Sunday 13 February 2022

Whether Indian courts should grant interim relief U/ S 9 of arbitration Act in foreign seated arbitration governed by foreign law?

 For Section 9 to be excluded, there must be a specific agreement between the parties, ousting the jurisdiction of this Court under Section 9. Simply put, there must be something more than an Arbitration Agreement being governed by foreign law and with a foreign seat. The Agreement must indicate in clear and express terms that the parties intended to exclude the operation of Part I of the Indian Arbitration Act. Merely because an Arbitration Agreement is governed by foreign law or the seat of the arbitration is outside India, without anything more, cannot be construed to mean that the parties agreed to exclude the application of Section 9 of the Indian Arbitration Act and thereby close the gates to a party to approach this court thereunder. If I was to accept the submission of Mr. Andhyarujina, namely, that because the Arbitration Agreement is governed by foreign law and the seat of arbitration is outside India, the same would amount to an “agreement to the contrary” as contemplated under the proviso to Section 2(2) of the Indian Arbitration Act, it would effectively mean that in all foreign seated arbitrations, Part I of the Indian Arbitration Act would stand excluded. This would effectively mean that the proviso to Section 2(2) would be a dead letter. In fact, the interpretation of Mr. Andhyarujina would defeat the very purpose for which the proviso was brought on the statute book i.e. to permit parties to an arbitration to be held outside India to approach the Courts in India inter alia under Section 9 of the Indian Arbitration Act and seek interim relief, pending the said foreign seated arbitration. In fact, the reason why the aforesaid provision was brought on the statute book can be discerned from the discussion on this subject by the Law Commission in its 246th Report. The relevant portion of this Report reads as under:—

“While the decision in BALCO is a step in the right direction and would drastically reduce judicial intervention in foreign arbitrations, the Commission feels that there are still a few areas that are likely to be problematic.

(i) Where the assets of a party are located in India, and there is a likelihood that that party will dissipate its assets in the near future, the other party will lack an efficacious remedy if the seat of the arbitration is abroad. The latter party will have two possible remedies, but neither will be efficacious. First, the latter party can obtain an interim order from a foreign Court or the arbitral tribunal itself and file a civil suit to enforce the right created by the interim order. The interim order would not be enforceable directly by filing an execution petition as it would not qualify as a “judgment” or “decree” for the purposes of sections 13 and 44A of the Code of Civil Procedure (which provide a mechanism for enforcing foreign judgments). Secondly, in the event that the former party does not adhere to the terms of the foreign Order, the latter party can initiate proceedings for contempt in the foreign Court and enforce the judgment of the foreign Court under sections 13 and 44A of the Code of Civil Procedure. Neither of these remedies is likely to provide a practical remedy to the party seeking to enforce the interim relief obtained by it. That being the case, it is a distinct possibility that a foreign party would obtain an arbitral award in its favour only to realize that the entity against which it has to enforce the award has been stripped of its assets and has been converted into a shell company.

(ii) While the decision in BALCO was made prospective to ensure that hotly negotiated bargains are not overturned overnight, it results in a situation where Courts, despite knowing that the decision in Bhatia is no longer good law, are forced to apply it whenever they are faced with a case arising from an arbitration agreement executed pre-BALCO.”

(emphasis supplied)

17. It is for this very reason that I have opined that merely because an Arbitration Agreement is governed by foreign law and the seat of arbitration is outside India, without anything more, cannot amount to an “agreement to the contrary” as contemplated under the proviso to Section 2(2) of the Indian Arbitration Act.

 In the High Court of Bombay

(Before B.P. Colabawalla, J.)

Ultra Deep Subsea Pte Ltd. Vs Hindustan Oil Exploration Company Ltd.

Commercial Arbitration Petition (L) No. 22272 of 2021

Decided on December 13, 2021

Citation: 2021 SCC OnLine Bom 5481

The Judgment of the Court was delivered by

B.P. Colabawalla, J.:— The above Petition is filed under Section 9 of the Arbitration and Conciliation Act, 1996 (for short the “Indian Arbitration Act”) seeking the following reliefs:

“A. To direct Respondent No. 2, the bank in which the Respondent No. 1 holds an account (bearing account number - 918020084515885) to freeze/suspend payments from the bank account of the Respondent No. 1 up to an amount of USD 6,212,831.67 or its INR equivalent; and/or

B. To direct the Respondent No. 1 to deposit a sum of USD 6, 212,831,67 with this Hon'ble Court as security for the arbitration proceedings which will be commenced by the Petitioner against the Respondent No. 1; and/or

C. To direct the Respondent No. 1 to submit an irrevocable bank guarantee in favour of the Prothonotary, Bombay High Court for the Petitioner's claim of USD 6,212,831.67 along with interest and costs to be kept alive until an award is passed in the arbitration proceedings to be instituted by the Petitioner; and/or.

D. To direct the Respondent No. 1 to submit an affidavit giving full details and particulars of its assets, including all bank account details and bank statements, the details of charges if any; and provide the requisite information as per the format at Exhibit DDDD; and/or

E. To direct and order that Respondent No. 1 ensures and retains an amount of the INR equivalent of USD 6,212,831.67 pending the outcome of the proposed arbitration by the Petitioner against the Respondent No. 1;”

2. The Petitioner is a company incorporated in Singapore. It is a company engaged in design, construction and operation of ultra-deep diving heavy construction vessels in the offshore industry. The Petitioner also gives its vessels on time charters for deep water diving operations. Respondent No. 1 is a company engaged in oil exploration activities including drilling of oil wells and processing of the oil and natural gas produced from the said wells. Respondent No. 2 is a banking company. The Petitioner has no claims against Respondent No. 2 in the present Petition. Respondent No. 2 is impleaded because Respondent No. 1 maintains a bank account with Respondent No. 2. Since one of the reliefs sought in the Petition is for freezing/attaching the bank account of Respondent No. 1 with Respondent No. 2, it has been joined as a proforma party.

3. The present Petition is preferred seeking urgent interim reliefs inter-alia to secure the amounts payable by Respondent No. 1 to the Petitioner. The amount in question is approximately USD 6,212,831.67. According to the Petitioner, not only is the 1st Respondent mandated to pay this amount under the contract in a time bound manner but it has time and again admitted its liability to the Petitioner. It is the case of the Petitioner that there is really no dispute with reference to the amounts payable by the 1st Respondent to the Petitioner and the Petitioner has a great chance of success in the proposed arbitration. This would warrant an order of deposit against the 1st Respondent, is the case of the Petitioner.

4. The brief facts giving rise to the controversy are this. The Government of India, from time to time, issue offers for development of discovered oil fields. Companies, either by themselves, or through consortiums and/or join ventures, bid for the development and monetization of these oil fields. A successful bidder inter-alia carries out-(i) exploration of these fields; (ii) development of the oil fields such as drilling wells; and (iii) bringing the field “on stream” i.e. extracting the oil or gas from the field.

5. Respondent No. 1 formed a 50 : 50 joint venture with another entity, Adbhoot Estates, and successfully bid for the B-80 block in the Discovered Small Field Round 1 held by the Directorate General of Hydrocarbons, India. Respondent No. 1 completed a two well drilling campaign in B-80 in April 2020 and commenced operations to bring the oil field “on stream” in 2021. In order to do so, Respondent No. 1 was in search of a specialized company with the experience and expertise to successfully complete the same. Since the Petitioner was offering Diving Supports Vessels (for short “DSV”) on charter, Respondent No. 1 approached the Petitioner for chartering a DSV. I must mention that DSVs play a major role in the maintenance of Offshore installations and under water wells/pipelines and are sophisticated vessels which contain a Dynamic Positioning (for short “DP”) system allowing them to maintain the same position in the high seas. Apart from this, the DSVs also contain modern equipment allowing divers to descend to great depths in the oceans for extended periods of time and also facilitate deployment of Remote Operated Vehicles (for short “ROV”) for carrying out offshore maintenance activities.

