Application No.1903 of 2009 is filed under Section 9 of the Arbitration and Conciliation Act, 1996 (for brevity, "the Act") for a direction against the respondent to deliver Schedule-A machinery, including dies and lasts, Sample Developing Machinery, Office Equipment, Information Technology Equipment, toolings, spares and other goods belonging to the applicant United Breweries (Holding) Limited.
2. The applicant is an Exporter, trading in export of various brands of beers, spirits, shoes and other products. In order to promote the exporting of shoes, an agreement was entered on 19.6.2008 between the applicant and the respondent. As per the said agreement, the respondent has to supply shoes as per the applicant's requirement. The applicant has made certain trade advances to the respondent repayable with 10% interest per annum on availing loans from banks, etc. The respondent, originally, could manufacture approximately 400 pairs of shoes per day, but at the time of entering into the agreement, the applicant requested to increase the production capacity, agreeing to provide trade advance of Rs.1.50 Crores.
3. In accordance with the agreement, the respondent has to manufacture the products exclusively for the applicant as per the requirement of the applicant and in accordance with the orders placed by it. As per a clause of the agreement, the applicant would place order for 15 Lakh pairs of shoes in the aggregate during the period from 1.7.2008 to 30.6.2013. It is the case of the respondent that at the request of the applicant the respondent had to spend enormous amount for the development of its manufacturing place and for putting up of construction and the advance amount of Rs.162.75 Lakhs given by the applicant has been utilized.
4. While it is the case of the applicant that the respondent has not supplied the quantity of materials, it is the case of the respondent that adequate orders have not been placed by the applicant. It is also stated by the respondent that the loan has been repaid with interest. A dispute has arisen between the parties and the matter has been referred to arbitration as per the clause in the agreement.
5. Anticipating that the applicant is likely to take away the hypothecated machinery, the respondent has filed O.A.No.335 of 2008 for grant of an order of injunction against the applicant from presenting certain undated cheques for a sum of Rs.14,67,500/-; injunction against the applicant not to interfere with the peaceful possession and enjoyment of the machinery in the respondent's factory at 29/5B, M.C.Road, Kilmurungai Village, Ambur-635 812, Vellore District by enforcing the hypothecation agreement dated 18.8.2008. This Court, by order dated 17.4.2009, has granted an order of injunction.
6. Another application was filed by the respondent in O.A.No.334 of 2009 for an injunction against the applicant from placing orders to some other shoe manufacturers. Notice has been ordered in this application. Of course, the applicant has filed applications to vacate the order of injunction granted by this Court and all these applications are pending.
7. Pending said applications, the applicant has filed another application in A.No.2135 of 2009 for a direction against the respondent to deliver Schedule-D goods/items to the applicant.
8. As per the agreement, Schedule-A contains the list of spare parts and consumables numbering 484 transferred from United Breweries International Trading Limited, which is a sister concern of the applicant, to the respondent as on 20.10.2008, apart from machines numbering 95, furniture and fixtures numbering 40, and physical stock as on 7.4.2009. Schedule-B to the agreement consists of finished goods and the raw materials, about which it is not in dispute that the same have been handed over by the respondent. The materials and machinery mentioned in Schedule-C to the agreement have been hypothecated by the respondent to the applicant, in respect of which O.A.No.335 of 2009 has been filed by the respondent.
9. While Application No.1903 of 2009, as stated above, relates to Schedule-A property, Application No.1904 of 2009 relates to Schedule-B property and Application No.1905 of 2009 relates to Schedule-C property. After filing of the above said applications, Schedule-B goods/items were taken possession by the applicant in the presence of the learned Advocate Commissioner, as per the order in Application No.1904 of 2009. At that time, the applicant has not insisted for delivery of Schedule-A and Schedule-C goods/items since the same were not required.
10. Having realized that some of the goods/items mentioned in Schedule-A were required for the applicant to meet its current export obligations, Application No.2135 of 2009 was filed for a direction against the respondent to deliver Schedule-D goods/items to the applicant, which form part of Schedule-A in respect of which the present Application No.1903 of 2009 has been filed. The said Application No.2135 of 2009 was disposed on 20.5.2009 with a direction to the respondent to return the Schedule-D goods/items excluding M.S.Racks and about 15 computers on condition that it should be returned "as it and where is" condition to the respondent on or before 30.9.2009.
11.1. The case of the applicant is that it is depending upon the manufacturing of the number of shoes by the respondent, export orders have been undertaken by the applicant and inasmuch as the respondent is not able to complete the manufacturing, the machinery and other items mentioned in Schedule-A are required for the purpose of completing the export obligations to third parties.
11.2. It is the case of the applicant that the entire Schedule-A goods/items belong to them, which were handed over to the respondent for the purpose of execution of the work and are the physical properties of the applicant. According to the applicant, the manufacturing of shoes must be completed by July, 2009 for the present season and any delay will cause damage.
11.3. The applicant has given a specific undertaking not to take Schedule-C goods/items which are hypothecated machinery and restrict only to Schedule-A goods/items. It is also stated that the goods/items in Schedule-A are of no use to the respondent and it is of imminent necessity to the applicant to honour its export obligations, especially in the circumstances that the said goods/items are belonging to the applicant. It is further stated that since the respondent has not denied the ownership of Schedule-A goods/items which belong to the applicant, the respondent cannot retain the goods.
