Case Title: Shanghai Electric Group Co. Ltd. v. Reliance Infrastructure Ltd. O.M.P. (I) (COMM.)
In an "Equipment Supply and Service Contract" dated 26.06.2008, SEGCL (Petitioner) and Reliance Infra Projects (UK) Ltd agreed that the petitioner would supply equipment, erect the main body of the turbines and generators, and offer supervision services to Reliance UK in connection with an ultra-mega power project in Madhya Pradesh.
The petitioner was to receive Rs. 9461 Crores from the respondent as consideration. Reliance Infrastructure Limited (Respondent), on behalf of Reliance UK, issued a Guarantee Letter on June 26, 2008, ensuring the fulfilment of obligations.
The project work was finished in November 2017. According to the agreement, Reliance UK owed the petitioner Rs. 995 crores as of August 2019. As a result, the petitioner gave the respondent notice that it had a duty to fulfill conditions under the Guarantee letter.
The petitioner invoked the arbitration provision upon non-compliance with the aforementioned letter. In order to safeguard the amount in controversy and prevent the respondent from selling, transferring, or otherwise disposing of and/or establishing any encumbrances on its assets while the arbitration process is ongoing, the petitioner addressed the Court under Section 9 of the Arbitration & Conciliation Act.
According to the petitioner, the respondent has been hastily distributing its assets since the arbitration's inception in an effort to deny the benefits of the award that is likely to be rendered in its favor.
The petitioner further argued that the respondent's auditors had expressed grave worries about the company's rapidly declining financial condition and capacity to continue as a "going concern." In order to secure the amount in controversy in arbitration and prevent the respondent from further disposing of its assets, which would deny the petitioner access to the benefits of the award, the court's indulgence is required.
The respondent contested the application's maintainability under Section 9 on the grounds that since the parties agreed to arbitrate in a foreign country in accordance with the UNCITRAL Rules and to apply English law to the Guarantee Letter, Section 9 is not applicable in light of the proviso to Section 2(2) of the Act.
The Court ruled that the parties cannot be assumed to have entered into an agreement to exclude the applicability of Section 9 of the A&C Act as provided under the proviso to Section 2(2) of the A&C Act simply because they have chosen a foreign-seated institutional arbitration under the UNCITRAL Law.
The Court ruled that the phrase "an agreement to the contrary" included in Section 2(2) cannot be inferred from or understood based on a party's lone declaration; rather, it must be amply supported by the parties' agreement.
The Court stated the mere fact that the parties have chosen a foreign venue for arbitration in accordance with the UNCITRAL Rules does not constitute "an agreement to the contrary" that would render Section 9 inapplicable. Such an interpretation would be against the proviso to Section 2(2)'s objective, which was only intended to make Section 9 relevant to institutional arbitrations with foreign seats.
In addition, the Court cited its earlier decision in Big Charter Pvt. Ltd. v. Ezen Aviation Pty Ltd., where it was determined that the exclusion of Section 9 in a foreign-seated arbitration required an express stipulation or agreement.
The Court also noted that Article 26(9) of the UNCITRAL Rules allows the parties to seek interim relief from a court with competent jurisdiction.
As a result, the respondent's objection was overruled by the court.