6. Accordingly, the Petitioner and Respondent No. 1 entered into a Charter Party for chartering the Vessel - DSV Lichtenstein (IMO No. 9758296) [for short “the said Vessel”]. The letter of award and the Charter Party dated 28th January, 2021 are annexed at Exhibit “C” to the Petition. The Charter Party contemplated that the said Vessel would be delivered to the 1st Respondent at outer anchorage, Mumbai Port. Under clause 1(a) read with Box 9 of the Charter Party, the said Vessel was time chartered to Respondent No. 1 for an initial period of 30 days. The said Vessel was delivered to the 1st Respondent on 7th March, 2021 and therefore the Time Charter Party was due to expire on 6th April, 2021. The Charter Party also gave the option to the Charterer, i.e. Respondent No. 1, to extend the same by giving notice of two days prior to the expiry of the Charter Party. It is not in dispute that Respondent No. 1 extended the period of the Charter Party ten times (as contemplated under clause 1(b) read with Box 10 thereof) until 26th May, 2021. Ultimately, the said Vessel was delivered back to the Petitioner on 28th May, 2021. The extensions of the Charter Party are all annexed at Exhibit “F1” to “F10” of the Petition.

7. Under the aforesaid Charter Party, the Petitioner periodically raised invoices on Respondent No. 1 in respect of mobilization fees; charter day rate of the Vessel; equipment rental; meal charges for persons on board the Vessel; reimbursement of expenses incurred by the Petitioner; FB invoice; bunkers on re-delivery; lube oil & hydraulic oil expenses; and the demobilization fees. These invoices are all annexed at Exhibit “I-1” to “I-41” of the Petition. The Petitioner also periodically sent statements of account to Respondent No. 1 consolidating the invoices raised and indicating the amount due and payable by Respondent No. 1. The copies of these statements are also annexed at Exhibits “J” to “M” of the Petition.

8. It is the case of the Petitioner that despite receiving these invoices and the statements of account, and despite the 1st Respondent admitting its liability time and again, it has not made payment to the Petitioner. It is in these circumstances that the present Petition is filed under Section 9 of the Indian Arbitration Act seeking various reliefs more particularly set out earlier. The Charter Party has an arbitration clause which contemplates that the Charter Party shall be governed by and construed in accordance with English Law and any dispute arising out of or in connection with the Charter Party shall be referred to arbitration in London in accordance with the Arbitration Act, 1996 (For short the “English Arbitration Act”) or any statutory modification or re-enactment thereof save to the extent necessary to give effect to the provisions of the said clause. The clause further contemplates that the arbitration shall be conducted in accordance with the London Maritime Arbitrators Association Terms, 2021 (for short the “LMAA Terms”) current at the time when the arbitration proceedings are commenced. How the arbitration is to proceed is also thereafter laid down in clause 37.

9. In this factual backdrop, Mr. Bharucha, the learned advocate appearing on behalf of the Petitioner, submitted that Respondent No. 1 has repeatedly and unequivocally admitted its liability to pay the unpaid amounts due under the Charter Party to the Petitioner. He submitted that despite these admissions, the Petitioner has failed and neglected to make payment. According to Mr. Bharucha, the 1st Respondent's lack of commercial morality and bad faith warrants immediate judicial interference inter-alia in the form of an order for deposit of the admitted amounts pending arbitration in London as contemplated by the Charter Party dated 28th January, 2021. Mr. Bharucha submitted that the admissions by the 1st Respondent are clearly reflected in the emails dated 24th March, 2021 (Exhibit “O”), 26th March, 2021 (Exhibit “Q”), 6th April, 2021 (Exhibit “S”), 21st April, 2021 (Exhibit “W”), 26th April, 2021 (Exhibit “Z”), 4th May, 2021 (Exhibit “GG”), 4th May, 2021 (Exhibit “HH”), 7th May, 2021 (Exhibit “KK”), 10th May, 2021 (Exhibit “LL”), 12th May, 2021 (Exhibit “OO”), 19th May, 2021 (Exhibit “SS”), 27th May, 2021, (Exhibit “WW”), 31st May, 2021 (Exhibit “ZZ”), 8th June, 2021 (Exhibit “CCC”), 14th June, 2021 (Exhibit “GGG”) and 21st June, 2021 (Exhibit “LLL”). Mr. Bharucha took me through these documents and contended that all these documents clearly establish that Respondent No. 1, has time and again, admitted its liability to the Petitioner in relation to the invoices raised by the Petitioner on the 1st Respondent. In the alternative, Mr. Bharucha submitted that even if one were not to construe the aforesaid emails as a clear and unequivocal admission, it is clear that all through out, no grievance was ever made by the 1st Respondent against the Petitioner either with reference to the DSV, or its equipment, personnel or service and no dispute was ever raised with reference to the monies payable under all the invoices raised by the Petitioner on the 1st Respondent. A dispute was raised for the first time only after the Petitioner served on the 1st Respondent a legal notice dated 26th June, 2021 calling upon the 1st Respondent to make payment or face legal action. It is in reply to this notice, and for the first time, that the 1st Respondent, by its letters dated 30th June, 2021 and 10th August, 2021 raised false and frivolous disputes to somehow avoid paying the legitimate dues of the Petitioner. Mr. Bharucha submitted that this itself would clearly go to show that the Petitioner has a very good chance of succeeding in the proposed arbitration against the 1st Respondent. This would entitle the Petitioner to seek an order of deposit of the monies due under the aforesaid invoices (Exhibits “I-1” to “I-41”) amounting to USD 6,212,831.67, was the submission of Mr. Bharucha. In support of this proposition, Mr. Bharucha relied upon the following decisions:

(i) Jagdish Ahuja v. Cupino Limited [2020 SCC OnLine Bom 849];

(ii) Valentine Maritime Ltd. v. Kreuz Subsea Pte Limited [2021 SCC OnLine Bom 75];

(iii) Kotak Mahindra Bank Ltd. v. Williamson Magor & Co. Ltd. [2021 SCC OnLine Bom 305 : (2021) 3 Bom CR 336].

10. Mr. Bharucha submitted that this does not stop here. He brought to my attention clause 12(e) of the Charter Party and contended that if the 1st Respondent reasonably believed that an incorrect invoice has been issued or there was any dispute regarding any invoice raised by the Petitioner, the same had to be notified by the 1st Respondent to the Petitioner promptly and in no event not later than the due date, specifying the reason for disputing the invoice. He submitted that as stipulated in the Charter Party [under Box 22 read with Box 24], the 1st Respondent had to dispute the invoice within 7 days from the receipt thereof, failing which payment had to be made. Mr. Bharucha, submitted that never were any of the invoices disputed by the 1st Respondent until a legal notice was issued to the 1st Respondent to make payments to the Petitioner under the aforesaid invoices. Mr. Bharucha submitted that the so-called dispute raised for the first time by Respondent No. 1 vide its reply to the legal notice of the Petitioner was clearly only an afterthought to somehow avoid making payments to the Petitioner of their legitimate dues. He submitted that the conduct of the 1st Respondent itself would indicate that the so called disputes raised by them were only an afterthought. He submitted that in any event, under clause 12 (e) of the Charter Party, if any invoice was not disputed within 7 days of the receipt of the said invoice, then the 1st Respondent had to make payment thereunder immediately and if they had any claim against the Petitioner, they could raise those claims subsequently. In other words, he submitted that this clause contemplated of making payment first and disputing later. He submitted that this clause 12 (e) is incorporated in line with commercial common sense. This is to ensure that there is proper cash flow for the owner of the ship. He submitted that cash flow is a matter of considerable and sometimes crucial importance to the owner of the ship. It is for this very reason why such a clause is incorporated in the Charter Party so as to ensure that timely payment is made to the owner of the ship so that cash flows are not affected. To substantiate this argument, Mr. Bharucha relied upon an English decision in the case of Boskalis Offshore Marine Contracting BV v. Atlantic Marine and Aviation LLP (The “Atlantic Tonjer”) [2020 Volume (I) LLOYD's Law Reports 171]. For all the aforesaid reasons, Mr. Bharucha submitted that the 1st Respondent be directed to deposit in this Court a sum of USD 6,212,831.67 to secure the claim of the Petitioner in the proposed arbitration proceedings, or at the very least, the 1st Respondent be directed to furnish an unconditional bank guarantee in favour of the Prothonotary and Senior Master of this Court for the said amount, with interest and costs, and which should be kept alive until an Award is passed in the arbitration proceedings proposed to be instituted by the Petitioner.

