M.R Shah, J.:— As common question of law and facts arise and as such between the same parties and as such the respective appeals can be said to be cross appeals and arising out of the order passed by the learned District Court under section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “Arbitration Act”), all these appeals and respective special civil applications are heard, decided and disposed of by this common judgment and order.
2. Feeling aggrieved and dissatisfied with the impugned final order dated 25.01.2016 passed by the learned Additional District Judge, Gandhinagar (hereinafter referred to as “learned Judge”) in Civil Misc. Application No. 126/2015 by which in an application preferred by the original applicant - Gujarat State Petroleum Corporation Limited (hereinafter referred to as “GSPCL”) submitted under Section 9 of the Arbitration Act, the learned Judge has directed the original opponents to deposit a Bank Guarantee worth US $ 35.86 million and has further directed to deposit a Bank Guarantee worth US $ 7.64 million with respect to Civil Misc. Application No. 127/2015, the original opponent No. 2 has preferred First Appeal No. 547/2016 and 548/2016. The original opponent No. 1 Alkor Petroo Limited (hereinafter referred to as “Alkor”) has also preferred Appeal Nos. 551/2016 and 552/2016 challenging the aforesaid final order passed by the learned Judge.
3. Feeling aggrieved and dissatisfied with the aforesaid order passed by the learned Judge to the extent of direction to original opponents to furnish a Bank Guarantee to secure an amount of US $ 35.86 million to the arbitration in respect of North Hap'y Block, Egypt and an amount of US $ 7.64 million with respect to the arbitration in respect of South Diyur Block, Egypt only and does not direct furnishing Bank Guarantee to cover the interest amount which the original applicant claimed in the arbitration, the original applicant has also preferred First Appeal Nos. 1041/2016 and 1042/2016.
4. Feeling aggrieved and dissatisfied with the issuance of the notice by the learned Judge, by which IVRCL Limited (hereinafter referred to as “IVRCL”) is called upon to show cause why it should not be joined as party respondent in the arbitration proceedings, IVRCL has preferred Special Civil Application Nos. 14122/2015 and 14123/2015.
5. Facts leading to the present First Appeals and respective special civil applications in nut-shell are as under:
6. A Concession Agreement was executed on 09.03.2008 between the Arab Republic of Egypt, Egyptian National Gas Holding Company, GSPCL, GeoGlobal Resources and Alkor. There were number of correspondences between GSPCL and Alkore between December 2008 and July 2011 calling upon Alkor to remit its share of expenditure to meet the Joint Venture Obligations as per the terms of the Agreement. A Joint Operating Agreement (hereinafter referred to as “JOA”) came to be executed on 18.07.2011 between GSPCL, GeoGlobal Resources (Barbados) Inc. and Alkor for the North Hap'y Area. The said JOA contains an arbitration clause. At this stage it is required to be noted that the appellant IVRCL was neither a party to the Concession Agreement dated 09.03.2008 nor a party to the JOA dated 18.07.2011 At no point of time the IVRCL was in picture. According to the GSPCL, Alkor made payments to GSPCL under the JOA upto February 2012. There were number of correspondences between July 2011 to November 2012 by the GSPCL to Alkor, calling upon Alkor to remit its share of expenditure to meet the Joint Venture Obligations. By common letter dated 01.11.2012 by GSPCL to Alkor enlisting the cash calls which have allegedly remained unpaid towards North Hap'y Block and South Diyur Block refers to the JOA and states that the GSPCL shall continue to invoke default provisions of the JOA against the Alkor. It appears that vide communication dated 20.12.2012 Alkor wrote a letter to the GSPCL denying and disputing the claim of GSPCL and stating that GSPCL has defaulted on many counts as per the JOA and requested for Operating Committee meeting and Exploration Advisory Committee. By communication dated 31.12.2012, the GSPCL wrote a letter to Alkor, describing it as the final notice of default for outstanding cash call/JIB for both the blocks and calling upon Alkor to make payments within 7 business days, failing which the Bank Guarantee in relation to both the blocks will be encashed and Alkor's participating interest will be forfeited in accordance with JOA and initiate arbitration proceedings for recovery of damages. It appears that by reminder dated 15.08.2013 Alkor communicated to GSPCL addressing therein that “write-up” on the IVRCL explaining the strength of IVRCL to support the Alkor. It appears that IVRCL vide communication dated 19.08.2013 addressed to the Directors of Alkor, connected with the Board of Directors of IVRCL has resolved to extend financial support to its subsidiary Alkor as may be required from time to time to enable Alkor to continue as a growing concern. It is the case on behalf of IVRCL that in the said letter it was stated that the same is for the sole benefit of Alkor and no other third party shall have any rights or claims directly of IVRCL. It appears that thereafter IVRCL addressed a letter on 11.10.2013 to the Chief Secretary of the State of Gujarat, referring therein to the Exploration of the two blocks namely North Hap'y Offshore block and South Diyur Onshore block wherein the share of GSPCL was initially 50%, GeoGlobal was 30% and Alkor was 20%. Each such partners were to provide Bank Guarantees to cover the work programme in the share of their respective holdings. Alkor with its shareholding of 20% was required to provide Bank Guarantee of US $ 9.00 million for the South Diyur Block which could not be arranged. The letter also stated that IVRCL has taken a decision to step in, acquire shareholding from Alkor and arrange the necessary Bank Guarantees. It was also stated that exploration work programme for Onshore South Diyur block required funding of which Alkor's share was US $ 9 million out of which Alkor had invested US $ 1.5 million. IVRCL stated therein that IVRCL was facing acute financial pressure and the proposed encashment of the Bank Guarantee of Alkor would build additional financial pressure on the IVRCL.
