Thar Camps Pvt. Ltd. v. Indus River Cruises Pvt. Ltd. and Ors.
Factual Matrix
The present judgment arises out of a petition filed by Thar Camps Pvt. Ltd. (‘Petitioner’) under Section 9 of the Arbitration and Conciliation Act, 1996 (‘Act’) seeking to secure the outstanding amounts due from M/s. Indus River Cruises Pvt. Ltd., New Delhi (‘1st Respondent’) by restraining the removal of the three vessels leased by the 1st Respondent, from Indian waters.
The three vessels, one belonging to M/s. Pandaw Cruises Ltd, Myanmar (‘4th Respondent’) and two belonging to M/s. Indus Cruises Pte Ltd, Perth (‘5th Respondent’), were leased to the 1st Respondent under Bareboat Chartered Agreements. The Petitioner was a stranger to the said Agreements but, it had entered into a Vessel Operation and Management Agreement (‘VOMA’) dated 30 September 2019 exclusively with the 1st Respondent through which the Petitioner was contracted for operating and managing the three vessels belonging to 4th and 5th Respondent.
The other relevant agreements were: (i) the Memorandum of Understanding (‘MoU’) dated 25 April 2018 executed between the Petitioner and Paul Strachan (‘3rd Respondent’) that served as the precursor to the VOMA; (ii) the Agreement dated 20 August 2018 executed between the Petitioner and Pandaw Cruises Ltd., British Virgin Islands (‘2nd Respondent’) which envisaged the engagement of the Petitioner, by the 2nd Respondent for the management and operation of the three vessels, but the Agreement never fructified.
The Petitioner alleged that the 1st Respondent defaulted in its obligation to make timely payments for the services provided by it under the VOMA. The Petitioner sought to secure an amount of INR 4,13,25,726 and INR 18 crores, while reserving its right to claim the remaining amount of INR 15 crores separately in the arbitral proceedings.
Petitioner highlighted that 1st Respondent’s impecunious circumstances necessitated the present action to secure the amounts in dispute to prevent the arbitral proceedings from being frustrated by restraining the 4th and 5th Respondent from repossessing the vessels or removing it from Indian territorial waters.
Issues Involved
The Court had to determine:
- Whether the Petitioner is entitled to obtain an interim order for securing the disputed amount by restraining removal of the third-party vessels from the Indian territorial waters.
- Whether the term “subject matter of dispute” or “amount in dispute”, as used in clause (a) and clause (b) respectively, of Section 9(1)(ii) envisage the vessels or only the dues allegedly owed to the Petitioner.
Contentions of the Petitioner
Dues of the Respondents to the Petitioner: Petitioner submitted that the 1st Respondent had admitted its liability to the tune of INR 4,13,25,726. It was also argued that ‘if ’ the Respondents terminate the VOMA they will be liable to pay the charges for the remainder of the lock-in period of about INR 18 Crores plus an additional amount of about INR 15 Crores towards loss of revenue.
Collusion among the Respondents: Petitioner sought to interlink the Respondents by stating that all the Respondents are ‘corporate avatars’ and interrelated undertakings of the 3rd Respondent who has an overarching superintendence and control over the Respondents. That all decision regarding the companies of the Pandaw Group were being taken and issued by the 3rd Respondent. It was submitted that the lifting of the corporate veil would reveal the relationship between the parties.
Petitioner also argued that efforts were being made by the Respondents to forcibly take possession of the vessels. Moreover, it was submitted that the Default Notice dated 10 August 2020 issued by the 4th and 5th Respondent to the 1st Respondent alleging breaches of the Bareboat Charter Agreements as a ground to justify repossession of the vessels, was a mere farce. It was further argued that the 1st Respondent colluded with the 4th and 5th Respondent to not pay the alleged dues only to defeat the rights of the Petitioner. That it was essential to restrain the Respondents from repossessing the vessels or removing them from Indian territorial waters in order to prevent the frustration of the arbitral proceedings.
Contentions of the Respondents
Submissions of the 1st and 3rd Respondents: Respondents contended that the Petitioner was a mere contractor and had no lien over the vessels nor could obstruct repossession of the vessels. It was submitted that the Petitioner in effect was seeking an order of attachment which could only be granted under the conditions governing Order XXXVIII Rule 5 of the Code of Civil Procedure, 1908; which are not satisfied in the present case.
1st Respondent denied admitting any liability of INR 4,13,25,726 and submitted that the email in question prepared by the Petitioner was merely forwarded to the 3rd Respondent and was an internal communication. Such communication cannot be construed as an admission nor as an acknowledgement of any debt to the Petitioner.
