Court can set aside the trial court’s order U/S 9 Arbitration Act on the ground of perversity, when the appellant’s case is a case of admitted liability: High Court of Delhi
Section 9 of Act, 1996 should be exercised in exceptional cases when there is adequate material on record leading to a definite conclusion that the respondent is likely to render the entire arbitration proceedings infructuous or where there is an admitted liability. This was held in SAVITA JAIN SOLE PROPRIETOR OF M S NAVKAR SALES v.  M/S KRISHNA PACKAGING [FAO (COMM) 62/2021] in the High Court of Delhi by division bench consisting of JUSTICE MANMOHAN and MS. JUSTICE ASHA MENON Facts are that the appellant has filed an appeal challenging the order passed by the trial court whereby the petition filed by the appellant under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the „Act, 1996‟) was dismissed with costs. The counsel for the appellant submits that discretionary relief enshrined under Section 9 of the Act, 1996 should have been exercised as there was adequate material on record leading to a definite conclusion that the respondent had “admitted its liability”. He placed reliance on Rajendran and Others Vs. Shankar Sundaram and Others. The for the respondent stated that the appellant had failed to establish urgency in this matter and that there was no admitted liability. The appellant had failed to establish that the respondent was frittering away/disposing of his assets so as to defeat the very purpose of Arbitration. The court referred to the order of the Coordinate Bench of the Court in the case of Ajay Singh v. Kai Airways Private Limited, wherein the following observations were made,  “Though apparently, there seem to be two divergent strands of thought, in judicial thinking, this court is of the opinion that the matter is one of the weight to be given to the materials on record, a fact-dependent exercise, rather than of principle. That 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.”
 IN THE HIGH COURT OF DELHI AT NEW DELHI FAO62 2021 SAVITA JAIN SOLE PROPRIETOR OF M S NAVKAR SALES Appellant Through Mr. Namit Suri with Mr. Roshan Kumar Advocates. M S KRISHNA PACKAGING ..... Respondent Through Mr. Kaushal Gautam Mr. Gaurav Khetarpal Mr. Abhinav and Ms. Snehpreet Kaur Advocates Reserved on Date of Decision HON BLE MR. JUSTICE MANMOHAN HON BLE MS. JUSTICE ASHA MENON 26th March 2021 20th April 2021 JUDGMENT MANMOHAN J: CM APPL. 8706 2021 CM APPL. 8705 2021 Allowed subject to just exceptions. Accordingly the application stands disposed of. Keeping in view the averments in the application the delay in filing the present appeal is condoned. Accordingly the application stands allowed. FAO62 2021 FAO62 2021 & CM APPL. 8704 2021 Present appeal has been filed challenging the order dated 26th November 2020 passed in OMP (Comm.) No. 119 2020 whereby the petition filed by the appellant petitioner under Section 9 of the Arbitration and Conciliation Act 1996was dismissed with costs. ARGUMENTS ON BEHALF OF THE APPELLANT Learned counsel for the appellant petitioner stated that the respondent had itself in its ledger sent along with email dated 28th August 2020 the appellant petitioner tune of Rs.15 40 318 out of Rs.19 29 546 . He submitted that discretionary relief enshrined under Section 9 of the Act 1996 should have been exercised in the present case as there was adequate material on record leading to a definite conclusion that the respondent had “admitted its liability”. In support of his submission he relied upon the following judgments: A. Rajendran and Others Vs. Shankar Sundaram and Others 2 SCC 724 wherein it has been held as under: “12. The appellants in our opinion are not seriously prejudiced thereby. The court while exercising its jurisdiction under Order 38 Rule 5 of the Code of Civil Procedure is required to form a prima facie opinion at that stage. It need not go into the correctness or otherwise of all the contentions raised by the parties. A cheque had been issued in the name of the firm. The appellants are partners thereof. A pronote had been executed by a partner of the firm. Thus even under the Partnership Act prima facie the plaintiff could enforce his claim not only as against the firm but also as against its FAO62 2021 B. M s. Value Source Mercantile Ltd. Vs. M s. Span Mechnotronix Ltd. 2014DRJ 505 wherein it has been held as under: “14. The question which thus arises is that if the dispute as aforesaid had been brought before this Court by way of a suit whether this Court could have during the pendency of the suit granted the relief as has been granted in the impugned order. Order XXXIX Rule 10 of the CPC empowers the Court to direct deposit payment of admitted amounts. The appellant as aforesaid