7. Thereafter, GSPCL vide notice dated 26.03.2014 issued a notice upon the Alkor only and invoke the arbitration under Article 18.2 of the JOA in relation to the North Hap'y Block. Similar notice was issued on 26.03.2014 by GSPCL addressed to the Alkor only invoking arbitration under Article 18.2 of the JOA in relation to the South Diyur Block. Alkor challenged the notification of the arbitration proceedings. Ultimately, GSPCL filed Arbitration Petition No. 42/2014 before this Court and under Section 11 of the Arbitration Act for appointment of the Arbitrator. At this stage it is required to be noted that even in the application under Section 11 of the Arbitration Act, IVRCL was not a party. This Court by order dated 10.10.2014 appointed the respective Arbitrators on behalf of the respective parties i.e GSPCL and Alkor and both the learned Arbitrators were to select a third Arbitrator to constitute the Arbitral Tribunal for resolution of the disputes between the parties arising out of the agreement/JOA dated 18.07.2011 It appears that the Arbitral Tribunal issued the notice to the GSPCL and Alkor on 25.11.2014 for the first/preliminary arbitral meetings to be held on 15.12.2014 In the first meeting held on 15.12.2014 the learned Arbitral Tribunal directed inter alia that the GSPCL shall file its statement of claim on or before 31.01.2015 and Alkor shall file its statement of defence on or before 28.02.2015 and rejoinder before 25.03.2015 It appears that GSPCL filed the statement of claim before the Arbitral Tribunal on 30.01.2015 in which GSPCL also prayed to implead IVRCL to the arbitration proceedings and prayed with subject to the success of their claim, hold IVRCL and Alkor jointly and severally liable towards amount due towards the claim. It appears that in the meantime there were some press reports in the Economic Times with respect to the affairs of IVRCL. It also appears that thereafter the learned Arbitral Tribunal held its arbitral meetings on 19.04.2015 and 17.04.2015 On 09.04.2015, GSPCL submitted another application for various reliefs. On 17.04.2015, Alkor filed its written statement and thereafter the GSPCL filed its rejoinder dated 27.05.2015 and even Alkor also filed its sur-rejoinder at this stage it is required to be noted that till then no efforts were made by the GSPCL to see that the notice is got issued against IVRCL. There was a press report of Business Line on 31.05.2015 stating that IVRCL had posted a loss for the fourth quarter ending March 31st 2015.
8. It appears that thereafter GSPCL proceeded to file the proceeded to file the proposed issues and filed an application before the learned Arbitral Tribunal on 11.06.2015 and prayed (1) to fix the date of hearing and deciding the issue of joinder of IVRCL, preliminary; (2) to implead IVRCL as a party to the present proceedings. It appears that Alkor filed its reply on 29.06.2015 to the said application dated 11.06.2015”
9. Thereafter, GSPCL filed the Civil Misc. Application No. 125/2015 and Civil Misc. Application No. 127/2015 against Alkor and IVRCL under Section 9 of the Arbitration Act for interim measures essentially under section 9(ii)(b)(d) of the Arbitration Act. The Civil Misc. Application No. 126/2015 was in relation to the North Hap'y Block and Civil Misc. Application No. 127/2015 was in respect to South Diyur Block.
10. Before the learned trial Court, GSPCL mainly relied upon the press reports of the Financial Express, Business Line, Live Mint, Economic Times, in support of their claim that financial condition of the IVRCL is not sound. It was the case on behalf of GSPCL that as such IVRCL is a parent company of Alkor and IVRCL has been running operations of Alkor since 2007 when IVRCL acquired 100% stake in the Alkor. That along with the aforesaid Civil Misc. Application Nos. 126/2015 and 127/2015, the GSPCL also filed the applications Exh.5 for interim relief/interim injunction, pending the decision of the Civil Misc. Applications under Section 9 of the Arbitration Act. Vide order dated 16.07.2015, the learned trial Court by an ex parte order/s ordered the IVRCL/Alkor to produce additional Bank Guarantee worth US $ 35.86 million (Civil Misc. Application No. 126/2015) and the additional Bank Guarantee worth US $ 7.64 million (Civil Misc. Application No. 127/2015) and till then restrained IVRCL and Alkor from transferring, alienating or disposing of or creating any interest, in any manner, in any of its immovable properties (order dated 16.07.2015).
11. By order dated 29.07.2015, the learned Arbitral Tribunal issued the notice to IVRCL making it returnable on 17.10.2015, observing that if IVRCL is not agreeable to be impleaded, it will be for IVRCL to file written submissions on or before 15.09.2015 The aforesaid order dated 29.07.2015 is the subject matter of aforesaid Special Civil Application Nos. 14122/2015 and 14123/2015.
