Case Note & Summary
The Bombay High Court, in its commercial appellate jurisdiction, heard two appeals under Section 37 of the Arbitration and Conciliation Act, 1996, against an order dated 11 November 2020 passed by a Single Judge in a Section 9 petition. The dispute arose from a subcontract for subsea pipeline installation work for ONGC's pipeline replacement project. ONGC had awarded a contract to Valentine Maritime Ltd (VML) on 21 August 2019 for laying 165.77 kms subsea pipeline and associated works. VML, in turn, appointed Kreuz Subsea Pte Limited (KSS) as subcontractor on 30 October 2019 for subsea installation work. Disputes emerged over VML's failure to establish a letter of credit for 20% of the subcontract value (US$ 5.4 million), KSS's consequent non-issuance of a performance bank guarantee (US$ 2.9 million), and VML's withholding of payments for invoices raised by KSS. VML claimed entitlement to withhold 10% of the contract value as liquidated damages for alleged delay and 12.2% for non-furnishing of the performance bank guarantee. KSS contended that its obligation to provide the performance bank guarantee was conditional upon receipt of a compliant letter of credit, and that the liquidated damages claim was disproportionate. KSS filed a Section 9 petition on 4 July 2020 seeking interim measures. The Single Judge, by order dated 11 November 2020, directed VML to deposit US$ 2,403,073 with the Prothonotary and Senior Master by 4 December 2020, and if VML failed, ONGC was directed to deposit that amount out of amounts due to VML under the PRP-VI contract by 11 December 2020. The order was conditional upon KSS invoking arbitration before 1 December 2020. Aggrieved, VML and ONGC filed separate appeals under Section 37. VML challenged the entire order, while ONGC challenged specific directions in paragraph 42(e)(i) to (vi), particularly the direction requiring ONGC to deposit. The appeals were heard together and reserved on 13 January 2021, with judgment pronounced on 22 January 2021. The provided judgment excerpt primarily sets out the factual background and the arguments of VML's senior counsel, but does not include the final appellate decision. The court considered the sequence of correspondence and submissions regarding the letter of credit, performance bank guarantee, liquidated damages, and the nature of the contract. The final outcome on the appeals is not available in the supplied text.
Headnote
A) Arbitration - Interim Measures Under Section 9 - Arbitration and Conciliation Act, 1996, Section 9 - Single Judge directed appellant VML to deposit US$ 2,403,073 by 4 December 2020 and if VML fails, ONGC to deposit out of amounts due under PRP-VI contract by 11 December 2020, conditional upon KSS invoking arbitration before 1 December 2020 - KSS's Section 9 petition sought security for unpaid invoices; the court prima facie found a case for deposit pending arbitration (Paras 11-15).
B) Contract Law - Letter of Credit and Performance Bank Guarantee - Arbitration and Conciliation Act, 1996, Section 9 - VML failed to establish a compliant letter of credit for US$ 5.4 million, and KSS did not issue a performance bank guarantee of US$ 2.9 million; VML alleged KSS's failure entitled it to withhold 12.2% of contract value, while KSS asserted its PBG obligation was conditional upon receipt of the letter of credit (Paras 4-6, 9-10).
C) Arbitration - Liquidated Damages and Withholding - Arbitration and Conciliation Act, 1996, Section 9 - VML claimed one week's delay by KSS and withheld US$ 2,567,346 as liquidated damages under Clause 11.2(b); KSS disputed the quantum as disproportionate because balance work comprised only three new risers and demobilisation of 11 risers, and ONGC paid VML in full (Paras 6, 9).
Issue of Consideration
Whether the Single Judge was justified in granting interim measures under Section 9 of the Arbitration and Conciliation Act, 1996, particularly directing deposit of invoice amounts and requiring arbitration invocation; whether the appeals under Section 37 against such interim order raised valid grounds regarding contractual obligations for letter of credit, performance bank guarantee, and liquidated damages.
