Rite Approach Group Ltd. Petitioner v. Rosoboronexport, Delhi High Court, Judgment, Law, casemine.com

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Case Number

OMP No. 433/2003

Attorney(S)

Mr. Rajiv Nayyar, Senior Advocate with Mr. Jasmeet Singh and Mr. Amitabh Rajat, Advocates for the Petitioner.
Mr. Sudhir Chandra Agarwala, Senior Advocate with Mr. Siddarth Dave, Advocate for the Respondent.

Judges

R.C Chopra, J.

Acts

SECTION 9 ARBITRATION AND CONCILIATION ACT 1996
provisions of Order 38 Rule 5 of the CPC
Order 38 Rule 5 of the CPC
provisions of Order 39

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Smart Summary

Factual and Procedural Background

The petitioner, a Singapore-incorporated company, filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 seeking interim reliefs against the respondent (a Russian State-owned company). The petitioner sought (a) an injunction restraining the respondent from collecting from the Government of India the price for two helicopters unless Rs. 28.8 crores (commission at 16%) was set aside for the petitioner; (b) an injunction restraining the Government of India from making full payment to the respondent; (c) an injunction restraining the respondent from delivering the helicopters; and (d) appointment of a Receiver to collect the claimed commission from the Government of India.

The petitioner alleges it acted as agent for a Russian company (M/s. Russian Technologies) in procuring orders for helicopters for the Government of India, culminating in a Memorandum of Understanding in March 2000 and a Letter of Credit in June 2003. An Agency Agreement dated 14 April 2000 contained an arbitration clause referring disputes to an Arbitration Court under the Chamber of Commerce and Trade of the Russian Federation.

The respondent denied contractual relations and agency, contending that: the supplies to the Government of India were pursuant to a separate contract with the Ministry of Defence (not the Ministry of Home Affairs/BSF); the helicopters and quantities differ; the alleged agency agreement became void on merger/liquidation of M/s. Russian Technologies; and arbitration (in Russia) has not been initiated by the petitioner. The respondent also emphasized that it is a state-owned company with assets abroad and that policy in the Ministry of Defence contract precludes agents being employed for award of defence contracts.

The Court heard arguments, reviewed records and reserved judgment. The petition was ultimately dismissed and interim orders (if any) were vacated.

Legal Issues Presented

Whether interim reliefs under Section 9 of the Arbitration and Conciliation Act could be granted to secure the petitioner's claim to commission against a respondent that is a State-owned company of Russia.
Whether the respondent has privity of contract or responsibility to discharge liabilities (including commission) of M/s. Russian Technologies in respect of the helicopter supply.
Whether the alleged agency agreement (dated 14 April 2000) remains operative or became void under its Article 7.2 following merger/liquidation of M/s. Russian Technologies.
Whether principles or conditions akin to Order 38 Rule 5 CPC (attachment before judgment) may guide the exercise of discretion under Section 9 of the Arbitration Act when considering an interlocutory injunction against a State-owned foreign company.
Whether the petition is maintainable in view of the arbitration clause requiring disputes to be referred to an arbitration court in Russia and the petitioner's failure to initiate that arbitration.

Arguments of the Parties

Petitioner's Arguments

The petitioner acted as agent for M/s. Russian Technologies to procure orders from the Government of India for helicopters and is entitled to a commission of 16% (Rs. 28.8 crores) on the contract price.
The contract (resulting from petitioner's efforts) led to the Government of India agreeing to purchase six helicopters for Rs. 180 crores under a Memorandum of Understanding and a Letter of Credit having been opened.
Manufacturer communications indicated that instructions were given to the respondent to release commission due to the petitioner.
The petitioner sought interim measures under Section 9 of the Arbitration Act to secure its claimed commission (including injunctions and appointment of a Receiver).

Respondent's Arguments

There was no contract between the petitioner and the respondent; the respondent never appointed the petitioner as agent and had no dealings with it.
M/s. Russian Technologies was an independent entity which ceased activities after 30 June 2001; the alleged agency agreement was not performed and no BSF order was placed under that agreement.
The sale by the respondent to the Government of India arose from independent negotiations with the Ministry of Defence (not Ministry of Home Affairs/BSF), and concerned 16 helicopters (and different models) under a contract dated 17 December 2000.
The agency agreement contained Article 7.2 providing that it becomes void if the principal/customer/agent cease activity (including by merger/liquidation), and therefore the petitioner has no cause of action against the respondent.
The petitioner has not initiated arbitration in Russia as required by the arbitration clause; consequently the Section 9 petition is not maintainable.
The respondent, being a State-owned undertaking with substantial assets, poses no real risk of dissipation of assets such that attachment-like interim relief is warranted; and defence-contract policy (Article 17 of the MoD contract) precludes employment of agents for award of the contract.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Global Company v. National Fertilizers Ltd., AIR 1998 Delhi 397	Support for the proposition that while Section 9 does not embody CPC provisions, the Court can take guidance from provisions of Order 38/Order 39 CPC when exercising discretion in interlocutory matters.	The Court relied on the view expressed in this judgment to justify taking cue from CPC provisions (Order 38/39) and to support refusal of interim relief against a state-owned foreign respondent where there was no demonstrable risk to execution.
National Shipping Company v. Sentrans Industries Limited, Bombay High Court (Appeal No. 852/2003)	Expressed a similar view endorsing guidance from CPC orders in exercising discretion under Section 9.	The Court cited this decision as corroborative authority for taking guidance from CPC provisions and used it to support the conclusion that no interim relief should be granted in the circumstances.

