The Delhi High Court has ordered Reliance Infrastructure Ltd (RIL) to maintain status quo on its assets and restrained it from selling, transferring or creating any encumbrances on its stake in two power distribution companies in Delhi, BSES Yamuna Limited and BSES Rajdhani Limited, until further orders.
The order was passed by Justice Sanjeev Narula on July 19, 2022, in a petition filed by Shanghai Electric Group Co Ltd (SEGCL) under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim measures to secure the amount in dispute in an arbitration proceeding against RIL.
The dispute arose from an Equipment Supply and Service Contract dated June 26, 2008, entered into between SEGCL and Reliance Infra Projects (UK) Limited (Reliance UK), a subsidiary of RIL, for the supply of equipment and services for the construction of a coal-fired thermal power project at Sasan, Madhya Pradesh. RIL had issued a guarantee letter dated June 26, 2008, to SEGCL to secure the performance of obligations of its subsidiary, Reliance UK.
According to SEGCL, Reliance UK had failed to pay the amounts due under the contract and SEGCL had invoked the guarantee letter to claim Rs. 995 crores from RIL. However, RIL did not comply with SEGCL’s demand and SEGCL initiated arbitration against RIL on December 13, 2019. The guarantee letter was governed by the English law and the arbitration clause provided for the seat of arbitration in Singapore and the arbitration was to be administered by the Singapore International Arbitration Centre (SIAC) as per the United Nations Commission on International Trade Law (UNCITRAL) Rules.
SEGCL approached the Delhi High Court for interim relief after it learnt that RIL was planning to sell its stake in the two power distribution companies in Delhi to Torrent Power Limited for Rs. 1,000 crores. SEGCL contended that RIL was trying to dispose of its assets to frustrate the arbitration award and that SEGCL had no other efficacious remedy to secure its claim.
RIL opposed the petition on several grounds, including that Section 9 of the Act was impliedly excluded by the parties, that SEGCL had other remedies under English law and Singapore law, that the Delhi High Court was not a competent court under Section 9 of the Act as the seat of arbitration was in Singapore, and that the guarantee letter was unstamped and unregistered and hence not enforceable.
The Delhi High Court rejected RIL’s objections and held that Section 9 of the Act was applicable even in respect of foreign seated arbitrations unless there was an agreement to the contrary, which was not the case here. The court also held that SEGCL had made out a prima facie case for interim relief as RIL had admitted its liability under the guarantee letter and there was a likelihood of dissipation of assets by RIL. The court further held that it had jurisdiction to entertain the petition as RIL’s assets were located within its territorial limits and that the issue of stamping and registration of the guarantee letter could not be decided at this stage.
The court, therefore, granted interim relief to SEGCL and directed RIL to maintain status quo on its assets and refrain from selling, transferring or creating any encumbrances on its stake in BSES Yamuna Limited and BSES Rajdhani Limited until further orders. The court also directed RIL to file an affidavit disclosing its assets within four weeks and listed the matter for further hearing on August 23, 2022.
Recent Blog : CCI New Penalty Rules: Based on Company Income, Turnover