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter

referred to as the "Arbitration Act") being O.M.P. (COMM) No. 432 of 2017

challenging the Arbitral Award dated 17th October 2017 in the Commercial

Division of the Delhi High Court, which is pending.

4. On the same day, that is, 3rd December 2017, the Appellant filed an

interim application being I.A. No. 14342 of 2017 in the said O.M.P.

(COMM) No.432 of 2017 under Section 36(2) of the Arbitration Act seeking

stay of the arbitral award.

5. After about a week, on 11th December 2017, the Respondent filed an

application under Section 9 of the Arbitration Act being O.M.P. (I) (COMM)

No. 523 of 2017 in the High Court, inter alia, seeking orders on the

Appellant to furnish security against the amount awarded by the Arbitral

Tribunal.

6. On 14th December 2017, the High Court issued notice in the

application filed by the Respondent under Section 9 of the Arbitration Act

and directed the Appellant to file an affidavit of assets. In compliance with

the order dated 14th December 2017, the Appellant submitted its affidavit

giving details of its assets.

7. On or about 10th May 2018, the Respondent filed an application

being I.A. No. 6704 of 2018 praying for deposit of the entire amount due

from Talwandi Sabo Power Corporation Limited (TSPL). The said

application was disposed of by an order dated 15th May 2018 with the

observation that the Court did not see sufficient cause to allow the prayers

made by the Respondent.

8. By an order dated 24th July 2018, the High Court directed the

Appellant to disclose better particulars of its assets in India. In the

meanwhile, the Appellant was directed to deposit 10% of the amount in its

bank accounts, which is referred to in its affidavit of assets in the High

Court at intervals of every 15 days.

9. Pursuant to the aforesaid order dated 24th July 2018, the Appellant

filed its supplementary affidavit of assets. Two days later, on 20th August

2018, the Respondent filed an application being I.A. No. 11128 of 2018 for

directions on the Respondent to deposit the awarded amount of Rs.

142,41,14,499/ (Rupees One Hundred FortyTwo Crores, Forty One

Lakhs, Fourteen Thousand, Four Hundred NinetyNine Only) along with

interest @ 12% per annum from the date of the award till realisation of the

awarded amount in the High Court.

10. Diverse interim applications were filed from time to time. On 20th

March 2019, the Respondent filed another application being IA No.4259 of

2019, seeking orders for deposit of the awarded amount of Rs.

142,41,14,499/ along with interest.

11. By a judgment and order dated 17th February 2020, a Single Judge

of the High Court disposed of the application filed by the Respondent

under Section 9 of the Arbitration Act being O.M.P (I) (COMM) No.523 of

2017 along with connected interim applications. The operative part of the

judgment and order dated 17th February 2020 is set out hereinbelow:

"32. While it is true that in some of the orders shown by the learned

senior counsel for the petitioner, coordinate Benches of this Court

have been directing a deposit of 50%, but going by the recent

judgments of the Supreme Court as well as the facts of the present

case, I am of the opinion that the petitioner must deposit 100% of the

awarded amount of Rs.142 Crores (principal amount) to secure the

respondent.

33. Since the petitioner has already furnished BG of Rs.30 Crores

and has deposited a further amount of Rs.2.74 Crores, the said

amount would be adjusted and the balance amount from Rs.142

Crores will be deposited by the petitioner with the Registry of this

Court within a period of four weeks from today. With the aforesaid

directions, the present petition is hereby disposed of along with all

the pending applications."

12. On that same day, that is, 17th February 2020, the Single Bench

passed another order directing notice be issued on respondents on the

application of the Appellant under Section 36(2) of the Arbitration Act for

stay of the award. The Court directed that, on deposit of Rs.142 Crores, as

earlier directed in the application of the Respondent under Section 9 of the

Arbitration Act, within four weeks, the enforcement of the award dated 17th

October 2017 would remain stayed.

