Dolphin International Limited v. V.O Tyazhpromexport .

Order of the Supreme Court

1. Leave granted. We have heard the learned counsel for the parties.

2. It has been submitted by Mr Hansaria, learned Senior Counsel appearing on behalf of the appellant that pursuant to the direction of this Court passed on 15-12-2009 Civil Appeal No. 29641 of 2008, 50% of the amount has already been deposited with the Registry of this Court and the remaining 50% amount, as claimed, has been secured by a bank guarantee of Canara Bank in favour of the Secretary General of this Court. In that view of the matter, we are of the considered opinion that necessary orders are required to be passed by the Company Court relegating the parties to the remedy of civil suit/arbitration/mediation or any other remedy available to them in law. Consequently, the impugned order Co App No. 17 of 2003 passed by the High Court is set aside and the Company Court is requested to pass necessary consequential orders as expeditiously as possible.

3. With the aforementioned observation and direction, this appeal is disposed of.

Impugned Order of the High Court2

(Before A.K Sikri and Manmohan Singh, JJ.)

The Order of the High Court was delivered by

A.K Sikri, J.— The respondent herein has filed Company Petition No. 53 of 2001, in this High Court under Sections 433(e) and 434 of the Company Act, 1956, against the appellant herein seeking winding up of the appellant Company on the ground that the appellant Company owes a debt in the sum of US $127,621.30 which has not been paid by the appellant to the respondent in spite of notice served upon the appellant by the respondent under Section 434 of the Companies Act. In this petition the learned Company Judge has passed the order dated 16-1-2003 directing the appellant to deposit the amount of US $127,621.30 as well as the arbitration cost of US $5490 calculated at the conversion rate as on the date of passing of the order. The respondent was directed to make the deposit of the aforesaid amount on or before 28-2-2003. Instead of complying with that direction the appellant has preferred the present appeal as the appellant feels aggrieved by the impugned order.

5. In order to appreciate the controversy and also to understand the background in which the aforesaid orders were passed by the learned Company Judge we will have to traverse the necessary and essential facts.

6. There was an agreement dated 28-5-1993 entered into between the appellant and the respondent as per which the appellant was to supply certain goods to the respondent. This agreement contained an arbitration clause whereby it was agreed that in case of any dispute the same shall be adjudicated upon through the arbitration by the arbitrator to be appointed by the President of Stockholm Chambers of Commerce, Stockholm (Sweden). Another agreement dated 1-9-1993 was entered into between the two parties who were the respondent herein and Dolphin Corpn., Moscow (Russia). This agreement also contained an arbitration clause as per which the disputes, if any, between the parties were to be settled amicably and in case of failure, the decision of the Chambers of Commerce, Russia, was to be final.

7. It appears that certain disputes arose in respect of agreement dated 1-9-1993. The respondent herein invoked the arbitration of Chambers of Commerce, Russia. In those proceedings ex parte award dated 25-5-2000, was passed in favour of the respondent herein wherein it was held entitled to US $127,621.30 from the appellant herein M/s Dolphin International Ltd. After the said award was given in favour of the respondent, it sent legal notice dated 11-8-2000, through its counsel to the appellant herein demanding the aforesaid amount as well as arbitration cost of US $5490. Since the amount was not paid, the respondent filed the company petition as mentioned above.

8. In the company petition filed by the respondent apart from referring to and relying upon the aforesaid arbitration award it was also stated by the respondent that the debt in question was even otherwise admitted and acknowledged by the appellant herein. In this behalf following averments are made in the petition: thereafter on 8-10-1998 a bilateral protocol arrangement was signed between the petitioner and the Company, wherein the Company agreed and assured to pay to the petitioner the balance amount of US $127,621.30 along with the arbitration fees amount of US $10,000 by the end of April 1999. Pursuant to the above, the petitioner agreed to suspend the arbitration proceedings till April 1999. A copy of the bilateral protocol arrangement signed between the petitioner and the Company is attached hereto and marked as Annexure C. On 21-10-1998 the petitioner lodged a petition with ICCA for suspension of the hearings of the arbitration matter because of the protocol dated 8-10-1998 with the Company. The Company however failed to comply with the obligations assured by it under the protocol dated 8-10-1998 and due to such failure on the part of the Company the petitioner on 29-10-1999 resubmitted the request to resume the hearing of the arbitration proceedings before ICCA.

