Case: Ashapura Minechem Limited Vs. Pacific Basin Ihx (Uk) Limited [Formerly Known As Ihx (Uk) Limited]

2. The facts before the Court lie in a narrow compass. On 25 October 2007 a contract of affreightment was entered into between the Appellant and the Respondent for shipment of a certain consignment of Bauxite from the west coast of India to China. One of the ports of dispatch was Okha which, the Court is informed, falls within the territorial jurisdiction of the District Court of Jamkhambhalia in the District of Jamnagar. The Respondent lodged a claim against the Appellant in arbitration in pursuance of an arbitration agreement between the parties before an Arbitral Tribunal consisting of a sole arbitrator, Mr. Alan Oakley in London. The reference to arbitration was in pursuance of Clause 28 of the contract of affreightment. The Arbitrator made and declared his Award on 8 July 2009 in favour of the Respondent, directing the Appellant to forthwith pay a sum of US Dollars 24,157,442 together with interest.3. The Appellant has filed a Petition under Section 34 of the Arbitration and Conciliation Act, 1996 in the Court of the District Judge at Jamkhambhalia. In November 2009, the Respondent filed two Petitions before this Court under Sections 47 and 9 respectively, the former seeking a declaration of enforceability of the arbitral Award as a decree of this court and the latter, interim reliefs Arbitration Petition Nos.24 and 25 of 2010. On 20 December 2010 a learned Single Judge of this Court passed orders on the Arbitration Petitions. The learned Single Judge was of the view that the question as to whether the Court at Jamkhambhalia did or did not have jurisdiction to entertain the Petition under Section 34 was not a matter which could be addressed before this Court. The Appellant had sought an adjournment of the Petition seeking enforcement of the foreign arbitral Award pending the disposal of the challenge preferred by the Appellant to the Award in the District Court at Jamkhambhalia. The learned Single Judge adjourned the hearing of the two arbitration Petitions and issued the following directions :"(1) The hearing of Petition Nos.24 of 2010 and 25 of 2010 is adjourned till the disposal of the petition filed by the respondents under section 34 of the Arbitration Act in the District Court of Jamkhambhaliya but on the condition that they furnish security in the sum of sterling pounds 24,157,442.00 and 5,000.00 respectively within a period of twelve (12) weeks from today."4. The direction for furnishing security by the Appellant was issued by the learned Single Judge in terms of Section 48(3). The Appellant challenged the order of the learned Single Judge in Appeal. On 17 March 2011, a Division Bench of this Court while adjourning the hearing of the Appeal stayed the operation of the direction requiring the Appellant to furnish security subject to the condition that the Appellant not alienate its assets and make a disclosure on affidavit of its assets and investments. On 5 July 2011, the Appeal was disposed of by the Division Bench of this Court holding that the learned Single Judge acted within jurisdiction in passing an order for furnishing of security under Section 48 (3). In a Special Leave Petition filed by the Appellant against the order of the Division Bench Petition for Special Leave to Appeal (Civil) No.21242 of 2011 the Supreme Court issued notice but specifically made it clear that this will not operate as a stay of the order of the High Court directing the Appellant to furnish security.5. The Appellant filed a reference to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) on 2 June 2011. The reference was accepted by the BIFR on 18 October 2011. On 22 November 2011, the Respondent filed a Motion before the learned Single Judge for striking out the defence of the Appellant.relief was refused in the Motion. The Respondent has appeared before the BIFR in opposition to the reference. By an order dated 12 March 2012, the BIFR declared the Appellant as a sick industrial company.6. By an order dated 4 October 2012, the learned Single Judge has allowed the Motion that was taken out by the Respondent for striking off the defence of the Appellant to the Petition for enforcement of the foreign arbitral Award. The learned Single Judge has held that:(i) It was on the request of the Appellant that an adjournment was granted of the proceedings filed by the Respondent for the enforcement of the Award and for interim measures;(ii) The Appellant obtained a conditional adjournment but thereafter deliberately did not comply with the direction to furnish security. Having taken the benefit of the order, the Appellant could not be permitted to be heard on its objection opposing enforcement without complying with the direction;(iii) The default on the part of the Appellant in complying with the order furnishing security constitutes a wilful default of the order passed by the Court;(iv) The provisions of Order 39 Rule 11 of the CPC could be extended to an application under Sections 48 and 49 read with Section 9 of the Arbitration and Conciliation Act, 1996.On this foundation, the defence of the Appellant has been ordered to be struck off.