11. On the other hand, Mr. Andhyarujina, the learned senior counsel appearing on behalf of the 1st Respondent, took a preliminary objection for this Court to entertain the above Section 9 Petition on the issue of jurisdiction. Mr. Andhyarujina submitted that the Charter Party was executed between the Petitioner (a Non-Resident Foreign Company) registered under the Laws of Singapore and the 1st Respondent (a Resident Indian Company) registered under the Companies Act, 1956 in accordance with the internationally followed and accepted BIMCO Supplytime 2017 format. He submitted that the parties, of their own free will, selected and agreed upon a neutral venue and a foreign seat of arbitration to decide the disputes and differences between the Petitioner and the Respondent. Mr. Andhyarujina submitted that the arbitration clause between the parties stipulates that the arbitration was to take place in London in accordance with the English Arbitration Act and the arbitration was to be conducted in accordance with the LMAA Terms. He submitted that the applicable substantive law was also English Law and considering that the seat of arbitration was in London, the applicable curial law would also be the English Arbitration Act. It is this law that would govern the entire Charter Party as well as the disputes arising therefrom. Mr. Andhyarujina submitted that considering that this is a foreign seated arbitration, where the substantive law and the curial law is not the law of India, the applicability of the Part I of the Indian Arbitration Act, is impliedly excluded as held by a series of decisions of the Supreme Court, starting from Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. [(2012) 9 SCC 552] (for short “BALCO”). To be fair to Mr. Andhyarujina, he also brought to my attention the proviso to Section 2(2) of the Indian Arbitration Act, which stipulates that subject to an agreement to the contrary, the provisions of Section 9, Section 27, Section 37 (1) (a) and Section 37 (3) shall also apply to International Commercial Arbitrations, even if the place of arbitration is outside India and an Arbitral Award made or to be made in such place is enforceable and recognized under the provisions of Part II of the Indian Arbitration Act. Mr. Andhyarujina however submitted that in the facts of the present case, on a holistic reading of the arbitration clause as well as the LMAA Terms, it was clear that the parties had agreed that the provisions of Section 9 would not apply to a foreign seated arbitration. In other words, Mr. Andhyarujina submitted that there was an “agreement to the contrary” between the parties as contemplated in the proviso to Section 2(2) of the Indian Arbitration Act. To substantiate this argument, Mr. Andhyarujina submitted that the LMAA Terms clearly contemplate that the law applicable to the Arbitration Agreement will be English Law and the seat of the arbitration will be London, England. These Terms further contemplate that the Arbitral proceedings and the rights and obligations of the parties shall, in all respects be governed by the English Arbitration Act save to the extent that the provisions of the English Arbitration Act are varied, modified or supplemented by the LMAA Terms. He submitted that by virtue of these Terms, and since the English Arbitration Act is applicable, the Petitioner, under Section 44 of the said Act, can apply for interim reliefs before the English Courts. This being the position, it is apparent that the parties had agreed to the ouster of Part I of the Indian Arbitration Act. If this be the case, then, this Court would have no jurisdiction to entertain the above Section 9 Petition, was the submission of Mr. Andhyarujina.

12. The second argument canvassed by Mr. Andhyarujina is that before any order of deposit can be ordered by this Court, the Court must be satisfied that the principles laid down under Order 38 Rules, 1, 2 & 5 of the Civil Procedure Code, 1908 (for short “CPC”) have been complied with. He submitted that even assuming for the sake of argument, that there is any admission made by the 1st Respondent, and which according to him there is none, the Court cannot order the 1st Respondent to deposit the disputed amount in Court before first satisfying itself that the Petitioner has complied with the underlying principles of Order 38 Rules 1, 2 and/or 5, as the case may be. As far as the admissions are concerned, and which I have adverted to earlier, Mr. Andhyarujina took me through the said emails from Exhibit “O” to Exhibit “LLL” and contended that in none of these emails, is there any clear and/or unequivocal admission on the part of the 1st Respondent. He, therefore, submitted that it is totally incorrect on the part of the Petitioner to contend that because of the so-called admissions on the part of the 1st Respondent, it would entitle the Petitioner to an order of deposit as sought for in the Petition.

13. The last argument canvassed by Mr. Andhyarujina was that far from any admission being made by the 1st Respondent in relation to the alleged dues of the Petitioner, the invoices raised by the Petitioner on the 1st Respondent have in fact been seriously disputed by the 1st Respondent vide its letters dated 10th August, 2021 and 2nd October, 2021 respectively. He, therefore, submitted that there is a genuine and bonafide dispute in relation to the monies that are claimed by the Petitioner. Hence, there is no question of directing the 1st Respondent to deposit any amount in this Court to secure the alleged claim of the Petitioner. For all the aforesaid reasons, Mr. Andhyarujina submitted that the above Petition ought to be dismissed with costs.

14. I have heard both the learned counsel at great length and I have perused the papers and proceedings in the above Petition. The first argument canvassed by Mr. Andhyarujina is in relation to the jurisdiction of this Court. In a nutshell, Mr. Andhyarujina submitted that by virtue of the fact that the parties have agreed to go to arbitration in London and submit themselves to English Law, Part I of the Indian Arbitration Act, is ousted. He submitted that even in terms of the proviso to Section 2(2) of the Indian Arbitration Act, all that a party would be required to show is that the parties to the Arbitration Agreement agreed that Part I of the Indian Arbitration Act (under which Section 9 appears) would not be applicable to the parties hereto. To understand this argument, it would be necessary to understand the relevant provisions of Section 2(2) of the Indian Arbitration Act, which read thus:

“2(2) This Part shall apply where the place of arbitration is in India:

Provided that subject to an agreement to the contrary, the provisions of section 9, 27, and clause (a) of sub-section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act.”

15. I must mention that the proviso to Section 2(2) was brought on the statute book by way of an amendment w.r.e.f. 23rd October, 2015. As correctly submitted by Mr. Andhyarujina, prior to the amendment, and by virtue of the decision of the Supreme Court in BALCO, once the seat of the arbitration was outside India, Part I (in its entirety) of the Indian Arbitration Act, automatically stood excluded. In other words, prior to the amendment, by virtue of the decision in BALCO, no party to a foreign seated arbitration could seek any interim relief in India under Section 9 of the Indian Arbitration Act. It is to get over this anomaly that the Legislature stepped in and inserted the proviso to Section 2(2). The proviso clearly stipulates that subject to an agreement to the contrary, the provisions of Section 9, Section 27, Section 37 (1) (a) and Section 37 (3) shall also apply to an International Commercial Arbitration, even if the place of the arbitration is outside India and an Arbitral Award made or to be made in such a place is enforceable and recognized under the provisions of Part II of the Indian Arbitration Act. In other words, what the said proviso stipulates is that if there is no agreement to the contrary, Sections 9, 27, 37(1)(a) and 37(3) of the Indian Arbitration Act shall apply even to a foreign seated arbitration.

