Case Analysis |Essar House v Arcellor Mittal

The article analyses the scope of interim reliefs under the Arbitration Act are wider than the threshold under civil procedure laws governing litigation (Essar House v Arcellor Mittal)

The judgment appears to clear up any confusion regarding the standards for granting interim protection under the Arbitration Act, particularly regarding whether the CPC 1908's applicable level must be met before interim protection under the Arbitration Act is granted.

This choice was made in response to several High Courts' contrasting strategies—the inclusive and exclusive approach. The inclusive approach regarded the guiding grounds for the CPC 1908's issuance of temporary relief as being on par with those of Section 9 of the Arbitration Act. This indicated that the court will decide an application under Section 9 of the Arbitration Act using the same standards set forth in the CPC 1908.

While the exclusive strategy preserved the distinction between the principles controlling the CPC 1908 and Section 9 of the Arbitration Act. It regarded Order 38 Rule 5 of the CPC 1908 as serving just as a roadmap for Section 9 of the Arbitration Act and nothing else. The CPC's 1908 Order 38 Rule 5 covers

By separating the parties, the judgement strengthens the Indian judiciary's pro-arbitration stance. In terms of giving awards, the CPC 1908 is governed by different rules than the Arbitration Act.reliefs in the meantime to support the arbitration. If interim relief is achieved, the dispute may be resolved quickly, the victorious claimant may be able to enforce the arbitration ruling in a timely way, and increases the effectiveness of the arbitration procedure

What was the background?

With other group firms including Essar Services India Private Ltd ('Essar Services') and Essar House Pvt ('Essar House'), Essar Steel India Ltd ('Essar Steel') had entered into a number of agreements for the exchange of services and real estate.

According to certain contracts, Essar Steel was required to pay security deposits to Essar House and Essar Services totaling INR 47.41 crores and US$5.7 million, respectively. Essar Steel owed money to a number of creditors, including HDFC Bank Ltd., Standard Chartered Bank, and State Bank of India.

Standard Chartered Bank and State Bank of India started the procedure to resolve corporate insolvency.for the purpose of collecting debt from Essar Steel under the Insolvency & Bankruptcy Code, 2016. The Supreme Court of India granted approval to Arcellor Mittal Nippon Steel India Ltd.'s ('Arcellor') resolution plan.

Court (See Satish Kumar Gupta v. Creditors of Essar Steel India through Authorized Signatory (2020) 8 SCC 531). After the resolution plan was approved, Arcellor assumed control of Essar Steel and asked Essar House to return the security deposit of INR 35 crores. Essar House responded that the security deposit had already been used to settle the debts of other group companies through internal agreements, so there was no security deposit left.

Following that, Arcellor applied to the Bombay High Court's Single Judge for permission to sue Essar House under Section 9 of the Arbitration Act in order to recover INR 35 crores, or the security deposit amount. An appeal was brought before the Division Bench of the Bombay High Court after the Single Judge's judgement infuriated the applicant. The appeal was denied.

Similar to this, an interim reliefs application was made before the Bombay High Court's Single Judge against Essar Services to obtain INR 47.41 crores. (originally payable to Essar Steel, and now to Arcellor). The application was approved by the single judge. The Bombay High Court Division Bench upheld the Single Judge's conclusion in an appeal.

Essar House and Essar Services appealed the Division Bench's decision to the Supreme Court after being dissatisfied with it.

What did the court decide?

First, the Supreme Court noted that while CPC 1908's fundamental principles cannot be disregarded when evaluating an application under Section 9 of the Arbitration Act, the strict requirements of each procedural provision in CPC 1908 do not always limit the same. The Supreme Court ruled that when an application under Section 9 is made, it is not strictly required to follow the CPC 1908's rules. As a result, the court's ability to uphold the rule of law cannot be hindered by the CPC 1908's technicalities. The High Court decided:

While it is true that the authority granted by Section 9 of the Arbitration Act should not typically be used in a manner that disregards the fundamental rules of procedural law set forth in the CPC, the Court cannot be prevented from achieving the goals of justice by the CPC's technicalities. It is widely accepted that procedural safeguards that are intended to advance justice cannot be read in a way that subverts it.