does not controvert that it continued to be the tenant of office unit B 1 and had not terminated the tenancy with respect thereto. There is thus an admission by the appellant of the liability for rent at least of office unit B 1. The appellant if had been a defendant in a suit could have thus been directed by an interim order in the suit to make such payment to the respondent. Order XV A added to the CPC as applicable to Delhi and which was added as held by us in judgment dated 15th May 2014 titled Raghubir Rai v. Prem Lata to empower the Court to direct payment during the pendency of the suit at a rate other than admitted rate also empowers the Civil Court to direct payment which is apparently wrongfully disputed. The denial by the appellant of the entire rent as agreed on the ground of having determined the tenancy of one of the two office units taken on rent is clearly vexatious as in law the appellant as a tenant could not determine tenancy of part of the premises taken on rent. It is not the case of the appellant that it was entitled to do so as part of terms of its tenancy. In that view of the matter the appellant could under Order XV A of the CPC have been directed to pay the rent of the entire premises notwithstanding having given notice of termination of tenancy of part thereof. We are therefore satisfied that the impugned order satisfies the test of being in exercise of the same power for making orders as the Court has for the purpose of a Civil Suit and is thus within the ambit of Section 9 of the Arbitration in FAO FAO62 2021 C. Numero Uno International Ltd. Vs. Prasar Bharti 150 DLT 688 wherein it has been held as under: “8. The issue can be viewed from yet another angle. The making of the interim award ensures to the party in whose favour the same is made the payment of an amount which is an admitted position payable to it. There is no reason why the payment of what is admittedly due should await the determination of other disputes which may take years before they are finally resolved. If at the conclusion of the arbitral proceedings the defendant were to succeed in his claim either wholly or partially and if after adjustment of the amounts found payable to the plaintiff any amount is eventually held payable to one or the other party the arbitrator can undoubtedly make such an adjustment and direct payment of the amount to one or the other party as the case may be. The final award would in any such case also take into consideration the payments if any made under the interim award. Suffice it to say that the making of the interim award in no way prevents the arbitrator from making adjustments of the amount in the final award and doing complete justice between the parties. By that logic even if we assume that the Prasar Bharti was to fail in substantiating its further claims which are disputed and the appellant were to succeed wholly in the counter claim that it has made all that it would result in is an award in favour of the appellant. There is therefore no inherent illegality or perversity in the making of the interim award by the arbitrator so as to call for interference by this Court under Section 34 of the Act.” D. Huawei Technologies Co. Ltd. Vs. Sterlite Technologies Limited MANU DE 0241 2016 wherein it has been held as under: “29. I agree that the discretion should be exercised in those exceptional cases when there is adequate material on record leading to a definite conclusion that the respondent is likely to render the entire arbitration proceedings infructuous or there is an admitted liability. FAO62 2021 30. In the present case admittedly the goods have been supplied by the petitioner to the respondent in terms of the supply contract and respondent has further supplied the same to MTNL. The said goods are being used and enjoyed by the MTNL. The respondent after supplying the goods to MTNL has collected substantial payment and has not paid to the petitioner for supply of the goods and the payment has been retained by the respondent. No doubt the claim(s) and counterclaim(s) of the parties would be adjudicated in arbitral proceedings. However there is no reason why the petitioner s claim be not secured by requiring the respondent to furnish appropriate security especially in the light of the contractual framework and particularly when the dues are admitted and the party has received the amount due from the Learned counsel for the appellant petitioner stated that the precarious financial condition of the respondent was apparent from the documents and financial statements filed by the respondent itself. He submitted that the learned trial court despite finding a prima facie case in favour of the appellant got swayed by irrelevant considerations and dismissed the petition and