Court's Reasoning and Analysis

The Court undertook a fact-sensitive analysis and applied the following reasoning, drawing only on material contained in the record and legal principles referenced in the opinion:

Nature and identity of contracts: The Court observed material differences between the alleged contract (between petitioner and M/s. Russian Technologies for six helicopters for the Ministry of Home Affairs/BSF) and the actual supply by the respondent (a contract with the Ministry of Defence for 16 helicopters of different models). These factual differences undermined the petitioner's claim that the respondent's supply was the same transaction for which the petitioner had acted as agent.
Contractual prohibition on agents in MoD contract: Article 17 of the contract between the respondent and the Ministry of Defence expressly prohibited employment of agents for intercession or facilitation in award of the defence contract. The Court found this provision to be inconsistent with the petitioner's claim of agency in respect of the MoD contract.
Article 7.2 of the agency agreement: The petitioner's agency agreement contained Article 7.2 stipulating that the agreement would become void if the principal/customer/agent ceased activities (including by merger or liquidation) and provided that no claims existed between principal and agent at that time. The Court noted that M/s. Russian Technologies merged with FSUE Promexport in September 2000 and had ceased activities before any binding supply contract had come into existence, which cast doubt on the petitioner's entitlement.
Timing of entitlement to commission: The Court emphasized the settled position (as stated in the opinion) that an agent becomes entitled to commission only upon completion of the contract and receipt of the price by the supplier — not prior thereto. The petition for pre-emptive security for commission was therefore premature.
Analogy to Order 38 Rule 5 CPC and the respondent's assets: Although Section 9 of the Arbitration Act does not contain the precise ingredients of Order 38 Rule 5 CPC (attachment before judgement), the Court held that it may take guidance from Order 38 and Order 39 CPC when exercising discretion on interlocutory matters. The Court found that the present petition was akin to a prayer for attachment before judgment but that the requirement for such relief — a real risk of dissipation of assets with intent to obstruct execution — was not made out because the respondent is a State-owned undertaking with substantial assets and operations.
Absence of demonstrated risk and potential prejudice to supply: The Court noted that granting the restraining orders would jeopardize an apparently urgent defence supply and that the respondent had indicated it would not deliver helicopters without full payment. The manufacturer's letter to the respondent about commission was held not to be binding on the respondent company.
Need to await arbitrator's award: Given the contested factual and legal disputes (privity, nature of contracts, effect of merger/voiding clause), the Court concluded that only after an arbitral award would it be clear whether the petitioner is entitled to commission.

Holding and Implications

Holding:

DISMISSED — The petition under Section 9 of the Arbitration and Conciliation Act, 1996 was dismissed. The interim orders previously passed by the Court were vacated.

Implications:

The direct effect is that the petitioner did not obtain the interim injunctions sought: the respondent is not restrained from receiving payment from the Government of India, the Government is not restrained from making payments, and the respondent is not restrained from delivering the helicopters.
The petitioner's substantive claim to commission remains to be adjudicated in arbitration as per the contractual arbitration clause; the Court indicated that an award will clarify entitlement to commission.
The Court exercised discretion by taking guidance from CPC provisions and cited earlier decisions supporting that approach, but the decision did not purport to establish a new legal precedent beyond applying those principles to the facts at hand. The opinion does not state any broader legal rule beyond the application to the present facts.

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Rite Approach Group Ltd. Petitioner v. Rosoboronexport

R.C Chopra, J.:—The petitioner, a Company incorporated and based in Singapore has filed this petition under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’ only) against the respondent, a Russian State owned Company seeking injunction against the respondent from collecting from Government of India the price of the two helicopters supplied by it without setting apart a sum of Rs. 28.8 crores being commission to the petitioner at the rate of 16% of the price. Prayers have also been made for injuncting the Government of India from making full payment of the two helicopters to the respondent and also from restraining the respondent from delivering the helicopters to the Government of India. It is also prayed that a Receiver be appointed to collect on behalf of the petitioner the aforesaid commission from the Government of India which is claimed by the petitioner for services rendered to the respondent in regard to the supply of helicopters to the Government of India.

