Supreme Court Sets Aside Interim Relief In Arbitration Case Involving Pure Money Claim

The Supreme Court recently set aside a Calcutta High Court order directing escrow of payments arising out of a master service agreement, holding that in the facts of the case, where the dispute involved a pure money claim and there was no risk of irrecoverability, the High Court ought not to have granted interim protection after arbitration had been invoked.

A Bench of Justice Manoj Misra and Justice Manmohan held that in such circumstances, the High Court should have deferred to the arbitral tribunal.

The court observed, “In such circumstances, instead of proceeding to pass interim orders under Section 9 of the 1996 Act, the Division Bench ought to have regard to the provisions of sub-section (3) of Section 9 and left it for the arbitral tribunal to consider the prayer for interim measures in exercise of its powers under Section 17 of the 1996 Act. ”

The dispute arose from a contractual arrangement between A2Z Infraservices Ltd and Quippo Infrastructure Ltd for execution of a municipal service project awarded by the South Delhi Municipal Corporation.

Disputes later arose between the parties, leading to the A2Z terminating the master service agreement with Quippo. Arbitration was invoked, and claims and counterclaims were raised between the parties.

Before the arbitral tribunal could enter upon the reference, Quippo Infrastructure approached the Calcutta High Court seeking interim protection. It claimed that amounts payable to it under the terminated agreement were being withheld and sought a direction that payments received from SDMC be deposited into an escrow account.

A single judge declined interim relief. However, in appeal, a Division Bench of the Calcutta High Court set aside that order and directed A2Z Infraservices to deposit all future payments received from SDMC into the escrow account.

A2Z Infraservices then approached the Supreme Court of India, challenging the Division Bench's direction.

Allowing the appeal, the Supreme Court held that Quippo's claim was, at best, a claim for damages. It found no material to show that A2Z Infraservices lacked assets or could be treated as a “fly-by-night operator,” or that the amount would become irrecoverable if it was not placed in escrow.

In such circumstances, the court held that there was no justification for the High Court to grant interim protection by bypassing the arbitral tribunal. It observed that the High Court ought to have had due regard to Section 9(3) of the Arbitration and Conciliation Act and left the issue of interim protection to be considered by the arbitral tribunal under Section 17.

Allowing the appeal, the Supreme Court set aside the High Court's order and granted liberty to the parties to pursue appropriate remedies before the arbitral tribunal.

For Appellants: Advocate Anupam Kishore

For Respondents: Advocate Mithu Jain