SEPCO ELECTRIC POWER CONSTRUCTION CORPORATION  Vs POWER MECH PROJECTS LTD

FAO(OS) (COMM) 59/2020 Page 1 of 17
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI

Date of Decision:11.01.2021

+ FAO(OS) (COMM) 59/2020 & C.M . No.13545/2020

SEPCO ELECTRIC POWER CONSTRUCTION CORPORATION
….. Appellant
Through Mr.P.Chidambaram, Sr. Adv. with
Mr.Ranjit Prakash, Mr. Satvik Varma,
Mr.Anshuman Pande, Mr.Gaurav Lavania,
Mr.Tanveer Oberoi, Advs.

versus

POWER MECH PROJECTS LTD ….. Respondent
Through Mr. Arvind K. Nigam Sr. Adv . with
Mr. Dharmesh Misra, Mr. Siddhant Asthana & Mr.
Prateek Gupta, Advs.

CORAM :
HON’BLE MR. JUSTICE VIPIN SANGHI
HON’BLE MS. JUSTICE REKHA PALLI

REKHA PALLI , J (ORAL)

1. This is an appeal under Section 37 of the Arbitration and Conciliation
Act, 1996 (hereinafter referred to as ‘the Act’) preferred by SEPCO Electric
Power Construct ion Corporation against the judgment passed by the learned
Single Judge on 17.02.2020 in OMP(I)(Comm) 523/2017, which was the
Section 9 petition moved by the respondent/Power Mech to secure the entire
amount granted in its favour by the three -member arbitr al Tribunal by way
of the award dated 17.10.2017. The impugned judgment only decided
whether SEPCO was required to deposit the awarded amount before this
Court , as a pre -condition for having its challenge to the award under Section
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34 of the Act heard. For the sake of convenience, throughout this decision
the appellant and the respondent shall be referred to as SEPCO and Power
Mech respectively.
2. The facts re levant to decide this petition may be briefly noted at the
outset. To begin with, SEPCO is a Chinese construction company
specialising in thermal power plant projects and is a Chinese C entral
Government owned entity , registered in the Shandong Province, People’s
Republic of china. It has been engaged in the construction of several thermal
power plants in India; the dispute between the parties arises out of the
Talwandi Sabo thermal power plant project based in Mansa, Punjab bearing
a total power generation capacity of 1980 MW, comprising of three units
with a generating capacity of 660 MW each. SEPCO was the EPC contractor
engaged for the Talwandi project , where in Power Mech was the sub –
contractor engaged by it, for Erection works of the Boiler, TG and other
BOP systems. Disputes arose between SEPCO and Power Mech regarding
the delays occasioned in the ex ecution of these works. Consequently, their
dispute was referred for arbitration to a three -member Tribunal before which
Power Mech raised eight claims amounting to INR 227,68,34,427/ -. The
learned Tribunal passed an award on 17.10.2017 in favour of Power Mech
by holding SEPCO liable for the delays occasioned , and award ed a sum of
INR 142,41,14,499/ – in favour of Power Mech.
3. A challenge to the award on merits has been raised by SEPCO under
Section 34 of the Act vide OMP(Comm) 432/2017 which is presently
pending adjudication, whereas Power Mech preferred a petition under
Section 9 of the Act being OMP(I)(Comm) 523/2017; as noted above, the
judgment impugned herein was passed in the latter petition. Since Power
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Mech, by way of the Section 9 petition, was seek ing to secure the entire
principal amount awarded in its favour on 17.10.2017, several directions for
deposit of amount were passed in those proceedings in the period between
2017 and 2020. The deposits made /security created by SEPCO, in the form
of deposi ts and bank guarantees under orders of the Court may be
summarised as under:
a) A sum of INR 1,63,68,589/ – deposited on 01.09.2018
b) A sum of INR 50,50,113/ – deposited on 24.12.2018
c) A sum of INR 60,00,000/ – deposited on 25.03.2019
d) A bank guarantee for a sum of INR 30,00,00,000/ – issued by the
Industrial and Commercial Bank of China, Mumbai Branch on
22.03.2019 which is currently a subject of dispute being considered by
this Court in separate proceedings being FAO(OS)(Comm) 136/2019.
4. As noted hereinabove, the lim ited controversy decided by the learned
Judge in the impugned judgment was whether SEPCO’s challenge to the
award under Section 34 of the Act could be considered on merits at all,
without it securing the complete awarded amount. SEPCO, of course,
vehement ly opposed any direction for deposit of 100% of the awarded
amount as pre -deposit on the following four broad grounds (i) there is no
statutory provision within the Act which explicitly bars the consideration of
a Section 34 petition without securing the a warded amount, (ii) there have
been several instances in the past where the Court ha s direct ed deposit of
50% of the awarded amount, rather than 100% of it , (iii) SEPCO is solvent
and, thus, fully capable of satisfying the amount at a later date even if th e
Section 34 petition is dismissed upon final adjudicat ion and that , finally,
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(iv)the impugned award was prima facie perverse and the amounts granted
thereunder did not merit to be secured at all.
5. Per contra, Power Mech insisted on the pre -deposit on the following
three broad grounds; (i) the petitioner, being a company owned by the
People’s Republic of China, had no realizable assets in India to satisfy the
enormous amount due under the award, (ii) the direction for pre -deposit was
not a discretionary mea sure and had a statutory backing to it, which has been
established by past precedent , and that, (iii) SEPCO had been failing to
adhere to the directions for deposit which ha ve already been made by this
Court and showed its lack of bonafide s.
6. The learned S ingle Judge considered the rival contentions of the
parties and passed the impugned order on 17.02.2020; the relevant extracts
of her findings read as under:
“28. The contention of Mr. Arvind Nigam, learned senior
counsel for the respondent in the opinion of this Court has merit.
While it cannot be said as a principle of law that there is a
mandate that in every case the Court must insist on a 100%
deposit, before hearing a petition under Section 34 of the Act or
before staying the enforcement of the Award, as the amount of
deposit would depend on the facts of the case and is in the
discretion of the Court hearing the petition, Mr. Nigam is correct
in his submission that the circumstances and the facts of the
present case warrants that the petitioner should be directed to
deposit the principal amount awarded to the respondent before
the petitioner is heard on merits. The chronology of facts of this
case reveals that the petitioner in fact does not have any
immovable assets in India. Though the petitioner had filed an
affidavit that it has ongoing projects in India, which of course
was rebutted by the respondent, but -in the opinion of this Court
even if the projects are ongoing, for the sake of arguments, that
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cannot be accepted as a security which would ensure that the
Award would be enforceable. Much has been argued on the
valuation report with regard to certain machinery and other
assets lying at the project site of the petitioner. This Court does
not think it appropriate at this stage to go into the disputed
questions on the valuation of the machinery. Suffice would it be
to state that in terms of the law laid down by the Supreme
Court, more particularly in case of Hindustan Construction
Company Limited (supra), the machinery for whatever it is
worth, cannot be taken as a solvent “security, since the Award
to be treated as a money decree and cannot be secured by
moveable assets such as plant and machinery. This Court is not
delving into the issue of the money due to the petitioner under
the Settlement Agreemen t with BALCO since the said
settlement is irrelevant to the present case. Whether Or not the
petitioner takes steps to realize the money due to it from
BALCO is not the concern of this Court in securing the present
Award.