16. As mentioned earlier, to substantiate that there is an “agreement to the contrary” [as contemplated in the proviso to Section 2(2)] between the Petitioner and the 1st Respondent, Mr. Andhyarujina relied upon the arbitration clause as well as the LMAA Terms. I have gone through the arbitration clause as well the LMAA Terms. All that the arbitration clause and the LMAA Terms provide is that when the arbitration is initiated by any of the parties under the said Terms, the law applicable to the Arbitration Agreement will be English Law and the seat of the arbitration shall be in England. It follows therefrom, that if the Petitioner wants to apply for any interim reliefs against the 1st Respondent, it can do so even under the provisions of the English Arbitration Act. This, however, by itself, without anything more, cannot be construed as an “agreement to the contrary” to oust the jurisdiction of this Court under Section 9 of the Indian Arbitration Act. For Section 9 to be excluded, there must be a specific agreement between the parties, ousting the jurisdiction of this Court under Section 9. Simply put, there must be something more than an Arbitration Agreement being governed by foreign law and with a foreign seat. The Agreement must indicate in clear and express terms that the parties intended to exclude the operation of Part I of the Indian Arbitration Act. Merely because an Arbitration Agreement is governed by foreign law or the seat of the arbitration is outside India, without anything more, cannot be construed to mean that the parties agreed to exclude the application of Section 9 of the Indian Arbitration Act and thereby close the gates to a party to approach this court thereunder. If I was to accept the submission of Mr. Andhyarujina, namely, that because the Arbitration Agreement is governed by foreign law and the seat of arbitration is outside India, the same would amount to an “agreement to the contrary” as contemplated under the proviso to Section 2(2) of the Indian Arbitration Act, it would effectively mean that in all foreign seated arbitrations, Part I of the Indian Arbitration Act would stand excluded. This would effectively mean that the proviso to Section 2(2) would be a dead letter. In fact, the interpretation of Mr. Andhyarujina would defeat the very purpose for which the proviso was brought on the statute book i.e. to permit parties to an arbitration to be held outside India to approach the Courts in India inter alia under Section 9 of the Indian Arbitration Act and seek interim relief, pending the said foreign seated arbitration. In fact, the reason why the aforesaid provision was brought on the statute book can be discerned from the discussion on this subject by the Law Commission in its 246th Report. The relevant portion of this Report reads as under:—

“While the decision in BALCO is a step in the right direction and would drastically reduce judicial intervention in foreign arbitrations, the Commission feels that there are still a few areas that are likely to be problematic.

(i) Where the assets of a party are located in India, and there is a likelihood that that party will dissipate its assets in the near future, the other party will lack an efficacious remedy if the seat of the arbitration is abroad. The latter party will have two possible remedies, but neither will be efficacious. First, the latter party can obtain an interim order from a foreign Court or the arbitral tribunal itself and file a civil suit to enforce the right created by the interim order. The interim order would not be enforceable directly by filing an execution petition as it would not qualify as a “judgment” or “decree” for the purposes of sections 13 and 44A of the Code of Civil Procedure (which provide a mechanism for enforcing foreign judgments). Secondly, in the event that the former party does not adhere to the terms of the foreign Order, the latter party can initiate proceedings for contempt in the foreign Court and enforce the judgment of the foreign Court under sections 13 and 44A of the Code of Civil Procedure. Neither of these remedies is likely to provide a practical remedy to the party seeking to enforce the interim relief obtained by it. That being the case, it is a distinct possibility that a foreign party would obtain an arbitral award in its favour only to realize that the entity against which it has to enforce the award has been stripped of its assets and has been converted into a shell company.

(ii) While the decision in BALCO was made prospective to ensure that hotly negotiated bargains are not overturned overnight, it results in a situation where Courts, despite knowing that the decision in Bhatia is no longer good law, are forced to apply it whenever they are faced with a case arising from an arbitration agreement executed pre-BALCO.”

(emphasis supplied)

17. It is for this very reason that I have opined that merely because an Arbitration Agreement is governed by foreign law and the seat of arbitration is outside India, without anything more, cannot amount to an “agreement to the contrary” as contemplated under the proviso to Section 2(2) of the Indian Arbitration Act.

18. In the view that I take, I am supported by a decision of a Division Bench of this Court in the case of Heligo Charters Private Limited v. Aircon Feibars FZE [2018 SCC OnLine Bom 1388]. After adverting to the provisions of Section 2(2) as well as the 246th report of the Law Commission, the Division Bench held as under:

“15. Heard learned Counsel appearing for the respective parties. We agree with the submissions advanced by the Counsel appearing for the respondents. The amended provisions of Section 2(2) clearly stipulates that subject to an agreement to the contrary, the provisions of Section 9 shall apply to international commercial arbitration even if the place of arbitration is outside India. The contention that unless the award is put to execution in accordance with provisions of Section 48, a party is not entitled to seek interim-relief is not sustainable. There is no such embargo or restriction placed for seeking recourse to interim measures even if the award is foreign-seated one. The amendment was brought into effect after the Law Commission submitted its report consequent to judgment in the case of BALCO (cited supra). Paragraph 194 of the judgment reads as under:

“194. In view of the above discussion, we are of the considered opinion that the Arbitration Act, 1996 has accepted the territoriality principle which has been adopted in the UNCITRAL Model Law, Section 2(2) makes a declaration that Part I of the Arbitration Act, 1996 shall apply to all arbitrations which take place within India. We are of the considered opinion that Part I of the Arbitration Act, 1996 would have no application to international commercial arbitration held outside India. Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996. In our opinion, the provisions contained in the Arbitration Act, 1996 make it crystal clear that there can be no overlapping or intermingling of the provisions contained in Part I with the provisions contained in Part II of the Arbitration Act, 1996.”

16. We are, therefore, not inclined to accept the contentions of the appellant on that ground. In view of the amended provisions and facts, we are of the view that operation of provisions of Section 9 cannot be excluded in absence of a specific agreement to the contrary. The judgment in BALCO was pronounced on 6th September, 2012. The dispute between the parties was referred on 8th April, 2015. The arbitration agreement was executed between the parties on 9th September, 2014. Whereas the Act was amended on 23rd October, 2015.

*********************

19. In Paragraph-11 of the impugned order dated 28th April, 2017, the learned Single Judge quoted the extract of Report No. 246 of the Law Commission of India which reads as under:—

“While the decision in BALCO is a step in the right direction and would drastically reduce judicial intervention in foreign arbitrations, the Commission feels that there are still a few areas that are likely to be problematic.

(i) Where the assets of a party are located in India, and there is a likelihood that that party will dissipate its assets in the near future, the other party will lack an efficacious remedy if the seat of the arbitration is abroad. The latter party will have two possible remedies, but neither will be efficacious. First, the latter party can obtain an interim order from a foreign Court or the arbitral tribunal itself and file a civil suit to enforce the right created by the interim order. The interim order would not be enforceable directly by filing an execution petition as it would not qualify as a “judgment” or “decree” for the purposes of sections 13 and 44A of the Code of Civil Procedure (which provide a mechanism for enforcing foreign judgments). Secondly, in the event that the former party does not adhere to the terms of the foreign Order, the latter party can initiate proceedings for contempt in the foreign Court and enforce the judgment of the foreign Court under sections 13 and 44A of the Code of Civil Procedure. Neither of these remedies is likely to provide a practical remedy to the party seeking to enforce the interim relief obtained by it. That being the case, it is a distinct possibility that a foreign party would obtain an arbitral award in its favour only to realize that the entity against which it has to enforce the award has been stripped of its assets and has been converted into a shell company.

(ii) While the decision in BALCO was made prospective to ensure that hotly negotiated bargains are not overturned overnight, it results in a situation where Courts, despite knowing that the decision in Bhatia is no longer good law, are forced to apply it whenever they are faced with a case arising from an arbitration agreement executed pre-BALCO.”

20. In Paragraph-18 the learned Single Judge observed as under:—

“18. On the question of whether such an order ought to be made on merits, Mr. Nankani says that Heligo is good for the money. Given that this is about a helicopter, he succumbs to temptation in describing his client as being “not a fly-by-night operator”. If that is so, Mr. Nankani's client's option is simple : his client must make available by a deposit in Court sufficient money or security to secure a potential enforcement of the foreign award that has been rendered against it. If not, I see no reason why a limited injunction of the nature that I have described, i.e. subject to a prior claim by a secured creditor ought not to be made. Certainly, I am not able to see any prejudice being caused to the Respondent. On the other hand, as I have noted, if an injunction is refused, there is every possibility of irreparable prejudice to Aircon. In my view, there is not only prima-facie case, but the balance of convenience also favours the Petitioner.”

21. The Award was passed on 25th January, 2017. The learned Single Judge has rightly dealt with the issue and has reached reasonable and proper conclusion. We do not find any error or perversity in the view adopted by the learned Single Judge. In the facts, we do not notice any prejudice being caused to the appellant. If the injunction is refused, there is every possibility of irreparable loss being caused to the respondent. The respondent has made out a strong prima-facie case and balance of convenience is also in favour of respondent-original petitioner. We, therefore, find no merit in the Appeal. It stands dismissed. No order as to costs.”

