Dismissed

Selco International Limited, v. L.V.R. Infrastructures Pvt. Lt.

Telangana HC5 Jul 2013CMA/166/2012

Case brief

AI extract

What is this about?

The Supreme Court upheld ex parte order and subsequent attachment directives under Section 9 of the Arbitration Act, 1996, dismissing appeals by a company and its directors. The investment was not utilized, and proceedings were terminated as arbitration was advanced.

What did the court decide?

Appeals dismissed; Orders of attachment and requirement of bank guarantee upheld; Original OPs disposed of.

Selco International Limited, Vs L.V.R. Infrastructures Pvt. Lt. — Arbitration | Telangana HC (2013)

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THE HON’BLE SRI JUSTICE L. NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE S.V. BHATT

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C.M.A.Nos.46, 47, 165 and 166 of 2012

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COMMON JUDGMENT: (per the Hon’ble Sri Justice L.Narasimha Reddy)

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These four civil miscellaneous appeals filed under Section 37 of the Arbitration and Conciliation Act, 1996 (for short ‘the Act’) arise out of two interlocutory orders passed in two O.Ps., being O.P.Nos.1352 and 1353 of 2011 on the file of the III Additional Chief Judge, City Civil Court, Hyderabad. While the appellants are common, the respondents are different.

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Since the nature of the O.Ps. and the interlocutory orders is common, the parties are referred to as appellants and respondents.

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The 1^st appellant is a company incorporated under the Companies Act, undertaking the activity of treatment of municipal solid waste. Appellants 2 and 3 are its Directors. The 1^st appellant was awarded the work of treatment of solid waste by the Municipal Corporation, Pune. To handle that work, the 1^st appellant created a special purpose vehicle, by name Selco Green. The respondents expressed their willingness to invest in the 1^st appellant-company. Initially, a memorandum of understanding was entered into on 29.11.2007. Thereafter, the investment agreement was entered into on 31.01.2009. This contains a clause for reference of disputes to the arbitration. Thereafter, a deed of assignment was entered into on 31.01.2009. This was followed by the investment into the 1^st appellant-company in the form of redeemable debentures on 09.02.2009. The respondent in C.M.A.No.165 of 2012 has undertaken to invest Rs.3.5 crores with the condition that appellants 2 and 3 shall furnish their personal properties as security for repayment. It is stated that as against the promised amount of Rs.3.5 crores, the respondent has invested only Rs.2.85 crores. Disputes arose between the parties. The respondents invoked arbitration clause and required the appellants to take steps for arbitration.

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Having initiated those steps, the respondents filed O.P.Nos.1352 and

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1353 of 2011 before the trial Court under Section 9 of the Act for interim measures. They prayed for a direction to the appellants to furnish bank guarantee for the amounts invested by them. The trial Court passed an ex parte order, dated 13.07.2011, requiring the appellants to furnish the bank guarantee for the amounts specified therein within 48 hours.

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Complaining that the appellants did not furnish the bank guarantee as directed by the trial Court in its order, dated 13.07.2011, the respondents filed I.A.Nos.3390 and 3391 of 2011 for attachment of certain properties. After contest by the appellants, the trial Court allowed the applications directing attachment of the properties mentioned therein. C.M.A.Nos.46 and 47 are filed against the orders, dated 06.01.2012, in I.A.Nos.3391 and 3390 of 2011, whereas, C.M.A.Nos.165 and 166 of 2012 are filed against the two ex parte orders, dated 13.07.2011, passed in the O.Ps.

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Sri Vedula Srinivas, learned counsel for the appellants, submits that the exercise undertaken by the trial Court is almost akin to the one expected in an application filed under Order 38 Rule 5 C.P.C. and without even giving an opportunity to the appellants to explain, the trial Court has straightaway passed an order, requiring them to furnish security. He submits that it is only when the Court is not satisfied with the explanation that is offered by the respondents in the O.Ps., that it could have proceeded to require the parties to furnish security or to direct attachment of the properties. He placed reliance upon the judgment of this Court in Chairman & Managing Director, Rastriya Pariyojna Nirman Nigam Limited, New Delhi Vs. Rambachane Singh^[1] .

