Delhi High Court rejects Chinese firm's plea against Reliance Infrastructure seeking recovery of dispute amount

The Delhi High Court on Tuesday dismissed a plea filed by a Chinese firm against Reliance Infrastructure Limited (RIL) seeking interim relief for recovery of a disputed amount arising of a contract between the parties and alleging “dissipation of assets” on Reliance’s part. [Shanghai Electric Group Co Ltd v. Reliance Infrastructure Limited]

Justice Sanjeev Narula held no prima facie case was made out in favour of the petitioner firm SEGCL Electric Group Co. Ltd (SEGCL) and said,

“No prima facie case, balance of convenience and irretrievable harm or injury has been demonstrated in favour of SEGCL. The Court is thus, not inclined to grant the reliefs prayed for.”

Both companies had entered into a Equipment Supply and Service Contract on June 26, 2008 with Reliance Infra Projects in the UK.

Under the contract, SEGCL was engaged to supply equipment, erect the main body of the turbines and generators, and provide supervision services to Reliance UK and other equipment for the construction of the coal-fired super critical thermal ultra-mega power project at Sasan, Madhya Pradesh, India.

Reliance UK, as per the contract, was supposed to pay ₹9,641 crore which included the price for the equipment supply and services. It also came on record that in order to secure performance of the obligations of Reliance UK, Reliance had issued a guarantee letter on June 26, 2008, guaranteeing Reliance UK’s due performance of all, including payment, obligations under the contract.

On March 30, 2015, the Sasan project was commissioned and the last consignment of spare parts was delivered on November 23, 2017.

As of August 2019, the petitioner company was stated to have been owed ₹995 crore under the contract, for which a notice of dispute on August 23, 2019 was issued to Reliance seeking compliance of its obligations under the guarantee letter and curing of Reliance UK’s breach of obligations by making payments within 60 days of the notice.

As a result of the non-compliance of the notice, the petitioner initiated arbitration proceedings at Singapore. The proceedings were administered by the Singapore International Arbitration Centre (SIAC) and governed by the United Nations Commission on International Trade Law (UNCITRAL) Rules.

However, it was SEGCL’s case before the High Court that ever since arbitration commenced, Reliance has been in the process of “hurriedly dissipating its assets” which was done to deprive it off the arbitral award likely to be passed in its favour.

Among the several submissions, the petitioner argued that any meaningful provisional reliefs such as attachment of the respondent’s assets and properties, including bank accounts and direction to third-parties, could only be granted by a competent court in India such as the High Court, and not by the arbitral tribunal or the foreign court.

RIL, on the other hand, raised objections on the jurisdiction of the High Court, saying that the guarantee letter did not provide for the same. It was also argued that the reliefs sought by the petitioner primarily focused on securing the alleged sum in dispute and such relief may be sought, and was in fact sought by SEGCL, before the arbitral tribunal.

The Court found merit in SEGCL’s plea that the remedy before the arbitral tribunal was inefficacious and the remedy to invoke Section 9 (interim measures, etc. by court) of the The Arbitration and Conciliation Act was available to SEGCL, notwithstanding the constitution of the arbitral tribunal.

“Neither has any arbitral award been passed, nor has the question of enforcement arisen. However, this does not mean that a party cannot invoke jurisdiction under Section 9 on the basis of the location of assets,” the Court said.

Reliance disputed the validity/execution of the guarantee letter and the arbitration clause, and contended that the letter relied upon by SEGCL was invalid and unenforceable under the Foreign Exchange Management (Guarantees) Regulations, 2000.

It also argued that SEGCL’s claims were barred under limitation and that Reliance UK had already paid to SEGCL about 90% of the amount due under the contract – totalling to about ₹8,640 crore.

“Given that the liability of Reliance UK and Reliance under the Guarantee Letter is highly disputed and contested, and further, since Reliance has raised counter-claims, the Court cannot consider the claim of SEGCL to be ‘admitted’ or only ‘superficially denied’,” the High Court noted.

The Court, therefore, said that SEGCL’s claims were presently being adjudicated and the liability “was yet to be ascertained”.

“Thus, in view of contentious issues raised by Reliance, at this stage, no prima facie case is made out for proceeding against the assets of Reliance or grant such other interim injunctive relief to secure SEGCL’s claim, pending the decision of the Arbitral Tribunal,” it held.

On the arguments of dissipation of assets, the verdict concluded that SEGCL had not “shown any cogent material to buttress its allegation".

The Court, however, clarified that its views on merits of the case were only tentative for deciding the present petition and shall not influence the decision of the arbitral tribunal.

Senior Advocates Rajiv Nayar and Dayan Krishnan and Advocates Ashish Bhan, Ketan Gaur and Aayush Mitruka appeared for SEGCL.

Senior Advocates Harish Salve and Sandeep Sethi and Advocates Sanjeev Kapoor, Mahesh Agarwal, Gaurav Juneja, Aditya Ganju, Pranjit Bhattacharya, Akshit Mago, Shruti Garg, Arjit Oswal and Monika Vyas represented RIL.

[Read Judgment]