imposed costs upon the appellant. ARGUMENTS ON BEHALF OF THE RESPONDENT Per contra learned counsel for the respondent stated that the appellant had failed to establish urgency in this matter both in the application before learned District Judge and in the present appeal warranting this Court‟s He stated that there was no admitted liability as claimed by the appellant as the respondent had categorically stated that account will be settled only if: FAO62 2021 i) all his debit notes issued were adjusted ii) the freight charges incurred by the respondent were credited iii) rate difference of 23 mic polyester film and freight of 36 mic polyester film were credited to respondent‟s account and iv) defective goods supplied were acknowledged by appellant. He stated that the fact that defective goods had been supplied was acknowledged by appellant. He emphasised that all the aforesaid issues had been raised with the appellant in the respondent‟s letter dated 24th October 2019 but to no avail. Learned counsel for the respondent contended that the appellant had failed to establish that the respondent was frittering away disposing of his assets so as to defeat the very purpose of Arbitration and if an interim relief by way of securing alleged admitted amount was not granted the Arbitration proceedings would become infructuous. He stated that the change of address of respondent as claimed by the appellant as evidence of trying to evade paying outstanding liabilities was an address change from Mathura to Vrindavan a mere 12 kms apart. He further stated that the respondent‟s turnover and profit was growing progressively and in the unlikely event of an award being passed against it respondent was capable of paying the decretal amount. COURT‟S REASONING SECTION 9 GRANTS WIDE POWERS TO THE COURTS IN GRANTING AN APPROPRIATE INTERIM ORDER BASED ON THE RELEVANT FACTS OF THE CASE AT ALL STAGES OF THE ARBITRATION PROCEEDINGS NAMELY BEFORE DURING OR AFTER THE FAO62 2021 ARBITRATION PROCEEDINGS. COURT‟S JURISDICTION UNDER SECTION 9 IS TO SUPPORT THE ARBITRATION AND TO ENSURE THAT IF AN AWARD IS PASSED BY THE ARBITRATOR THE SAME IS EXECUTABLE AND IS NOT RENDERED INFRUCTUOUS. THOUGH EXERCISE OF SUCH POWERS IS PREMISED ON THE UNDERLYING PRINCIPLES OF ORDERS XXXVIII AND XXXIX OF THE C.P.C YET IT IS SETTLED LAW THAT THE COURT IS NOT UNDULY BOUND BY THE TEXT OF THESE PROVISIONS. Having heard learned counsel for the parties this Court is of the opinion that Section 9 grants wide powers to the Courts in granting an appropriate interim order based on the relevant facts of the case at all stages of the arbitration proceedings namely before during or after the arbitration proceedings. However this Court is in agreement with the submission of learned counsel for respondent that the discretion under Section 9 of Act 1996 should be exercised in exceptional cases when there is adequate material on record leading to a definite conclusion that the respondent is likely to render the entire arbitration proceedings infructuous or where there is an admitted liability. Needless to state though exercise of such powers is premised on the underlying principles of Orders XXXVIII and XXXIX of the C.P.C yet it is settled law that the Court is not unduly bound by the text of these provisions. A Coordinate Bench of this Court in Ajay Singh v. Kai Airways Private Limited 2017 SCC OnLine Del 8934 has held as under: “27. Though apparently there seem to be two divergent strands of thought in judicial thinking this court is of the opinion that the matter is one of the weight to be given to the materials on record a fact dependent exercise rather than of principle. That 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 FAO62 2021 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. In this regard in Films Rover International Ltd. v. Cannon Film Sales Ltd.3 All ER 772 are the observations of Lord Hoffman “But I think it is important in this area to distinguish between fundamental principles and what are sometimes described as „guidelines‟ i.e. useful generalisations about the way to deal with the normal run of cases falling within a particular the grant of category. The principal dilemma about interlocutory injunctions whether prohibitory or mandatory is that there is by definition a risk that the court may make the „wrong‟ decision in the sense of granting an injunction to a party who fails to establish his right at the trialor alternatively in failing to grant an injunction to a party who succeedsat trial. A fundamental principle is therefore that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been „wrong‟ in the sense I have described. The guidelines for the grant of both kinds of interlocutory injunctions are derived from this principle.” In