$~ * + IN THE HIGH COURT OF DELHI AT NEW DELHI Date of decision:27th October, 2016 FAO(OS) No.95/2016 M/S. P E C LIMITED ..... Appellant Through: Mr. Dhruv Mehta, Sr. Adv. with Mr. Rajesh Kumar, Ms. Anupama Dhruve and Mr. Anubhav Ray, adocates. versus M/S. KANDLA ENERGY AND CHEMICALS LTD. & ANR. ..... Respondent Through: Mr.Akhil Sibal, Ms. Manmeet Kaur, Mr. Yashvardhan & Ms. Riya, Advocates for respondent No.2. CORAM: HON'BLE MS. JUSTICE INDIRA BANERJEE HON'BLE MR. JUSTICE ASHUTOSH KUMAR JUDGMENT INDIRA BANERJEE , J (ORAL) 1. This appeal is against a judgment and order dated 5.10.2016 of the learned Single Bench disposing of an application filed by the appellant under Section 9 of the Arbitration and FAO(OS) No.95/2016 1 Conciliation Act, 1996, hereinafter referred to as the 1996 Act after vacating the earlier interim orders passed in the said application.
2. The appellant, M/s.P.E.C. Limited, a Government of India enterprise filed an application under Section 9 of the 1996 Act seeking interim reliefs against M/s. Kandla Energy and Chemicals Limited and M/s Adani Ports and Special Economic Zone Ltd. being respondent Nos. 1 and 2.
3. The respondent No.1 Kandla Energy and Chemicals Ltd. hereinafter referred to as KECL had approached the appellant for financing the import of 2000 metric tones of heavy aromatics of South Korean origin, which is hereinafter referred to as ‘the cargo’ from a foreign supplier in Singapore.
4. An agreement was executed on 7th May, 2014, by and between the appellant and M/s. KECL, in terms whereof the appellant agreed to finance the import of the cargo on the terms and conditions stipulated in the said agreement. FAO(OS) No.95/2016 2 5. Pursuant to and/or in terms of the said agreement between the appellant and KECL, KECL pledged the entire cargo in favour of the petitioner, but agreed to store it at its own cost and risk. The appellant claims first charge on the cargo.
6. It was also agreed by and between the appellant and KECL, that in the event of failure of KECL to pay the entire cost of import within the stipulated time, the appellant would be at liberty to sell the goods to any third party, without reference to and at the cost and risk of KECL. KECL was also to indemnify the appellants against any loss, damage or costs, which the appellant might incur or suffer with regard to the import, or in relation to the agreement.
7. The agreement contained an arbitration clause for reference of disputes between the appellant and KECL to arbitration, in accordance with the rules of arbitration of the Indian Council of Arbitration. The venue of the arbitration was to be at Delhi and Courts in Delhi were to have jurisdiction. FAO(OS) No.95/2016 3 8. Pursuant to/and in terms of the said agreement the appellant got a Letter of Credit opened on 8th May, 2014 by its banker, the State Bank of Tranvacore, Parliament Street, New Delhi, in favour of the foreign supplier for a sum of US $ 21,12,140.57, being the value of the cargo.
9. It appears that the import was made on 23rd May, 2014. On 11th June, 2014, KECL executed a Deed of Pledge, pledging the entire cargo covered by the Letter of Credit to the appellant.
10. It is pleaded that on the same day, that is, 11th June 2014, KECL entered into a High Seas Agreement with the appellant whereby the appellant agreed to sell the cargo to KECL.
11. By a letter dated 14th June, 2014, the respondent No.2, hereinafter referred to as Adani Ports confirmed that it had received the cargo, which had been stored at its bonded warehouse. Adani Ports undertook to release the cargo to KECL after a ‘No Objection’ Certificate was given by the appellant, and after payment by KECL of the warehousing FAO(OS) No.95/2016 4 charges of Adani Ports in terms of the contract executed by and between KECL and Adani Ports on 24th September 2013.
