Case Note & Summary
JSW Steel Limited entered into a Franchise Agreement dated 1 July 2018 with three sister concerns (Delta Iron & Steel Co. Pvt. Ltd., Yatin Steels India Pvt. Ltd., and ARK Industries Pvt. Ltd.) for the sale and distribution of iron coils. Under the agreement, payment was due within 7 days of invoice, and the petitioner retained a lien on the goods until full payment was received. Between April and June 2019, the respondents placed 17 purchase orders for 23,516 MT of goods valued at Rs. 121.35 crores. By July 2019, an amount of Rs. 20.39 crores remained outstanding. On 14 August 2019, the petitioner demanded payment, but the respondents allegedly admitted only Rs. 9 crores. Fearing dissipation of assets, the petitioner filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996, seeking urgent interim relief. On 23 August 2019, the High Court (K.R. Shriram, J.) passed an ex-parte ad-interim order restraining the respondents from disposing of the goods and appointed the Court Receiver to take custody and seal the goods wherever found. The order noted the respondents’ admission of at least Rs. 9 crores and the contractual lien clause, and directed the receiver to keep the goods under seal in the respondents’ safe custody. Thereafter, Vanit Gupta, a sole proprietor trading as Sri Enterprises, filed the present Notice of Motion claiming that some of the seized goods were actually sold to him by the respondents and that he had paid full consideration. He argued that he was a bona fide purchaser for value without notice of any prior arrangement between the petitioner and the respondents, and that there was no privity of contract between him and the petitioner. He sought an order directing the Court Receiver to release the goods and vacate the earlier order to that extent. During the hearing on 18 September 2019, the petitioner’s counsel, on instructions, agreed that any goods not forming part of the list at Exhibit B to the petition could be released. The Court recorded this consent and directed such release. The motion was further heard and reserved for judgment on 30 September 2019. The court was thus called upon to examine the rights of a third-party purchaser in the context of a Section 9 petition, particularly the interplay between statutory interim measures and common law principles of bona fide purchase without notice.
Headnote
A) Arbitration and Conciliation Act, 1996 - Interim Measures - Section 9, Code of Civil Procedure, 1908, Order XL Rule 1 - In a petition under Section 9, the High Court appointed the Court Receiver ex-parte ad-interim over goods supplied under a franchise agreement, being prima facie satisfied that large sums were due and that the petitioner had a contractual lien, thus warranting interim protection. Held that a prima facie case for ex-parte ad-interim injunction was made out. (Paras 1-3) B) Third Party Rights - Bona Fide Purchaser Without Notice - Section 9, Arbitration and Conciliation Act, 1996 - A third party claiming to have purchased goods for value and without notice of a prior contractual lien may seek release of such goods from receiver's custody, challenging the absence of privity of contract with the secured creditor. The applicant contended he was a bona fide purchaser without notice and sought de-sealing. (Paras 4-5) C) Civil Procedure - Modification of Interim Order - Consent for Partial Release - Code of Civil Procedure, 1908, Order XXXIX Rule 3 - Where the receiver had seized goods and the petitioner conceded that some goods were not covered by its claim list (Exhibit B), the court directed that such goods be released from custody, with the petitioner's consent. (Para 6)
Issue of Consideration
Whether a third party claiming to have purchased goods from the respondents bona fide for value and without notice of the petitioner's lien is entitled to release of such goods from the custody of the Court Receiver appointed under Section 9 of the Arbitration and Conciliation Act, 1996.
Law Points
- third party rights in arbitration
- bona fide purchaser without notice
- contractual lien
- Order XL Rule 1 CPC
- application of Section 9 of Arbitration and Conciliation Act
- 1996
- ex-parte ad-interim relief
- court receiver powers
