HELIGO CHARTERS PRIVATE LIMITED vs AIRCON BEIBARS FZE

Naresh H. Patil, J

This appeal is directed against an order passed by the learned Single Judge of this Court on 28th April, 2017 in Comm Arbitration Petition (l) No.

208/2017. The respondent herein Aircon Beibars FZE (original petitioner) holds a foreign award passed on 25th January, 2017 for an amount of

approximately US$7 million equivalent to Rs.46 Crores against the appellant herein Heligo Charters Pvt. Ltd. The award was made pursuant to

reference of disputes under the Arbitration Clause contained in Clause 7 of the Settlement Deed dated 9th September, 2014. The Award was passed

in Singapore.

The original respondentÂappellant herein did not challenge the Award in the Singapore Court. It has thus become final. It is the contention of the

respondent herein that the appellant has failed to pay awarded amount of US$ 7 million/Rs.46 Crores.

The Respondent herein had filed Arbitration Petition No.269/2017 wherein it was pointed out that only significant asset that the appellant/Heligo has

in India, is a helicopter which it uses for ONGC operations. The respondent expressed apprehension that appellant might move the helicopter from the

jurisdiction of the Court or might encumber or alienate the same to prevent the same from being proceeded against in enforcement of the said Award.

Therefore, the petitioner had sought relief under Section 9 of the Arbitration Act, 1996 (as amended by Amendment Act of 2015) to restrain the

respondent from alienating, encumbering, or parting with possession of the Helicopter and from removing it from the jurisdiction of the Court, pending

enforcement of the Foreign Award under Part II of the Arbitration Act.

The learned Single Judge by an order dated 28th April, 2017 confirmed the adÂ​interim injunction.

The learned Senior Counsel Mr. Vikram Nankani appearing for the appellant submitted that the question of law arising herein is what the law in

force in India was on the date on which the Arbitration Agreement was entered into by the parties. Clause 7 of the Settlement Deed dated 9th

September, 2014 reads as under:

“7. GOVERNING LAW AND ARBITRATION

This DEED shall be governed by and construed in accordance with Singapore Law and any and all disputes, matters, differences of whatsoever

nature and howsoever arising out of this DEED shall be referred to arbitration in Singapore in accordance with the rules of the Singapore International

Arbitration Centre (SIAC) for the time being in force. The Arbitration shall be conducted in English and the parties shall endure to have the

Arbitration concluded within three (3) months of it being called for. Each of the Buyer and the Seller shall be entitled to nominate an Arbitrator. The

two appointed arbitrators shall within a period of no more than (10) days appoint a third arbitrator such that the tribunal shall consist of three

arbitrators. If upon the receipt by the Buyer or the Seller (as the case may be) of the nomination, in writing, of the appointment of an arbitrator, Buyer

or the Seller (as the case may be) shall appoint their arbitrator within 14 days, failing which the arbitrator already appointed shall act as a sole

arbitrator.â€​

In the written submissions it is submitted that the Scheme of the Arbitration Act visÂ​aÂ​vis foreign seated arbitration does not permit the respondent

to approach courts in India under Section 9 of the Act. This submission is based on the fact that the parties had executed the Settlement Deed, and

consequently the Arbitration Agreement, prior to the Arbitration and Conciliation (Amendment) Act, 2015 and had agreed to seat their arbitration in

Singapore. The parties have excluded availability of PartÂI of the Act, including Section 9 of the Act. The law in India was settled by the Supreme

Court in Bharat Aluminum Co. vs. Kaiser Technical Service (2012) 9 SCC 552 ('BALCO' for short). Â It was held that Section 9 of the Act was not

applicable to foreignÂseated International Commercial Arbitration. The BALCO judgment was pronounced on 6th September, 2012. The Arbitration

Agreement in the present case was executed on 9th September, 2014. Â Section 9 of the Act, therefore, is not applicable to the facts of the case. The

dispute between the parties was referred to arbitration on 12th April, 2015. The amended act came into effect from 23rd October, 2015. The Counsel,

therefore, submitted that the negative right of the parties under the Settlement Deed â€" to not have the ability to approach courts in India under Part I

of the Act â€" had accrued before the amendment to the Act took effect. It is submitted that Section 26 of the Amendment Act must be given

purposive interpretation based on the findings of Apex Court in the case of

Thyssen judgment. The Counsel referred to the 246th report of the Law Commission of India. It is the submission of the Counsel that proviso to

Section 2(2) of the Arbitration Act cannot be made applicable retrospectively. One of the written submission of the appellant reads as under:

“14. Without prejudice to the submissions made above, and in the alternative, the Appellant further submits that there is yet another reason by the

petition in the present case is not maintainable. This because the second condition in the proviso to Section 2(2) is not fulfilled. The proviso, inter alia,

provides that if the seat of arbitration is outside India, the foreign award has to be “enforceable and recognised†under Part II of the Act. These

words indicate that unless and until the foreign award is first enforced and recognised (accepted) by this Hon'ble Court, under Section 48 read Section

49 of the Act, no petition under Section 9 is maintainable.