12. That feeling aggrieved and dissatisfied with the ex parte order dated 16.07.2015 passed below application Exh.5 in Civil Misc. Application Nos. 126/2015 and 127/2015, IVRCL preferred First Appeal Nos. 1602/2015 and 1603/2015 before this Court. The aforesaid first appeals came to be disposed of by this Court in terms of the arrangement stated in the order dated 07.08.2015 That IVRCL filed the application Exh.19 before the learned trial Court for discharging and setting aside the ex parte order dated 16.07.2015 The GSPCL filed affidavit in reply to the application Exh.19 of IVRCL. By order dated 20.08.2015 the learned trial Court dismissed the IVRCL's application Exh.19 The IVRCL again preferred First Appeal Nos. 1714/2015 and 1715/2015 challenging the orders dated 20.08.2015 passed by the learned trial Court below application Exh.19
13. IVRCL also challenged the notice dated 29.07.2015 issued by the learned Arbitral Tribunal by which the IVRCL was called upon to file written submissions against their proposed impleadment by way of Special Civil Application Nos. 14122/2015 and 14123/2015. The learned Single Judge admitted the aforesaid Special Civil Applications and by way of interim order observed that the IVRCL is not required to file reply to the notice dated 29.07.2015
14. Vide order dated 13.10.2015 this Court allowed the aforesaid First Appeal Nos. 1714/2015 and 1715/2015 and set aside the learned trial Court's judgment and order dated 20.08.2015 passed below application Exh.19 and directed the learned trial Court to decide and dispose of the respective Civil Misc. Applications by order dated 31.01.2016 At this stage it is required to be noted that while quashing and setting aside the orders passed by the learned trial Court passed below application Exh.19, the Division Bench also set aside the learned trial Court's ex parte order dated 16.07.2015
15. That feeling aggrieved and dissatisfied with the judgment and order passed by the Division Bench of this Court passed in First Appeal Nos. 1714/2015 and 1715/2015, GSPCL approached the Hon'ble Supreme Court and the Hon'ble Supreme Court disposed of the said SLPs by modifying this Court's order dated 13.10.2015 to the limited extent of extending interim relif till 31.01.2016
16. Thereafter, IVRCL filed affidavit in reply to the Civil Misc. Application No. 126/2015 and 127/2015 on 16.12.2015 The GSPCL filed rejoinder to the affidavit in reply of IVRCL on 06.01.2016 Thereafter, by impugned orders the learned trial Court has partly allowed the said Civil Misc. Application Nos. 126/2015 and 127/2015 and has directed IVRCL and Alkor to furnish the Bank Guarantee of US $ 35.86 million in Civil Misc. Application No. 126/2015 and US $ 7.64 million in Civil Misc. Application No. 127/2015.
17. Feeling aggrieved and dissatisfied with the impugned orders passed by the learned trial Court in Civil Misc. Application No. 126/2015, the original opponent No. 2 - IVRCL has preferred the First Appeal Nos. 547/2016 and 548/2016 and original opponent No. 1 - Alkor has also preferred First Appeal Nos. 551/2016 and 552/2016 and the original applicant - GSPCL has also preferred First Appeal Nos. 1041/2016 and 1042/2016.
18. Shri. Apurva Vakil, learned advocate appearing on behalf of the IVRCL has vehemently submitted that the learned trial Court has materially erred in partly allowing the respective Civil Misc. Applications and directing the IVRCL to furnish the respective Bank Guarantees that too by way of interim measure under section 9(ii)(b)(d) of the Arbitration Act.
19. It is further submitted by Shri. Vakil, learned advocate appearing on behalf of IVRCL that while passing the impugned orders and directing IVRCL to furnish the Bank Guarantees, the learned trial Court has not properly appreciated the fact that as such IVRCL is neither a party to the JOA nor any arbitration proceed ings nor even a party to the application under Section 11 of the Arbitration Act.
20. It is vehemently submitted that as such when IVRCL is neither a party to the joint JOA nor party to any arbitration agreement the learned trial Court has materially erred in allowing the applications against IVRCL and directing the IVRCL to furnish the Bank Guarantees in exercise of powers under section 9(ii)(b)(d) of the Arbitration Act.
21. It is further submitted by Shri. Vakil, learned advocate appearing on behalf of IVRCL that as such the application and the relief sought in the applications were actually under section 9(ii)(b)(d) of the Arbitration Act and no reliefs were prayed which would fall under Section 9(ii)(e) of the Arbitration Act. It is submitted that even the powers of the learned trial Court under Section 9(ii)(c) were also not invoked. It is submitted that therefore the learned trial Court has materially erred in observing that the trial Court is competent to pass such interim order which may appear to be just and convenient. It is submitted that the prayer contained in para 36(a) which was under section 9(ii)(b), which are akin to the provisions of Order 38 Rule 5 of the Code of Civil Procedure, 1908 (hereinafter referred to as “CPC”). It is submitted that therefore the learned trial Court has materially erred in passing the order against IVRCL.
22. It is further submitted by Shri. Vakil, learned advocate appearing on behalf of IVRCL that the learned trial Court has materially erred in observing that Alkor has no financial stand of its own and that IVRCL is financing Alkor as and when required. It is submitted that the learned trial Court has also erred in observing that Alkor has no money as well as no assets from which its creditors can recover their dues.
23. It is submitted by Shri. Vakil, learned advocate appearing on behalf of IVRCL that even the observations made by the learned trial Court with respect to the relations between Alkor and IVRCL are factually not correct.
It is further submitted by Shri. Vakil, learned advocate appearing on behalf of the IVRCL that while passing the impugned order the learned trial Court has not properly appreciated the following facts.
(a) ever since the Alkor allegedly stopped making payment of the cash calls from February 2012 onwards, GSPCL had not addressed a single letter or a notice to IVRCL calling upon IVRCL to make the said payment for any reason whatsoever.
(b) there was no letter and/or notice issued by GSPCL to the IVRCL evidencing any intention on part of GSPCL to invoke arbitration against IVRCL, and to implead and to proceed against IVRCL in the arbitration proceedings and to bind IVRCL with any award that may be passed against Alkor in the proposed arbitration proceedings.
(c) at the time of entering into the Concession Agreement in March 2008 and thereafter entering into the JOA in July 2011, the GSPCL had knowledge of the fact that IVRCL is the holding Company of Alkor since 2007 and also had knowledge of the financial condition of Alkor.