In respect of the claim for INR 18 Crores, it was submitted that no details were provided as to how the claim was worked out. It was pointed that the VOMA does not provide for any damages if it were to be so terminated and that the “compensation for services” as stated in Clause 6 of the VOMA refers to Fixed Expenses identified in the contract and not for other losses. Moreover, the interpretation of the VOMA could not be delved into by the Court but only by the arbitral tribunal after taking evidence.
The claims for unliquidated damages cannot be secured under Section 9 of the Act as it does not give rise to a debt till it is adjudicated. Further, speculative damages cannot be secured under Section 9. Moreover, the distinction between the expressions “subject matter of dispute” and “amount in dispute”, as used in Section 9(1)(ii)(a) and (b) respectively, were pointed out to state that the vessels are not the subject matter of the dispute but only the amounts allegedly due to the Petitioner. It was also submitted that the vessels are not assets of the 1st Respondent and cannot be made subject to restrictions under Section 9 at the cost of imposing onerous conditions on a third party.
Finally, it was also submitted that the Respondents, without prejudice to its submissions, are willing to deposit INR 3,45,66,679 to secure the Petitioner’s claim.
Submissions of the 4th and 5th Respondent: It was pointed that the Respondents are neither parties to the VOMA nor is the Petitioner a party to the Bareboat Charter Agreements. Moreover, there exists no arbitration agreement between the Respondents and the Petitioner.
In terms of the Bareboat Charter Agreements, Clause 16 dealt with ‘Non-Lien’ which specifically prevents any lien or encumbrance to have priority over the title and interest of the owners of the vessel. Likewise, Clause 21 states that the Respondents are entitled to repossess the vessels in the event of a default on part of the 1st Respondent.
The Respondents rejected the notion of all the Respondents being interconnected. It was submitted that the piercing of corporate veil must be applied restrictively in rare cases, which is to be determined by the arbitral tribunal and not by the Court while exercising jurisdiction under Section 9 of the Act. Moreover, the vessels cannot be the subject matter of the arbitration agreement or dispute for the purpose of Section 9 of the Act and that the subject matter of the VOMA was management and operation of the vessels and not the vessels themselves.
It was also submitted that it would be unfair to deprive the Respondents of the right to use the vessels which are worth over INR 45 Crores which is much higher than the damages sought by the Petitioners.
Submission of the 2nd Respondent: 2nd Respondent submitted that it had been dragged into this dispute unnecessarily and it was not involved in either the VOMA or the MoU. That the Agreement dated 20 August 2018 used to implead the Respondent was not in any manner a precursor to the VOMA and the subject matter of both the agreements were different as well. Moreover, the Agreement never fructified and mere presence of one Director in more than one companies cannot be a ground to invoke the ‘Group of Companies’ doctrine.
Judgment
Liability of the 2nd Respondent: At the outset itself the Court agreed with the submissions of the 2nd Respondent. The Court found that there was no material to link the Agreement dated 20 August 2018 with the MoU or the VOMA. The Court therefore directed the 2nd Respondent to be deleted from the array of parties.
Applicability of Section 9(1)(ii)(a): The Court was required to determine whether the vessels were the “subject matter of the arbitration agreement”. It was observed that the real subject matter would have to abide by the covenants of the arbitration agreement, which is the VOMA signed between the Petitioner and the 1st Respondent. The Court held that the VOMA was a contract for providing services and does not involve the transfer of title or possession of assets. Therefore, the “subject matter” of the arbitration was not the vessels but the services provided by the Petitioner on such vessels. Hence the Court held the present petition relatable to Section 9(1)(ii)(b) rather than to clause (a).
Applicability of Section 9(1)(ii)(b) [Claim for INR 18 Crores]: Section 9(1)(ii)(b) of the Act allows the Court to secure “the amount in dispute” in the arbitral proceedings. The Petitioner had claimed INR 18 Crores through Clause 6(A) read with Clause 9 of the VOMA. It was noted by the Court that Clause 9(i) of the VOMA prohibited the party from terminating the VOMA but found that it was silent on the consequence of the contravention of Clause 9(i). In this regard, it was noted by the Court that it cannot be wiser than the contracting parties. The Court held that the Petitioner would not be entitled to be paid, consequent to termination of the VOMA during the lock in period, the amounts which would otherwise have been due to it under Clause 6(A) were the VOMA to have continued to subsist. The Court also found weight in the submission of the 1st and 3rd Respondent that Clause 6(A) of the VOMA only envisaged liability to arise if the vessels were functional. However, the Court observed that the loss and the damages sustained may be proved by the Petitioner before the arbitral tribunal.