12. At the request of KECL, the Letter of Credit was extended from time to time, the last extension being on 13th February. In the meanwhile correspondence ensued between KECL and the appellant with regard to removal of the cargo upon payment of customs duty and other charges and with regard to payment of the dues of the appellant.
13. On 11th February, 2015, KECL executed a Deed of Undertaking in favour of the appellant and also issued 13 cheques towards repayment of the amount financed by the appellant for the import. Three more cheques were issued in similar fashion. However, when presented, the cheques were dishonoured and five proceedings were initiated under the Negotiable Instruments Act, 1881.
14. Even though KECL had assured the appellant that the cargo would be removed from the warehouse between March and FAO(OS) No.95/2016 5 May 2015, upon payment of the requisite duties and charges, KECL did not remove the cargo.
15. By an E-mail dated 19th February, 2016, Adani Ports forwarded a letter dated 12th February, 2016, from the office of the Principal Commissioner of Customs, Mundra, Gujrat and requested KECL to clear the cargo upon payment of storage charges.
16. Thereafter Adani Ports sent a final notice dated 5th January, 2016 to KECL under Section 48 of the Customs Act, 1982 informing KECL that Adani Ports would sell the cargo in its custody, if customs duties were not cleared within ten days.
17. By a letter dated 23rd February, 2016, the appellant informed the Custom Authorities of its proposal to auction the cargo, pledged in its favour by KECL and requested the Customs authorities to defer the auction proposed to be taken by them. The Customs authorities were requested to grant 60 days time to the appellant to conclude the process of sale. According to FAO(OS) No.95/2016 6 the appellant a sum of Rs.13,20,94,675/- was due and payable from KECL to the appellant as on 20th May, 2016.
18. On 1st June, 2016, the appellant filed an application under Section 9 before the Single Bench, praying inter alia for orders of injunction restraining KECL and Adani Ports from selling, transferring, alienating and/or creating any third party interest or parting with possession of the heavy aromatics pledged with the appellant and lying in the bonded warehouse of Adani Ports, till such time, as the entire dues of the appellant were recovered from KECL. Further interim reliefs were sought for attachment of the cargo and for a direction on Adani Ports to allow the appellant to have access to the cargo for initiation of the auction sale.
19. On 3rd June, 2016, the Single Bench of this Court passed an interim order restraining the respondent nos.1 and 2 KECL and Adani Ports from selling, transferring, alienating and/or creating any third party interest or parting with possession of FAO(OS) No.95/2016 7 the pledged cargo lying in the bonded warehouse of Adani Ports at Mundra.
20. On 31st August, 2016, a further order was passed permitting the appellant to initiate steps to auction the heavy aromatics lying in the bonded warehouse of Adani Ports at Mundra. Soon thereafter, Adani Ports filed an application being IA No.11610/2016 seeking clarification/modification of the order dated 31st August, 2016, which has given rise to the order under appeal.
22. 21. By the order under appeal the earlier interim orders have been vacated and Adani Ports has been directed to initiate the process of selling the goods in question by public auction, if the same has not been done. The learned Single Bench has further directed that the proceeds of the sale would abide by Section 115 of the Customs Act, 1962. The short question in this appeal is whether Adani Ports who is not a party to the arbitration agreement, could have been restrained from selling the cargo in exercise of its rights under the Customs Act, 1962. The learned Single Bench rightly observed that ordinarily an order under Section 9 of the 1996 Act cannot be passed against persons who are not parties to the arbitration agreement. Orders which affect persons who are not parties to an arbitration 23. FAO(OS) No.95/2016 8 for agreement, may be issued in certain circumstances, example, when such persons claim right title or possession from a party to the agreement. However, in no circumstances can a person who is not a party to the arbitration agreement be restrained from exercising an independent right vis-a-vis one of the parties to the arbitration agreement.
24. In the instant case, it is not in dispute that the cargo has been lying in the bonded warehouse of Adani Ports. Adani Ports has an independent right to realise its charges on account of storage of goods in the bonded house from KECL. The appellant cannot, in an application under Section 9 of the 1996 Act restrain Adani Port from exercising such right.