(d) even in the first Arbitral Meeting held on 15.12.2014, the minutes thereof gave no indication of any kind whatsoever of any intention on part of GSPCL to proceed against IVRCL in the arbitration proceedings.
(e) the Arbitral Tribunal had not even issued a notice to IVRCL from 30.01.2015 upto 29.07.2015 and
(f) that the notice dated 29.07.2015 issued by the Arbitral Tribunal to IVRCL for the purpose of showing cause to implead IVRCL in the arbitration proceedings, is challenged by IVRCL before this Court by way of Special Civil Application and after hearing GSPCL, this Court issued “Rule” and protected IVRCL and the said protection is in force.
24. It is further submitted by Shri. Vakil, learned advocate appearing on behalf of IVRCL that even otherwise the learned trial Court has materially erred in passing the order against IVRCL on the ground that IVRCL has agreed to give financial support of Alkor and that it addressed the letter to the Chief Secretary of the State of Gujarat.
25. It is further submitted by Shri. Vakil, learned advocate appearing on behalf of IVRCL that even otherwise the learned trial Court has materially erred in passing the impugned orders in an application under Section 9 of the Arbitration Act more particularly in exercise of powers under section 9(ii)(b)(d) of the Arbitration Act, the powers which are akin to Order 38 Rule 5 of the CPC. It is submitted that there is no factual foundation with respect to the financial condition of either IVRCL or Alkor which warrants such an order of interim measure of furnishing the Bank Guarantees.
26. It is further submitted that though the decision of this Court in the case of Essar Oil Limited v. United India Insurance Company Limited was pointed out with respect to the powers of the Court under Section 9 of the Arbitration Act, the learned trial Court has not dealt with the same.
27. It is submitted that merely on the basis of some press reports without any factual matrix established, the learned trial Court is not justified in passing such an order of interim measure in exercise of powers under Section 9 of the Arbitration Act. It is further submitted by Shri. Vakil, learned advocate appearing on behalf of IVRCL that the learned trial Court has failed to appreciate that mere extending financial support by IVRCL to Alkor once would not make IVRCL liable for duties/dues of Alkor. It is submitted the learned trial Court has failed to appreciate that it was not an admitted position that Alkor is not a special purpose vehicle for IVRCL's oil and gas business and Alkor was incorporated to venture into oil and gas exploration and production. It is submitted that the learned trial Court failed to appreciate that Alkor was incorporated was several years prior to the year 2008 when the Concession Agreement was entered into and many more years before the JOA was executed in July 2011. It is submitted that therefore, the learned trial Court has erred in observing that IVRCL can be made liable “at this stage” by lifting the corporate veil. It is submitted that the learned trial Court has materially erred in not appreciating the fact that as such IVRCL was yet to be joined/impleaded in the arbitral proceedings. It is submitted that by making above observations of lifting the corporate veil etc. the learned trial Court has not only decided the prayer made in an application of GSPCL in the arbitration proceedings and has virtually and practically rendered IVRCL's Special Civil Applications pending before this Court as infructuous. It is further submitted by Shri. Vakil, learned advocate appearing on behalf of IVRCL that as such no material was produced by GSPCL before the learned trial Court with respect to the real danger of the opponents defeating and/or delivering and/or obstructing the execution of a decree. It is submitted that without any factual matrix and/or foundation and solely on the basis of the media reports and on apprehension on such media reports the learned trial Court ought not to have passed such an order of interim measure in exercise of powers under Section 9 of the Arbitration Act. It is submitted that as such GSPCL failed to state the grounds on which GSPCL entertained the belief or apprehension that the original opponents who disposed of or removed the property with a view to cause obstruction or delay caused in the execution of a decree. It is submitted that infact the learned trial Court was obliged to look into the prima facie case i.e the chances of GSPCL succeeding in obtaining the award against Alkor before exercising/while exercising its powers under section 9(ii)(b) of the Arbitration Act, which is akin to Order 38 Rule 5 of the CPC. It is submitted that infact in the present case the learned trial Court has proceeded to grant the relief in favour of GSPCL solely on the basis of the reliance placed upon the media report. It is submitted that the learned trial Court has not taken into consideration the contents of para 33 of the affidavit-in-reply of IVRCL wherein contents of the media reports have not been admitted.
28. Shri. Vakil, learned advocate appearing on behalf of the IVRCL has vehemently submitted that the learned trial Court has not properly appreciated and/or dealt with decisions of the Hon'ble Supreme Court as well as this Court relied upon by IVRCL and Alkor.
29. Shri. Vakil, learned advocate appearing on behalf of the IVRCL has heavily relied upon the following decisions of the Hon'ble Supreme Court as well as this Court in support of his prayers and request to allow the present appeals preferred by the original opponents more particularly IVRCL and to quash and set aside the impugned orders.
1. Arvind Constructions Co. (P) Ltd. v. Kalinga Mining Corporation (2007) 6 SCC 798)
2. Sukanya Holdings Pvt. Ltd. v. Jeyesh H. Pandya (2003) 5 SCC 531
3. S.N Prasad v. Monnet Finance Ltd. (2011) 1 SCC 320
4. Essar Oil Ltd. v. Hindustan Shipyard Ltd. (2015) 10 SCC 642
5. Suzlon Energy Limited v. Vishal Plastomer Private Limited, 2007 (4) GLR 3274
6. Essar Oil Limited v. United India Insurance Company Limited.
30. Shri. B.N Karia, learned advocate appearing on behalf of Alkor has adopted the submissions made by Shri. Vakil, learned advocate appearing on behalf of the IVRCL with respect to the powers exercised by the learned trial Court and the impugned orders passed in exercise of powers under section 9(ii)(b)(d) of the Arbitration Act.
