Delhi High Court Declines Plea By Chinese Firm Against Reliance Infra For Recovery Of Disputed Amount

The Delhi High Court on Tuesday dismissed a petition that sought recovery of disputed amount relating to a contract between Reliance Infrastructure Limited (RIL) and a Chinese Company.

Filed by Shanghai Electric Group Company Ltd, a Chinese firm, against RIL, the plea alleged “dissipation of assets” by the respondent. 

Justice Sanjeev Narula observed that, “No prima facie case, balance of convenience and irretrievable harm or injury has been demonstrated in favour of SEGCL. The Court is thus, not inclined to grant the reliefs prayed for.”

The Companies had entered into an Equipment Supply and Service Contract in the year 2008 with Reliance Infra Projects in the UK.

According to the contract, SEGCL was supposed to supply equipment, develop the main body of the turbines and generators, and supervise the services to Reliance UK and supply other equipment for the construction of the coal-fired thermal ultra-mega power project in Madhya Pradesh, India.

Reliance UK, according to the terms of the contract, was supposed to pay ₹9,641 crore to the petitioner. As per the record, in order to secure performance of obligations on part of Reliance UK, Reliance had issued a guarantee letter in 2008. That letter guaranteed that Reliance UK would comply with its obligations.

By 2019, the petitioner company was stated to have been owed ₹995 crore under the contract. A notice of dispute in 2019 was issued to Reliance that sought compliance of its obligations as per the guarantee letter. The notice further called for curing of Reliance UK’s breach of obligations by making payments within 60 days of the notice. The notice was not complied with, which compelled the petitioner to invoke arbitration proceedings at the Singapore International Arbitration Centre (SIAC).

The SEGCL’s approached the High Court, averring that since arbitration proceedings began, Reliance was “hurriedly dissipating its assets”. The petitioner argued that this was being done to prevent it from benefitting from the arbitral award passed in its favour.

Senior Advocates Rajiv Nayar and Dayan Krishnan appeared for SEGCL and argued that any substantial provisional reliefs in the nature of attachment of assets and properties, including bank accounts and direction to third-parties, could only be effectively given by a competent court in India such as the High Court. It was the contention of the petitioner that arbitral tribunal or foreign court would not be proper forums for such a relief.

RIL questioned the jurisdiction of the High Court in maintaining such a petition. It argued that the guarantee letter did not provide for a relief of this nature. It was further submitted that the reliefs that were sought by the petitioner with the intention of securing the alleged amount involved in the dispute. The RIL claimed that such relief could only be sought before the arbitral tribunal.

The Court accepted the plea by SEGCL that the remedy before the arbitral tribunal was not appropriate and beneficial and the option of approaching the Court under Section 9 of the Arbitration and Conciliation Act, 1996, for interim measures, could be availed by the SEGCL. The constitution of the arbitral tribunal had no bearing on the relief sought under Section 9.

Accepting the plea of the petitioner on this limited point, the Court affirmed that, “neither has any arbitral award been passed, nor has the question of enforcement arisen. However, this does not mean that a party cannot invoke jurisdiction under Section 9 on the basis of the location of assets.”

Senior Advocates Harish Salve and Sandeep Sethi, appearing for Reliance, called into question the validity/execution of the guarantee letter as well as the arbitration clause. The validity of the letter presented by SEGCL was refuted and it was argued that it was invalid and consequently unenforceable under the Foreign Exchange Management (Guarantees) Regulations, 2000.

The Court, therefore, held that SEGCL’s claims were under adjudication at the moment and the liability “was yet to be ascertained”. The Court, while throwing the ball in the court of the arbitral tribunal, stated that “Thus, in view of contentious issues raised by Reliance, at this stage, no prima facie case is made out for proceeding against the assets of Reliance or grant such other interim injunctive relief to secure SEGCL’s claim, pending the decision of the Arbitral Tribunal.”

On the contention of dissipation of assets, the judgment reasoned that SEGCL had not “shown any cogent material to buttress its allegation".

It was, however, made clear by the court that the views it was giving on the merits of the case were only for the purpose of deciding the present petition. It was clarified that the opinion of the court shall not influence the award of the arbitral tribunal.