any event this Court‟s jurisdiction under Section 9 is to support the arbitration and to ensure that if an Award is passed by the Arbitrator the same is executable and is not rendered infructuous.28 2021 Mewa Mishri Enterprises Private Limited Vs. AST Enterprises Inc. decided on 23rd February 2021.] THIS COURT SETS ASIDE THE TRIAL COURT‟S ORDER ON THE GROUND OF PERVERSITY AS THE APPELLANT‟S CASE IS A CASE OF ADMITTED LIABILITY AS REFLECTED IN RESPONDENT‟S OWN BALANCE SHEETS AND STATEMENT OF ACCOUNTS. IN FACT BALANCE SHEETS AND STATEMENT OF ACCOUNTS OF A COMPANY ARE IN LAW SUPPOSED TO REFLECT THE TRUE AND CORRECT FAO62 2021 STATE OF AFFAIRS. CONSEQUENTLY IF THE RESPONDENT HAD ANY TENABLE COUNTER CLAIM AS CONTENDED BY THE RESPONDENT IN ITS LETTER DATED 24TH OCTOBER 2019 AND AS BELIEVED BY THE TRIAL COURT IT WOULD NOT HAVE SHOWN THE ITS STATEMENT OF ACCOUNTS ENDING 31ST MARCH 2020 AS ITS SUNDRY CREDITOR TO WHOM RS. 15 40 318 WAS DUE AND PAYABLE WITHOUT ANY CAVEAT EXPLANATION. FURTHER THE FINANCIAL CONDITION OF THE RESPONDENT IS NOT HEALTHY. 10. Though this Court is of the view that the jurisdiction of an Appellate Court while hearing an appeal against application under Section 9 of the Act 1996 is limited as the appeal is against exercise of discretion by the learned Single Judge yet as the trial court in the present case has acted contrary to the settled principles of law as well as facts it sets aside the trial court‟s order on the ground of perversity as the appellant‟s case is a case of admitted liability as reflected in respondent‟s own balance sheets and statement of accounts without any caveat explanation and that too post its counter claim in its letter dated 24th October 2019. 11. The balance sheets and statement of accounts filed by the respondent prima facie prove that the respondent admits the appellant as his sundry creditor to the tune of Rs.15 40 318 without any demur or subject to any condition. Though the respondent during the course of arguments stated that it has to effect recoveries from the appellant in accordance with its letter dated 24th October 2019 yet the said contention is belied from the fact that the appellant is not shown as Sundry Debtor even in the subsequent balance sheet for the year ending 31st March 2020 filed before this Court. In fact even in the respondent‟s balance sheet for the subsequent Financial Year 2020 21 the appellant petitioner is shown as a Sundry Creditor to whom an FAO62 2021 admitted amount of Rs.15 40 318 is payable. 12. The balance sheets and statement of accounts of a company are in law supposed to reflect the true and correct state of affairs. Consequently if the respondent had any tenable counter claim as contended by the respondent in its letter dated 24th October 2019 and as believed by the Trial Court it would not have unequivocally shown the appellant petitioner in its statement of accounts ending 31st March 2020 as its Sundry Creditor to whom Rs.15 40 318 was due and payable. It is pertinent to mention that attention of this Court was not drawn by the respondents to any caveat or auditor‟s report or note on accounts with regard to the said admission in the balance sheets or statement of accounts during the course of hearing. Accordingly this Court is of the prima facie opinion that the counter claims raised by the respondent are an after thought and vexatious. 13. Further the financial condition of the respondent is not healthy as is apparent from the fact that the respondent bank‟s unsecured loans stood at Rs.94 27 094 and Sundry creditors were to the tune of Rs.1 82 83 278 . The net profit turnover of the respondent for the Assessment Year 2019 20 was Rs.4 45 812 which is much less than the admitted amount and almost one fifth of the total outstanding amount claimed by the appellant. 14. Consequently this Court is of the view that the appellant ought to be protected insofar as the admitted amount of Rs.15 40 318 is concerned. 15. Accordingly the impugned order dated 26th November 2020 passed by the Trial Court is set aside and the respondent is directed to furnish a bank guarantee of Rs.15 40 318 to the FAO62 2021 satisfaction of the Trial Court within four weeks. The bank guarantee shall be kept alive till an award is rendered by the Arbitrator and shall abide by further orders to be passed by the learned Arbitrator while rendering the final award. This Court clarifies that the conclusions arrived at by this Court are prima facie in nature for determination of this proceeding and shall not bind the Arbitrator who shall decide the matter on its own merits without being influenced by any observation made by this Court. Consequently present appeal and application stand disposed of. MANMOHAN J ASHA MENON J APRIL 20 2021 FAO62 2021 