31. The respective First Appeals preferred by the original opponents have been vehemently opposed by Shri. Aspi Kapadia, learned advocate appearing on behalf of the original applicant - GSPCL. An affidavit in reply is filed on behalf of the GSPCL in respective First Appeals and the Civil Applications therein.
32. It is submitted by Shri. Kapadia, learned advocate appearing on behalf of the GSPCL that the impugned orders passed by the learned trial Court are orders for interim measures under Section 9 of the Arbitration Act. It is submitted that Section 9(1)(ii)(b) empowers the Court to pass such orders as are necessary to secure the amount in dispute in the arbitration. It is submitted that in the present case the learned trial Court has been pleased to direct the opponents (appellants herein) to furnish the Bank Guarantees with respect to the arbitration in respect of North Hap'y Block and South Diyur Block, Egypt. It is submitted that in the facts and circumstances of the case the said orders do not suffer from any infirmity in law or in facts. It is submitted that the said order intends to secure the amount in dispute so that if ultimately a decree is passed in favour of GSPCL, the money can be recovered. It is submitted that in absence of any such order securing the amount in dispute, it is highly likely that the award would be a paper decree and GSPCL may not be able to recover the same.
33. It is further submitted by Shri. Kapadia, learned advocate appearing on behalf of GSPCL that as such IVRCL is a parent company of Alkor and is financially assisted fully by IVRCL and infact IVRCL also addressed a letter/communication to the Chief Secretary, State of Gujarat requesting not to invoke the Bank Guarantee given by Alkor which was given to the extent of its share as per the JOA.
34. It is further submitted by Shri. Kapadia, learned advocate appearing on behalf of the GSPCL that as can be seen from the record of the Section 9 proceedings, GSPCL has to recover huge amounts. It is submitted that GSPCL has spent huge amounts in respect of the petroleum operations for the aforesaid two blocks in Egypt. It is further submitted that Alkor is required to pay GSPCL for 20% of Alkor's share under the Concession Agreement dated 09.03.2008 It is submitted that initially, Alkor paid upto February 2012, however later on it did not make any payment. It is submitted that GSPCL has a very strong case and has very high chances of succeeding in the arbitration. It is further submitted that infact the dues are admitted dues by Alkor and since Alkor did not make any payment, GSPCL was constrained to initiate arbitration.
35. It is further submitted by Shri. Kapadia, learned advocate appearing on behalf of GSPCL that as Alkor did not appoint any arbitrator from its side, GSPCL was constrained to file an application under Section 11 of the Arbitration Act. It is submitted that upon appointment of the Arbitrator under Section 11 of the Arbitration Act, the learned Arbitral Tribunal was constituted and Statement of Claim in the two arbitrations namely in respect of North Hap'y Block and South Diyur Block were filed by the GSPCL on 30.01.2015 It is further submitted that in the Statement of Claim itself GSPCL has set out elaborate grounds to implead IVRCL as a party respondent to the arbitration proceedings and has prayed for a joint and several decree against Alkor and IVRCL both. It is further submitted that the claim in respect of North Hap'y Block is US $ 35.86 million and in respect of South Diyur Block is US $ 7.64 million. It is submitted that IVRCL is the holding company of Alkor. It is further submitted that IVRCL holds 64% of the shares in Alkor and the balance 36% are held by IVRCL's promoters. Therefore, the IVRCL controls Alkor, totally. It is submitted that Alkor is a front for IVRCL to venture into the Oil and Gas Exploration business. It is submitted that IVRCL has represented and agreed to support Alkor financially. It is further submitted that it is to be noted that Alkor is financially empowered by IVRCL to meet with its financial obligations and IVRCL supports Alkor as and when needed. It is submitted that the case in hand amply justifies lifting of the corporate veil to hold IVRCL jointly and severally liable with Alkor for the dues payable by Alkor to GSPCL. It is submitted that therefore in the facts and circumstances of the case and after lifting the corporate veil and finding the relation between IVRCL and Alkor, no error has been committed by the learned trial Court in passing the impugned orders and interim measure under Section 9 of the Arbitration Act. It is submitted that as such IVRCL has stepped into the affairs of Alkor.
36. Shri. Kapadia, learned advocate appearing on behalf of the GSPCL has relied upon the decision of the Hon'ble Supreme Court in the case of Purple Medical Solutions Pvt. Ltd. v. MIV Therapeutics Inc. reported in (2015) 2 Scale 127 in support of his submissions with respect to lifting of corporate veil. He has also relied upon the decision of the Hon'ble Supreme Court in the case of Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd. reported in (2007) 7 SCC 125 as well as the decision of the Delhi High Court in the case of Gatx India Pvt. Ltd. v. Arshiya Rail Infrastructure Limited reported in respect of the powers of the Court in exercise of powers under Section 9 of the Arbitration Act. Making above submissions it is requested to dismiss the present First Appeals preferred by the IVRCL and Alkor.
37. It is further submitted by Shri. Kapadia, learned advocate appearing on behalf of the GSPCL that as such the learned trial Court has materially erred in directing the IVRCL and Alkor to furnish the Bank Guarantees of US $ 35.86 million and US $ 7.64 million only which will recover only the principal amount and which shall not cover the amount of interest. Therefor requested to allow the appeals preferred by the GSPCL.