(emphasis supplied)

19. I must mention that the aforesaid decision of the Division Bench of this Court, was thereafter followed by a learned single Judge of the Calcutta High Court in the case of Medima LLC v. Balasore Alloys Limited (AP/267/2021, decided on 3rd August, 2021). The relevant portion of this decision, reads thus:

“13. The caveat to the application of section 9 to international commercial arbitrations with a place outside India and an arbitral award made in such place is ‘an agreement to the contrary’. This means that the contracting parties must evince and articulate an intention not to subject the arbitration agreement to the application of section 9 of the Act. The application of section 9 to an arbitration agreement and an award which is under Part II of the Act is a fallout of the Supreme Court decision in Bhatia which was prospectively overruled in BALCO only to be reinstated by the recommendations of the Law Commission in August 2014 thereafter culminating in the insertion of the proviso to 2(2) with effect from 23rd October, 2015.

14. The 1996 Act asserts party autonomy at all levels. A party's control over the proceedings is evident from plain affirmation- “The parties are free to determine..” or “..agree” (sections 10, 11, 13, 20, 22)-to creating exceptions in the form of “Unless otherwise agreed by the parties” (sections 21, 24, 25, 26, 29, 31, 33). It is clear however that the parties must articulate an intention to do-or not to do-that which follows in the particular provision. A good example would be section 31(3)(a) where the obvious requirement of an award containing reasons can only be circumvented if the parties agree otherwise. The important aspect is that none of these provisions contain words such as ‘express’ or “only” etc. to lend weight to the plain meaning of the provision.

15. The argument that the deletion of the word ‘express’ in relation to ‘agreement to the contrary’, as recommended by the Law Commission to the proviso to 2(2) would indicate that an implied agreement is included in the proviso has to be seen through the same prism as the other sections of the Act which contemplate an agreement by the parties. In other words, dropping the word ‘express’ in the final cut means little; the structure of the proviso as it exists today is that there must be a clear, unequivocal and unambiguous articulation by the parties to exclude the application of section 9 from the arbitration which is to take place outside IndiaSimply put, there must be something more to an arbitration agreement governed by a foreign law and with a foreign seat; the agreement must indicate in clear and express terms that the parties intend to exclude the operation of section 9 from the purview of the said arbitration agreement (underlined for emphasis). Hence, an arbitration agreement which merely chooses the law governing the underlying agreement, the arbitration and the conduct thereof without anything more cannot be seen as excluding the application of Section 9 by implication and closing the gates to Section 9 or the scope of the proviso to Section 2(2) of the Act.”

(emphasis supplied)

20. As can be seen from these decisions, to oust the jurisdiction of this Court under Section 9, there must be a specific Agreement between the parties which would indicate a clear intention to oust the jurisdiction of this Court to grant relief under Section 9 of the Indian Arbitration Act. In the facts of the present case, I have already opined that merely because the parties agreed that the arbitration would be conducted in London and would be governed by the English Law, would not amount to an “agreement to the contrary” as contemplated in the proviso to Section 2(2) of the Indian Arbitration Act. In this view of the matter, I find no substance in the first argument canvassed by Mr. Andhyarujina and the same is accordingly rejected.

21. The second argument canvassed by Mr. Andhyarujina was that before any order of deposit is made, the principles underlying the provisions of Order 38 Rules 1, 2 & 5 must be complied with by the Petitioner. He submitted that in the facts of the present case, there is nothing on record to show that the Petitioner has complied with the aforesaid provisions and therefore the Petitioner is not entitled to an order of deposit. I do not think that this argument holds any substance. It is true that the broad principles of Order 38 ought to be kept in mind whilst passing an order under Section 9 for securing the amount in dispute in the proposed arbitration. As far as Section 9 of Indian Arbitration Act is concerned, whilst considering a relief thereunder, it cannot be said that the Court is strictly bound by the provisions of Order 38 Rules 1, 2 and/or 5. The scope of Section 9 of the Act is very broad and the Court has the discretion to grant thereunder a wide range of interim measures of protection as may appear to the Court to be just and convenient. Of course, the discretion to be exercised by the Court under Section 9 has to be judicious and not arbitrary. Though, for considering interim measures, the Court would be guided by the principles which the Civil Courts ordinarily employ for considering grant or refusal of interim relief, particularly Order 39 Rules 1 & 2 and Order 38 Rule 5, the Court, however, is not unduly bound by their texts. Whilst exercising its power under Section 9, the Court must have due regard to the underlying purpose of the conferment of the power in the Court which is to promote the efficacy of arbitration as a form of dispute resolution. In an appropriate case, where the Court is of the view that there is practically no defense to the payability of the amount and where it is in the interest of justice to secure the amount, which forms part of the subject matter of the proposed arbitration reference, even if no case strictly within the letter of Order 38 Rules 1 or 2 is made out, though there are serious allegations concerning such a case, it is certainly within the power of the Court to order a suitable interim measure of protection. There is no requirement that for a relief of deposit, an ironclad case under Order 38 Rule 5 must be made out. The provisions of Order 38 are guides to a Section 9 Court and not fetters upon its discretion. To my mind, the position in law, is that, when there is a clear and unequivocal admission of liability or there is no real dispute with reference to the amounts payable, then in such a case an order of deposit may not only be made, but in the interest of justice, ought to be made. Where the defense raised is prima facie untenable and the Petitioner has a good chance of success, an order of deposit to secure the claim can and indeed should be made under Section 9.

22. In the view that I take, I am supported by several decisions of this Court. A Division Bench of this Court, in the case of Jagdish Ahuja v. Cupino Limited [2020 SCC OnLine Bom 849] held as under:—

“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 [decided on 27 February 2012] (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.”

7. In an appropriate case, where the court is of the view that there is practically no defence to the payability of the amount and where it is in the interest of justice to secure the amount, which forms part of the subject matter of the proposed arbitration reference, even if no case strictly within the letter of Order 38 Rule 1 or 2 is made out, though there are serious allegations concerning such case, it is certainly within the power of the court to order a suitable interim measure of protection. As we have noted above, the amount is either to be deposited into the treasury in accordance with the agreement between the parties or if, for any reason, it is not payable to the revenue towards the Respondent's tax liability, as is the case of the Appellants here, it is to be paid to the Respondent itself as part of the price of debentures. In fact, when these two options were posed by the learned Single Judge to the Appellants’ counsel, in fairness both conceded that there was no third option.”

(emphasis supplied)

23. The aforesaid decision was thereafter once again followed by another Division Bench Judgment of this Court in the case of Valentine Maritime Ltd. v. Kruez Subsea Pte Limited [2021 SCC OnLine Bom 75. The relevant portion of this decision, reads thus:

“95. Insofar as judgment of this Court delivered by the Division Bench of this court in case of Nimbus Communications Limited v. Board of Control for Cricket in India (supra) relied upon by the learned senior counsel for the VML is concerned, this Court adverted to the judgment of Hon'ble Supreme Court in case of Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd.(2007) 7 SCC 125 and held that in view of the decision of the Supreme Court in case of Adhunik Steels Ltd., (supra) the view of the Division Bench in case of National Shipping Company of Saudi Arabia (supra) that the exercise of power under section 9(ii)(b) is not controlled by the provisions of the Civil Procedure Code, 1908 cannot stand. This court in the said judgment of Nimbus Communications Limited (supra) held that the exercise of the power under section 9 of the Arbitration Act cannot be totally independent of the basic principles governing grant of interim injunction by the civil Court, at the same time, the Court when it decides the petition under section 9, must have due regard to the underlying purpose of the conferment of the power upon the Court which is to promote the efficacy of arbitration as a form of dispute resolution.

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 Civil Procedure Code, 1908, the rigors of every procedural provision in the Civil Procedure Code, 1908 cannot be put into place to defeat the grant of relief which would sub-serve 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 Civil Procedure Code, 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 Concilliation 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.

