Novation of contract or set-off is not permitted with respect to a legal person subject to the CIRP without the consent of the resolution professional: Supreme Court

Is the order issued by the Bombay HC dismissing the appeal filed by the appellant valid or not?

The bench said that in deciding a claim under Section 9 of the Arbitration Act, the Court cannot disregard the basic principles of the CPC. At the same time, the Court’s power to grant relief is not limited by the rigors of each procedural provision of the CPC. In exercising its powers to grant interim relief under Section 9 of the Arbitration Act, the Court is not strictly bound by the provisions of the CCP.

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Supreme Court held that “Evidence of actual attempts to deal with, remove, or dispose of the property with a view to frustrating or delaying the fulfillment of an impending arbitral award is not imperative for the award of relief under the 9 of the Arbitration Act. A strong possibility of impairment would suffice. In assessing the balance of convenience, the Court is required to consider and weigh the consequences of denying interim relief to the claimant. if the procedure is successful, compared to the consequence of granting the interim measure to the opponent in the case, the procedure should ultimately fail.

The bench said that if a strong prima facie case is established and the balance of convenience is in favor of granting an interim measure, the Court exercising power under section 9 of the Arbitration should not withhold a measure on the mere technicality of the lack of averments, incorporating the grounds for seizure before judgment under Ordinance 38 Rule 5 of the CPC.

The Supreme Court observed that on its face, the refundable security deposit is not returned to Arcellor on the alleged basis of a convoluted series of internal arrangements between group companies for the diversion of security deposits to the liquidation of Essar Steel’s alleged contributions to third parties.

In view of the foregoing, the board dismissed the appeal.

Case title: Essar House Private Limited v Arcellor Mittal Nippon Steel India Ltd.

Bench: judges Indira Banerjee and AS Bopanna

Case no: Arising from SLP (C) No. 3187 of 2021

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The Supreme Court ruled Wednesday that contract novation or set-off is not permitted with respect to a corporation subject to CIRP without the consent of the resolution professional.

The bench of Judges Indira Banerjee and AS Bopanna was dealing with appeals challenging the judgment rendered by Bombay HC, dismissing the appellant’s appeal and upholding an order made by the Commercial (Single Bank) Division of the High Court ordering Essar House Private to deposit an amount of Rs.35.5 crores from the Prothonotary and Principal Master of the High Court or, alternatively, to furnish a bank guarantee from any nationalized bank for the full amount together with interest thereon.

In this case, Essar Services is engaged in the provision of accounting services, account-related services, review, research, etc. Essar Services is part of the Essar group of companies.

Essar House Private has entered into an agreement referred to as “Lease Agreement” with Essar Steel, for a period of 36 months commencing April 1, 2016, at a monthly rent of Rs.78,40,000/-. Essar Steel was to pay an amount of Rs 25.80 Crore to Essar House Private as interest-free refundable security deposit.

Essar Steel has acknowledged that HDFC Bank disbursed a Rs 26 crore loan to Marvel Mines, of which Rs 26 crore was earmarked for collection of term loans.

This is the case of the appellant that, on the instructions of Essar Steel and on behalf of Essar Steel, Equinox made payments to HDFC Bank from time to time in settlement of debts owed by Essar Steel to Equinox.

Equinox reportedly assigned its Essar Steel claim to a certain Edwell Infrastructure Hazira Limited, hereinafter referred to as “Edwell”, to whom Essar Steel owed a total amount of Rs.88,13,03,623/- including interest. Later, Essar Services’ obligation to make payment of Rs 47.41 crore to Essar Steel was transferred to Edwell and it was agreed that payment would be made to Edwell.

Arcellor paid Rs.4,75,06,260 to Essar Services on behalf of Essar Steel in settlement of its claims/owed. However, on July 14, 2020, Arcellor issued a legal notice to Essar Services for reimbursement of Rs.47.41 crores.

By order of the Bombay High Court, Single Bench ordered Essar Services to deposit Rs 47.41 crore with the Prothonotary and Principal Master of the High Court.

Essar Services has filed an appeal for arbitration under Section 37 of the Arbitration Act read together with Section 13 of the Commercial Courts Act with the Commercial Appeal Division of the High Court . The appeal was dismissed.

The question to be considered before the bench was as follows:

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Is the order issued by the Bombay HC dismissing the appeal filed by the appellant valid or not?

The bench said that in deciding a claim under Section 9 of the Arbitration Act, the Court cannot disregard the basic principles of the CPC. At the same time, the Court’s power to grant relief is not limited by the rigors of each procedural provision of the CPC. In exercising its powers to grant interim relief under Section 9 of the Arbitration Act, the Court is not strictly bound by the provisions of the CCP.

Read also

Supreme Court held that “Evidence of actual attempts to deal with, remove, or dispose of the property with a view to frustrating or delaying the fulfillment of an impending arbitral award is not imperative for the award of relief under the 9 of the Arbitration Act. A strong possibility of impairment would suffice. In assessing the balance of convenience, the Court is required to consider and weigh the consequences of denying interim relief to the claimant. if the procedure is successful, compared to the consequence of granting the interim measure to the opponent in the case, the procedure should ultimately fail.

The bench said that if a strong prima facie case is established and the balance of convenience is in favor of granting an interim measure, the Court exercising power under section 9 of the Arbitration should not withhold a measure on the mere technicality of the lack of averments, incorporating the grounds for seizure before judgment under Ordinance 38 Rule 5 of the CPC.

The Supreme Court observed that on its face, the refundable security deposit is not returned to Arcellor on the alleged basis of a convoluted series of internal arrangements between group companies for the diversion of security deposits to the liquidation of Essar Steel’s alleged contributions to third parties.

In view of the foregoing, the board dismissed the appeal.

Case title: Essar House Private Limited v Arcellor Mittal Nippon Steel India Ltd.

Bench: judges Indira Banerjee and AS Bopanna

Case no: Arising from SLP (C) No. 3187 of 2021

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