Court's reasoning:
12. We are unable to subscribe to the broad submission that the provisions of the CPC are inapplicable to proceedings before a Court when it exercises its jurisdiction under the Arbitration and Conciliation Act, 1996. The expression court is defined in Section 47, for the purposes of that Section and all other following Sections of Chapter I of Part II to mean the principal civil court of original jurisdiction in a district, and to include the High Court in the exercise of the ordinary original civil jurisdiction, having jurisdiction over the subject matter of the award if the same had been the subject matter of a suit but to not include any civil court of a grade inferior to such principal civil court or the Court of Small Causes. Where a statute provides a remedy before an ordinary civil court, the rules of procedure that apply are the ordinary rules of the Civil Procedure Code. Where the principal court of original civil jurisdiction is the District Court, the procedural provisions of the CPC govern the proceedings before the Court. Where the principal court of ordinary original civil jurisdiction is the High Courta Chartered High Court in this casethe provisions of the CPC as modified in relation to matters governing its procedure will apply. The principle that the provisions of the CPC will govern matters of procedure, where a Special Act confers jurisdiction on a civil court was recognised and followed by the Privy Council (Secretary of State for India in Council vs. Chelikani Rama Rao 43 1A 182, Hem Singh vs. Basant Das 63 1A 180 and RMARA Adaikapa Chettiar vs. R. Chandrasekhara Thevar, 74 1A 267). Lord Simmonds held in the last of those cases that "the true rule is that where a legal right is in dispute and the ordinary courts of the country are seized of such a dispute the courts are governed by the ordinary rules of procedure applicable thereto ...".The Arbitration and Conciliation Act, 1996 does not provide a special procedure that must be followed by a Court while exercising the jurisdiction which the Act confers. Undoubtedly, since the Act is a complete Code in itself, the exercise of jurisdiction must conform strictly to the parameters laid down by the Act. The intervention of the Court in arbitral proceedings and awards must be scrupulously confined within the limits laid down by the Act and conform to the legislative policy of minimising judicial intervention. On matters of procedure, the principles which are traced to the procedural provisions of the CPC are not alien, subject to the caveat that the provisions of procedural law cannot widen the nature of the jurisdiction that is conferred on the Court by the Act of 1996. Hence, where the Arbitration and Conciliation Act, 1996 makes a specific provision regarding the exercise of power, that provision cannot be overridden by taking recourse to a more general power which is conferred by the CPC. Hence, an appeal under clause 15 of the Letters Patent is not available against an order enforcing a foreign award, since Section 50 confers a right of appeal against an order refusing to enforce a foreign award. But the broad and settled principles underlying the exercise of those powers which are recognised in the Act of 1996 should conform to the principles fundamental to procedure in the CPC. To hold otherwise would mean that courts under the Act of 1996 would enter upon an uncharted territory. When the legislature has conferred a specific power upon the Court in the Arbitration and Conciliation Act, 1996, the procedure which must govern the exercise of such a power must be in consonance with the fundamental principles of procedure in the CPC subject to the caveat that where a specific provision is contained in the Act of 1996, that provision must govern and the ambit of the intervention of the Court cannot be extended by taking recourse to the broad and general procedural norms contained in the CPC.In the present case, the Court cannot lose sight of the fact that in pursuance of a reference which has been filed by the Appellant before the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985, the Appellant has been declared as a sick industrial company. Since the BIFR has entertained the reference and has proceeded to issue a declaration, it would not be possible for this Court on the basis of the facts as they stand to arrive at a conclusion that the reference is lacking in bonafides. The Respondent has participated in the proceedings before the BIFR. Under(1) of Section 15 of the SICA when an industrial company has become a sick industrial company, the Board of Directors of the Company shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the BIFR. Section 2(o) defines a sick industrial company as an industrial company which has at the end of any financial year accumulated losses equal to or exceeding its net worth. Though the reference was made subsequently, that is grounded on the financial status of the company over the statutorily prescribed period prior to the filing of the reference.In the circumstances, we are of the view that the failure of the Appellant to comply with the order of the Court imposing a condition for the furnishing of security for the grant of an adjournment of the Petition filed by the Respondent seeking enforcement of the foreign Award should not on these facts result in a striking off of the defence of the Appellant. The financial position of the Appellant, which has been declared a sick industrial company within the meaning of SICA is certainly a matter of relevance to the issue as to whether there was a wilful or contumacious failure to comply with the condition imposed by the Court.20. For these reasons, we are of the view that the order of the learned Single Judge directing that the defence of the Appellant be struck off requires to be set aside. While doing so, we direct that since the Appellant has failed to comply with the condition which was imposed by the learned Single Judge for adjourning the hearing of the Petition filed by the Respondent for the enforcement of the foreign Award, it would be open to the Respondent now to seek before the learned Single Judge an order directing that the Petition should be set down for hearing forthwith and should be heard expeditiously. We would request the learned Single Judge to do so on an early date subject to the exigencies of the Board.Now, it is a settled principle of law that an order for striking out pleadings cannot be passed as a matter of course merely because a party is in breach of a condition imposed by the Court. Striking out of pleadings is a matter of serious prejudice. When a defence is struck off the party whose defence is not to be taken into account, loses a basic right to defend itself in a proceeding. In Babbar Sewing Machine Co. vs. T.N. Mahajan (1978) 4 SCC 188  , while construing the power of the Court to dismiss the suit or to strike off a defence under Order XI Rule 21 of the CPC for a failure to comply with an order to answer interrogatories or for discovery or inspection of documents, the Supreme Court cautioned that "it does not follow that a suit can be lightly thrown out or a defence struck out without adequate reasons" At para 14 page 193 The test, as formulated by the Supreme Court was whether the default is willful. The Supreme Court held that "the stringent provisions of Order XI, Rule 21 should be applied only in extreme cases, where there is contumacy on the part of the defendant or a willful attempt to disregard the order of the court is established." (At para 15 page 193) The rule, the Court noted "must be worked with caution, and may be made use of as a last resort." (At para 16 page 193)