Enforceability and recognition of foreign award is a condition precedent for filing petition under Section 9. This submission is fortified by the

language used in Section 9 itself, which while covering the situation after award refers only Section 36 of the Act, which applies to domestic award.

Hence, on a plain reading, Section 9, does not cover a case of foreign award after arbitration is concluded and therefore, the petition under Section 9

in relation to foreign award can only be maintained, if the second condition under the proviso to Section 2(2) was also satisfied, namely, Section 9 of

the foreign award should be enforceable and recognised under Part II of the Act by the competent court in India.

Indeed, since the Respondent has failed toprocure enforcement under Part II of the Act, for more than twelve (12) months after the Foreign

Award was made, the Foreign Award has not become enforceable in terms of section 49 of the Act and remains to be tested for enforceability in

terms of Section 48 of the Act.

In the facts, the Counsel submitted that primaÂfacie case is made out. Balance of convenience is not in favour of the respondent and irreparable

injury would be caused in case the relief is denied to the appellant herein. The Counsel submitted that Single Judge failed to appreciate the facts, the

import of the judgment and the amended provisions of the Arbitration Act.

The learned Counsel for the appellant placed reliance on following judgments:Â​

I) Harmony Innovation Shipping Ltd. Vs. Gupta Coal India Ltd. Â Â & anr. (2015) 9 SCC 172

 ii) Thyssen Stahlunion Gmbh Vs. Steel Authority of India Ltd. (1999) 9 SCC 334

iii) Bharat Aluminum Company Vs. Kaiser Aluminum Technical Services. (2012) 9 SCC 552.

iv) Law Commission of India (Report No.246)

v) Order dtd. 17/4/17 in ARBPL/208/2017 passed by JusticeG.S. Patel.

In the case of Thyseen Stahlunion GMBH (cited supra), the Apex Court observed in Paragraph 32 as under:

“32. Principles enunciated in the judgments show as to when a right accrues to a party under the repealed Act. It is not necessary that for the right

to accrue legal proceedings must be pending when the new Act comes into force. To have the award enforced when arbitral proceedings commenced

under the old Act under that very Act is certainly an accrued right. Consequences for the party against whom award is given after arbitral

proceedings have been held under the old Act though given after the coming into force of the new Act, would be quite grave if it is debared from

challenging the award under the provisions of the old Act. Structure of both the Acts is different. When arbitral proceedings commenced under the old

Act it would be in the mind of everybody, i.e., the arbitrators and the parties that the award given should not fall foul of Sections 30 and 32 of the old

Act. Nobody at that time could have thought that Section 30 of the old Act could be substituted by Section 34 of the new Act.â€​

The learned Senior Counsel Mr.Chinoy appearing for respondents submitted that appellant therein has raised technical/legal pleas to exercise of

jurisdiction as follows:Â​

“e(i) that section 9 was not applicable as Part I including section 9 was excluded by virtue of the Arbitration being seated in Singapore and subject

to Singapore Law; and

(ii) that orders under section 9 could not be sought till the Foreign Award had been recognised and held to enforceable under Section 48. The

Respondent had also pointed out that the Helicopter had already been provided as security to the Union Bank of India for obtaining various banking

facilities.

It is submitted that by an order dated 28th April, 2017 the learned Single Judge rejected the respondent's objection to the exercise of jurisdiction

under Section 9 and allowed the petition.

