Delve into a detailed legal analysis provided by the court regarding interim relief and the use of security deposits in a recent case. The court’s interpretation of legal principles and procedural safeguards plays a pivotal role in ensuring justice prevails. Let’s explore how the court’s examination of the case sheds light on fundamental legal aspects to uphold fairness and transparency in the legal process.
Facts
- Essar House Private entered into a Rental Agreement with Essar Steel on 1 April 2016 for a period of 36 months.
- Arcellor filed a petition seeking Essar House Private to deposit Rs.35,51,89,875.
- Essar Steel was required to deposit Rs.73 crores as security deposit under the Support Services Agreement.
- Arcellor submitted a Resolution Plan for Essar Steel which was approved on 8 March 2019.
- Essar House Private vacated by Arcellor on 15 December 2019.
- Equinox made a payment of Rs.60.95 crores to HDFC Bank on behalf of Essar Steel.
- Essar Services filed a proof of claim as an Operational Creditor for unpaid invoices.
- Essar Services and Essar Steel reconciled their accounts in March 2018.
- Arcellor requested a refund of the interest-free security deposit amounting to Rs.35,51,89,875 from Essar House Private.
- Essar Steel had total dues of Rs.74,84,39,302 payable to Equinox.
- Standard Chartered Bank and SBI filed a petition for the initiation of CIRP against Essar Steel.
- Essar House Private claimed against Essar Steel with the Resolution Professional.
- Arcellor took over Essar Steel in December 2019.
- Essar Steel entered into a Business Centre Agreement with Essar House Private in September 2018.
- Arcellor paid Rs.4,75,06,260 to Essar Services on behalf of Essar Steel in settlement of its claims/dues.
- Arcellor addressed a legal notice to Essar Services for refund of Rs.47.41 crores on 14 July 2020.
- Arcellor filed Commercial Arbitration Petition (L) No.6607 of 2020 seeking orders directing Essar Services to deposit Rs.47,41,00,000/- with the High Court.
- Commercial Division of the Bombay High Court, Single Bench directed Essar Services to deposit Rs.47.41 crores with the Prothonotary and Senior Master of the High Court on 10 December 2020.
- Essar Services filed Arbitration Appeal No.1023 of 2021 against the order.
- The appeal was dismissed by the Commercial Appellate Division of the High Court (Division Bench).
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Arguments
- Essar Services could not adjust security deposit against alleged dues of Essar Steel to a third party during CIRP
- Principles of CPC to be strictly followed in Section 9 application under Arbitration Act
- Court must ensure applicant has a bona fide and strong claim for granting interim relief under Section 9
- Novation of agreement requires consent of all parties, unilateral action is not valid
- Essar House Private/Essar Services did not provide supporting documents for their assertions
- Requisites of CPC Order XXXVIII, Rule 5 not considered by the Court for granting interim relief
- Security deposits of Essar Steel used to liquidate dues to creditors at their instructions
- No amount due from Essar House Private or Essar Services to Arcellor according to the Appellants
- Defence of set off by Essar House Private/Essar Services considered a sham
- Reference to Raman Tech. & Process Engg. Co. & Anr. v. Solanki Traders case for support
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Analysis
- The procedural safeguards must advance justice and not defeat it
- The powers of a Court under Section 9 of the Arbitration Act are wider than those under the CPC
- Assessment of balance of convenience crucial in granting interim relief
- Prima facie case and balance of convenience key in granting relief under Section 9 of the Arbitration Act
- Proof of attempts to deal with property not necessary for relief under Section 9 of the Arbitration Act
- Section 14 of the IBC bars certain actions during CIRP
- Section 9 of the Arbitration Act allows the Court wide powers to secure amounts in dispute
- Consideration of good prima facie case, balance of convenience, and timely approach to the court important for interim relief
- Internal arrangements between group companies can impact release of security deposits
- Basic principles of CPC must be considered in deciding petitions under the Arbitration Act
- The Court has the power to grant interim relief under Section 9 of the Arbitration Act.
- The Court is not strictly bound by the provisions of the CPC.
- The High Court considered the principles of Order 38 Rule 5 CPC in this case.
- The power under Section 9 of the Arbitration Act should not disregard procedural law but can still serve the ends of justice.
- The CIRP of Essar Steel began on 2 August 2017 under the IBC.
- Section 9 of the Arbitration Act allows a party to seek interim measures or protection from a Court during arbitration proceedings.
- Interim measures can include securing the amount in dispute or any other measure deemed just and convenient by the Court.
- The Court has the authority to issue orders related to interim measures that it deems necessary for the arbitration process.
- The Division Bench’s judgment and order were well-reasoned.
- No infirmity was found in the Division Bench’s decision.
- The Division Bench’s judgment was upheld.
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Decision
- The appeals are dismissed.
Case Title: ESSAR HOUSE PRIVATE LIMITED Vs. ARCELLOR MITTAL NIPPON STEEL INDIA LIMITED (2022 INSC 957)
Case Number: C.A. No.-006574-006574 / 2022