97. In the said Judgment, the Division bench of this court in the appeal arising out of the order passed by the learned Single Judge in the arbitration petition filed under section 9 of the Arbitration Act directing the appellant to furnish security in respect of the claim of the original petitioner in the amount of Rs. 305 Crores was modified by directing the appellant to furnish solvent security in the form of bank guarantee of the nationalized bank of the said amount to the satisfaction of the Prothonotary and Senior Master of this court. In our view, the said judgment of the Division Bench in case of Nimbus Communications Limited(supra) would assist the case of the KSS and not VML.

98. Insofar as judgment of Delhi High Court in case of Uppal Eng. Co. (P) Ltd. (supra) relied upon by the learned senior counsel for the VML is concerned, Delhi High Court held that the Court must act with utmost circumspection before issuing an order of attachment and unless it is clearly established that the defendant, with intent to obstruct or delay the execution of the decree that may be passed against him, is about to dispose of whole or any part of his property. In this case, we are of the prima facie view that the VML has no defence to the invoices issued by the KSS for the month of May 2020. The VML also has admitted in the affidavit in reply that there is no dispute about the said invoice however made an attempt to adjust the disputed claim against the undisputed invoice for the month of May 2020 issued by the KSS. In our prima facie view, the KSS has good chances of succeeding in the arbitral proceedings in respect of the said invoices for the month of May 2020 which are not disputed by the VML. The judgment of Delhi High Court in case of Uppal Eng. Co. (P) Ltd. (supra) would even otherwise is clearly distinguishable and would not advance the case of the VML.

99. Learned senior counsel for the VML could not distinguish the judgment of the Division Bench of this Court in case of Jagdish Ahuja (supra). The Division Bench of this Court in the said judgment has clearly held that in an appropriate case, where the Court is of the view that there is practically no defence to the payability of the amount and where it is in the interest of justice to secure the amount, which forms part of the subject matter of the proposed arbitration reference, even if no case strictly within the letter of Order 38 Rule 1 or 2 is made out, though there are serious allegations concerning such case, it is certainly within the power of the Court to order a suitable interim measure of protection. The principles laid down by this Court in the said judgment applies to the fact of this case.

100. Learned senior counsel for the VML made an attempt to distinguish the judgment delivered by the learned Single Judge of this court in case of Baker Hughes Singapore Pte. (supra) on the ground that the facts before the learned Single Judge in the said matter were totally different. This court in the said judgment after adverting to the judgment of the Supreme Court in case of Adhunik Steels Ltd. (supra), judgment of the Division Bench of this court in case of Nimbus Communications Limited (supra) and considered similar clause in the contract requiring the respondent to pay undisputed invoices within 60 days from the date of submission of such invoices to the contractor. Even in that matter, none of the invoices were disputed by the respondent in the correspondence exchanged between the parties. This Court in the said judgment held that even if the counter claim made by the respondent was higher than the claim made by the petitioner, the fact remains that the said counter claim was for damages whereas the claim made by the Petitioner therein was under undisputed invoices which claim was admitted and liability was acknowledged. This Court accordingly held that the arbitral tribunal could not have compared the claim made by the petitioner under undisputed invoices with the counter claim for damages.

101. This Court held that since the arbitral tribunal is also empowered to make an interim award and to grant money claim on the basis of the admitted claim and/or acknowledge liability, the arbitral tribunal has also power to grant interim measures so as to secure the claim which is the subject matter of the dispute before the arbitral tribunal if such case is made out by the applicant. The provisions under sections 9 and 17 of the Arbitration and Concilliation Act are meant for the purpose of protecting the subject matter of the dispute till the arbitration proceedings culminates into an award. This Court also held that the Court also considers whether a denial of such order would result in a grave injustice to the party seeking a protective order. The obstructive conduct of the party against whom such a direction is sought is also regarded as a material consideration. In our view, the principles laid down by this court in the said judgment in case of Baker Hughes Singapore Pte. (supra) would apply to the facts of this case. We do not propose to take a different view than the view taken by the learned Single Judge of this court in the said judgment in case of Baker Hughes Singapore Pte. (supra).”

(emphasis supplied)

24. I must mention that the aforesaid decision of the Division Bench in Valentine Maritime (supra) was challenged before the Hon'ble Supreme Court without any success. The SLP No(s).5083-5084/2021 filed by Valentine Maritime Ltd. was dismissed on 26th March, 2021. The said order reads thus:—

“Heard learned counsel for the parties.

We find no grounds to interfere with the impugned order of the Division Bench affirming the order of the Single Bench by way of an interim measure of protection, under Section 9 of the Arbitration and Conciliation Act, 1996.

Section 9(1) (ii) (b) of the Arbitration and Conciliation Act, 1996 enables the Court to pass orders securing the amount in dispute in arbitration.

The Special Leave Petition is, accordingly, dismissed.

Needless to say that the money shall lie in deposit with the Court, until the disputes actually get resolved.

Pending applications, if any, stand disposed of.”

25. Thereafter, another decision of a Division Bench of this Court, in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited [2021 SCC OnLine Bom 149], considered the Judgments passed in Jagdish Ahuja (supra) and Valentine Maritime (supra) and held as under:—

“34. This Court in case of Valentine Maritime Ltd. (supra) after adverting to the judgment of the Hon'ble Supreme Court in case of Raman Tech. & Process Engg. Co. v. Solanki Traders(2008) 2 SCC 302, a judgment of the Division Bench in case in case of National Shipping Company of Saudi Arabia v. Sentrans Industries Limited, Mumbai(2004) 2 Mah LJ 696, a judgment of the Division Bench of this Court Nimbus Communications Ltd. v. Board of Control for Cricket in India(2013) 1 Mah LJ 39, a judgment of the Hon'ble Supreme Court in the case of Adhunik Steels Ltd. v. Orissa Manganese & Minerals (P) Ltd.(2007) 7 SCC 125, a judgment delivered by the learned single Judge of this Court in case of Baker Huge Singapore Pte v. Shiv Vani Oil and Gas Exploration2014 SCC OnLine Bom 1663 has held that under section 9(i)(ii)(b) of the Arbitration Act, the Court is empowered to pass interim measure to secure the amount in dispute in arbitration which may be in the form of bank guarantee or deposit of money in Court. Such powers of Court can be exercised not only in the hands of the parties to arbitration but also in the hands of third party who has to admittedly pay any amount to the party to the arbitration agreement by directing such third party to deposit the amount on behalf of a party to arbitration agreement in Court.

35. This Court has distinguished the judgment of the Hon'ble Supreme Court Raman Tech. & Process Engg. Co. (supra) on the ground that the Supreme Court had dealt the powers of Court under Order 38 Rule 5 of the Civil Procedure Code, 1908 in a suit and not in a petition filed under section 9 of the Arbitration Act.

36. This Court has already held in the aforesaid judgments that exercise of the power under section 9 of the Arbitration Act cannot be totally independent of the basic principles governing grant of interim injunction by the Civil Court, at the same time the Court that had decided the petition under section 9 must have due regard to the underlying purpose of the conferment of the power upon the Court which is to promote the efficacy of arbitration as a form of dispute resolution. The rigors of every procedural provision in the Civil Procedure Code, 1908 cannot be put into place to defeat the grant of relief which would sub-serve the paramount interests of justice. A balance has to be drawn between the two considerations in the facts of each case.

37. In our view since the Arbitral Tribunal is also empowered to make interim injunction and grant money claim on the basis of the admitted claim or in case there being no valid defence at all of the claim made by the claimant, the Court has to grant interim measure so as to secure the claim which would be subject matter of the dispute before the Arbitral Tribunal. The provisions under sections 9 and 17of the Arbitration Act are meant for the purpose of protecting the subject matter of the dispute till the arbitration proceedings culminates into an award. The obstructive conduct of the party against whom such a direction is sought is also regarded as a material consideration.”