9. The appellant filed reply to the said petition and contested the petition on various grounds. It was submitted that company petition based on a foreign award was not maintainable by execution of bilateral protocol arrangement dated 8-10-1998. It was pleaded that Mr Appala Raju, official of the appellant Company who had signed the said arrangement, was not authorised to do so. Insofar as the agreement is concerned, the appellant herein denied the signatures.

10. In the rejoinder the respondent referred to some more documents which inter alia included a fax message dated 21-9-1998, purportedly signed by Mr Appala Raju, representative of the appellant, in which request was made for grant of some more time to pay back the balance of US $127,621.30 and it was assured that the entire payment would be made by the end of April 1999. Another document which was filed was letter dated 18-6-1999, signed by Mr K.V Rao, Managing Director of the appellant Company wherein it was again promised that the appellant would arrange payment of outstanding amount from July 1999 and make complete payment by the end of December. The case of the respondent, thus, was that the appellant had acknowledged the liability even otherwise and, therefore, the petition for winding up was maintainable.

11. In the reply-affidavit filed to the rejoinder, the appellant denied the authority of Mr Appala Raju to sign any document. It was also submitted that the documents produced with the signatures on the documents by Mr K.V Rao were obtained under threat and coercion when Mr K.V Rao was in Russia.

12. After hearing the arguments of both sides the learned Company Judge, as pointed out above, has directed the appellant to deposit the amount in question. It was also observed that insofar as objection of the appellant to the maintainability of the company petition filed on the basis of foreign award is concerned, including applicability of the procedure prescribed under Sections 47 to 49 of the Arbitration and Conciliation Act, 1996, the same would be considered after the deposit postulated by the award is made by the appellant herein.

13. Mr Vijay Hansaria, learned Senior Counsel appearing for the appellant has objected to the direction given by the learned Single Judge in the impugned order on the basis of following pleas:

(a) It is submitted that company petition for winding up on the basis of a foreign award is not maintainable. He argued that a foreign award can be enforced under the provisions contained in Part II of the Arbitration and Conciliation Act, 1996 of which Chapter I applies to the New York Convention awards which is relevant for our purposes. He drew the attention of the Court to the provisions contained in Sections 47 to 49 of the said Act and submitted that in case of a foreign award, even when it is to be enforced in a civil court, before taking cognizance of such an award it is incumbent upon the executing court to first satisfy that there is proper evidence in existence of such an award and the conditions laid down in Section 47 of the award are fulfilled.

(b) He also submitted that Section 48 of the Act lays down certain conditions which are required to be fulfilled before a foreign award gets enforced inasmuch as if the conditions stipulated therein are not satisfied, Indian courts can refuse to enforce a foreign award.

(c) It was thus submitted that the learned Single Judge could not have deferred the consideration of arguments made by the appellant predicated on the aforesaid provisions and without considering those arguments he could not have directed deposit of the amount in question.

14. In support of this plea Mr Hansaria referred to the judgment of the Supreme Court in Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. . (2001) 6 SCC 356, Marina World Shipping Corpn. Limited v. Jindal Exports P. Limited (2004) 122 Comp Cas 399 (Del) of this Court and that of the Calcutta High Court in Vinayak Oil and Fats (P) Ltd. v. Andre (Cayman Islands) Trading Co. Ltd. (2005) 2 Arb LR 551 (Cal)

15. In Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. . (2001) 6 SCC 356, the Supreme Court while dealing with the enforceability of such foreign awards has laid down, in no uncertain terms, that when such a foreign award is sought to be enforced through a court of law in India, in the first instance and at the first stage it is incumbent upon the court to satisfy itself about the conditions of such terms as laid down in Sections 47 to 49 of the Act. Relevant portion of the said judgment, in this behalf, is reproduced below:

“31. … Thus, in our view, a party holding a foreign award can apply for enforcement of it but the court before taking further effective steps for the execution of the award has to proceed in accordance with Sections 47 to 49. In one proceeding there may be different stages. In the first stage the court may have to decide about the enforceability of the award having regard to the requirement of the said provisions. Once the court decides that the foreign award is enforceable, it can proceed to take further effective steps for execution of the same. There arises no question of making foreign award a rule of court/decree again.”

It, therefore, cannot be disputed that before passing any orders in aid of execution of such an award, it is the first requisite that conditions contained in Sections 47 to 49 of the Act are satisfied.