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Sri S.Ravi, learned Senior Counsel for the respondents, on the other hand, submits that even after receiving heavy investments from the respondents, the appellants did not undertake any activity at all and several proceedings came to be instituted, resulting in the 1^st appellant being declared as a sick industry. He submits that when such is the uncertainty about the prospects of getting back the invested money, there is every justification for the respondents to seek the interim measures and the trial Court was justified in passing the orders under appeals. He submits that whatever may have been

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the uncertainty that prevailed as on the date on which the ex parte order was passed, at least, when the appellants were put on notice, they did not offer any plausible explanation and that left with no alternative, the trial Court directed attachment of the properties. He submits that the arbitration proceedings are in progress.

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One of the points urged by the learned counsel for the appellants is that the ex parte orders, dated 13.07.2011, ought not to have been passed, unless any interlocutory application was filed. This may be so in respect of the ordinary suits. Unless an application under Order 38 Rule 5 C.P.C. is filed, there may not be any occasion for the Court to pass an order of that nature. However, the O.Ps. that are filed under Section 9 of the Act stand on a different footing. By their very nature, they are interlocutory and no substantive adjudication takes place therein. That adjudication of the disputes is relegated to the Arbitrator, and the purpose of filing an application under Section 9 of the Act is only to ensure that the interests of the aggrieved party are protected either till the arbitration commences or if commenced, till it concludes. Therefore, the objection raised in this behalf cannot be entertained.

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It is, no doubt, true that if an application under Order 38 Rule 5 C.P.C. is filed, the trial Court has to first require the defendant in the suit to explain as to why he be not required to furnish security for the amount in question. Though this may be in the ordinary course of things, even under Order 38 Rule 5 C.P.C., instances are contemplated where the Court can straightaway require the party to furnish security, particularly when the plaintiff satisfies the Court that the defendant is making every effort to remove the property from the jurisdiction of the Court.

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The respondents have their own apprehension not only about the solvency of the appellants, but also the nature of steps which they have been taking to defeat the claims i.e. respondents’ claims.

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Prima facie, we find that the appellants did not dispute the receipt of amount from the respondents and that the activity for which the company was incorporated was not at all undertaken. When the company in which huge amount is invested is not functioning at all, let alone making profits, the

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apprehension of the investor cannot be said to be misplaced.

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Assuming that there was no basis on the part of the trial Court in passing the ex parte order, dated 13.07.2011, this Court would have found fault with, if only the conduct or the steps on the part of the appellants thereafter warranted any different approach. After entering appearance, the appellants started raising the plea, which has the effect of doubting the very entitlement of the respondents to recover the amount. This has indeed fortified the apprehension of the respondents and the trial Court proceeded to pass orders in the interlocutory applications, dated 06.01.2012. We do not find any error of law or misstatement of facts in the orders under appeals.

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Hence, we dismiss the appeals. There shall be no order as to costs.

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The learned counsel for the appellants and the learned Senior Counsel for the respondents submit that the arbitration has already started and it is in an advanced stage. Since we are upholding the orders of attachment, we are of the view that no useful purpose would be served by continuing the O.Ps. on the file of the trial Court. Both the learned counsel agree that the O.Ps. may be terminated in terms of the orders which are the subject matter of the appeals.

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We accordingly direct that the O.P Nos.1352 and 1353 of 2011 on the file of the III Additional Chief Judge, City Civil Court, Hyderabad shall stand disposed of in terms of the orders passed in the interlocutory applications therein, which, in turn, are upheld in these appeals.

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The miscellaneous petitions filed in these appeals shall also stand disposed of.

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L. NARASIMHA REDDY,J

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S.V. BHATT,J

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Dt:05.07.2013

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Note: L.R. copy to be marked. kdl

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[1] AIR 1998 Andhra Pradesh 127

Selco International Limited, v. L.V.R. Infrastructures Pvt. Lt.

Case brief

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Selco International Limited, v. L.V.R. Infrastructures Pvt. Lt.

Case brief

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