2. The facts relevant for the disposal of this petition, briefly stated, are that according to the petitioner, it is in the business of acting as Agent of various foreign Companies for negotiating and concluding contracts on their behalf. The Company known as “M/s. Russian Technologies” was a Russian Public Sector Company which merged with a Company known as “FSUE Promexport” in September, 2000 and subsequently the said “FSUE Promexport” merged with the respondent/Company. All the three Companies have been/are wholly owned by the Government of Russia. The respondent has its office at Moscow. According to the petitioner, in 1999-2000, M/s. Russian Technologies approached the petitioner for procuring orders in India for supply of helicopters to Border Security Force, Ministry of Home Affairs. The petitioner agreed to act as an agent of the Company and thereafter started approaching the Ministry of Home Affairs, Government of India, so as to ensure that the orders for the supply of the helicopters manufactured by M/s. Kazan Helicopters Ltd., of Soviet Republic were placed on M/s. Russian Technologies. Various meetings were held and ultimately in terms of the contract between the petitioner and M/s. Russian Technologies, the Ministry of Home Affairs, Government of India agreed to purchase six helicopters from M/s. Russian Technologies for a total sum of Rs. 180 crores. According to the petitioner, a Memorandum of Understanding was signed in March, 2000 and a Letter of Credit was opened in June, 2003. The petitioner alleged that the said contract was a result of the petitioner's efforts at the instance of M/s. Russian Technologies which subsequently merged with the respondent and as such the respondent cannot deny commission to the petitioner. The manufacturers M/s. Kazan Helicopters Ltd., informed the petitioner that they had issued instructions to the respondent to release commission due to the petitioner but in spite of it, vide communication dated 23rd December, 2002, the respondent has disputed that commission is due to the petitioner from them. In the Agency Agreement dated 14th April, 2000, there was an Arbitration Clause, according to which the disputes between the principal and agent were to be referred to the Arbitration Court under the Chamber cf Commerce and Trade of Russian Federation and as such the present petition under Section 9 for the aforesaid injunctions/restraints to secure the amount due to the petitioner towards commission.

3. The respondent in its reply has denied and disputed the petitioner's right to any injunction/relief on various grounds, inter alia,that there never existed any contract between the petitioner and respondent; that the respondent never appointed the petitioner as agent and never had any dealings with it; that M/s. Russian Technologies was an independent entity which ceased its activities after 30th June, 2001; that the sale of helicopters by respondeat to Government of India was based on independent negotiations having no connection whatsoever with the negotiations which might have taken place between the petitioner and M/s. Russian Technologies; that the sale of helicopters by the respondent was not to Border Security Force but to the Ministry of Defence. It is pleaded that the Agreement dated 14th April, 2000, between the petitioner and M/s. Russian Technologies was never performed and the Border Security Force did not place any order for the subject matter of the said contract. According to the respondent, the Ministry of Home Affairs and Ministry of Defence are separate and independent Ministries under the Government of India and the contract between the Ministry of Defence and the respondent was entered into on 17th December, 2000 for supply of 16 helicopters and not four helicopters as mentioned in the Agreement dated 14th April, 2000 between the petitioner and M/s. Russian Technologies.It is also pleaded that the petitioner has taken no steps to initiate arbitration which has to take place in Russia under the laws of Russia and as such the present petition is not maintainable. It is further pleaded that the respondent being a State owned Company doing business with various Governments around the world has large assets in Russia. It is a profit making Company engaged in the business of exporting armaments and military equipments and as such the apprehension of the petitioner that in case interim order is not passed, it would be left with no remedy is without any basis. It is also pleaded that the Agreement between M/s. Russian Technologies and the petitioner does not bind the respondent in terms of Article 7.2 of the said Agreement itself which had stated that the Agreement becomes void when the principal, customer or agent cease by any reason their activity, including force majeurecircumstances, liquidation and bankruptcy, and if by that moment the principal and the agent do not have any claims against each other. It is also pleaded that M/s. Russian Technologies on account of its merger and subsequent liquidation had ceased its activities before the supply of the helicopters and as such the petitioner has no cause of action. It is clarified that the supply of helicopters by the respondent to the Ministry of Defence is on account of independent negotiations and a different contract and there is a Clause as per the policy of the Government of India that in respect of the orders placed by Ministry of Defence, no agent can be employed by a party for the purpose of intercession, facilitation or in any way recommendation to the Government of India or any of its functionaries for the Award of any contract. The said Clause is contained in Article 17 of the Contract entered into between the respondent and the Ministry of defence, a copy of which is Annexure R-2. It is also pleaded that the helicopters agreed to be supplied to Border Security Force under the contract between the petitioner and M/s. Russian Technologies were different and the helicopters being supplied by the respondent to Ministry of Defence are different although the manufacturer thereof is the same. It is disputed that the petitioner has any right to claim any commission from the respondent and as such entitled to interim relief as prayed. The petitioner has filed a rejoinder to the reply controverting the averments made therein.

