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Sanghi Industries Limited vs. Ravin Cables Ltd. & Anr.

Civil Appeal · 2022 INSC 1050Decided 30 Sept 2022
Civil Appeal No. 6908 of 2022
M.R. Shah · Krishna Murari

Background

A commercial dispute arose between Sanghi Industries (the appellant/buyer) and Ravin Cables (the respondent/supplier) over allegedly defective cables supplied under three purchase orders. Sanghi Industries claimed losses of around Rs. 29.31 crores and invoked performance bank guarantees furnished by Ravin Cables, following which arbitration was invoked. Ravin Cables approached the Commercial Court under Section 9 of the Arbitration Act seeking to secure the amount, and even though the bank had already released the guaranteed sums to Sanghi Industries, the Commercial Court directed Sanghi Industries to deposit those amounts in court. The Gujarat High Court upheld this order, prompting Sanghi Industries' appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that an order under Section 9(ii)(e) of the Arbitration Act to "secure the amount in dispute" cannot be passed unless the pre-conditions of Order XXXVIII Rule 5 of the Civil Procedure Code are satisfied: that is, unless there is cogent material showing the opposing party is likely to dispose of assets to defeat a future arbitral award. Since there were serious factual disputes about the amounts claimed by both sides (to be decided by the arbitral tribunal) and no such material showing an attempt to defeat any future award, the Commercial Court's order (affirmed by the High Court) was legally unsustainable. The Court quashed both the High Court's judgment and the Commercial Court's order directing the deposit, allowing the appeal, while directing Sanghi Industries to furnish a board-backed undertaking to the Commercial Court within four weeks committing to honour any eventual arbitral award (subject to challenge before higher forums), so as to protect the respondent's interests in the meantime.

Lesson Learnt

Courts cannot use Section 9 of the Arbitration Act as a shortcut to freeze or secure disputed funds unless the strict Order XXXVIII Rule 5 CPC conditions (proof that a party is likely to defeat a future award, e.g. by disposing of assets) are actually met: mere pendency of a monetary dispute in arbitration is not, by itself, sufficient ground for such an interim order.

Official source (sci.gov.in)View Judgment (PDF)

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