Recently, the Delhi High Court in the case of "Shanghai Electric Group Co. Ltd vs Reliance Infrastructure Ltd. FAO(OS)(COMM) 213/2022" restrained the Anil Ambani-owned Reliance Infrastructure from selling, alienating, transferring or encumbering its assets, amounting to USD 135,320,728.42.
Case Overview:
In the aforementioned matter, Shanghai Electric Group ("Shanghai") had filed a Petition under Section 9 of the Arbitration and Conciliation Act, 1996 ("A&C Act") seeking urgent interim relief, to secure their amount of INR 1100 Crores, which was in dispute under the then ongoing Arbitration with Reliance Infrastructure, in view of its concern that the Arbitral Award which was yet to be passed, could be rendered incapable of being executed in the absence of any interim protection award to the Shanghai. The said amount happened to have been due and payable by Reliance Infrastructure ("Reliance") through its own guaranteed letter dated 26.06.2008 issued in favour of Shanghai.
Keeping in view the concerns raised by Shanghai with regard to the financial situation and resources and of Reliance, the Hon'ble Single Judge vide its Order dated 19.07.2022 dismissed the Petition while observing that the concerns raised by Shanghai are of a highly contentious issue and the interim relief sought prior to any Arbitral Award having been rendered, is comparable and akin to the relief sought under Order 3 Rule 5 of the Code of Civil Procedure, 1908 ("CPC"). The Hon'ble Single Judge further held that in order to obtain interim relief(s), there should have been a prima facie case or crystallization of the debt due, which had to be supported by substantial evidence and that there should have been a suspicion that Reliance was trying to remove, sell or dissipate its assets to defeat the Arbitral Award that may be passed.
Accordingly, Shanghai, being aggrieved by the Order dated 19.07.2022 passed by the Single Judge of the Hon'ble Delhi High Court, filed an Appeal under Section 37 of the A&C Act. However, during the pendency of the said appeal before the Division Bench of the Hon'ble Delhi High Court, an award was passed by the Singapore International Arbitration Centre ("Foreign Tribunal") vide its order 08.12.2022, wherein Shanghai was awarded a sum of USD 122,232,275.03 apart from the pre-award interest of USD 20,401,706.29 and other legal costs, expenses and disbursements of USD 3,675,257.95. Reliance being aggrieved by the Order dated 08.12.2022 passed by the Foreign Tribunal also filed an Originating Application No. 01 of 2023 before the Singapore International Commercial Court of the Republic of Singapore ("Singapore Commercial Court"), which was dismissed vide order 31.01.2024.
What did the Division Bench of the Hon'ble High Court say?
The Division Bench of the Hon'ble High Court while entertaining the appeal against the Order dated 19.07.2022 of the Single Judge, filed by Shanghai under Section 37 of the A&C Act, by way of its Order dated 06.03.2024, partly allowed and partly set aside the Order dated 19.07.2022 passed by the Single Judge. The Division Bench agreed with the Single Judge's observation based on the reliance placed upon "Trammo DMCC V. Nagarjuna Fertilizers and Chemicals Ltd., 2017 SCC Online Bom 8676") that the location of the assets against which enforcement is sought would confer the jurisdiction to the Court within whose Territorial Jurisdiction the assets are situated.
Further, the Division Bench also agreed with the Single Judge on the point that if Shanghai was to obtain an Interim Protection from the Foreign Tribunal, then the same would not be directly enforceable by the Courts in India since unlike section 17(2) of the A&C Act, there is no corresponding provision for enforcement of Interim Orders which a Foreign Tribunal or any Foreign Court passes. Accordingly, the Division Bench highlighted the underlying distinction that the Act only contemplates enforcement of foreign awards and not foreign interim orders. Division Bench of the Hon'ble High Court agreed with the Single Judge of the Hon'ble Delhi High Court that the assets against which the enforcement is sought are situated in Delhi hence the Order(s) for preservation of the assets can be passed by the Courts in Delhi only and that execution of the Award can also be sought before the court situated in Delhi.
The Division Bench while partly allowing the order of the Single Judge, went on to set aside the limited aspect of the Order passed by the Single Judge merely to the extent that Shanghai's requirement to demonstrate a prima facie or crystallization of debt is now not needed since the Arbitral Award has already been passed in the favour of Shanghai by the Arbitral Tribunal and the same was challenged by Reliance before the Singapore Court which was dismissed by the Singapore Court vide Order dated 31.02.2024. Further, the other aspect, basis on which the relief sought by Shanghai was declined by the Single Judge of the Hon'ble High Court, was the underlying requirement for Shanghai to prove that Reliance was trying to remove, sell or dissipate the assets was also found not sustainable, by the Division Bench, as Reliance dissipated assets without the leave of the Hon'ble High Court despite having given an undertaking that they will not create any encumbrance over assets worth INR 995 Crores.
Accordingly, keeping in view the chain of events mentioned above, the Division Bench of the Hon'ble High Court, while partially setting aside the Order dated 19.07.2022, restrained Reliance from selling, alienating, transferring or encumbering its assets, amounting to USD 135,320,728.42 (as prayed for in the Section 9 Petition before the Single Judge), while further clarifying that the said restraint would be subject to any charge on the assets already created in favour of a Bank or a Financial Institution.
References:
Originally published March 22, 2024.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