38. Now, so far as the respective Special Civil Applications preferred by IVRCL against the issuance of the notice by the learned Arbitral Tribunal calling upon the IVRCL to file written submissions in case IVRCL objects its implementation in the arbitration proceedings, learned advocate appearing for respective parties have made number of submissions with respect to lifting the corporate veil, however as the matter can be said to be at large before the learned Arbitral Tribunal and present petitions are at the stage of show-cause notice issued by the learned Arbitral Tribunal we do not propose to go into the contentions and issues with respect to the lifting of the corporate veil and whether IVRCL can be impleaded as a party to the arbitration proceedings or not.
39. Heard learned advocates appearing for respective parties at length. We have perused the impugned orders passed by the learned trial Court by which in exercise of powers under Section 9 more particularly in exercise of powers under section 9(ii)(b)(d) of the Arbitration Act and by way of interim measure the learned trial Court has directed the original opponents - IVRCL and Alkor to furnish the Bank Guarantees of US $ 35.86 million and US $ 7.64 million.
40. At the outset it is required to be noted that according to IVRCL, IVRCL is not a party to the JOA and the JOA containing arbitration clause is between GSPCL, Alkor and others. It also appears that even in an application under Section 11 of the Arbitration Act preferred by GSPCL, even IVRCL was not joined as a party to the said application. An application has been preferred by the learned Arbitral Tribunal requesting to join/implead the IVRCL alleging-inter alia that IVRCL is a parent company and Alkor is a subsidiary company of IVRCL for exploration of gas and oil and therefore, can be said to be a special vehicle for explorat on of gas and oil and alleging inter alia that IVRCL has stepped into the shoes of the Alkor by giving/providing the financial assistance and accepting the financial liability of Alkor. Therefore, it is requested to lift the corporation veil and to also hold the IVRCL liable to pay the sum due and payable to the GSPCL which is due and payable from Alkor. However, it is required to be noted that whether the IVRCL can be permitted to be impleaded in the arbitration proceedings is yet to be considered by the learned Arbitral Tribunal and therefore, the submission/case on behalf of GSPCL with respect to the lifting of corporate veil, the same cannot be entertained as it is yet to be considered by the learned Arbitral Tribunal which is at large before the learned Tribunal. Therefore, as such this Court do not propose to enter into the said question at this stage as any observations would affect either of the parties before the learned Arbitral Tribunal and therefore, this Court would like to address itself on the issue/aspect whether in the facts and circumstances of the case and on the basis of the averments made in the application submitted under Section 9 of the Arbitration Act, the learned trial Court is justified in passing such an order of interim measure directing the opponents to furnish the Bank Guarantees of US $ 35.86 million US $ 7.64 million or not and therefore, the present First Appeals are restricted with respect to the exercise of the powers by the learned trial Court exercised under Section 9 of the Arbitration Act while passing such an interim measure of directing the original opponents of furnishing the Bank Guarantees of US $ 35.86 million and US $ 7.64 million.
41. While considering the aforesaid questions the averments and allegations in the Civil Misc. Applications praying for interim measures under Section 9 of the Arbitration Act are required to be considered. The necessary allegations and averments in the respective applications are as under:
1. The opponent No. 1 (Alkor) and opponent No. 2 (IVRCL) are companies incorporated under the laws of India having their registered office at ‘Mihir’, 8-2-350/5.A/24/1B Road No. 2, Banjara Hills, Hyderabad, A.P, India. Alkor is a Special Purpose Vehicle and a subsidiary of the IVRCL for its foray in oil and gas business. Alkor, an unlisted oil and gas exploration and production company was incorporated to participate in the bidding for the oil blocks in Egypt and Yemen. Alkor was acquired by IVRCL in the year 2007. Earlier Alkor was under the control of a different promoter group namely the Gorlas Group. However, Alkor was incorporated by the Gorlas group to venture in oil and gas exploration and production. All its erstwhile ventures were with GSPC and it was effectively was a special purpose vehicle. In the year 2007, Alkor was acquired by IVRCL and its promoters. This was specifically done by IVRCL to have a front for venturing into a new business of oil and gas exploration. In the year 2007 when IVRCL had acquired Alkor all it had were the 5 blocks in Yemen and Egypt where the GSPCL was the Operator. There was no other activity to name. Alkor had and till date has no financial strength of its own. IVRCL is financing Alkor as and when required. The acquisition of Alkor and the manner of its handling is a sinister design by IVRCL to use Alkor as a front or a tool to venture into a new business of oil and gas exploration (which is by its very nature a high risk business) and take chances of earning big profits. The dubious design of IVRCL is that in case the business does not go well and the Alkor runs into losses and debts, it would seek to hide behind the veil of distinct corporate entities of the two companies and disown the liabilities of Alkor, leaving the creditors of Alkor high and dry. Alkor has no money as well as no assets from which its creditors can recover their dues. The case at hand clearly establishes that IVRCL has indulged in its fraudulent designs. GSPCL is a victim of the fraudulent design of ivrcl.
2. However, Alkor paid its share of Cash Call/JIB only till February 2012 amounting to USD 16,927,828. Thereafter, Alkor has stopped making payment towards the Cash Calls/JIBs raised by GSPCL on Alkor and till date amount of USD 35.86 Million remain unpaid in addition to any and all interest (including interest at Agreed Default Interest Rate) and other claims that GSPCL may have against Alkor in this regard.
3. That GSPCL has several times brought to notice of Alkor the continued default on part of Alkor in meeting with its payment obligations under the JOA. In this regard, GSPCL has sent various letters and various reminders to make payment in accordance with the terms of the JOA.
4. Thereafter, vide its letter dated November 1, 2012 GSPCL with all the earlier cash call details, asked Alkor to make the payment of the cash calls, otherwise default provision of the JOA will be invoked against Alkor to protect GSPCL's legal and contractual rights.
