1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. ARBITRATION PETITION NO.268 OF 2007 State Trading Corporation of India Limited ..Petitioner. Vs. Ved Prakash Goyal and others .. Respondents. .... Mr. Rahul Chitnis i/b Thakore Jariwala & Associates for the Petitioner. Mr. Rajesh C. Shah i/b Purnima G. Bhatra for the Respondents. .... CORAM: DR. D.Y. CHANDRACHUD, J. 5th February, 2008. P.C. : 1. These proceedings have been initiated for orders under Section 9 of the Arbitration and Conciliation Act, 1996. 2. Some time in the month of January 2005 the Petitioner imported 34,000 MT of edible oil on the basis of a high sea sale, on account of a proprietary concern by the name of V.K. Overseas. The First Respondent is the proprietor of the aforesaid concern. According to the Petitioner, the First Respondent had agreed to lift the entire stock of edible oil, but in breach of the conditions of sale recorded in contract notes, he failed and neglected to lift the stock 2 of oil that was imported. The First Respondent, it was alleged, lifted only 17,583 MT of edible oil out of the contracted quantity 34,000 MT. By 31st August, 2005 there was, according to the Petitioner, a crystallized claim of Rs.10 Crores due and payable on account of difference in price of goods, demurrage etc. and on account of the breaches committed by the First Respondent of the terms and conditions governing the contract note relating to the import of edible oil. Respondents 2 to 6 are stated to have unconditionally guaranteed the payment of the outstanding dues of the First Respondent towards the Petitioner. On 31st August, 2005 an agreement was entered into which is annexed at Exhibit B to the Arbitration Petition where under the First Respondent as purchaser confirmed having purchased from the Petitioner a quantity of edible oil, the dues that were outstanding and the liability to repay the same together with interest. Clause 16 of the agreement inter alia contains a provision for arbitration. Respondents 2 to 6 guaranteed the payment of the outstandings. An agreement for the hypothecation of plant, machinery, stocks, book debts and receivables was executed on 31st August, 2005. On the same day, a memorandum was executed evincing an intent to create a mortgage by the deposit of title deeds. 3 3. According to the Petitioner, the First Respondent has by its letter dated 3rd November, 2006 admitted its liability on account of its failure to lift the final balance quantity of imported edible oil. 4. An affidavit in reply has been filed to the Arbitration Petition. The defence therein is that there was a marketing agency by the name of Shakti Enterprises which was engaged in the business of importing edible oil on commission basis. Shakti Enterprises, it is alleged was unable to import edible oil in its own name and it was at the behest of the aforesaid concern that the First Respondent was induced to enter into a contract for importing edible oil. The First Respondent does not dispute having entered into contract notes for importing 34,000 Tonnes of edible oil. But the defence is that upon arrival of goods, delivery orders which were handed over to the First Respondent were in turn handed over to Shakti Enterprises. Shakti Enterprises is alleged to have made payment by demand draft in the name of the First Respondent. Subsequently, as a result of a slump in the price of edible oil, the balance of the quantity remaining after the delivery of about 17,587 MT was not lifted. The First Respondent has stated 4 that at the behest of Shakti Enterprises he had executed certain documents and that similarly Respondents 2 to 6 were also induced to execute certain documents. These documents, it has been submitted, were executed in blank. 5. At the present stage, the defence cannot prima facie be countenanced. The First Respondent has entered into contracts for the import of edible oil and if the First Respondent did so on the inducement or at the behest of a third party, the First Respondent cannot be excused from the performance of the obligations which were assumed under the contract. Whatever be the understanding between the First Respondent and the third party, insofar as the Petitioner was concerned, prima facie it is the First Respondent which is responsible as a contracting party. Similarly, Respondents 2 to 6 are guarantors. The Petitioner has a substantial claim which is quantified in excess of Rs.10.77 Crores in paragraph 4(e) of the Arbitration Petition consisting of the CIF value of goods, customs duty / surcharge, demurrage and other charges together with interest. A case has been made out by the Petitioner for the grant of an interim measure of protection pending the arbitration proceedings. 5 6. When the Arbitration Petition came up before the Court on 10th August, 2007, a statement was made on behalf of the Fourth Respondent that the movable and immovable properties described in Exhibits A and C were subject to an order of attachment levied for the non-payment of income tax and sales tax duties. Subsequently, on 21st September, 2007 the Petitioner disputed the aforesaid statement and submitted that the order passed by the sales tax authorities had been stayed in appeal. This Court directed that in the event that there was no pending attachment of either the income tax or sales tax department, the Respondent shall not dispose of, alienate, encumber, transfer or part with the possession of the immovable property, more particularly described in Exhibit A and the hypothecated movables described in Exhibit C. The Respondents were, however, not precluded from utilizing the stocks or movables in the usual course of business. In the affidavit in reply that has been filed, it has been averred in paragraph 25 that the properties have been attached by the income tax and sales tax department. Counsel appearing for the Respondents has stated on instructions that the aforesaid position continues to obtain as of date. 6 7. In view of the aforesaid position, it would be appropriate and proper if the ad interim order dated 21st September, 2007 is confirmed as an order in the Arbitration Petition. There shall also be a direction requiring the Respondents to disclose their assets on oath within a period of three weeks from today in terms of prayer clause ( c) of the Arbitration Petition. This order shall not preclude the Petitioner from applying for further relief under Section 17 of the Act before the learned arbitrator or from moving this Court in fresh proceedings for the appointment of a Receiver in the event that it transpires that the orders of attachment levied by the income tax and/ or sales tax have come to an end. All the rights and contentions of the parties are kept open to be urged in the arbitral proceedings including any objection if the Respondents have to the existence of the arbitration agreement.