Michail Arhangelos Sa vs Star Matrix and Others

The Petitioner which is a company incorporated in Marshal Islands, has filed this petition u/s 9 of the Arbitration and Conciliation Act 1996 (''Act'') seeking interim reliefs against Respondent No. 1, a company incorporated in Hong Kong, the Punjab National Bank (''PNB'') at New Delhi (arrayed as Respondent No. 2) and the Punjab National Bank at Hong Kong (arrayed as Respondent No. 3) in which Respondent No. 1 holds an account. An agreement was entered into between the Petitioner and Respondent No. 1 on 2nd April, 2010 in terms of which Respondent No. 1 purchased from the Petitioner a ship for a total purchase consideration of USD 1.1 Million (US Dollars One Million One Hundred Thousand). Clause 2 of the said agreement deals with the mode of payment and reads as under;

Payment: Out of the total purchase amount US$ 350,000 to US$ 400,000 to be paid at Mombasa to clear the following parties.

Crew wages

Port charges.

Ship supplier or shipping agent.

Or any other parties.

The balance money to be kept in a joint account between sellers and buyers in Punjab National Bank, Hong Kong in a separate account. This money to be released to sellers upon vessel being dismantled by 50% or maximum in days of beaching at breakers yard.

Also relevant for the purposes of the present petition is Clause 12 of the agreement which reads as under:

If dispute should arise in connection with the interpretation in fulfillment of this contact, same shall be decided by arbitration in the City of London, U.K. with English law to apply and shall be referred to a single arbitrator to be appointed by the parties hereto. If the parties cannot agree upon the appointment of the single arbitrator the dispute shall be settled by three arbitrators, each party appointing one arbitrator and the third being appointed by London Maritime Arbitrators Association in London. If any of the appointed arbitrators refuses or is incapable of acting, the party who appointed him shall appoint an arbitrator in his place.

If one party fails to appoint an arbitrator, either originally or by way of substitution for two weeks after the other party having appointed his arbitrator has sent the party making default notice by mail, cable or telex to make the appointment. London Maritime Arbitrators Association shall, after application from the party having appointed his arbitrator, also appoint on behalf of the party making default.

The award rendered by the Arbitration Court shall be final and binding upon the parties and may if necessary by enforced by the Court or any other competent authority in the same manner as judgment in the court of justice.

According to the Petitioner, the Respondents failed to make complete payment. There was a balance amount of USD 360,788/- that was to be paid to the Petitioner as on 5th May, 2010. An Addendum was entered into between the parties whereby Respondent No. 1 assured payment of USD 100,000/- by 9th May, 2010. On 2nd August, 2010, Respondent No. 1 informed the Petitioner that he had made payment of USD 860,000. However, the Petitioner maintained that it had received only 19,000/- Euros.

With the disputes as regards the balance sale consideration having arisen, the Petitioner on 21st December, 2010 sent the Respondent No. 1 a notice of cancellation of memorandum of agreement and Bill of Sale. By a subsequent e-mail dated 23rd December 2010 the Petitioner informed Respondent No. 1 about the cancellation of the agreement. On 24th December 2010, the Petitioner informed Respondent No. 1 that it had invoked the arbitration clause and appointed an Arbitrator and called upon Respondent No. 1 to nominate its Arbitrator. The Petitioner stated that it came to know about the arrest of the vessel by the Gujarat High Court in AS No. 1/2011 filed by one Destel Marine Ltd. On making enquiries, the Petitioner came to know that Respondent No. 1 had allegedly sold the vessel to M/s Kathiawar Steels while falsely representing to be the owner of the vessel. In para 4.10 of the petition, the Petitioner states that it had "commenced Arbitration Proceedings at London claiming for ownership and possession of vessel, and in the alternative, for the market value of the vessel, in which the Petitioner is likely to succeed."

The Petitioner filed Admiralty Suit No. 3 of 2011 in the High Court of Gujarat seeking arrest and repossession of the vessel. The said suit came to be dismissed by order dated 11th May 2011 of the learned Single Judge on the ground that the ship had in the meanwhile been grounded and was therefore no longer a ship subject to the admiralty jurisdiction of the High Court. The said order of the learned Single Judge was affirmed by the Division Bench by an order dated 14th June 2011.

The Petitioner''s claim against Respondent No. 1 for a sum of USD 2069,238 was arrived at by considering the ship''s scrap value as on 1st January 2011 after giving credit to the amounts paid by Respondent No. 1. The Petitioner in para 10 of the present petition has sought to justify the jurisdiction of this Court as under: -

This Hon''ble Court has jurisdiction over the present Petition. The Respondent No. 1 has its assets lying under the control and management of the Respondent No. 2. The Respondent No. 2 is a nationalized bank within the jurisdictions of this Hon''ble Court. They act as garnishees over the assets of the Respondent No. 1. The Respondent No. 3 is the branch of the Punjab National Bank which has its registered office within the jurisdiction of this Hon''ble Court i.e. Respondent No. 2. The subject matter of the dispute is money. This money lies within the jurisdiction and control of this Hon''ble High Court.