25. Some of the relevant provisions of the Customs Act, 1962 set out hereinbelow for convenience:-
"“48. Cleared, Warehoused, within Thirty Days after Unloading:-
"Procedure in Case of Goods not or Transshipped India are not If any goods brought into India from a place outside cleared for home consumption or warehoused or transshipped within thirty days the unloading thereof at a customs station or within such further time as the proper officer may allow or if the title to any imported goods is relinquished, such goods may, after notice to the importer and with the permission of the from the date of FAO(OS) No.95/2016 9 anything to proper officer be sold by the person having the custody thereof: Provided that- (a) animals, perishable goods and hazardous goods, may, with the permission of the proper officer, be sold at any time; (b)arms and ammunition may be sold at such time and place and in such manner as the Central Government may direct.” to be first “142A. Liability under Act charge.- Notwithstanding the contrary contained in any Central Act or State Act, any amount of duty, penalty, interest or any other sum payable by an assessee or any other person under this Act, shall, save as otherwise provided in section 529A of the Companies Act, 1956 (1 of 1956), the Recovery of Debts Due and Financial Institutions Act, 1993 (51 of 1993) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), and the Insolvency and Bankruptcy Code, 2016, be the first charge on the property of the assessee or the person, as the case may be.” “150. Application of Sale Proceeds.- (1)Where any goods not being confiscated goods are to be sold under any provisions of this Act, they shall, after notice to the owner thereof, be sold by public auction or by tender Procedure for Sale of Goods and to Banks FAO(OS) No.95/2016 10 or with the consent of the owner in any other manner. (2)The proceeds of any such sale shall be applied- (a) firstly to the payment of the expenses of the sale, (b)next to the payment of the freight and other charges, if any, payable in respect of the goods sold, to the carrier, if notice of such charges has been given to the person having custody of the goods, (c) next to the payment of the duty, if any, on the goods sold, (d)next to the payment of the charges in respect of the goods sold due to the person having the custody of the goods, (e) next to the payment of any amount due from the owner of to the Central Government under the provisions of this Act or any other law relating to customs, and the balance, if any, shall be paid to the owner of the goods……” the goods 26. The learned Single Bench has rightly found that Section 48 of the Customs Act provides for sale of the imported goods with the permission of the proper officer if such goods are not cleared for home consumption or warehoused or transshipped within 30 days from the date of the unloading thereof at a FAO(OS) No.95/2016 11 customs station. Section 48 enables the person having the custody of the goods to sell the same.
27. Section 142A provides that any amount of duty, penalty, interest or any other sum payable under the Customs Act, except the Companies Act and the other acts mentioned in Section 142A shall be a first charge on the property of the assessee. to the extent provided in Section 529-A of 28. Under section 58, the owner of a bonded house has the right to sell cargo under the provisions of the Customs Act upon notice to the owner. Section 152 clearly provides the sequence in which the proceeds of the sale are to be applied. Payment is first to be made of freight and other charges payable to the carrier, then of customs duty and then payment of charges due to the person having the custody of the goods. Adani Ports is in custody of the cargo.
29. Under Section 152 (d) charges due to the person in custody of the cargo, which would include outstanding, storage charges such as rent, may be appropriated from the sale proceedings after clearing the expenses of the sale, freight and other charges of the carrier and the duty payable in respect of the goods. The owner would be entitled to goods, only after all the appropriations as aforesaid are made. The learned Single Judge FAO(OS) No.95/2016 12 30. very rightly held that the petitioners stepped into the shoe of the owner as pledgee. It has no higher rights. The order under appeal does not call The learned Single Bench has rightly vacated the earlier interim orders and permitted the respondent No.2-Adani Ports to sell the cargo. for interference. Needless to mention that Adani Ports shall also consider the offer of tenderers who have submitted their bids pursuant to the tender notice issued by the appellant in terms of the orders of this Court, or any other offers the appellant may procure. The appeal is disposed of accordingly. INDIRA BANERJEE, J ASHUTOSH KUMAR, J October 27, 2016 /n FAO(OS) No.95/2016 13 FAO(OS) No.95/2016 14