Date of judgment:
December 14, 2020
Judges:
V. Kameswar Rao, J.
Parties:
Petitioner: BRACE IRON AND STEEL PRIVATE LIMITED
Respondent: TATA STEEL BSL LIMITED
Subject
What are the powers of this Court under Section 9 of the Arbitration Act, 1996? Was the Court entitled to pass an order granting interim relief to the petitioner?
Overview
- The petitioner is a private company registered under the Companies Act, 2013 and the respondent (former Bhushan Steel Limited or BSL) is a subsidiary of Tata Steel, which was acquired by Bamnipal Steel Ltd., a wholly-owned subsidiary of Tata Steel Ltd, after it underwent corporate insolvency.
- The respondents, prior insolvency and resolution process had taken financial assistance from various banks and financial institutions in the form of secured term loans, secured working capital loans, etc.
- As a part of deleveraging, the respondent was required to monetize 4 oxygen plants and the lenders of the respondent issued a NOC to permit the respondent to execute a sale and leaseback agreement with the petitioner, on the condition that the interest on the lease of the oxygen plants will be charged for the benefit of the lenders and the oxygen plants were sold.
- The petitioner entered into a separate agreement with the lenders to raise Rs 850 crores to finance the acquisition of oxygen plants and it also collected several other funds.
- Simultaneously, a lease agreement dated February 26, 2015 was executed between the petitioner and the respondent for leasing the oxygen plants.
Submissions by the Petitioner
- The petitioner stated that the lease agreement was made to ensure that the interest of lenders was secured and the respondent had a duty to pay the agreed rent amount, without the excuse of the non-payment.
- The petitioner also stated that the rent amount of the lease was based on the benchmark rate and it was as per the understanding with the lenders.
- The petitioner, respondent, and SBICAP Trustee Company Limited entered into a substitution agreement that gives the right to the trustee to substitute the lessee, in case it does not fulfil its obligations.
- In May 2018, the TATA Group took over the management of the respondent, and after the taking over, there was no default in the payment of lease rentals and GST for a period of 21 months.
- The petitioner mentioned that in December 2019, the respondent started raising non-maintainable and legal issues and by March 2020, they stopped the payment of rent and committed a fundamental breach of the lease agreement and therefore stopping the petitioner from paying loans.
- The petitioner stated that the Steel plants cannot function without the proper functioning of oxygen plants and respondents have failed to show any instance where their plan stopped working due to the non-functioning of oxygen plants.
- The petitioner informed the court the Government of India has allowed a moratorium but still, the petitioner will be liable to pay compound interest on the interest.
- Therefore, the petitioner has filed the present petition so that the respondent is not allowed to self-determine the claim of money and rental obligations payable by it.
Submissions by the Respondent
- The respondents stated that the petitioner is attempting to seek final release, which is not permissible by law and it will defeat the purpose of the arbitration.
- It was contended that the present petition has been filed while the negotiations taking place and the power of the Court under Section 9 of the Arbitration Act is limited and it is with the Arbitral Tribunal to grant the final award.
- It was averred by the respondent that after taking over the control of the business by the TATA Group, it was found that the rent amount was not in line with the market and the petitioner did not carry out the maintenance of oxygen plants and they were entitled to payment from the petitioner.
- It was also stated that the negotiation was ongoing and the respondent was paying the part payment of the lease and there was no irreparable harm caused to the petitioner.
- The respondents stated that their claims exceeded the claims made by the petitioner and the same was not mentioned by the petitioner and if any order in the favour of the petitioner is granted, it would cause damage to the respondent.
Judgement Analysis
- After hearing both counsels for petitioner and respondent, the Court summarised the contention of both parties and briefed their submissions in paragraphs 65 and 66 of the original judgement order.
- The Court accepted the contention of counsel of the petitioner and agreed that there is an obligation on the part of the respondent to pay the rent amount and it was also noted that the respondent, after overtaking the management of BSL, paid the lease rent and also submitted GST with the public authority.
- The Court mentioned that whether the lease rent is required to be reduced or not, cannot be decided by this Court, and such disputes need to be decided by the arbitration proceedings.
- The Court also observed that the leased equipment is used by the respondents and it is the prima facie liability on the respondent to pay the petitioner for the usage of oxygen plants, as the money received as the rent is used by the petitioner to service its loans.
- The Court observed that there is an issue between the parties as to who will be responsible for the maintenance of the oxygen plants and the respondent has spent Rs 41,79,4852 on the maintenance of the plants and claims the amount from the petitioners.
- Referring to the issue of maintenance of oxygen plants, the Court said that the same can be decided only by the arbitrator and not by this Court as the decision on this dispute shall amount to the final result.
- Referring to several judgements of the High Court and Supreme Court, this Code held that while exercising the power under Section 9 of the Arbitration Act, Court can pass orders according to Order XXXIX Rule 10 of the CPC.
- Referring to an issue that an amount of Rs10,19, 91,600 is outstanding and payable by the petitioner to the respondent and the same was confirmed by the petitioner, the Court agreed with the counsel of the petitioner and stated that there was no clear admission by the petitioner for the payment of that amount.
- The Court held that it is clear that Rupees 18 crore is the agreed amount of rent payable by the respondent and it should be paid at a still the time the parties seek adjudication of the dispute before the arbitrator.
- It was directed to the respondent to pay the arrears of lease rent, including the taxes to the lender bank, with the interest after adjusting the amount already paid.
Conclusion
Justice V. Kameswar Rao, in detail, heard the submissions and contentions of the counsels of the petitioner and respondent and based the judgement on the powers of the High Court. By keeping a check and restrain on its authority, he decided not to pass order on all the disputes as it would have defeated the purpose of arbitration proceedings and passed a constrained order by granting interim and partial relief to the petitioner, while leaving the whole dispute to be decided by the arbitrator.
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