ESSAR HOUSE PRIVATE LIMITED versus ARCELLOR MITTAL NIPPON STEEL INDIA LIMITED

Citation: [2022] 11 S.C.R. 1001 · Decided: 14-09-2022 · Supreme Court of India · Bench: INDIRA BANERJEE · Disposal: Dismissed

cites 2 · see the full citation network in Lexace

Judgment (excerpt)

A
B
C
D
E
F
G
H
1001
   [2022] 11 S.C.R. 1001
1001
ESSAR HOUSE PRIVATE LIMITED
v.
ARCELLOR MITTAL NIPPON STEEL INDIA LIMITED
(Civil Appeal No. 6574 of 2022)
SEPTEMBER 14, 2022
[INDIRA BANERJEE AND A.S. BOPANNA, JJ.]
Arbitration and Conciliation Act, 1996 – s.9 – Insolvency
and Bankruptcy Code, 2016 – ss.7, 14 – Code of Civil Procedure,
1908 – Or.38, r.5 –A sum of about Rs.35 crores and Rs.47 crores
was paid by Essar Steel to the appellant shere in (Essar House Private
and Essar Services)respectively, by way of refundable security
deposit – A petition was filed u/s.7, IBC for initiation of CIR Pagainst
Essar Steel – Respondent, as resolution applicant submitted a
Resolution Plan in respect of Essar Steel which was approved–
Respondent took over Essar Steel – Sent legal notices calling upon
the appellants to refund the security deposits – Denied – Application
filed by respondent u/s.9, Arbitration Act was allowed, appellants
were directed by Single Bench of High Court to deposit Rs.35.5
crores and Rs.47.41 crores respectively or to furnish bank guarantee
for the entire amount with interest – Order confirmed by Division
Bench – On appeal, held: Obligations under a contract cannot be
assigned, without consent of the counterparty – Novation of contract
or set off is not allowed in respect of a corporate entity undergoing
CIRP without the consent of the Resolution Professional – In the
present case, admittedly, the CIRP of Essar Steel commenced when
the Resolution Professional took over the management of the affairs
of Essar Steel under the IBC – Even if any prior inter se arrangement
existed between the parties, Essar Services could not have adjusted
the security deposit payable to Essar Steel under the amended
agreement against the alleged dues of Essar Steel to a third party
during the CIRP – Further, while it is true that the power u/s.9,
Arbitration Act should not ordinarily be exercised ignoring the basic
principles of procedural law in the CPC, the technicalities of CPC
cannot prevent the Court from securing the ends of justice – Besides
the specific power of securing the amount in dispute, the Courts
are empowered to pass any interim measure of protection, keeping
in view the purpose of the proceedings before it – If a
A
B
C
D
E
F
G
H
1002
SUPREME COURT REPORTS
[2022] 11 S.C.R.
strong prima facie case is made out and the balance of convenience
is in favour of interim relief being granted, the Court exercising
power u/s.9 should not withhold relief on the mere technicality of
absence of averments, incorporating the grounds for attachment
before judgment u/Or. 38, r.5, CPC – Proof of actual attempts to
deal with, remove or dispose of the property with a view to defeat
or delay the realisation of an impending Arbitral Award is not
imperative for grant of relief u/s.9 – A strong possibility of diminution
of assets would suffice– In the instant case, prima facie, the
refundable security deposit was not released to respondent on the
purported ground of a convoluted series of internal arrangements
between group companies for diversion of the security deposits
towards liquidation of alleged dues of Essar Steel to third parties –
This contention of the appellant was considered by the Division
Bench –No infirmity in the well-reasoned judgment of the Division
Bench – Contract.
Arbitration and Conciliation Act, 1996 – s.9 –Power of Court
– Scope of– Discussed– Code of Civil Procedure, 1908.
Dismissing the appeals, the Court
HELD: 1.1 Obligations under a contract cannot be assigned,
without consent of the counterparty. In any case, novation of
contract or set off is not allowed in respect of a corporate entity
undergoing CIRP without the consent of the Resolution
Professional. Section 14 of the IBC bars action to foreclose,
recover or enforce any security interest created by a Corporate
Debtor undergoing CIRP. Admittedly, the CIRP of Essar Steel
commenced on 2nd August 2017 when the Resolution Professional
took over the management of the affairs of Essar Steel under the
IBC. Even if any prior inter se arrangement existed between the
parties, Essar Services could not have adjusted the security
deposit payable to Essar Steel under the amended agreement
against the alleged dues of Essar Steel to a third party during the
CIRP. [Paras 33-36][1011-E; G-H; 1012-A-B]
Citibank N.A. v. Standard Chartered Bank &Ors. (2004)
1 SCC 12 : [2003] 4 Suppl. SCR 489; Khardah
Company Ltd. v. Raymon& Co. (India) Pvt. Ltd. (1963)
3 SCR 183 – relied o

Excerpt shown. Read the full judgment & AI analysis in Lexace.