Essar v. ArcelorMittal: Bombay High Court upholds ruling of Single Judge, Essar companies to deposit Rs. 80 crore as security amount

The Division Bench of Bombay High Court today upheld the Single Judge ruling which had directed Essar Services India Private Limited (ESIPL) to deposit Rs. 47.41 crore and Essar House Private Limited (EHPL) to deposit Rs. 35 crores as security deposit in an arbitration dispute with ArcelorMittal Nippon Steel India Limited..The Single Judge Bench of Justice GS Patel had directed the deposit of security after he found that Arcelor Mittal had prima facie made out a straightforward case..Finding the appeals filed by ESIPL and EHPL to be devoid of merits, the Division Bench of Justices RD Dhanuka and VG Bisht dismissed them and extended the time granted by Justice Gautam Patel to deposit the security amount by four weeks..The Court observed,"In the facts of this case, we are satisfied that the respondent (original petitioner) has good chances of succeeding in the arbitral proceedings and thus we do not find any reason to interfere with the impugned order passed by the learned Single Judge granting equitable reliefs.".The Division Bench noted that the appellants had not advanced any arguments on the merits of the case, making it clear that they have no defence on merits.."Even otherwise in the facts of this case, we are inclined to accept the prima facie findings rendered by the learned Single Judge in the impugned order to the effect that the defence raised by the appellant to the claim for refund of security deposit is totally moonshine and untenable.".The appellants had contended that the Single Judge order failed to give a prima facie finding on whether Arcelor Mittal had satisfied the conditions for attracting the provision of Order 38 Rule 5 (attachment before judgment) of the Code of Civil Procedure..The Division Bench, however, found no substance in this submission after noting that there were sufficient pleadings in the plea filed by Arcelor Mittal to secure its claim in the arbitration dispute..The appellants argued that they had only one asset and the same was also mortgaged. In view of this, the Single Judge could not have passed an order of deposit under the Arbitration Act..Finding no merit in the submission, the Division Bench held that the Court could pass an equitable order and secure the claim of the applicant by directing the opponent to deposit the money once the the applicant can show that it has a good chance of succeeding in the arbitration..The Division Bench opined,"In our view since the Arbitral Tribunal is also empowered to make interim injunction and grant money claim on the basis of the admitted claim or in case there being no valid defence at all of the claim made by the claimant, the Court has to grant interim measure so as to secure the claim which would be subject matter of the dispute before the Arbitral Tribunal......If the Court is required to dismiss the petition under Section 9 of the Arbitration Act on the ground that the opponent has no assets at all or the assets of the opponents are fully encumbered, it will be against the principles of equitable justice required to be exercised by the Court while exercising powers under Section 9 of the Arbitration Act so as to secure the claim of the applicant in the arbitral proceedings though he may have prima facie good chances of succeeding in arbitration.".Arcelor Mittal (formerly Essar Steel India Ltd.) had approached the Bombay High Court for urgent protective orders before the commencement of the arbitration process.It had sought a refundable security deposit payable upon termination of two agreements executed with ESIPL and EHCL..The dispute between the parties arose after the respective Essar companies refused to return the interest-free security deposit on the ground that they unilaterally novated their obligation in the bilateral agreement, which purportedly set-off their liability to make any repayment to Arcelor Mittal..Arcelor Mittal was represented by Senior Advocate Dr. Birendra Saraf and Advocate Karl Tamboly, who were instructed by Shardul Amarchand Mangaldas & Co. led by Partner Rishab Gupta and Principal Associate Sairam Subramanian.Essar was represented by Senior Advocate Navroz Seervai with Advocate Ashish Kamat, who were instructed by Naik Naik & Co Partners Ameet Naik and Abhishek Kale, Manager Mansi Nair and Attorney Avdhoot Prabhu.