13. Mr. K. V. Viswanathan, appearing on behalf of the Appellant

submitted that the Appellant’s application for stay under Section 36(2) of

the Arbitration Act had been filed before the Respondent filed its

application for interim relief under Section 9 of the said Act. The

application of the Appellant having been filed earlier, orders ought not to

have been passed on the application of the Respondent for interim relief,

without first considering the Appellant’s application for stay.

14. Mr. Viswanathan pointed out that the High Court had, by clubbing

the order in the Appellant’s application under Section 36(2) of the

Arbitration Act, with the order in the application of the Respondent under

Section 9 of the said Act, deprived the Appellant of its legal remedy of

appeal against any order passed under Section 9, since an order under

Section 36 is not appealable. Had the later application filed under Section

9 not been clubbed with the earlier application filed by the Appellant

under Section 36(2), the Appellant could have filed an intra court appeal

from the order under Section 9 of the Arbitration Act.

15. Mr. Viswanathan argued that subsection (3) of Section 36 enables

the court to grant stay of operation of the Award. The Court cannot,

however, stay an award for the asking. An award can only be stayed for

reasons to be recorded in writing. Moreover, for grant of stay in the case of

an arbitral award for payment of money, the Court is to have due regard to

the provisions for grant of stay in a money decree under the provision of

the CPC.

16. The power under subsection (3) of Section 36 to grant stay of an

award is coupled with the duty to impose conditions which could include

the condition of securing the award by deposit in Court, of the amount of

the Award. It may be true as argued by Mr. Vishwanathan that the Court

may not impose condition for stay, if it deems appropriate not to do so.

The power of Court to grant unconditional stay of an Award is not

unfettered. The power of unconditional stay is subject to the condition in

the second proviso that is:

The Court is satisfied that a prima facie is made out that

(i) the arbitration agreement or contract which is the

basis of the award; or

(ii) the making of the award, was induced or effected by

fraud or corruption.

17. Mr. Viswanathan submitted that while the grant for stay may be

discretionary but the exercise of such power is mandatory. The exercise of

discretion requires ex facie consideration of the merits of the challenge and

therefore a review of the award which regrettably has not been done.

18. The Appellant has unsuccessfully made an attempt to evaluate the

impugned award to demonstrate that the award is against the

fundamental policy of India. It is contended that no documents were

produced during the arbitration proceedings. It is not for this Court to sit

in appeal over the impugned award at this stage while deciding an appeal

under Article 136 of the Constitution of India and examine the adequacy of

the evidence before the Arbitral Tribunal.

19. Section 36 of the Arbitration Act Provides:

"36. Enforcement.—(1) Where the time for making an application to

set aside the arbitral award under Section 34 has expired, then,

subject to the provisions of subsection (2), such award shall be

enforced in accordance with the provisions of the Code of Civil

Procedure, 1908 (5 of 1908), in the same manner as if it were a

decree of the court.

(2) Where an application to set aside the arbitral

award has been filed in the court under Section 34, the filing of

such an application shall not by itself render that award

unenforceable, unless the court grants an order of stay of the

operation of the said arbitral award in accordance with the

provisions of subsection (3), on a separate application made for

that purpose.

(3) Upon filing of an application under sub section (2)

for stay of the operation of the arbitral award, the court may,

subject to such conditions as it may deem fit, grant stay of the

operation of such award for reasons to be recorded in writing:

Provided that the court shall, while considering the application for

grant of stay in the case of an arbitral award for payment of money,

have due regard to the provisions for grant of stay of a money

decree under the provisions of the Code of Civil Procedure, 1908 (5

of 1908).

Provided further that where the Court is satisfied that a prima facie

case is made out that,—

(a) the arbitration agreement or contract which is the basis of the

award; or

(b) the making of the award,

was induced or effected by fraud or corruption, it shall stay the

award unconditionally pending disposal of the challenge under

Section 34 to the award.