11.4. It is stated that, in any event, it is ultimately the decision in the arbitration proceedings which is going to be binding on the parties and in the meantime, the interest of the applicant is to be protected and with that view the present application has been filed.
12. Mr.Sriram Panchu, learned Senior Counsel appearing for the applicant would submit that by directing the return of Schedule-A goods/items which admittedly belong to the applicant, no prejudice would be caused to the respondent. He further submits that it is of no use to the respondent to keep those goods/items. He also submits that he is not pressing for delivery in respect of goods/items mentioned in Schedule-C.
13.1. In the counter affidavit filed by the respondent, it is stated that the applicant has only refused to place orders. It is also stated that by filing the present application, the applicant who has got delivery of Schedule-D goods/items which form part of Schedule-A as per the order in Application No.2135 of 2009, dated 20.5.2009 is trying to improve its case. The goods/items contained in Schedules-A, B and C are not admitted and the respondent also does not admit the details of goods/items given in Schedule-D, stating that the said schedule contains new items also. It is stated that even Schedule-A goods/items which are sought to be returned require a proper verification.
13.2. It is stated that Schedule-B goods/items were accepted to be removed only on the basis that the matter will be settled amicably and this application is filed to impose pressure tactics on the respondent. It is also stated that, on negotiation the applicant gave a revised offer of 97000 pairs at the rate of Rs.236/- per pair which was later revised to Rs.213/- per pair and against the said understanding the applicant diverted the offers to third parties.
14. Mr.Venkatachalapathy, learned Senior Counsel for the respondent would submit that the present application is not maintainable under
Section 9 of the Act. He would submit that inasmuch as the machinery is not the subject matter of the Arbitration Agreement,
Section 9 of the Act cannot be invoked seeking the relief stated supra. He would rely on the decisions in (i) Electrical Manufacturing Co. Ltd. v. Crompton Engineering Co., AIR 1974 Madras 261, (ii) Navbharat Ferro Alloys Ltd. v. Continental Float Glass Ltd., 1998 (2) RAJ 290 (Delhi), and (iii) Capt.M.R.Hussain and another v. Intertek Testing Services India Pvt. Ltd. and another, 2000 (3) RAJ 376 (Bombay) to substantiate his contention.
15. The scope of any order passed under
Section 9 of the Act pertaining to the interim measure for preservation or interim custody or sale of any goods relates to the subject matter of the arbitration agreement, of course with the powers of the Court to pass any interim measure of protection as may appear to the Court to be just and convenient.
Section 9 of the Act is as follows:
"Section:9. Interim measures etc., by Court: A party may, before, or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with
section 36, apply to a court-
(i) for the appointment of a guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
(ii) for an interim measure or protection in respect of any of the following matters, namely:-
(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
(d) interim injunction or the appointment of a receiver;
(e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it."
16. Due to the dispute which has arisen between the parties as it is seen, while the applicant says that in spite of supply of materials the respondent has not chosen to manufacture the agreed quantity of shoes, it is the case of the respondent that proper order has not been placed. Ultimately, it is in the arbitration proceedings the matter has to be decided as to whether the parties are entitled to compensation or otherwise. It is seen that the machinery mentioned in Schedule-A has been handed over by the applicant to the respondent for the purpose of carrying out the work. It is no doubt true that by virtue of the dispute the respondent is unable to continue the work and actually retaining of those schedule goods/items is not going to be of any use to the respondent. But, on the other hand, it is not even the case of the applicant that by allowing the goods/items mentioned in Schedule-A to be retained with the respondent, the respondent is attempting to remove and an interim measure is necessary to protect them. On the other hand, the request in the application made is for the purpose of delivering of those goods/items to enable the applicant to use for fulfilling its export obligations to third parties. That is certainly not within the ambit of the interim measure which this Court can grant under
Section 9 of the Act.
17. It can also not be said that the items which are mentioned either in Schedule-A are not the subject matter of the arbitration proceedings. Certainly, the Arbitral Tribunal has to go into the matter to find out as to whether the respondent has manufactured the shoes or as to whether the applicant has placed orders, which may also include the adequacy or inadequacy of various goods/items supplied by the applicant to the respondent. In such circumstances, granting a positive order in favour of the applicant directing the respondent to deliver the goods/items would amount to interfering with the functions of the Arbitral Tribunal, which is not the intention and purpose of
Section 9 of the Act.
Section 9 of the Act empowers this Court to preserve the property which is likely to be damaged or alienated. On the facts and circumstances of the present case, inasmuch as it is not even the case of the applicant that the respondent is attempting to remove the various goods/items or that the goods/items are likely to become useless in course of time, there is no question of granting any interim measure at this stage.
18. Under
Section 9 of the Act, this Court can reject an application filed for an interim measure of preservation, interim custody or sale of any goods, if the subject matter does not form part of the arbitration agreement, as it is decided in hierarchy of judgments, including Navbharat Ferro Alloys Ltd. v. Continental Float Glass Ltd., 1998 (2) RAJ 290 (Delhi).
For the reasons aforesaid, I am of the considered view that even though this Court can certainly interfere and pass interim orders under
Section 9 of the Act, in the disputed circumstances about various goods/items enumerated in Schedules-A, it is not possible to pass any further orders at this stage, especially in the form of positive order to enable the applicant to do its manufacturing activities to safeguard its interest towards the third parties. In such view of the matter, Application No.1903 of 2009 stands dismissed. The other applications may be posted in the usual course.
sasi