Further, the Court also pointed that as stated by the Petitioner, the VOMA as of yet was not terminated. Therefore, the supposed liability of INR 18 Crores or INR 15 Crores would only arise upon termination of the VOMA during the lock in period. Moreover, the Petitioner had not prayed for restraining the Respondents from terminating the VOMA. The Court therefore held that Section 9 cannot be used to secure any speculative claim for damages.[1] Further the Court rejected the request to detain the vessels as the cumulative value of the vessels was far greater than the 18 Crores that was being claimed.
Consequence of the 4th and 5th Respondents not being parties to the VOMA, and of the liability of the 1st Respondent under the Bareboat Charter Agreements: The Court pointed that prima facie it is difficult at this stage to hold that the Charter Agreements were executed to avoid obligations cast by the VOMA. Further, the Petitioner had not disputed the genuineness/veracity of the Charter Agreements by which the vessels were leased. The Court observed that the assertion that the 1st Respondent defaulted under the Charter Agreements and the fact that that the 4th and 5th Respondents were entitled to repossess the vessels were prima facie borne out. The Petitioner was not able to satisfy to the Court that the defaults or the related correspondences were farce. The Court also did not find it necessary to delve into why the 1st Respondent who allegedly had the funds at the time did not pay the dues to the 4th and 5th Respondents as it was found extraneous to the issue.
Also, the Court while noting the interplay between Admiralty Law and Section 9 of the Act observed that “an act which Admiralty Law proscribes can hardly be done by the Court exercising jurisdiction under Section 9 of the 1996 Act.” The reach of Section 9 is limited. In this regard, the Court placed reliance on the decisions of Sunil B. Naik[2] and J.S. Oceanliner[3] to observe that strangers to the arbitration agreement may not be injuncted under Section 9. The Court therefore found no reason to take any coercive action against the 4th and 5th Respondents.
Lifting of the Corporate Veil: The Court refrained from undertaking such an exercise stating that it would be an involved and extremely intricate exercise which ought to be undertaken by the arbitral tribunal should it deem it necessary. Moreover, the Court also observed that the material on record may not be sufficient for the Court to undertake such an endeavour while exercising its jurisdiction under Section 9 of the Act.
Conclusion
After having addressed the abovementioned concerns, the Court held that in the present matter “the mere possibility of frustration of arbitral proceedings, or any award which may be passed therein, cannot justify grant of interim protection under Section 9 of the 1996 Act.” The Court therefore directed the 1st Respondent to deposit the amount of INR 3,45,66,679 (which it had agreed to secure) subject to the outcome of the arbitral proceedings. The other prayers, including for the attachment of the vessels were rejected.
PSL Opinion
The Court deftly addressed multiple aspects surrounding jurisdiction vested under Section 9 of the Act, and rejected the plea often resorted to by parties seeking interim relief to secure ‘amounts in dispute’ viz. frustration of imminent arbitral proceedings and resultant award. The Court especially emphasised the distinction between Section 9(1)(ii)(a) which pertains to the ‘subject matter of the arbitration agreement’ and Section 9(1)(ii)(b) which deals with securing the ‘amount in dispute’, which is quite often muddled by parties seeking interim measures leading to prolonged litigation by inviting Courts to delve into merits of the dispute, an exercise that entails examination of evidence. Speculative claims for unliquidated damages, based on perceived apprehension or faint possibility of irreparable harm cannot be made a basis for Court’s intervention under Section 9 to secure such amounts. As a general rule, Courts ought to refrain from exercising jurisdiction over third parties to an arbitration, and in exceptional cases, such action must be predicated on well-articulated position of law. The very foundation of arbitral process rests on party autonomy and consent. Therefore, subjecting non-signatories to harsh measures under the Act must not be taken lightly. Similarly, it may not be appropriate for a Court exercising jurisdiction under Section 9 of the Act to adjudicate upon contentious issues like ‘lifting/piercing of the corporate veil’ in a routine fashion. All such matters are best left for determination by the arbitral tribunal, which is the final arbiter of facts.
[1] Reliance was placed by the Court on Intertoll ICS Cecons O & M Co. Pvt. Ltd. v. NHAI, ILR (2013) 2 Del 1018.
[2] (2018) 5 SCC 505
[3] 2007 SCC OnLine Bom 69.