Explanation.—For the removal of doubts, it is hereby clarified that

the above proviso shall apply to all court cases arising out of or in

relation to arbitral proceedings, irrespective of whether the arbitral

or court proceedings were commenced prior to or after the

commencement of the Arbitration and Conciliation (Amendment) Act,

2015."

20. On the other hand, Section 9 of the Act provides the amendment as

follows:

"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 a 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 subjectmatter of the arbitration agreement:

(b) securing the amount in dispute in the arbitration:

which is the subjectmatter 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

experiment to be tried, which may be necessary or expedient for

the purpose of obtaining full information or evidence;

(d) interim injunction or the appointment of a receiver;

(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 an order for any interim measure of protection under subsection (1), the arbitral proceedings shall be commenced within a

period of ninety days from the date of such order or within such

further time as the court may determine.

(3) Once the arbitral tribunal has been constituted, the court shall not

entertain an application under subsection (1), unless the court

finds that circumstances exist which may not render the remedy

provided under Section 17 efficacious."

21. There is no hard and fast rule that an application made earlier in

point of time must be heard before an application made later in point of

time.

22. Both the applications under Section 9 filed by the Respondent and

the application for stay under Section 36(2) filed by the Appellant relate to

the same impugned award.

23. Even though, the applications may be independent applications,

there are common factors required to be considered for both the

applications of the Respondent under Section 9 and the application of the

Appellant under Section 36(2). The jurisdiction of this Court under Section

9 is wide. A party may apply to a Court for interim measures before the

commencement of Arbitral proceedings, during Arbitral proceedings or at

any time after the making of the Arbitral Award, but before it is enforced in

accordance with Section 36 of the Arbitration Act.

24. Section 9 expressly empowers the Court to pass orders securing the

amount in dispute in the arbitration and/or any interim measure or

protection as may appear to the Court to be just and convenient.

25. For grant of interim relief under Section 9, the Court would have to

consider the prima facie case. In this case, prima facie there is an award

for a huge amount of Rs. 142 Crores against the Appellant. The

Respondent has a strong case for interim relief.

26. It is settled law that grounds for interference with an award is

restricted. Even before this Court, the Appellant has not been able to

advert to any cogent and glaring error which goes to the root of the award.

The contention of the award being opposed to the public policy of India, is

devoid of any particulars whatsoever.

27. Under Section 36, where the time for making an application to set

aside arbitral award has expired, the award might be enforced in

accordance with the provisions of the CPC in the same manner as it were a

decree of the Court. Section 36(2) makes it clear that filing an application

for setting aside of an award under Section 34 is not to render the award

unenforceable, unless the Court expressly grants an order of stay of

operation of the arbitral award in accordance with the provisions of subsection (3) of Section 36, on a separate application made for that purpose.

28. Once an application under subsection (2) of Section 36 is filed for

stay of operation of the arbitral award, the Court might subject to such

conditions as it may deem fit, grant stay of the operation of such award,

for reasons to be recorded in writing. The Court is empowered to impose

such conditions as it might deem fit and may grant stay of operation of the

award subject to furnishing of security covering entire amount of the

award including interest.

29. The proviso to Section 36(3) of the Arbitration Act, makes it clear

that while considering an application for grant of stay in the case of an

arbitral award for payment of money, due regard has to be given to the

provisions for grant of stay of a money decree under the provisions of the

CPC.

30. The proviso to Section 36(3) further stipulates that where the Court

is satisfied that a prima facie case is made out that (a) the arbitration

agreement or contract which is the basis of the award or, (b) the making of

the award was induced or effected by fraud or corruption, it shall stay the

award unconditionally pending disposal of the challenge under Section 34

of the award.

31. In Ajay Singh & Ors. v. Kal Airways Private Limited and Ors.1

the Delhi High Court correctly held :

11 2017 SCC Online Del 8934

"...Section 9 grants wide powers to the courts in fashioning an

appropriate interim order, is apparent from its text. Nevertheless,

what the authorities stress is that the exercise of such power should

be principled, premised on some known guidelines therefore, the

analogy of Orders 38 and 39. Equally, the court should not find itself

unduly bound by the text of those provisions rather it is to follow the

underlying principles..."