(emphasis supplied)

26. Lastly, a learned single Judge of this Court in the case of Kotak Mahindra Bank Ltd. v. Williamson Magor & Co. Ltd. [2021 SCC OnLine Bom 305] considered the entire law on the subject and thereafter opined that where the defense is prima facie untenable and the Petitioner has a good chance of succeeding in the arbitration, an order of deposit to secure the claim can indeed and should be made under Section 9. The relevant portion of this decision, reads as under:

“31. Lest it be argued either here or in any other forum that no case has been made out under Order 38 Rule 5 of the Civil Procedure Code, 1908 (“CPC”), which seems to me more or less the habitual and automatic chanting of every respondent in a Section 9 Petition, this needs to be stated : that is not the law. The recent decision of the Division Bench of this Court (RD Dhanuka and VG Bhisht JJ) in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Ltd. [2021 SCC OnLine Bom 149] makes it clear that there is no requirement that for such relief an iron-clad case under Order 38 Rule 5 of the Civil Procedure Code, 1908 (“CPC”) must be made out (or, if not argued, that the Court must hunt for it). The Division Bench reaffirmed the principle that has long been settled, and restated repeatedly, but which seem to be reagitated in the wrong way again and again. The Division Bench said in the clearest terms that the principles of the CPC, including especially Order 38 Rule 5, are guides to a Section 9 Court and the order it makes under that Section. They are not fetters upon the Section 9 Court's discretion. On my reading of the Division Bench order, the position in law is that in such a case an order of deposit not only can be made, but ought to be made. In Valentine Maritime Ltd. v. Kreuz Subsea Pte Ltd. [2021 SCC OnLine Bom 75], the Division Bench of this Court reiterated this position regarding Order 38 Rule 5 and also held that in appropriate case, where the defence is prima facie untenable, the Petitioner has a chance of success, and the defence is moonshine, an order of deposit to secure the claim can and indeed should be made under Section 9. This was also the view of another Division Bench of this Court in Jagdish Ahuja v. Cupino Ltd. [2020 SCC OnLine Bom 849]. All three decisions referenced and explained the previous Division Bench decision in Nimbus Communications Ltd. v. Board of Control for Cricket in India(2013) 1 Mah LJ 39] and the Supreme Court decision in Adhunik Steels Ltd. v. Orissa Manganese & Minerals (P) Ltd. [(2007) 7 SCC 125]. I followed the Division Bench decisions (referencing this law) in Parle Agro Pvt. Ltd. v. Shree Aqua Purifier Pvt. Ltd. and IIFL Finance Ltd. v. Shrenik Dhirajmal Sirqya.

32. Williamson Magor has no defence at all. Khaitan's defence is untenable and, in view of the settled law on the subject, is unstatable and probably the most complete moonshine. There is a contract with a clear and unequivocal obligation cast on the Respondents. The Petitioner has an excellent chance of success. Accordingly, the Respondents are required to deposit with the Prothonotary and Senior Master an amount of Rs. 14.88 crores by 31st March 2021. I have rounded off the amount of deposit.”

(emphasis supplied)

27. What can be culled out from the ratio of all these decisions is that though the Court must keep in mind the underlying principles of Order 38, in a case where there is no real dispute with reference to the amounts payable or the amounts payable are admitted, the Court always has the power, in the interest of justice, to secure the amount by directing the Respondent to deposit the said monies in Court. I therefore do not think that Mr. Andhyarujina is right in contending that merely because no case is strictly made out under the provisions of Order 38 Rules 1, 2 and/or 5, it would disentitle the Petitioner from seeking an order of deposit under Section 9 of the Indian Arbitration Act.

28. This now only leaves me to consider whether there are any admissions or there is any real dispute which would disentitle the Petitioner from seeking the aforesaid relief. When one goes through the emails annexed at Exhibits “O” to Exhibits “LLL”, prima facie, not only do I find that there are several admissions in those emails, but, at the very least, clearly, no dispute has been raised at any time whatsoever. A dispute was raised for the first time by Respondent No. 1 only on 10th August, 2021 and which was only after a legal notice was issued by the Petitioner to the 1st Respondent calling upon it to pay the amounts mentioned therein or face legal action. What is important to note is that even in the letter dated 10th August, 2021, and under which disputes were sought to be raised for the first time, no dispute was raised with reference to the invoices per se. The disputes were with reference to the alleged inadequate capability of the said Vessel and the skill of the crew being inadequate and unsatisfactory, which, in turn, had allegedly caused unavoidable delays and adverse financial and other losses to the 1st Respondent. It is rather surprising that this dispute is raised for the first time on 10th August, 2021 even though the said Vessel was in the custody of the 1st Respondent from 7th March, 2021 till 28th May, 2021 and was carrying out its operations as required by the 1st Respondent. Despite this, during the aforesaid period, or even thereafter, not a single letter or email was addressed by the 1st Respondent to the Petitioner alleging any inadequacies either qua the said Vessel or its crew. These disputes were raised for the first time only after a legal notice was served upon the 1st Respondent calling upon them to pay the amounts due under various invoices or face legal action. What is also important to note is that the Charter Party under which the 1st Respondent took the said Vessel on a time charter from the Petitioner, was extended by the 1st Respondent on 10 different occasions. If there was any merit in this dispute, no prudent person would have continued to extend the Charter Party and continue to charter an incapable Vessel or its crew, at least without informing the owner of the Vessel about the so-called inadequacies. All this material, at least prima facie, goes to show that the disputes raised in the letter dated 10th August, 2021 appear to be only as an afterthought to somehow avoid making payment of the legitimate dues of the Petitioner. I must also mention that each individual invoice has also thereafter been disputed by the 1st Respondent vide its letter dated 2nd October, 2021. However, this, at least to my mind, would not carry the case of the 1st Respondent any further. The dispute in relation to the invoices has been raised for the first time not only after the 1st Respondent was served with a legal notice, but after the filing of the present Petition itself. Raising a dispute with reference to each individual invoice after the filing of the present Petition is of little assistance to the 1st Respondent to resist the claim of the Petitioner.

29. This apart, I also cannot lose sight of the fact that clause 12(e) of the Charter Party clearly enjoins upon the 1st Respondent to dispute each invoice within seven days from the receipt thereof, failing which it must make payment thereunder. clause 12(e) reads as under:

“12. Hire and Payments

(a) ……………

(b) ……………

(c) ……………

(d) …………..

(e) Payments - Payments of hire, fuel invoices and disbursements for the Charterers' account shall be received within the number of days stated in Box 24 from the date of receipt of the invoice. Payment shall be received in the currency stated in Box 20(i) in full without discount or set-off to the account stated in Box 23. However, any advances for disbursements made on behalf of and approved by the Owners may be deducted from hire due. If the payment is not received by the Owners within five (5) Banking Days following the due date the Owners are entitled to charge interest at the rate stated in Box 25 on the amount outstanding from and including the due date until payment is received.

If the Charterers reasonably believe an incorrect invoice has been issued, they shall notify the Owners promptly, but in no event no later than the due date, specifying the reason for disputing the invoice. The Charterers shall pay the undisputed portion of the invoice but shall be entitled to withhold payment of the disputed amount. The Owners shall be entitled to charge interest at the rate stated in Box 25 on such disputed amounts where resolved in favour of the Owners. The balance payment (together with any applicable interest) shall be received by the Owners within five (5) Banking Days after the dispute is resolved. Should the Charterers' claim be valid, a corrected invoice shall be issued by the Owners.”

