22 July 2021 | DLF Ltd. v. Leighton India Contractors Private Ltd. | FAO (OS) (Comm.) 63 of 2020 | Rajiv Sahai Endlaw & Asha Menon JJ | 2021 SCC OnLine Del 3772

DLF gave Leighton a contract for around INR 1,438 crores to develop a residential project, “The Camellias”, at Gurugram. Leighton furnished six bank guarantees issued by ICCI and Axis bank: two for retention money for approximately 78 crores and four performance bank guarantees for around 144 crores.

On receiving an email from Axis in May 2020 informing that DLF had invoked the guarantees, Leighton applied to the court the next day, asking for several reliefs in a petition under Section 9 ACA. Leighton sought an order against DLF from encashing the guarantees, an order against the banks from paying, or in the alternative, if the banks had already released the amount, orders directing DLF to pay back the amount or to furnish appropriate securities to secure the amount.

Since the banks had already credited the amounts to DLF, the single judge considered only the alternative prayer. She was of the view, after a detailed prima facie consideration of the facts, that “special equities” existed in Leighton’s favour. She also said that the court had appropriate powers under Section 9 ACA. Read the single judge’s order here. So, she made an ad-interim arrangement for the amount covered by the performance guarantee (approx. 144 crores), directing DLF to create a fixed deposit in the name of the court’s Registrar General. The petition was listed for further hearing after a few weeks.

Both parties appealed. With the consent of the parties, the appellate court treated the Section 9 petitions as disposed of. Because DLF was directed to furnish security, the court noted, “we may consider whether the court would be guided by the principles of Order XXXVIII Rule 5, CPC, even if it was passing an order under Section of the A&C Act.” Asha Menon J, writing for the bench, set aside the single judge’s order concluding that no case was made out for refund of security. The court’s reasons were as follows:

1. In an application under Section 9 ACA, the court cannot ignore the principles underlying Order XXXIX Rules 1 & 2 CPC and Order XXXVIII Rule 5 CPC.
2. Not only the court is required to be satisfied that a valid arbitration agreement exists, but the powers could also be exercised only for matters set out in Section 9 (ii) (a) to (e) ACA. In other words, the order must relate to the preservation of property till the tribunal decides. Moreover, the court cannot extend the scope of relief to direct the specific performance of the contract itself.
3. Well-known rules govern the grant of interim prohibitory or interim mandatory injunction. The concept of “balance of convenience”, “prima facie case”, “irreparable injury” applies while passing interim measures. [citing Adhunik Steels Ltd. v. Orissa Manganese and Minerals (P) Ltd., (2007) 7 SCC 125].
4. The single judge’s had to be founded on Order XXXVIII Rule 5 CPC, which it is not. She did not look at the issue from this angle and passed orders based on “special equities.”
5. Principles governing the grant of a mandatory injunction would be relevant for Leighton’s case that, in effect, sought a mandatory injunction to restore the status quo ante.
6. It should be tested on the guidelines of the Supreme Court recorded in Dorab Cawasji Warden v. Coomi Sorab Warden, (1990) 2 SCC 117: (i) a higher standard than a prima facie case is usually required for a prohibitory injunction, (ii) necessity to prevent severe or irreparable injury which generally cannot be compensated in terms of money, (iii) balance of convenience.
7. [Considering the rival claims], no strong case for grant of mandatory instructions was made out. The injury, if any, can be compensated in terms of money by placing a claim before the arbitral tribunal. The “balance of convenience” is in permitting the tribunal to determine the mutual liabilities and claims.
8. Though the nature of an interim measure of protection that would appear to the court to be “just and convenient” would undoubtedly vary from case to case, the court ought not to venture into the determination of liabilities and the interpretation of clauses and grant interim reliefs that would amount to final relief. [citing National Highways Authority of India v. Bhubaneswar Expressway Private Limited, 2021 SCC OnLine Del 2421]
9. A prima facie opinion of whether guarantees were wrongly invoked is to be done in a substantive proceeding. [citing CRSC Research and Design Institute Group Co. Ltd. v. Dedicated Freight Corridor Corporation of India Limited, 2020 SCC OnLine Del 152].
10. It would be beyond jurisdiction to direct restitution in Section 9 proceedings because that by its very nature involves a final determination of rival contentions even if it were to appear just and proper to do so.
11. DLF’s appeal was allowed. Leighton’s appeal was dismissed. The interim order was set aside.

Access the judgment here.