5. In response and much to the shock of the GSPCL, Alkor replied vide its letter dated 20th December 2012, wherein Alkor had raised various allegations inter alia wrongly claiming that Alkor was never notified and nominated to the Exploration Advisory Committee and Operating Committee and no sub-committees were established and they were not provided copies of annual work programme and budget.
6. Since the dispute between the parties; i.e GSPCL and Alkor regarding payment of the outstanding Cash calls dues raised by GSPCL, could not be resolved amicably, hence GSPCL had no option but to invoke arbitration proceedings as per the Article 18 of the JOA. GSPCL invoked arbitration proceedings and issued arbitration notice to Alkor on March 26, 2014 (“Request for Arbitration”) in accordance to Article 17 (“Notices”) of the JOA and proposed to nominate Mr. Justice M.B Shah (Retd.), former Judge of Supreme Court of India as the ‘Sole Arbitrator’. GSPCL further stated in its above Notice that in case Alkor is not agreeable to the appointment of Mr. Justice M.B Shah (Retd.), as the sole arbitrator then Mr. Justice M.B Shah (Retd.), be considered as nominee arbitrator on behalf of GSPCL and further requested Alkor to respond to the same with 30 days of the said Notice for arbitration as per Article 18.2(B) of the JOA.
7. The Auditors of Alkor in their report have clearly stated that the net loss of the company exceed 50% of the net worth of Alkor hence it shows that the financial muscle of IVRCL is keeping Alkor alive else Alkor would have been in dire state.
8. The plethora of emails, minutes, letter exchanges have clearly started that the day to day control, operations are done by officers of IVRCL and Alkor merely looks as a foot note and a name lender to the entire exercise. The communications which Alkor sent to the GSPCL were through the emails of IVRCL and that too with the directors/officers of IVRCL. Hence it is crystal clear that the day to day operations are managed and controlled by IVRCL.
9. Hence, it is abundantly clear that as there is no real difference between Alkor and IVRCL the proceedings under section 9 of the Arbitration and Conciliation Act, 1996 can be initiated under both the Opponents collectively.
10. Furthermore, as per the admission of the Alkor and IVRCL the financial position of Alkor is weak and IVRCL has agreed to stand by its subsidiary, it becomes important to include IVRCL in these present proceedings.
11. Furthermore the application becomes even more important because as per recent press reports the financial position of IVRCL has gone from bad to worse and as per the information available in the public domain IVRCL is facing serious losses in its business the last quarter ending on 31 march 2015 the losses for IVRCL has been to the tune of Rs. 155 crore. Furthermore IVRCL has been selling its assets and has plans to sell more of its assets.
12. It is pertinent to note that GSPCL is claiming the dues from the Alkor and IVRCL vide arbitration proceedings and the press reports which came in light have necessitated the present application under section 9, Arbitration and Conciliation Act, 1996 since the financial condition of the Alkor and IVRCL is worsening and if the present application and the reliefs as claimed hereunder are not allowed the arbitration proceedings for claiming the dues will merely become an academic exercise and the GSPCL would not be in a position to recover its legitimate dues.
13. GSPCL is a public company and hence it is even more important to secure the dues of GSPCL as if the Alkor and IVRCL are allowed to continue the way they are the state exchequer shall be at a loss of the claim amount. Furthermore since Alkor and IVRCL are under serious financial strain and are looking at ways and means to sell off their assets with a view to frustrate and defraud the legitimate claims of GSPCL which in turn could lead to serious questions on continuing the arbitration proceedings hence it is important that Alkor and IVRCL are directed jointly and severally to deposit the money in the Court. They are also restrained from transferring, alienating or disposing off any immovable properties. Further they should jointly and severally deposit money with the Hon'ble court so as to secure the amount in dispute in arbitration alongwith interest.
42. With above allegations in the respective Civil Miscellaneous Applications GSPCL had requested for appropriate order with respect to the interim measure in exercise of powers under Section 9 of the Arbitration Act.
43. From the aforesaid it appears that the allegations with respect to financial difficulties of IVRCL and Alkor are solely based upon the media reports and there is no factual matrix and/or foundation. It is required to be noted that as such the allegations in the media reports have been specifically disputed by IVRCL. There are no averments and allegations that only with a view to avoid the liability to satisfy the decree/award which may be passed in future, the IVRCL and Alkor are likely to dispose of the properties and therefore, they are required to be directed to furnish the security/Bank Guarantee.
44. Identical question came to be considered by this Court in the case of Essar Oil Limited (Supra) and after considering the various decisions of the Hon'ble Supreme Court and other Courts on the point in detail and the decisions which are relied upon by the learned advocates appearing for respective parties referred to hereinabove, this Court has observed and held as under:
“Considering the law laid down by the Honble Supreme Court in the aforesaid decisions and the various decisions of other High Courts referred to herein above and the scope, ambit, object and purpose of passing the order of interim measure as provided under section 9(ii) of the Arbitration Act, it can be said that the Court exercises powers under Section 9 of the Arbitration Act either in a pre-award situation or post-award situation has to be guided by the provisions of the CPC such as Order 38 Rule 5; Order 39 Rules 1 and 2 and other provisions of the CPC. The powers conferred upon the Court under Section 9 of the Arbitration Act therefore, to that extent cannot be said to be un-feterred and/or unguided. Therefore, keeping the larger question open whether while exercising the powers under Section 9 of the Arbitration Act, the provisions of the CPC stricto senso would apply for not, it is held that while exercising the powers under Section 9 of the Arbitration Act by the Court and while passing the orders under section 9(ii) of the Arbitration Act i.e order to interim measure, the Court is required to be guided by the principles of grant of such or a similar reliefs under the CPC and while passing such orders the Court is required to bear in mind the celebrated principles while passing such orders under the CPC. As observed herein above, even the learned Counsel appearing on behalf of the original applicant has also submitted that while granting the interim injunction under section 9(ii) of the Arbitration Act, the Court is required to consider the principles laid down while granting the relief under Order 39 Rules 1 and 2 of the CPC i.e the prima facie case, balance of convenience and irreparable loss. If that be so then even while passing the order of interim measure and furnishing the security and/or passing any order of interim measure under section 9(ii) of the Arbitration Act, the Court is certainly required to be guided by the provisions of the CPC more particularly Order 38 Rule 5 of the CPC etc. At this stage it is required to be noted that as such the arbitration proceedings in Arbitration Act are substituted of the civil proceedings before the Civil Court.
