Judgment: Power Mech Projects Limited Vs. SEPCO Electric Power Construction Corporation [O.M.P. (I) (COMM.) 523/2017],

Forum: Hon'ble High Court of Delhi ("Court")

Judgment delivered on: February 17, 2020

Act/Law: Arbitration and Conciliation Act, 1996 ("Act").

Ratio: In appropriate circumstances, the Court can direct the deposit of the entire sum awarded under the arbitral award before considering a challenge petition under Section 34 of the Arbitration Act or before staying the enforcement of the award.

Background: A petition was filed under Section 34 of the Act [OMP (COMM.) 432/2017] challenging the arbitral award dated October 17, 2017 ("Award") by SEPCO Electric Power Construction Corporation ("Petitioner"), a Central Government owned entity registered in China and the largest construction Corporation against Power Mech Projects Limited ("Respondent"). Subsequent to the filing of the aforesaid petition, the Respondent on December 11, 2017 filed another petition under Section 9(ii)(b) of the Act seeking to secure the entire amount awarded (principal amount awarded being Rs. 1,42,41,14,499/-) to it under the Award. During the course of proceedings, Court had directed the Petitioner to file an affidavit detailing its assets (moveable/immovable), bank accounts and the amounts lying in the banks within the Territory of India. The Court also directed the Petitioner to deposit 10% of the amount available in its bank account every 15 days (Petitioner deposited Rs. 2.74 Crores approx.) as mentioned in its affidavit and subsequently to furnish a bank guarantee of Rs. 30 Crores in the registry of the Court. The Petitioner did submit a sum of Rs. 2.74 Crores in the Court and furnished the Bank Guarantee of Rs. 30 Crores during the course of proceedings but since the said sums were meagre when compared to the amount awarded, the Respondent again filed an application inter alia praying that the Petitioner be directed to deposit the complete awarded amount with interest after giving credit of the earlier deposits made before the Court.

Analysis: The controversy involved in the two petitions (being heard together by the Court) was whether the petition under Section 34 of the Act, listed along with the present petition, could be heard on merits, against the Award without the Petitioner first securing the complete awarded amount.

While deciding the question and sustaining the contention of the Respondent that the facts and circumstances of the case warrant that 100% of the principal amount awarded be deposited by the Petitioner before the petition is heard on merits and also that as held in Hindustan Construction Company Limited Vs. Union of India (WP (Civil) No. 1074 of 2019 decided on November 27, 2019) by the Hon'ble Supreme Court that Section 9, post award, as a measure of protection, is a step in aid of the enforcement of the award and the award should not be rendered illusory by dealings that would put the subject of the award beyond the pale of enforcement, the Court held that, while it cannot be said as a principle of law that there is a mandate that in every case the Court must insist on a 100% deposit, before hearing a petition under Section 34 of the Act or before staying the enforcement of the Award, as the amount of deposit would depend on the facts of the case and is in the discretion of the Court hearing the petition. Court observed that the chronology of facts of this case revealed that the Petitioner in fact did not have any immovable assets in India and held that the fact that the Petitioner had ongoing projects in India cannot be accepted as a security which would ensure that the Award would be enforceable.

The Court also went on to record that it was not appropriate at the stage to go into the disputed questions of valuations of machinery as contented by the Petitioner, in terms of the law laid down in the recent judgment of Hon'ble Supreme Court in Hindustan Construction Company Limited (supra) and held that the machinery cannot be taken as a solvent security, since the Award is to be treated as a money decree and cannot be secured by moveable assets such as plant and machinery.

The Court also reiterated the findings of Hon'ble Supreme Court in Hindustan Construction Company Limited (supra) which provided for due weightage to be given to the legislative intent of the legislature while promulgating Section 35 regarding finality and binding value of the award; the interpretation of section 36 that, the amended Section 36, being clarificatory in nature, merely restates the position that the unamended Section 36 does not stand in the way of the law as to grant of stay of a money decree under the provisions of the CPC and; an arbitral award-holder is deprived of the fruits of its award which is usually obtained after several years of litigating as a result of the automatic stay.

The Court also concurred with the reliance placed upon by the Respondent on Hon'ble Supreme Court decisions in SREI Infrastructure Finance Limited vs. Candor Gurgaon Two Developers and Projects Pvt. Ltd. (SLP(C)No(s). 20895-20897/2018) where in an appeal filed against the judgment of the Calcutta High Court, the Hon'ble Supreme Court has directed 100% deposit of the amount viz. 60% by cash deposit and remaining 40% to be secured by a Bank Guarantee of a nationalized bank and in Manish vs. Godawari Marathawada Irrigation Development Corporation (SPL(C) Nos. 11760-11761/2018) where the Bombay High Court had ordered 60% deposit but the Hon'ble Supreme Court held that there should be a 100% deposit being a money decree.

Conclusion: Court opined that while it is true that in some of the orders shown by the Petitioner of co-ordinate Benches of the High Court of Delhi have been directing a deposit of 50%, but going by the recent decisions of the Supreme Court as also the facts and circumstances of the present case, it is appropriate that the Petitioner must deposit 100% of the awarded amount of Rs. 142 Crores (principal amount) to secure the Respondent within four weeks from the date of the order. The present judgment is likely to have an impact by way of the Delhi High Court now directing deposit of more than 50 percent of the awarded amount prior to entertaining any challenge to the corresponding awards.

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