M/S Suryodaya Infra Projects vs. M/S. Flecon Engineering Company Limited

Held

The High Court allowed the appeal, setting aside the Commercial Court's order. The Court held that the appellant had made out a strong case for interim relief under Section 9(1)(ii)(b) and (e) of the Arbitration and Conciliation Act, 1996. The Court reasoned that the contract was on a 'back to back' basis, the appellant executed the actual work, and the 1st respondent had received payments from the 2nd respondent but allegedly paid very little to the appellant, who claimed Rs. 11,91,01,514/-. The Court found the 1st respondent's refusal to pay not bona fide and noted that the issue of delay was to be adjudicated in arbitration. The Court considered it just and convenient to secure the amount, even if the 1st respondent's financial position was sound, as the intention was to secure the amount, not to order its release. The Court directed the 2nd respondent not to make any further payments to the 1st respondent pending adjudication of disputes.

Facts

The appellant, a construction company, entered into a Letter of Award (LOA) with the 1st respondent, a company engaged in engineering and manufacturing, for civil and structural works for a project awarded by the 2nd respondent. The contract was on a 'back to back basis'. The appellant alleged that the 1st respondent failed to make payments against raised RA bills, causing cash flow issues. The appellant claimed outstanding dues of Rs. 11,91,01,514/-. The 1st respondent, however, demanded Rs. 3,20,26,142/- from the appellant, alleging incomplete project work. The appellant filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim measures to secure the outstanding amount. The Commercial Court dismissed the petition, prompting the present appeal.

Key Issues

1. Whether the appellant has made out a prima facie case for grant of interim relief under Section 9(1)(ii)(b) and (e) of the Arbitration and Conciliation Act, 1996, to direct the 2nd respondent not to make further payments to the 1st respondent pending adjudication of disputes? Appellant's contentions: The appellant argued that it had executed the major share of the work, and the 1st respondent had received most of the payments from the 2nd respondent but failed to release the outstanding dues to the appellant. The appellant contended that the 1st respondent's refusal to pay was not bona fide and that the issue of delay in execution was to be decided in arbitration. The appellant relied on minutes of meetings where payments due were acknowledged and the 'back to back' nature of the contract. Revenue/State's contentions: The judgment does not record specific arguments from the 1st respondent in response to the appeal, beyond what was presented to the lower court. The lower court's reasoning, as reflected in the judgment, focused on the principles of Order 38 Rule 5 CPC regarding attachment before judgment, suggesting that the appellant had not sufficiently demonstrated the necessity for such drastic measures.