In the submission of the Counsel that mere fact that under the arbitration agreement the arbitration took place in foreign country could not resolve

any exclusion in nonÂapplicability of Section 9 of the Act. The learned Single Judge pointed out that since Section 2(2) proviso is in relation to foreign

awards, to accept the appellant's submission “would be to render the amendment to section 2(2) utterly otiose. The proviso to Section 2(2), which

was added by the Arbitration and Conciliation Act, 2015 reads as under:

“2(2) Provided that subject to an agreement to the contrary, the provisions of sections 9, 27 and clause (a) of subÂsection (1) and subÂsection (3)

of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to

be made in such place is enforceable and recognised under the provisions of Part II of this Act.â€​

The said proviso was added pursuant to Supreme Court judgment in the case of BALCO cited supra. The Counsel referred to Report No.246 of

Law Commission of India. In the submission of learned Senior Counsel Mr. Chinoy notwithstanding that Part I is not applicable to a Foreign Seated

Arbitration, the proviso to Section 2(2) was introduced to make only Section 9 (and other sections) of Part I applicable even to Foreign seated

Arbitrations, in order to provide a remedy to a party who obtains a Foreign Award in such a Foreign seated Arbitration, so that such a Party was not

faced with the situation that “the entity against which it had to enforce the award has been stripped off its assets and has been converted into a

shell company.†It is submitted that the Amendment Act which introduced section 2(2) proviso has treated section 9 as being distinct from the rest of

Part I of the Arbitration Act, 1996 and has made Section 9 applicable to the foreign seated arbitration, unless the parties specifically agrees to the

contrary. The Counsel further submitted that remedy under Section 9 is a transitory provision pending the process contemplated under Section 48 of

the Act. This is obviously intended to ensure that a Court can step in to protect an asset from being diverted or dissipated and to ensure that the holder

of a foreign Award, if he is able to get his foreign award pronounced enforceable against an asset which he can proceed. In the written submissions

the respondent has specifically stated in paragraphs (d) (e) and (g) as under:Â​

“(d) More once a Foreign Award is “recognised†and held to be “enforceable†under section 48, there would be no need to resort to

section 9, as “the award would be deemed to be a decree of the Court†(Ref: Section 49) and orders by way of injunctions, attachment etc. can

be sought in Execution proceedings. It is only in the interregnum, i.e. till the Foreign Award is held to be enforceable as a decree if the Court (under

sections 48 and 49), that recourse would be required under section 9 for interim protective orders to prevent dissipation and diversion of assets.

(e) The patent fallacy in the Appellants submission is apparent from the fact that the proviso to sec 2(2) makes section 9 applicable to an international

commercial arbitration taking place outside India “and an arbitral award made, or to be made in such place..â€. Under the plain language of the

Proviso to Section 2(2), an Application under Section 9 could be made even during the pendency of an Arbitration held outside India; i.e. even prior to

an Award having been made in such a Foreign Arbitration. It would be ex facie incongruous/absurd to construe the Proviso to section 2(2) to mean

that an Application under section 9 would be maintainable before the foreign Award was made BUT would not be maintainable once the foreign

Award was made until the Award had been recognised and held enforceable under Section 48.

(g) The reliance sought to be placed by the Appellants between the language proposed by the Law Commission for the proviso to sec 2(2) i.e. “if

an award made, or to be made, in such place would be enforceable and recognised under Part II of this Actâ€, and the section as enacted “if an

award made, or to be made, in such place is enforceable and recognised under Part II of this Actâ€, is misplaced. The change in language is

inconsequential and merely a matter of phrasing. In both cases the said last sentence, is merely descriptive of the “arbitral award made, or to be

made†as being a Foreign Award required to be recognised and enforced under Part II of the Act. The last sentence does not stipulate a

second/additional preÂ​condition for making an Application under section 9.

We have perused the judgments cited supra and written submissions of the parties.

Heard learned Counsel appearing for the respective parties. We agree with the submissions advanced by the Counsel appearing for the

respondents. The amended provisions of Section 2(2) clearly stipulates that subject to an agreement to the contrary, the provisions of Section 9 shall

apply to international commercial arbitration even if the place of arbitration is outside India. The contention that unless the award is put to execution in

accordance with provisions of Section 48, a party is not entitled to seek interimÂrelief is not sustainable. There is no such embargo or restriction

placed for seeking recourse to interim measures even if the award is foreignÂseated one. The amendment was brought into effect after the Law

Commission submitted its report consequent to judgment in the case of BALCO (cited supra). Paragraph 194 of the judgment reads as under:

“194. In view of the above discussion, we are of the considered opinion that the Arbitration Act, 1996 has accepted the territoriality principle which

has been adopted in the UNCITRAL Model Law, Section 2(2) makes a declaration that Part I of the Arbitration Act, 1996 shall apply to all

arbitrations which take place within India. We are of the considered opinion that Part I of the Arbitration Act, 1996 would have no application to

international commercial arbitration held outside India. Therefore, such awards would only be subject to the jurisdiction of the Indian courts when the

same are sought to be enforced in India in accordance with the provisions contained in Part II of the Arbitration Act, 1996. In our opinion, the

provisions contained in the Arbitration Act, 1996 make it crystal clear that there can be no overlapping or intermingling of the provisions contained in

Part I with the provisions contained in Part II of the Arbitration Act, 1996.â€​

We are, therefore, not inclined to accept the contentions of the appellant on that ground. In view of the amended provisions and facts, we are of the

view that operation of provisions of Section 9 cannot be excluded in absence of a specific agreement to the contrary. The judgment in BALCO was

pronounced on 6th September, 2012. The dispute between the parties was referred on 8th April, 2015. The Arbitration agreement was executed

between the parties on 9th September, 2014. Whereas the Act was amended on 23rd October, 2015.

