Current Affairs

Source: Calcutta High Court

Why in News?

Recently, Calcutta High Court observed that the Commercial Court has the power under Order XXXIX Rule 2A of Code of Civil Procedure, 1908 (CPC) to punish for contempt and implement its order under Section 9 of the Arbitration and Conciliation Act, 1996 (A&C Act), even after the Arbitral Tribunal's constitution.

• The HC gave this observation in the case of RKD Niraj JV & Ors v. Union of India & Ors.

What is the Background of RKD Niraj JV & Ors v. Union of India & Ors. Case?

• The petitioners (contractors/vendors) entered into a work agreement with respondent no. 2 (client/project owner) after succeeding in a tender process.
• As per the agreement, the petitioners executed three bank guarantees in favor of respondent no. 2.
• A dispute arose between the petitioners and respondent no. 2, leading to termination of the contract by respondent no. 2 on September 30, 2023.
• Respondent no. 2 invoked and encashed one bank guarantee worth Rs. 1,06,46,000/- on 25^th September 2023, through respondent no. 5 (Branch Manager, Punjab National Bank (PNB), Broad Street Branch).
• The petitioners approached the Commercial Court at Rajarhat under Section 9 of the A&C Act, seeking an injunction against invocation of the remaining two bank guarantees and an order to set apart the encashed amount of Rs. 1,06,46,000/-.
• The Commercial Court passed an ad-interim injunction restraining the respondents from invoking the remaining two bank guarantees but did not order to set apart the already encashed amount.
• Respondent no. 5 reversed the process and re-credited Rs. 5,64,00,000/- to the petitioners' account, while respondent no. 4 (Park Street Branch) proceeded with invoking the third bank guarantee for Rs. 5,56,52,128/-.
• The petitioners filed a writ petition seeking remittance of the amounts encashed by invoking the bank guarantees and reversal of the Non Performing Asset (NPA) classification of their account due to the invocation.
• The respondent contended before HC that petitioners' remedy lay under Order XXXIX Rule 2A of CPC before the court that took up the Section 9 application, and they cannot invoke the writ jurisdiction for implementation of the Commercial Court's order.

What were the Court’s Observations?

• The Calcutta HC observed that Section 9(1) of the A&C Act empowers the court which passed an order under Section 9 to make any order for the purpose of or in relation to any proceedings before it, on a co-equal footing as a civil court, to protect and implement its own orders, including taking measures under Order XXXIX Rule 2A of the CPC for contempt of its orders.
• Penal measures can be taken by the Commercial Court for violation, if any, of its order under Section 9 of the 1996 Act even after constitution of the Arbitral Tribunal, under Order XXXIX Rule 2A of the CPC.
• The petitioners cannot be granted the relief of directing respondents 2, 4 and 5 to deposit Rs. 1,06,46,000/- in their account, as the same relief was refused by the Commercial Court under Section 9 of A&C Act earlier.

What is Order XXXIX Rule 2A?

Consequence of disobedience or breach of injunction

• Attachment of Property and Detention:
  • Attachment of Property:
    • The Court may order the property of the guilty party to be attached.
  • Detention in Civil Prison:
    • The Court may order detention for a term not exceeding three months.
    • Release may occur if the Court directs so in the meantime.
• Duration and Consequences of Attachment:
  • Attachment Duration:
    • No attachment remains valid for more than one year.
  • Potential Sale of Attached Property:
    • If disobedience or breach persists after one year, attached property may be sold.
  • Compensation and Distribution of Proceeds:
    • The Court may award compensation to the injured party from the proceeds of the sale.
    • Any remaining balance shall be given to the entitled party.