The apprehension expressed by the Petitioner in the present petition was that there was a likelihood of Respondent No. 1 transferring/removing the "contents of the bank account by way of a fund transfer, thereby frustrating the purpose of the present petition.

When the petition was listed on 31st October, 2011, this Court directed notice to be issued to Respondents by all modes including e-mail. Thereafter the Petitioner filed an application being I.A. No. 17878/2011 for directions. In this application, it was urged that "Respondent No. 1 is very likely to transfer the entire amount of moneys lying with Respondent No. 2 in order to frustrate the pending arbitration proceedings and to present a fait accompli." It was stated that the money was received by Respondent No. 1 from M/s Kathiawar Steels to whom it has sold the ship. In the circumstances, the Petitioner prayed that Respondent No. 2 PNB having its headquarters at Delhi should be directed not to allow any transfer of monies lying in the credit of Respondent No. 1 with its branch i.e. Respondent No. 3 PNB at Hong Kong to the extent of USD 2069238.

The above application was listed on 15th November, 2011 and an interim order as prayed for was passed by this Court. On 5th December 2011 time was granted to Respondent No. 1 to file reply. Respondent No. 1 then filed an application being I.A. No. 19507/2011 seeking vacation of the order dated 15th November, 2011. This application was listed on 7th December, 2011 when notice was issued, returnable for today i.e., 22nd December, 2011.

This Court has heard submissions of Mr. Jayant K. Mehta, learned counsel for the Petitioner and Mr. Neeraj Kishan Kaul, learned Senior counsel for Respondent No. 1.

In the considered view of this Court, Clause 12 of the agreement between the parties which has been extracted hereinbefore, and which is the arbitration clause, impliedly excludes the applicability of Indian law and the jurisdiction of Indian courts. Further it appears that the decision of the Supreme Court in Videocon Industries Limited Vs. Union of India (UOI) and Another, would apply on all fours. There, it was explained that where there is an implied exclusion of the applicability of Indian Law and Indian Courts, then in accordance with the dictum of the Supreme Court in para 32 of the Bhatia International Vs. Bulk Trading S.A. and Another, the parties would be precluded from filing a petition u/s 9 of the Act in an Indian court.

In videocon Industries Ltd., the Union of India had filed a petition u/s 9 of this Act, although under Article 34.12 of the Production Sharing Contract (''PSC'') it had been agreed that "the arbitration agreement contained in this Article 34 shall be governed by the laws of England." The venue of the arbitration was to be Kuala Lumpur and later shifted to London. A learned Single Judge of this Court negatived the objection of the appellant therein to the jurisdiction of the court to entertain the petition in that case. The said decision was reversed by the Supreme Court and it was held in para 33 as under:

In the present case also, the parties had agreed that notwithstanding Article 33.1, the arbitration agreement contained in Article 34 shall be governed by laws of England. This necessarily implies that the parties had agreed to exclude the provisions of Part I of the Act. As a corollary to the above conclusion, we hold that the Delhi High Court did not have the jurisdiction to entertain the petition filed by the respondents u/s 9 of the Act and the mere fact that the appellant had earlier filed similar petitions was not sufficient to clothe that High Court with the jurisdiction to entertain the petition filed by the respondents.

In view of the above clear enunciation of the law, this Court is of the view that in the present case, the parties have in the agreement impliedly excluded the applicability of Indian law and the jurisdiction of Indian courts, and therefore, this Court does not have jurisdiction to entertain the present petition. Although Mr. Mehta, learned counsel for the Petitioner, sought to place reliance on the literature on the arbitration law of England, this Court does not consider it necessary to refer to those materials since the law has been explained clearly by the Supreme Court in the aforementioned decision.

There is yet another difficulty in the present petition being entertained. The claim by the Petitioner against Respondent No. 1 is for money and in terms of Section 20 CPC, no part of cause of action has arisen in relation to such claim within the jurisdiction of this Court. Apart from the fact that neither Respondent No. 1 nor any of its offices or branches are located in India, there is no transaction that has taken place between the Petitioner and Respondent No. 1 over which a claim can be preferred against Respondent No. 1 by the Petitioner in India. The mere fact that Respondent No. 1 has an account with PNB in Hong Kong will not permit the Petitioner to approach this Court only because the registered or head office of PNB is located in New Delhi.

For the aforementioned reasons, this Court vacates the interim order passed on 15th November, 2011 and dismisses the I.A. No. 17878 of 2011 and allows I.A. No. 19507 of 2011.

OMP No. 803 of 2011 is dismissed with the clarification that it would be open to the Petitioner to seek appropriate remedies before the Court in England. Copy of this order be given dasti to the parties under the signature of the Court Master.