In respect of interpretation placed by the Counsel appearing for theappellant under the provisions of Section 2(2), 9 and 48, we are of the view that

the interim protection in the facts cannot be denied to the respondent irrespective of as to whether the award was put to execution or not? Such a

measure is made available in law under Section 9 of the Act so as to prevent dissipation and diversion of assets. This being the object and purpose

behind the amended provisions which is based on the recommendations of the Law Commission. We do not find any error in the view adopted by the

learned Single Judge on this count. The judgments cited supra by the Counsel appearing for the appellant do not support and sustain the interpretation

placed by the Counsel.

It is to be noted that although the arbitration agreement wasentered into in September 2015, the objection under Section 9 was filed in April 2017

i.e. 19 months after the amendment.

In ParagraphÂ11 of the impugned order dated 28th April, 2017, the learned Single Judge quoted the extract of Report No.246 of the Law

Commission of India which reads as under:Â​

While the decision in BALCO is a step in the right direction and would drastically reduce judicial intervention in foreign arbitrations, the Commission

feels that there are still a few areas that are likely to be problematic.

(i) Where the assets of a party are located inIndia, and there is a likelihood that that party will dissipate its assets in the near future, the other party will

lack an efficacious remedy if the seat of the arbitration is abroad. The latter party will have two possible remedies, but neither will be efficacious.

First, the latter party can obtain an interim order from a foreign Court or the arbitral tribunal itself and file a civil suit to enforce the right created by the

interim order. The interim order would not be enforceable directly by filing an execution petition as it would not qualify as a “judgment†or

“decree†for the purposes of sections 13 and 44A of the Code of Civil Procedure (which provide a mechanism for enforcing foreign judgments).

Secondly, in the event that the former party does not adhere to the terms of the foreign Order, the latter party can initiate proceedings for contempt in

the foreign Court and enforce the judgment of the foreign Court under sections 13 and 44A of the Code of Civil Procedure. Neither of these remedies

is likely to provide a practical remedy to the party seeking to enforce the interim relief obtained by it. That being the case, it is a distinct possibility that

a foreign party would obtain an arbitral award in its favour only to realize that the entity against which it has to enforce the award has been stripped of

its assets and has been converted into a shell company.

(ii) While the decision in BALCO was madeprospective to ensure that hotly negotiated bargains are not overturned overnight, it results in a situation

where Courts, despite knowing that the decision in Bhatia is no longer good law, are forced to apply it whenever they are faced with a case arising

from an arbitration agreement executed preBALCO.

In ParagraphÂ18 the learned Single Judge observed as under:18. On the question of whether such an order ought to be made on merits, Mr.Nankani

says that Heligo is good for the money. Given that this is about a helicopter, he succumbs to temptation in describing his client as being “not a flyÂ‐

byÂnight operatorâ€. If that is so, Mr. Nankani's client's option is simple: his client must make available by a deposit in Court sufficient money or

security to secure a potential enforcement of the foreign award that has been rendered against it. If not, I see no reason why a limited injunction of the

nature that I have described, i.e. subject to a prior claim by a secured creditor ought not to be made. Certainly, I am not able to see any prejudice

being caused to the Respondent. On the other hand, as I have noted, if an injunction is refused, there is every possibility of irreparable prejudice to

Aircon. In my view, there is not only primaÂ​facie case, bu the balance of convenience also favours the Petitioner.

The Award was passed on 25th January, 2017. The learned Single Judge has rightly dealt with the issue and has reached reasonable and proper

conclusion. We do not find any error or perversity in the view adopted by the learned Single Judge. In the facts, we do not notice any prejudice being

caused to the appellant. If the injunction is refused, there is every possibility of irreparable loss being caused to the respondent. The respondent has

made out a strong primaÂfacie case and balance of convenience is also in favour of respondentÂoriginal petitioner. We, therefore, find no merit in the

Appeal. It stands dismissed. No order as to costs.