16. In Marina World Shipping Corpn. Ltd. (2004) 122 Comp Cas 399 (Del) which was a company petition filed on the basis of a foreign award, the Company Judge of this Court refused to entertain such a petition for same reasons and pointed out that the objections to the award which can be filed under Sections 47 and 48 of the Act would appropriately be determined in civil proceedings. Without burdening this judgment with the detailed discussion contained therein, for the reasons which we shall point out hereafter, it is sufficient to reproduce the conclusive para of the said judgment:

“… Therefore, a clear stand was taken by the arbitrator that he was not going to decide any question with regard to existence of arbitration agreement/arbitration clause and also the issue with regard to validity of the arbitration agreement. Therefore, whether or not the respondent Company had acquiesced or waived its right to question the existence of an arbitration agreement or competence of the sole arbitrator to adjudicate and decide and also whether or not an arbitration agreement was entered into between the parties through fax and/or other communications exchanged between the parties are disputes, with regard to facts and, therefore, are disputed questions of fact. Adjudication of such issues would necessarily require investigation and enquiry into facts and evidence produced. The respondent had definitely raised an objection with regard to existence and validity of the arbitration agreement at a very initial stage. The aforesaid objection raised by the respondent with regard to the existence and validity of the arbitration clause is also a defence available against enforcement under the Arbitration Law of India. The said issue also relates to the very foundation on the basis of which the arbitrator has assumed the power and sought to decide the dispute. Such a vitally important question is, therefore, required to be examined minutely and decided in accordance with law. It is also settled law that there can be no waiver as against jurisdiction. These are, therefore, matters which are required to be decided by an appropriate civil court in accordance with law and the company court being a court of limited jurisdiction and its proceedings being summary proceeding, it may not be appropriate to decide the aforesaid questions in the present proceedings. I have restrained myself from discussing and examining the pleas with regard to validity and existence of the arbitration agreement in minute detail in view of the fact that any discussion on the merit of the aforesaid pleas would amount to expressing an opinion on the merit of the same, which could be a subject-matter of a petition under Sections 44 to 48 of the Arbitration Act. Therefore, in my considered opinion, it would be improper to give any opinion, at this stage, with regard to merit of the aforesaid pleas as it might prejudice one way or the other.” (Marina World Shipping Corpn. case (2004) 122 Comp Cas 399 (Del), Comp Cas pp. 415 H-416 E)

17. Following the aforesaid judgment of this Court, the Calcutta High Court has taken similar view in Vinayak Oil and Fats (P) Ltd. v. Andre (Cayman Islands) Trading Co. Ltd. (2005) 2 Arb LR 551 (Cal)

18. It clearly follows from the aforesaid decisions that had the company petition been filed solely on the basis of a foreign award, the direction of the learned Single Judge to the appellant to deposit the amount covered by the award before decision on the objections under Sections 47 to 49 of the Arbitration and Conciliation Act, 1996 would have been erroneous as it would go contrary to the dicta laid down in the aforesaid judgments.

19. To the dismay of the appellant, however, the matter did not rest at that. As pointed out above, dehors the arbitration award, the respondent had also filed documents on record on the basis of which it was contended that there was an acknowledgment of the liability which incidentally is of the same amount as in the award, namely, US $127,621.30. Significantly, the basis of the direction to deposit is this acknowledgement and not the award. We find from the reading of the impugned order of the learned Company Judge that this aspect has been specifically dealt with in the said order.

20. From para 9 of the order, the learned Single Judge initiates this discussion on the basis of certain documents independent of and without being influenced by the award. The learned Single Judge has pointed out three documents on the basis of which a prima facie finding is returned that there is an acknowledgment of the liability. After pointing out that legal notice dated 11-8-2000 was admittedly served upon the respondent and reply dated 18-9-2000, sent by the appellant through UPC does not inspire confidence, the discussion in respect of those three documents proceeds as follows:

“Thus we have a situation where there is no reply sent to the statutory notice issued under Sections 433(e), 434 and 439 of the Act and the respondent has only belatedly taken a stand, raising pleas canvassed in its reply dated 18-9-2000. Besides, the following three documents prima facie indicate that the respondent had acknowledged its liability:

1. Protocol dated 8-10-1998;

2. Fax message dated 21-9-1998;

3. Letter dated 18-6-1999 acknowledging liability with reference to the letter dated 1-4-1999 sent by TPE wherein liability of the respondent Company to the extent of US $127,621.30 plus US $10,000 towards costs was indicated by the petitioner.