Second, the Supreme Court noted that in addition to the specific authority to secure the amount in controversy, courts have the authority to enact any temporary protective order, keeping in mind the goal of the proceedings before them. As a result, Section 9 of the Arbitration Act grants the Court the residual authority to enact any additional temporary protective orders that may seem just and practical.

Third, after reviewing earlier case law (See Valentine Maritime Ltd v Kreuz Subsea Pvt Ltd and another 2021 SCC OnLine Bom 75 (not reported by LexisNexis®); Ajay Singh and others v Kal Airways Pvt Ltd (2017) SCC OnLine Del 8934 (not reported by LexisNexis®); Srei Infrastructure Finance Ltd v Ravi Udyog Pvt Ltd and another AP No 522 of 2008 (not reported by Lexis

A prima facie case must exist, the balance of convenience favours granting interim relief, and the applicant must contact the court with reasonable promptness.

Fourth, the Supreme Court stated that the court exercising its authority under Section 9 of the Arbitration Act should not withhold relief based merely on the technicality of the lack of averments if a strong prima facie case is made out and the balance of convenience is in favour of interim relief being granted.including the reasons for attachment under CPC 1908 Order 38 Rule 5 before the judgement.

The following are the grounds for attachment under CPC 1908 Order 38 Rule 5:

• • if the court determines that the defendant acted with the aim to thwart or postpone the execution of any judgement rendered against him;
• about to remove all or a portion of his property from the area within which the court has jurisdiction, or about to dispose of all or a portion of his property
• Fifth, the Supreme Court observed that proof of actual attempts to deal with, remove or dispose of the
• property with a view to defeat or delay the realization of an impending Arbitral Award is not imperative
• for grant of relief under Section 9 of the Arbitration Act, and instead, a ‘strong possibility’ of diminution of assets would be sufficient.
• property with a view to defeat or delay the realization of an impending Arbitral Award is not imperative
• for grant of relief under Section 9 of the Arbitration Act, and instead, a ‘strong possibility’ of diminution of assets would be sufficient.

Following this line of thinking, the Supreme Court ruled that Essar House or Essar Services were not releasing the security deposit to Arcellor because they had made a complicated series of internal agreements between group companies to divert the security deposits and avoid paying Essar Steel's debts to third-party creditors.

Conclusion-

property with a view to defeat or delay the realization of an impending Arbitral Award is not imperativefor grant of relief under Section 9 of the Arbitration Act, and instead, a ‘strong possibility’ of diminutionof assets would be sufficient.Despite the fact that the judgement is clear in its language that the rules controllingin a request made in accordance with Section 9 of the Arbitration Act, temporary remedy under Order 38 Rule 5 of CPC 1908.Act, a subsequent ruling by the Supreme Court further obscured the situation. Following the Essar ruling, a different Supreme Court bench heard the case of Sanghi Industries Ltd. v. Ravin Cables Ltd.

In addition, another SCC OnLine SC 1329 ('Sanghi Industries') (not cited by LexisNexis®) found that reliefs under Section 9 of the Arbitration Act cannot be given without complying with the requirements set forth in Order 38 Rule 5 of the CPC 1908 (without considering Essar House v. Arcellor). Additionally, the Supreme Court stated that there must be "cogent material"

property with a view to defeat or delay the realization of an impending Arbitral Award is not imperativefor grant of relief under Section 9 of the Arbitration Act, and instead, a ‘strong possibility’ of diminutionof assets would be sufficient.The order(s) that the Commercial Court may issue in response to a request made in accordance with Section 9 of theThe Arbitration Act of 1996 mostly uses temporary relief. In a specific situation, it might be true.

If Order XXXVIII Rule 5 of the CPC is in full compliance and the Commercial Court is satisfied with the conduct of the opposing/opposing party that the opposing party is attempting to defeat by selling its propertiesthe judgement that may be made and/or any other actions taken by the opposing party that could be construed as an attempt to overturn the award that may be passed in the arbitral proceedings, the Commercial Court may issue an order.

property with a view to defeat or delay the realization of an impending Arbitral Award is not imperativefor grant of relief under Section 9 of the Arbitration Act, and instead, a ‘strong possibility’ of diminutionof assets would be sufficient.When compared with other rulings, the Essar decision is well-reasoned and took into account all previous cases.Company Sanghi. Given that the Supreme Court's benches of equal strength appear to disagree on this matter, it is possible for a bench with more members to resolve the conflict.opinions and finally put the matter to rest.