Sepco Electric Power Construction Corporation Versus Power Mech Projects Ltd.

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
1
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
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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.
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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
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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
5
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
6
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).
7
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:
(c) the detention, preservation or inspection of any property or thing
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
8
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.
9
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.
10
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
11
"...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
12
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
13
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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