Law Points
- Section 37 appeal against Section 9 interim measures
- interim measures directing deposit of invoice amount pending arbitration
- condition of invoking arbitration within time
- interplay of letter of credit and performance bank guarantee
- liquidated damages under contract clauses
Case Details
2021 LawText (BOM) (01) 50
Commercial Appeal (L) No.7013 of 2020 along with Interim Application (L) No.7017 of 2020 and Commercial Appeal (L) No.8386 of 2020 along with Interim Application (L) No.8389 of 2020, both arising from Comm. Arbitration Petition (L) No.6973 of 2020
Mr. Rahul Narichania, Senior Advocate a/w. Mr. Prathamesh Kamat, Mr.Shivkumar Iyer, Ms.Ankita Sen and Ms. Aditi Maheshwari i/by M/s.Ganesh and Co., for the Appellant in Commercial Appeal (L) No.7013/2020 and Respondent No.2 in Commercial Appeal (L) No.8386/2020 and Applicant in IAL/7013/2020; Mr. J. P. Cama, Senior Advocate a/w. Ms. Rajalakshmy Mohandas, Ms.Pratibha Mehta i/by M/s. Rajalakshmy Associates for the Appellant in Commercial Appeal (L) No.8386/2020 and Respondent No.2 in Commercial Appeal (L) No. 7013/2020 and Applicant in IAL/8389/2020; Mr. Aspi Chinoy, Senior Advocate a/w. Mr. Prasad Shenoy, Mr. Prashant Asher, Ms. Bulbul Singh Rajpurohit, Mr. Nirav Shroff i/b M/s. Crawford Bayley & Co. for Respondent No.1 in both the Appeals.
Valentine Maritime Ltd, Oil and Natural Gas Corporation Ltd.
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Nature of Litigation
Commercial appeals under Section 37 of Arbitration and Conciliation Act, 1996 against interim measures granted under Section 9 of the Act in a subcontract dispute.
Remedy Sought
Valentine Maritime Ltd (VML) sought to set aside the entire order dated 11 November 2020; Oil and Natural Gas Corporation Ltd (ONGC) sought to set aside directions in paragraph 42(e)(i) to (vi) of that order.
Filing Reason
The Single Judge had directed VML to deposit US$ 2,403,073 with the Prothonotary and Senior Master by 4 December 2020, and directed ONGC to deposit that amount if VML failed, out of amounts due to VML under the PRP-VI contract, conditional upon KSS invoking arbitration before 1 December 2020.
Previous Decisions
The Single Judge disposed of Commercial Arbitration Petition (L) No.6973 of 2020 on 11 November 2020, granting interim measures as above.
Issues
Whether the Single Judge was correct in directing deposit of the invoice amount under Section 9 of the Arbitration and Conciliation Act, 1996 when the underlying claim was disputed.
Whether the order linking deposit to invocation of arbitration before 1 December 2020 was valid.
Whether VML's withholding of payments as liquidated damages and for non-furnishing of performance bank guarantee was justified under the subcontract terms.
Submissions/Arguments
Mr. Narichania for VML argued that till March 2020 there was no dispute and all monies due were paid; KSS did not claim April invoice in Section 9 petition; the contract between VML and KSS was not back-to-back with ONGC-VML contract.
KSS's case was that VML failed to establish letter of credit for US$ 5.4 million, and only issued conditional LC for US$ 2 million; KSS offered to provide PBG if compliant LC issued; VML withheld payments without valid basis.
VML claimed entitlement to withhold 10% of contract value as liquidated damages for delay and 12.2% for non-furnishing of PBG.
Judgment Excerpts
By these two appeal filed under Section 37 of the Arbitration and Conciliation Act, 1996 (for short “the Arbitration Act”), both these appellants (original respondent no.1 and respondent no.2 respectively) have impugned the order passed by the learned Single Judge granting interim measures in favour of the respondent no.1 (original petitioner) under Section 9 of the Arbitration Act.
On 30th October 2019, VML issued a Letter of Acceptance appointing Kreuz Subsea Pte Limited as a Sub-contractor for subsea installation work associated with the pipeline replacement project of ONGC.
Learned Single Judge directed the VML to deposit with Prothonotary and Senior Master an amount of US $ 2,403,073 or the rupee equivalent at the then prevailing exchange rate, being the value of the invoices dated 2nd June 2020 by 4th December 2020.
Procedural History
ONGC entered into contract with VML on 21 August 2019; ONGC issued Letter of Award to VML on 30 October 2019; VML issued Letter of Acceptance to KSS as subcontractor on 30 October 2019; disputes arose over letter of credit, performance bank guarantee, and payment invoices; KSS filed Section 9 petition on 4 July 2020; Single Judge passed order on 11 November 2020 granting interim measures; VML and ONGC filed appeals under Section 37; both appeals heard together and reserved on 13 January 2021, pronounced on 22 January 2021.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 9, Section 37