(emphasis supplied)

30. On a plain reading of this clause, it is clear that if the 1st Respondent does not dispute an invoice raised by the Petitioner within the time frame set out in Box 24 (i.e. within seven days from the receipt of the concerned invoice), it has to make payment thereunder. This does not mean that the 1st Respondent is for all times to come, precluded from disputing the invoice/s. It only means that the 1st Respondent would have to make the payment first and thereafter if it finds that the invoice is incorrectly issued or there is any dispute with reference to the same, it can make a claim on the Petitioner. This clause is a salutary clause because it ensures that there is a proper cash flow for the owner of the Vessel and is in line with commercial common sense. A party cannot be heard to say that I will breach this term and thereafter ask the party who has invoked it to wait till the outcome of the dispute between the parties. To my mind, that would be adding premium to dishonesty and cannot be permitted. Incidentally, this very clause [clause 12(e)], came up for consideration before a Queen's Bench Division in the case of Boskalis Offshore Marine Contracting BV v. Atlantic Marine and Aviation LLP (The “Atlantic Tonjer”) [2020 Volume (I) LLOYD's Law Reports 171]. The English Court whilst interpreting the said clause, inter-alia opined that if the Charterers reasonably believe that there is an error in the invoice, they can withhold the payment of the disputed amount by notifying the owners under the clause within the period they have agreed in the contract. The Court opined that clause 12(e) is not analogous to a time bar clause or any other type of clause limiting or excluding liability and nothing of the sort is implied into the clause. It is just that the Charterers are required by clause 12(e) to act in a certain way if they dispute an invoice and wish to withhold payment. This type of clause is to be construed in accordance with the same principles as any other clause. The Court was of the opinion that this clause [clause 12(e)], if properly construed, would mean that within 21 days of receipt of the invoice, the Charterer must form a view about it and if they reasonably believe it is incorrect, they do not have to pay but they must give the requisite notice. The Court felt that this interpretation of clause 12(e) is in line with commercial common sense for the simple reason that cash flow is a matter of considerable and sometimes crucial importance to the owners of the Vessel. There is nothing uncommercial if the Charterer is obliged to raise bonafide disputes in a time bound manner and considering that the parties agreed to such a bargain. The relevant portion of this English decision, reads thus:

“31. In my view clause 12 (e) is clear and unambiguous. A reasonable person with the background knowledge available to the parties at the time of the contract would understand that invoices had to be paid within 21 days of their being received (With invoices being issued in arrears that meant a maximum 35 days after the invoiced expenses were incurred). The language that payment “shall be received within the number of days stated in Box 24 from the date of receipt of the invoice” is precisely equivalent, as McNair J put it in Metalimex Foreign Trade Corporation v. Eugenie Maritime Co. Ltd., (1962) 1 Lloyd's Rep 378, to what might be equally stated in a negative form, namely, that charterers are barred from disputing the payment of invoices unless done within the 21 days referred to in the contract.

32. Those time periods had been negotiated by two commercial parties. There was no suggestion that they were not of equal bargaining power in the shipping market. Consequently, the hypothetical case of a challenge to an invoice having to be given in two or three business days has no traction. Even if that had been the case it would have been the period freely negotiated and determined by express agreement. In any event, clause 12 (e) does not preclude charterers from bringing claims (in our case the counterclaim reference by the tribunal) or withholding payment (that being subject, of course, to notice being given, so that if no notice is given a defence to payment cannot be raised).What clause 12(e) requires is prompt payment or prompt identification of any issue preventing payment.

33. On this reading of the clause, if charterers reasonably believe that there is an error in the invoice they can withhold payment of the disputed amount by notifying the owners under the clause within the period they have agreed in the contract. They also have the audit rights under clause 12(g) to reclaim amounts paid through accounting-type errors (wrong hire rate, wrong number of meals and so) up to four years ahead. Further, as the tribunal correctly concluded, the charterers can always bring a counterclaim if they have paid sums which they later believe were not properly payable. Counterclaims in this context would include a claim for breach of contract or one for unjust enrichment.

34. In other words, clause 12 (e) is not analogous to a time bar clause or any other type of clause limiting or excluding liability. Nothing is being implied into the clause. It may be that the charterers are required by clause 12 (e) to act in a certain way if they dispute an invoice and wish to withhold payment. But as Lewison LJ said in the Interactive E-Solutions case, this type of clause is to be construed in accordance with the same principle as any other clause. Adopting that approach, the clause properly construed means that, within 21 days of receipt of an invoice, charterers have to form a view about it. If they reasonably believe it is incorrect they do not have to pay, but they must give the requisite notice.

35. This interpretation of clause 12 (e) is in line with commercial common sense. In para 46 of its Reasons, the tribunal quoted the impeccable authority of Robert Goff J in S L Sethia Liners Ltd. v. Naviagro Maritime Corporation (The Kostas Melas), (1981) 1 Lloyd's Rep 18, that cash flow is a matter of considerable, sometimes crucial, importance to the owners of ships. That dictum has been underlined in later cases and is undisturbed by anything said in the judgments in Spar Shipping AS v. Grand China Logistics Holding (Group) Co. Ltd. (The Spar Capella, Spar Vega and Spar Draco) (2016) 2 Lloyd's Rep 447. In my view there is nothing uncommercial in the charterers being obliged to raise bone fide disputes timeously, at a time when the owners have an opportunity to exercise the rights and remedies they have under the charter party such as under clause 12 (f).

36. There is nothing in the BIMCO Guidance Notes which undermines this interpretation. The Notes on clause 12 (e) explain:

“Sub-clause 12 (e) (Payment) - This subclause requires payment of hire, fuel and disbursements to be received by the owners within the specified number of days in Box 24 from the date of receipt of the invoice. Account details should be described in Box 23. The charterers are not allowed to make deductions or set-off for claims they may have, with the exceptions for advances for disbursements made on behalf of and approved by the owners, and disputed parts of invoices as per the last paragraph of this subclause. The charterers should notify owners at the earliest opportunity, but not later than the due date, if they reasonably believe that an incorrect invoice has been issued”.

37. If anything this to my mind supports the interpretation outlined above. There is no hint in the BIMCO Guidance Notes that charterers need not pay within the time period the parties agree in the form; need not raise a dispute within that period; or can avoid the consequences of non-compliance for unstated reasons. Likewise, there is nothing in Rainey on The Law of Tug and Tow and Offshore Contracts to support the charterers' case.”

31. I am in full agreement with what is stated by the English Court in the aforesaid paragraphs. In the facts of the present case, admittedly, the invoices raised by the Petitioner on the 1st Respondent were not disputed by the 1st Respondent within seven days from the receipt thereof. Under the Charter Party [clause 12(e)], the 1st Respondent was therefore obliged to first make payment under any invoice it did not dispute within seven days from the receipt thereof and thereafter raise whatever claims it had by seeking a refund or an adjustment of the amounts under the invoice which it disputed subsequently. I therefore find that looking at it from any angle, the Petitioner has made out a very strong prima facie case seeking an order of deposit, or at the very least, securing the claim of the Petitioner by furnishing a bank guarantee of a nationalized bank till the disposal of the arbitration proceedings. I find that even the balance of convenience lies in favour of the Petitioner and in the facts of the present case, serious prejudice would be caused if an order securing the claim of the Petitioner is not passed.

32. In view of the forgoing discussion, the following order is passed:

(a) The 1st Respondent shall deposit the sum of USD 6,212,831/-, or its INR equivalent, in this Court within a period of eight weeks from today. If the deposit is made in INR, then the exchange rate will be the rate on the date the deposit is made.

(b) I also give the option to the 1st Respondent, if they choose not to deposit the aforesaid amount, to furnish a bank guarantee of any nationalized bank in the sum of USD 6,212,831/- or its INR equivalent, in favour of the Prothonotary and Senior Master of this Court which shall be kept alive until an Award is passed in the arbitration proceedings proposed to be instituted by the Petitioner. If the bank guarantee is furnished in INR, then the exchange rate will be the rate on the date when the bank guarantee is furnished. This bank guarantee shall carry interest @ 6% p.a. for the period it is kept alive. In other words, for the first year, the bank guarantee shall be for the amount of USD 6,585,600.86 (USD 6,212,831 + USD 372,769.86 towards interest @ 6% p.a.) or its INR equivalent; for the second year the bank guarantee shall be for an amount of USD 6,958,370.72 (USD 6,585,600.86 + USD 372,769.86 towards interest @ 6% p.a.) or its INR equivalent; for the third year the bank guarantee shall be for an amount of USD 7,331,140.58 (USD 6,958,370.72 + USD 372,769.86 towards interest @ 6% p.a.) or its INR equivalent; and so on.

(c) In the event, the 1st Respondent does not deposit the aforesaid amount or furnish a bank guarantee as directed above, the Petitioner shall be entitled to execute the above order against the 1st Respondent under Section 36 of the Civil Procedure Code, 1908 to ensure that the monies are brought into Court.

33. The above Section 9 Petition is accordingly disposed of. However, there shall be no order as to costs. It is made clear that all observations made herein are only prima facie and shall not bind the Arbitral Tribunal whilst deciding the lis between the Petitioner and the 1st Respondent.

34. All parties to act on a copy of this order digitally signed by the Personal Assistant/Private Secretary/Associate of this Court.


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