In my view, all these are sufficient demonstration of the acknowledgment by the respondent to pay its debt. Not only are the documents signed by Appala Raju, the authorised representative of the DI but the letter dated 18-6-1999 was also signed by the Managing Director of the respondent Company clearly acknowledging its liability and this letter indeed sought some time for payment of the dues claimed on 1-4-1999 by the petitioner. Denial of the authority of Shri Appala Raju clearly lacking in bona fides as is evident from the correspondence exchanged between the parties. Even on 7-10-1998 by fax message, the Managing Director of the respondent Company, DI had appointed Shri Appala Raju as its power of attorney-holder and the contents thereof are as follows:

We, Dolphin International Limited, New Delhi, India, by these presents hereby give Mr Appala Raju full authority and power to perform in Arbitration Case No. 182 of 1998 subject to ICAC consideration. To perform these Mr Appala Raju is authorised to accept and/or reject the action, to alter action requirements, to submit counterclaims, to enter into mutual agreement, as well as to fulfil any deeds hereof. There are various other documents relied upon by the petitioner Company but in my view the abovementioned documents sufficiently indicate the acknowledgment given by the respondent Company making it unnecessary at this stage for me to go into beyond these documents.”

21. The contention of Mr Hansaria in this behalf is the same as was advanced before the Company Judge. It is stated that insofar as Protocol dated 8-10-1998, is concerned, signing of the same was denied by the appellant. As far as fax message dated 21-9-1998 is concerned, the defence is that Mr Appala Raju had no authority to send such a fax. In respect of letter dated 18-6-1999, written by Mr Rao, the President of the appellant Company acknowledging the liability, the submission is that signatures of Mr Rao were obtained when he had visited Russia by physical threat and coercion.

22. These aspects are specifically dealt with by the learned Single Judge in the portion of the judgment already reproduced above. It is pointed out that Mr Appala Raju, as authorised representative, had been sending many other documents and, therefore, at this stage the aforesaid two documents signed by Mr Appala Raju cannot be brushed aside. Insofar as letter dated 18-6-1999 signed by Mr Rao is concerned, the contention of the appellant that this was under physical threat was not accepted and in the process, the learned Company Judge made the following observations:

“Furthermore, the plea taken by Mr K.V Rao, the Managing Director of the respondent Company that his signatures at Annexures R-1, R-2, R-4 and R-6 to the rejoinder-affidavit dated 26-2-2002 were obtained under physical threat while he was in Russia and that he was forced to sign on a number of plain papers and letterheads is lacking in bona fides. No contemporaneous records have been produced or even averred in support of the respondent's plea for the physical threat administered to Shri K.V Rao. In any case there was no threat, deterrent or duress to K.V Rao after he came back to India where he was undeniably a free agent and he could have registered his protest about duress exercised over him in Russia. In my view, these pleas appear to be the conduct of a party using delaying tactics to wriggle out of the unconditional acknowledgement and liability by a conduct which indicates lack of bona fides.”

23. We are in agreement with the aforesaid reasoning given by the learned Company Judge. It would be relevant to mention at this stage that the Protocol dated 8-10-1998 is signed, when the arbitration proceedings had already commenced at the instance of the respondent. The respondent has produced on record the letters written by the respondent to the Chambers of Commerce, Moscow, Russia. Referring to the said Protocol the respondent requested the Arbitral Tribunal to keep the arbitration proceedings in abeyance as the appellant had agreed to make the payment by April 1999. Significantly, there is a letter of the appellant also written to the Chambers of Commerce which is dated 7-9-1998. The Arbitral Tribunal, in fact, acting upon the aforesaid representations of both the parties, had stayed further arbitral proceedings. It is only when the appellant failed to make the payment, the request was made by the respondent for resumption of those proceedings. The Arbitral Tribunal then proceeded with the matter and made the award in question. All these factors also, prima facie, indicate that there was acknowledgement of debt by the respondent in the form of aforesaid documents.

24. The learned Company Judge at this stage, by the impugned order, has only taken a prima facie view and the only direction which is given to the appellant is to deposit the amount in question. There is no direction given to pay this amount to the respondent herein.

25. On the basis of aforesaid documents and in coming to prima facie conclusion that there was an acknowledgement of the liability, dehors the award, in favour of the respondent herein we do not find any infirmity, irregularity or illegality in the said direction. It appears to be equitable in nature and is given to protect the interest of the respondent herein, in case the respondent ultimately succeeds. This will also show, when prima facie liability is established, as to whether the appellant is in a position to meet this liability or not i.e whether it has the capacity to deposit the amount in question or not.

26. Influenced by all these considerations, we are of the view that this appeal is without any merit and we accordingly dismiss this appeal. We, however, grant eight weeks' time to the appellant to deposit the amount in question. Company petition be listed before the Company Judge on 8-12-2008.