4. I have heard learned counsel for petitioner and learned counsel for respondent. I have gone through the records.

5. In this petition, several questions in regard to the privity of contract between the parties and responsibility of respondent to discharge the liabilities of M/s. Russian Technologies arise. Firstly, it does not appear that the helicopters being supplied by the respondent to the Ministry of Defence are under the same contract by which M/s. Russian Technologies was contemplating to supply helicopters to the Ministry of Home Affairs. The helicopters to be supplied by M/s. Russian Technologies were only six in number whereas the helicopters to be supplied by the Ministry of Defence are 16. The models of the helicopters are also different. Not only this, the agreement between the Ministry of Defence and the respondent vide Article 17 as referred above clearly stipulates that there shall be no agent for the purpose of intercession, facilitation or in any way recommendation to the Government of India or any of its functionaries for the award of the contract by Ministry of Defence. This Clause flies directly in the face of the claim of the petitioner that it was acting as an Agent in the contract of supply. It is also noticed that the agreement between the petitioner and M/s. Russian Technologies, stipulated in Article 7.2 thereof that the agreement would become void if the principal, customer or agent cease by any reason, their activity including force majeurecircumstances, liquidation and bankruptcy and if by that time the principal or agent does not have any claim against the other. Moreover, by the time M/s. Russian Technologies merged with “FUSE Promexport” in September, 2000 and ceased its activities, no contract for supply of helicopters had come into existence. The prayer of the petitioner to injunct the respondent from receiving the price of the helicopters supplied by it to the Ministry of Defence appears to be pre-mature also for the reason that an agent becomes entitled to his commission only after the completion of the contract and receipt of the price by the supplier and not prior thereto.

6. Last but not the least, the petitioner's prayer, under Section 9 of the Act, has to be declined on a further ground that the respondent is admittedly a State owned undertaking of the Government of Russia having sufficient assets as well as operations. The prayer made by the petitioner is para materiasimilar to a prayer for attachment before judgement as envisaged in Order 38 Rule 5 of the CPC which is granted only when the Court is satisfied that a defendant with intent to obstruct or delay the execution of a decree that may be passed against him is about to dispose of the whole or part of his property or is about to remove the whole or any part of his property from the local limits of the jurisdiction of the Court.

7. It is true that Section 9 of the Act does not embody ingredients of Order 38 Rule 5 of the CPC nor the conditions laid in Order 38 Rule 5 of the CPC can be read into Section 9 of the Act but for exercising discretion thereunder, the Court can take guidance from the provisions of Order 39 as well as Order 38 of the CPC. A judgement of this Court in Global Company. v. National Fertilizers Ltd, AIR 1998 Delhi 397 and a judgement of the Bombay High Court titled National Shipping Company v. Sentrans Industries Limited in Appeal No. 852/2003 expressed a similar view. This Court, therefore, taking clue from the provisions of Order 38 Rule 5 of the CPC has no hesitation in holding that there are no good grounds for issuing interim reliefs as prayed by the petitioner for the reason that the respondent is a Company owned by the Russian Government and as such there appears to be no danger to the execution of the Decree if the Arbitrator holds that the petitioner is entitled to commission as claimed.

8. As discussed hereinbefore, the parties are raising so many disputes in regard to the claim of the petitioner and as such, only after the award of the Arbitrator, it would be clear as to whether the petitioner is entitled to any commission or not from the respondent on account of the supply of the helicopters by respondent to the Ministry of Defence. The letter written by the manufacturer of helicopters to respondent regarding payment of commission to petitioner is not binding on the respondent Company. Therefore, there are no good grounds to pass restraint orders against the respondent from receiving and Government of India from releasing the payments and thereby jeopardies the deal regarding supply of the helicopters which appear to be urgently required. The respondent appears to be not willing to supply the same without full payment from Government of India.

9. Accordingly, this Court finds that the petition filed by the petitioner has no merit and there are no sufficient grounds for grant of any of the reliefs as prayed.

10. The petition stands dismissed accordingly.

11. The interim orders passed by this Court stand vacated.

Rite Approach Group Ltd. Petitioner v. Rosoboronexport

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments

Respondent's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Rite Approach Group Ltd. Petitioner v. Rosoboronexport

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