[6.3] Under the circumstances, it is held that while exercising the powers under Section 9 of the Arbitration Act, the Court is required to be guided by the principles as provided under the provisions of the CPC while passing the similar orders passed by the Court under the CPC such as grant of injunction; Order 38 Rule 5; appointment of receiver and/or any such order of interim measure as provided under the CPC more particularly to protect the interest of the parties.
[6.4] In light of the above observations, this Court is required to consider the legality and validity of the impugned order of interim measure passed by the learned District Court passed in exercise of powers under section 9(ii)(b) of the Arbitration Act.
As observed herein above, the respondent herein submitted the application before the learned trial Court seeking interim relief under Section 9 of the Arbitration Act solely on the ground that the financial condition of the appellant herein original respondent is very poor and is eminent loss to the applicant and alleging inter alia that as the appellant herein original respondent is making consistent loss and the original applicant is a public sector insurance company and it is likely to take considerable time in the proceedings to recover the amount and it may happen that ultimately in future the awards would potentially be reduced to mere paper award if the applicant is unable to recover the amounts rightfully due to it. It was also submitted that there is a prima facie balance of convenience and irreparable loss in favour of the applicant. Therefore, it was prayed for appropriate orders directing the appellant herein to deposit an amount of Rs. 79,61,76,998.58 ps. as awarded by the Tribunal in its awards dated 25.04.2012 and 21.06.2013 with the Honble Court.”
45. Therefore, in absence of any factual foundation and/or factual matrix with respect to the alleged poor financial condition of either IVRCL and/or Alkor and the apprehension is solely on the basis of the media reports which are disputed and objected by the IVRCL and in absence of any allegation and/or averments that either IVRCL and/or Alkor are trying to dispose of their properties with a view to avoid any liability in case any award or decree is passed against them and none of the parameters of Order 38 Rule 5 of the CPC are satisfied, in the facts and circumstances of the case the learned trial Court has materially erred in passing such an order of interim measure in exercise of powers under section 9(ii)(b)(d) of the Arbitration Act directing the original opponent - IVRCL to furnish the Bank Guarantees of US $ 35.86 million and US $ 7.64 million. Under the circumstances and in the facts and circumstances of the case narrated hereinabove and in absence of any material on record before the learned trial Court has noted hereinabove the impugned orders passed by the learned Tribunal in respective Civil Miscellaneous Applications cannot be sustained and the same deserves to be quashed and set aside. However, the same shall be without prejudice to the rights and contentions of the respective parties before the learned Arbitral Tribunal and the present order be confined with respect to the exercise of powers by the learned trial Court and passing the impugned orders of interim measure in exercise of powers under Section 9 of the Arbitration Act.
46. Now, so far as the respective special civil applications filed by the IVRCL are concerned, it is required to be noted that the proceedings before the learned Arbitral Tribunal are at the stage of show-cause notice only. The learned Arbitral Tribunal has at this stage issued the notice upon IVRCL by which IVRCL is called upon to file written submissions against their proposed impleadment in case they are propose to object to their impleadment in the arbitration proceedings. IVRCL is yet to even respond to the same. Therefore, the issue whether the IVRCL is yet to be joined/impleaded as a party to the arbitration proceedings is yet to be considered by the learned Arbitral Tribunal. Therefore, keeping all the contentions and defences which may be available to the respective parties more particularly the contentions and defences which may be available to IVRCL against their impleadment in the arbitration proceedings, we refuse to further enter into other contentions/issues with respect to the lifting of corporate veil and the allegations made by GSPCL made while proposing to join IVRCL as party to the arbitration proceedings. We dispose of the present petitions by observing that all the contentions/defences are kept open to be considered by the learned Arbitral Tribunal while considering the request made by GSPCL to implead IVRCL as party to the arbitration proceedings and the same may be considered in accordance with law and on merits for which we have not expressed anything on merits.
47. In view of the above and for the reasons stated above, First Appeals preferred by the original opponents being First Appeal Nos. 547/2016, 548/2016, 551/2016 and 552/2016 are hereby allowed and the impugned orders dated 25.01.2016 passed by the learned Additional District Judge, Gandhinagar in Civil Misc. Application Nos. 126/2015 and 127/2015 are hereby quashed and set aside with an observation that any observations made in the present order are to be construed with respect to the impugned orders passed by the learned trial Court in exercise of powers under Section 9 of the Arbitration Act only and the same shall be without prejudice to the rights and contentions of the respective parties in the arbitration proceedings. Consequently, the First Appeal Nos. 1041/2016 and 1042/2016 are hereby dismissed. Special Civil Application Nos. 14122/2015 and 14123/2015 preferred by IVRCL are disposed of with above observation and direction. Respective Civil Applications stand disposed of as the main First Appeals are disposed of. In the facts and circumstances of the case, there shall be no order as to costs.