Case Note & Summary
The present Commercial Arbitration Petition was filed under Section 37(2)(b) of the Arbitration & Conciliation Act, 1996 (the Act) by Karanja Terminal & Logistics Pvt Ltd (Petitioner) challenging the order dated 02.05.2022 passed by the learned Arbitrator. By the impugned order, the Arbitrator allowed the Respondent's (Sahara Dredging Ltd) application under Section 17 of the Act and directed the Petitioner to furnish security for the amount of Rs. 5,66,30,579/- or provide a bank guarantee of a nationalized bank for the said amount, pending the arbitral proceedings. The background facts are that on 17.11.2014, the parties entered into a contract for dredging and reclamation works at Karanjapur, Maharashtra, which was revised on 07.01.2015 and an additional contract was executed on 18.07.2017. In 2018-19, the Respondent failed to fulfill its obligations under the contract, leading to disputes. The Petitioner invoked arbitration and claimed amounts for work done. The Respondent filed a counter-claim and also filed an application under Section 17 seeking security for its counter-claim. The Arbitrator, after hearing both sides, passed the impugned order directing the Petitioner to furnish security. The Petitioner challenged this order on the ground that the Arbitrator had no jurisdiction to pass such an order as the counter-claim was not maintainable and that the order was perverse. The Court, after considering the submissions, held that the Arbitrator's order was within his jurisdiction and was based on a prima facie view of the matter. The Court noted that the Arbitrator had considered the material on record and found that the Petitioner had breached the contract, and the balance of convenience was in favour of the Respondent. The Court further held that the scope of interference under Section 37(2)(b) is limited and the impugned order did not suffer from any perversity or lack of jurisdiction. Accordingly, the Court dismissed the Arbitration Petition and the Interim Application seeking stay of the impugned order.
Headnote
A) Arbitration - Interim Measures - Section 17 of Arbitration & Conciliation Act, 1996 - Security for Claim - Arbitrator directed Petitioner to furnish security of Rs. 5,66,30,579/- or provide bank guarantee pending arbitral proceedings - Challenge under Section 37(2)(b) dismissed - Held that the Arbitrator's order was within jurisdiction and not perverse, based on prima facie findings of breach of contract and balance of convenience in favour of Respondent (Paras 1-26). B) Arbitration - Appeal against Interim Order - Section 37(2)(b) of Arbitration & Conciliation Act, 1996 - Scope of Interference - Court held that interference with an interim order under Section 17 is limited to cases of perversity, lack of jurisdiction, or violation of natural justice - Held that the impugned order did not suffer from any such infirmity (Paras 20-26).
Issue of Consideration
Whether the impugned order dated 02.05.2022 passed by the learned Arbitrator under Section 17 of the Arbitration & Conciliation Act, 1996 directing the Petitioner to furnish security of Rs. 5,66,30,579/- or provide a bank guarantee is liable to be set aside under Section 37(2)(b) of the Act.
Final Decision
The Court dismissed the Commercial Arbitration Petition No. 257 of 2022 and Interim Application No. 4479 of 2022, upholding the Arbitrator's order dated 02.05.2022 directing the Petitioner to furnish security of Rs. 5,66,30,579/- or provide a bank guarantee.
Law Points
- Section 37(2)(b) of Arbitration & Conciliation Act
- 1996
- Section 17 of Arbitration & Conciliation Act
- Interim measures
- Security for claim
- Bank guarantee
- Dredging contract
- Breach of contract
- Prima facie case
- Balance of convenience
- Irreparable loss
