Goodwill Non-Woven (P) Limited v. Xcoal Energy & Resources LLC.

Judgement Name: Goodwill Non-Woven (P) Limited v. Xcoal Energy & Resources LLC.

Citation: O.M.P.(I)(COMM) 120/2020

Coram: Hon’ble Justice V. Kameswar Rao

Date of Judgement: June 9, 2020

Overview (Ratio):

A foreign party need not have any assets in India and still be a part of the proceedings under Section 9 of the Arbitration and Conciliation Act, 1996 because it can still furnish a bank guarantee.

Facts:

The parties entered into a Contract dated March 10, 2020 (‘Contract’) for sale and delivery of Thermal Coal at the designated port. As per Clause 12 of the Contract, petitioner was to make requisite payment to the respondent and in turn the respondent was to make the delivery of the Coal to the petitioner upon receipt of such payment. Pursuant to receiving the letter of credit the respondent issued a commercial invoice on  March 27, 2020. The payment under the said Letter of Credit was subsequently realized by respondent on April 21, 2020. That on 22nd April, 2020 vide the said Pre-Arrival Notice, the petitioner was informed that the vessel was due to arrive at the designated port on May 04, 2020, where the Coal would be discharged in accordance with the Contract. And in repose to the said Notice, the petitioner vide email dated April 23, 2020 wrote to respondent stating inter alia that it had performed its respective obligations including making the full payment under the Contract on April 21, 2020 and requested respondent to ensure immediate unloading and delivery of the Coal, which was due to arrive on May 04, 2020. Even after pointing out that it had complied with all the contractual obligation the respondent had  failed to discharge the Coal and the respondent vide a telephonic conversation on May 08, 2020, informed the petitioner that the shipped quantity of Coal shall not be discharged at the designated port until such time certain third parties all of whom have purportedly entered into separate agreements with the respondent perform their respective contracts with the respondent. After issuing the notice for default on May 09, 2020 the Petitioner terminated the contract vide letter dated May 19, 2020. Thus the Petitioner filed the present suit claiming an interim relief against the Respondent to secure the amount due to reasonable apprehension that the Respondent may make attempts to obstruct the satisfaction of the decree which may be awarded to the petitioner in the arbitration proceedings.

Issue:

  1. Whether the petition under Section 9 of The Arbitration and Conciliation Act, 1996 (“the Act”)is maintainable?
  2. Whether the petitioner has made out a case for grant of the reliefs as prayed for in this petition?

Analysis:

With respect to the first issue the petitioner relied upon the case of Raffles Design International v. Educomp Professional Education Limited[1] and BCCI vs. Kochi Cricket Pvt. Ltd.[2] and held that the proviso under Section 2(2) makes Sections 9, 27, 37(1)(a) and 37(3) of the Act applicable to foreign seated arbitration. Furthermore, analysing the ambit of the Respondent Company not having assets in the State of India may so happen that the Indian party may not be successful in the arbitration proceedings for it to have an Award in its favour, so as to execute against a foreign party in India.  In the defence the Respondent relying on the Contract between the two parties stated that the arbitration under the Contract is an International Commercial Arbitration, seated in New York and applicable law would be the laws of the State of New York, further reliance was paid on only when the asset of the counterparty against which an order is being sought is based in India, an Indian Court can exercise its jurisdiction under the proviso to Section 2 (2). The advocate on behalf of the Respondent pointed that in the case of Bharat Aluminum and Co. vs. Kaiser Aluminium and Co[3]., wherein the apex court held that in a foreign seated international commercial arbitration, no application for interim relief would be maintainable under Section 9 or any other provision, as applicability of Part I of the Arbitration Act, 1996 is limited to all arbitrations which take place in India. Lastly relying on the 246th Law Commission Report the counsel for Respondent stated that the court has the authority to use Law Commission Reports as external aids as held in  Mithilesh Kumar and Ors. vs. Prem Behari Khare[4].

Therefore the court rejecting the Asset based jurisdiction argument held that as per Section 9 of “A party” denotes any party that could file an application under the said Section. This Section is for order/interim measure, in either case an award required to be enforced against any asset in India. (The availability of assets in India becomes irrelevant). The court held that Section 9 includes furnishing the amount in dispute as a bank guarantee of the arbitration as an interim measure . A foreign party can deposit the claim amount in the Court even if there is no existence of assets of the foreign Party.

With respect to the second issue at hand the court held that the Petitioner with respect to making a prima facie case, has failed and noting the respective stand of the parties, there is an existence of disputed facts which could not be decided in this petition. The existence of averments in the petition made it tough for the court to decide the matter through the present petition and it held that the same had to be decided by the Arbitral Tribunal.

Conclusion:

A foreign party need not have any assets in India and still be a part of the proceedings under Section 9 of the Act, because it can still furnish a bank guarantee.  That due o the existence of averments the petition was dismissed because the Petitioner failed to prove a prima facie case.

Cases Cited:

  1. [1] 234 (2016) DLT 349
  2. [2] 2018, (6) SCC 287
  3. [3](2012) 9 SCC 552
  4. [4] AIR 1989 SC 1247

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