32. In Jagdish Ahuja & Anr. v. Cupino Limited2

, the Bombay High Court

correctly summarised the law in Paragraph 6 extracted hereinbelow:

" 6 . As far as Section 9 of the Act is concerned, it cannot be said

that this court, while considering a relief thereunder, is strictly

bound by the provisions of Order 38 Rule 5. As held by our Courts,

the scope of Section 9 of the Act is very broad; the court has a

discretion to grant thereunder a wide range of interim measures of

protection "as may appear to the court to be just and convenient",

though such discretion has to be exercised judiciously and not

arbitrarily. The court is, no doubt, guided by the principles which

civil courts ordinarily employ for considering interim relief,

particularly, Order 39 Rules 1 and 2 and Order 38 Rule 5; the

court, however, is not unduly bound by their texts. As this court

held in Nimbus Communications Limited v. Board of Control for

Cricket in India (Per D.Y. Chandrachud J, as the learned Judge

then was), the court, whilst exercising power under Section 9,

"must have due regard to the underlying purpose of the conferment

of the power under the court which is to promote the efficacy of

arbitration as a form of dispute resolution." The learned Judge

further observed as follows:

"Just as on the one hand the exercise of the power under

Section 9 cannot be carried out in an uncharted territory

ignoring the basic principles of procedural law contained

in the Code of Civil Procedure 1908, the rigors of every

procedural provision in the Code of Civil Procedure 1908

cannot be put into place to defeat the grant of relief

which would subserve the paramount interests of justice.

A balance has to be drawn between the two

considerations in the facts of each case."

2 2 2020 SCC Online Bom 849

33. In Valentine Maritime Ltd. v. Kreuz Subsea Pte Ltd. & Anr.3

the Bombay High Court held :

“96. This court held that just as on the one hand the exercise of the

power under Section 9 cannot be carried out in an uncharted

territory ignoring the basic principles of procedural law contained in

the Code of Civil Procedure, 1908, the rigors of every procedural

provision in the Code of Civil Procedure, 1908 cannot be put into

place to defeat the grant of relief which would subserve the

paramount interests of justice. A balance has to be drawn between

the two considerations in the facts of each case. The principles laid

down in the Code of Civil Procedure, 1908 for the grant of

interlocutory remedies must furnish a guide to the Court when it

determines an application under Section 9 of the Arbitration and

Conciliation Act, 1996. The underlying basis of Order 38 Rule 5

therefore has to be borne in mind while deciding an application

under Section 9(ii)(b) of the Arbitration Act.”

34. Section 9 of the Arbitration Act confers wide power on the Court to

pass orders securing the amount in dispute in arbitration, whether before

the commencement of the Arbitral proceedings, during the Arbitral

proceedings or at any time after making of the arbitral award, but before

its enforcement in accordance with Section 36 of the Arbitration Act. All

that the Court is required to see is, whether the applicant for interim

measure has a good prima facie case, whether the balance of convenience

is in favour of interim relief as prayed for being granted and whether the

applicant has approached the court with reasonable expedition.

3 2021 SCC Online Bom 75

35. It is not in dispute that there is an award of Rs. 142 Crores in

favour of the Respondent. No cogent ground has been made out even

prima facie, for interference with the impugned award.

36. Order 41 Rule 5 of the CPC provides for stay of decree upon

furnishing of cash security. The High Court acted within the scope of its

powers under Section 9 in passing the impugned judgment and order.

37. We find no ground at all to interfere. The Appeals are dismissed.

We, however, request the High Court to dispose of the pending

applications of the Appellant under Section 34 for setting aside the award

as expeditiously as possible, preferably within 3 months from the date of

communication of this judgment and order.

…………………………………,J.

[ INDIRA BANERJEE ]

…………………………………,J.

[ KRISHNA MURARI ]

NEW DELHI;

SEPTEMBER 19, 2022.

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