Calcutta High Court: Authority of Section 9 under A&C Act to Penalize Disobedience, Power Comparable to Order 39 Rule 2A of CPC

Calcutta High Court, in RKD Niraj JV & Ors v. Union of India & Ors, declares its authority under Arbitration and Conciliation Act Section 9 to penalize disobedience, likening it to Civil Procedure Code's Order 39 Rule 2A.

In a recent ruling, the High Court of Calcutta has reinforced its authority to penalize disobedience of its orders under Section 9 of the Arbitration and Conciliation Act (A&C Act). The court likened its power under Section 9 to that of a Civil Court's authority under Order 39 Rule 2A of the Civil Procedure Code (CPC), which permits attachment of property and imprisonment for up to three months for non-compliance.

Justice Sabyasachi Bhattacharyya's bench emphasized that while the court should not avoid its responsibilities based on factual issues, it should also refrain from intervening in cases where detailed evidence is essential to resolve factual disputes.

The dispute stemmed from a work agreement between two parties. The petitioner provided three bank guarantees to the respondent as part of the agreement. However, disagreements arose, leading the respondent to invoke one of the bank guarantees on September 25, 2023, and terminate the agreement on September 30, 2023.

Subsequently, the petitioner sought recourse in the Commercial Court under Section 9 of the A&C Act, aiming to reclaim the encashed amount and prevent further invocation of the remaining bank guarantees. Despite the Commercial Court's order restraining the respondent from encashing the guarantees, one of the branch managers proceeded with the invocation, classifying the petitioner's account as a Non-Performing Asset (NPA).

The petitioner contended:

  1. The invocation of the bank guarantee violated the Commercial Court's order.
  2. The NPA classification resulted directly from the illegal invocation.
  3. Despite awareness of the court order, the respondent proceeded with the invocation.
  4. Similar situations had seen reversals by other branches, indicating a lack of parity.

The respondent countered:

  1. The bank guarantee is an independent contract between the beneficiary and the bank.
  2. The bank had already invoked the guarantee before being informed of the court order.
  3. No legal provision mandated the reversal of an already-invoked bank guarantee.
  4. The writ petition was inappropriate as other legal avenues were available.

The High Court affirmed the Commercial Court's jurisdiction under Section 9 of the A&C Act to enforce its orders, even after the constitution of an Arbitral Tribunal. It clarified that the establishment of an arbitral tribunal does not preclude parties from seeking relief under Section 9.

Regarding the invocation of the bank guarantee, the court held that the petitioner should have approached the Commercial Court for enforcement and action against the violating party. It stressed that the court's power to punish disobedience is inherent under Section 9, akin to the CPC's provisions. The court dismissed the notion of the writ court substituting as an executing authority for Section 9 orders.

Addressing the question of fact-finding, the court recognized the limitations of a writ jurisdiction in resolving complex factual disputes. It noted insufficient evidence to conclusively determine the respondent's deliberate violation of the court order.

Consequently, the court dismissed the writ petition due to the inability to ascertain willful disobedience solely through affidavits, emphasizing the need for detailed evidence beyond the scope of writ jurisdiction.