Decided on 14th September 2022 | Supreme Court of India

The Hon’ble Supreme Court (“the Court”) was hearing an appeal against a common judgment and Order dated 1st February 2021 passed by a Division Bench (Commercial Division) of the Bombay High Court, dismissing an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 and confirming the Order passed by a Single Bench (Commercial Division) of the Bombay High Court, allowing the Section 9 application filed by Arcellor, respondent herein.

Essar House Private Limited (the appellant), Arcellor Mittal Nippon Steel India Limited (the respondent).

FACTS –

On or about 24th January 2012, Essar Services and Essar Steel entered into a Support Services Agreement. Essar Steel deposited a total sum of Rs. 47.41 Crores with Essar Services as security deposit in terms of the support services. In March 2018, Essar Services and Essar Steel mutually reconciled their accounts. Pursuant to this reconciliation, Essar Services was liable to pay to Essar Steel a sum of Rs. 47.41 Crores.

On 2nd August 2017, Standard Chartered Bank and State Bank of India jointly filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 for initiation of Corporate Insolvency Resolution Process (CIRP) against Essar Steel. The respondent a resolution applicant submitted a resolution plan in respect of Essar Steel. The resolution plan was approved by the NCLT on 08.03.2019 and subsequently by NCLAT on 04.06.2019. The resolution plan was finally approved by the Supreme Court in Committee of Creditors of Essar Steel India through Authorised Signatory v. Satish Kumar Gupta, (2020) 8 SCC 531. On 11th January 2020, the respondent called upon the appellant to refund the interest free security deposit amounting to Rs. 35,51,89,875/- that was previously due to Essar Steel prior to the CIRP.

After multiple follow-ups, on 17th June 2020, the respondent sent a legal notice to the appellant calling upon them to refund the security deposit along with interest within a period of seven days. The appellant vide its email dated 27th June 2020 replied to the respondent and mentioned utilisation of Rs. 25 Crores from the security deposit towards payment of dues by Essar Steel to Marvel Mines. The remainder of the value i.e., Rs. 9 Crore was paid to Edwell Infrastructure. The appellant replied that no security deposit was left to be refunded to the respondent. On 14th July 2020, the respondent also addressed a legal notice to Essar Services for the refund of Rs. 47.41 Crores due that were payable to Essar Steel since 2019.

LEGAL HISTORY –

On 17th November 2020, the respondent filed an application under Section 9 of the Arbitration Act seeking orders directing the appellant to deposit Rs.35,51,89,875/- with the Bombay High Court. The respondent also filed an application under Section 9 of the Arbitration Act seeking orders directing Essar Services to deposit Rs. 47,41,00,000/- before the Bombay High Court. The Bombay High Court passed two Orders directing the appellant and Essar Services to deposit the said amounts before the Bombay High Court vide Orders dated 10th December 2020. The Orders were
upheld by the Division Bench of the Bombay High Court on 1st February 2021.

ISSUE –

• Whether the respondent could seek for an interim relief under Section 9 of the Arbitration and Conciliation Act, 1996?
• What was the scope of the Court’s power under Section 9, in comparison to CPC?

JUDGMENT –

The Court observed that Section 9 of the Arbitration Act provided that a party may apply to a Court for an interim measure or protection to (i) secure the amount in dispute in the arbitration or, (ii) such other interim measure of protection as may appear to the Court to be just and convenient. The Court observed that Section 9 of the Arbitration Act confers wide powers on the Court to pass orders securing the amount in dispute in arbitration, whether before the commencement of the arbitral proceedings, during the arbitral proceedings or at any time after making of the arbitral
award but before its enforcement in accordance with Section 36 of the Arbitration Act.

The Court observed that it would be sufficient for it to see if the applicant for the interim measure has a good prima facie case, whether the balance of convenience is in favour of the interim relief being granted and whether the applicant had approached the Court with reasonable expedition. The Court further observed that the Court
exercising its power under Section 9 of the Arbitration Act should not withhold relief on mere technicalities under the CPC.

The Court observed that a strong possibility of diminution of assets would suffice the requirement of granting an interim relief as long as the other requirements mentioned above are duly fulfilled. The Court lastly observed that balance of convenience must be assessed by weighing the consequences of grant of interim relief against the success or failure of the case.

COMMENT –

The Supreme Court by upholding the Orders of the Bombay High Court has reinforced the remedy of security of costs as an interim relief under Section 9 of the Arbitration Act, which could, inter-alia, safeguard the Award Holder at the time of enforcement.