Arbitral Tribunals Exercising Power U/S 17 Not Strictly Bound By CPC: Calcutta High Court

The arbitral tribunals are not strictly constrained by the CPC's technicalities when exercising their authority under Section 17 of the A&C Act, according to the Calcutta High Court. The Court ruled that while the fundamental CPC principles must serve as a guide for the tribunals while granting interim relief, strict technicalities cannot preclude the tribunal from advancing the interests of justice.

By noting that the scope of both Sections is now nearly pari passu, the Justice Shekhar B. Saraf bench has extended the reasoning used by the Supreme Court in Essar House Private Limited v. ArcelorMittal Nippon Steel India Limited, 2022 (SC) LiveLaw 765, wherein the SC held that the Court exercising powers under Section 9 of the A&C Act is not strictly bound by CPC, to Section 17 as well.

The tribunal may give a relief that may not be provided for in the agreement as long as the relief is not expressly stated to conflict with the contract to avoid the arbitral procedures becoming infructuous and to balance the convenience of the parties.

Facts 

In a contract signed on May 10, 2019, the petitioner agreed to provide a high wall Mining System (HMW) in exchange for payment of Rs. 60,12,93,000. (excluding taxes). Clause 4 outlined the payment system that will be disclosed gradually.

The parties who were submitted to arbitration became embroiled in a disagreement. The arbitrator issued an order dated 22.12.2021 directing the attorneys for both parties to maintain the entire balance of the HMW system in an escrow account, with the understanding that the petitioner would receive the full amount upon the HMW system performing satisfactorily for a continuous period of 96 hours. The tribunal established the mode of operation for the transport of the HWS system in an order dated 14.02.2022, and it instructed the Special Officer to supervise the transport, reassembly, and testing of the system.

Following the parties' oral arguments, the tribunal modified the orders dated 22.12.2021 and 14.02.2022 by an order dated 7.03.2022 and instructed the respondent to open an interest-bearing fixed deposit account in favour of the petitioner's attorney consisting of 50% of the basic contract value plus 100% of taxes and duties payable on the HWM System instead of the entire balance amount. The amount would be released as and when the tribunal makes any further orders.

The petitioner then filed a second application under Section 17 requesting that its advocate be instructed to cash the fixed deposit and disburse the funds in the petitioner's favour. The respondent then filed a request to prevent the petitioner's attorney from cashing in the FD.

Concerning both applications, the contested order dated June 13, 2012, rendered judgement. The petitioner's advocate was given instructions by the tribunal to cash the FD amount and release the money to the petitioner, but only after receiving a bank guarantee for the same amount. The petitioner invoked Section 37 of the Act to contest the ruling because he was offended by the requirement to provide a bank guarantee.

The contention of the Parties 

The petitioner objected to the decision for the following reasons:

• • The tribunal's order, insofar as it requires the petitioner to deposit a bank guarantee, violates the provisions of the contract because no such provision was included in the parties' contract.
• • Through the contested order, the tribunal revised the parties' agreement.
• • The decision goes against the CPC provision since the respondent hasn't shown any evidence that the petitioner might not be able to pay its putative liability in the future if it materialises due to the HWM System's malfunction.
• •The claims in the respondent's application that led to the impugned order were not even mentioned in the meeting minutes from the same day, let alone raised or heard.
• • Because the ruling was made on the same day that the application was moved, the rules of natural justice were broken because the petitioner was not given a chance to react to the claims stated in the respondent's application.
• • No justification is given for adding a second bank guarantee requirement.
• The following arguments were offered by the respondent in opposition to the appeal:
• • The machine's delivery has been delayed. Additionally, the petitioner has a track record of selling goods that are duplicates, inferior, and inexpensive.
• • The application is essentially an effort to stall the arbitration process and prevent the HMW system from being inspected, tested, disassembled, and put into service.
• • Before the impugned order was rendered, both sides' attorneys were heard, giving the petitioner a fair chance to dispute the claims made in the respondent's motion.
• • Because the petitioner breached its commitments under a prior agreement with the respondent, there is good reason to believe that it will do so again.

Analysis by the Court 

First, the Court addressed the argument that Order XXXVIII Rule 5 CPC was not followed since the respondent failed to mention in its application that the petitioner would not be able to pay any future liabilities that might emerge as a result of the HWM System's failure.

The Court has stated that the arbitral tribunals are not strictly constrained by the CPC's technicalities while acting by Section 17 of the A&C Act. The Court determined that the fundamental CPC principles should govern the scope of authority given to tribunals for the grant of interim relief; however, the Court also determined that strict technicalities could not prevent the tribunal from advancing the interests of justice. As a result, the Court rejected the objection.

By noting that the scope of both Sections is now nearly passu, the Court has extended the reasoning used by the Apex Court in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited, 2022 (SC) LiveLaw 765, wherein the SC held that the Court exercising powers under Section 9 of the A&C Act are not strictly bound by CPC, to Section 17 as well. The Court then made a decision addressing the argument that the bank guarantee requirement violated the terms of the contract, specifically clause 4.

The Tribunal had directed the entire balance amount to be deposited in the escrow account, but the Court noted that the order dated 22.12.2021 was also not strictly by the agreement. Nevertheless, both parties accepted and acted upon the order. The petitioner's objection, according to the court, appears to be disingenuous. Similar to how the impugned ruling might not strictly follow the agreement, it is required to facilitate the contract and prevent the arbitration from being infructuous. The Court noted that both orders had been made to make it easier for the parties to meet their contractual obligations.

The tribunal may give a relief that may not be provided for in the agreement as long as the relief is not expressly stated to be in conflict with the contract of conflict arbitral procedures infructuous and to balance the convenience of the parties.

The Court noted that the tribunal's condition for the release of the FD amount was justified in light of the concerns expressed by the respondent in its application according to Section 17 of the Act.

The Court then addressed the complaints that the order's justifications were insufficient. The order extensively analyses the history of the conflict, but only briefly addresses the concerns of both parties, the court said. This does not imply, however, that the parties were not given a fair chance.

As a result, the Court rejected the appeal.