xxx

32. While it is true that in some of the orders shown by the
learned senior counsel for the petitioner, co -ordinate Benches of
this Court have, been directing a deposit of 50%, but going by
the recent judgments of the Supreme Court as well as the fact; of
the present case, I am of th e opinion that the petitioner must
deposit 100% ,of the awarded amount of Rs. 142 Crores
(principal amount) to secure the respondent.

33. Since the petitioner has already furnished BG of Rs.30
Crores and has deposited a further amount of Rs.2.74 Crores,
the said amount would be adjusted and the balance amount from’
Rs.l42 Crores will be deposited by the petitioner with the
Registry of this Court within a period of four weeks from today.
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With the aforesaid directions, the present petition is hereby
disposed of along with all the pending applications. ”
(emphasis supplied)

7. Assailing this judgment, Mr. P. Chidambaram learned senior counsel
for SEPCO has primarily raised two contentions; the first being, it is a
settled principle of law that any direction for pre-deposit under Section 9 of
the Act ought to be made in the light of a proper appreciation of the financial
health of the entity who would be liable under such a direction. He submits
that although the learned Single Judge has recorded the submissions o f
SEPCO pertaining to its strong financial health and liquidity, the same were
given a go -by at the time of rendering its findings . SEPCO is an entity
owned by the Government of People’s Republic of China and is an affiliate
of the Power Construction Corpo ration of China which is a Fortune 500
entity. Being a thermal power plant specialist, SEPCO is one of the largest
players in the thermal power plant construction field. Till date, SEPCO has
been involved in the construction of over 685 power generation un its since
its inception in 1952. He submits that SEPCO’s participation in Indian
power -generation projects began in 1998 and is, as on date, engaged in the
construction of four coal -based power plant generation projects. In fact, its
contender in these pro ceedings, Power Mech is its subcontractor in a few of
the concurrent projects which are presently in construction. He, thus submits
that all of these facts, which are easily verifiable from the record, show that
SEPCO is no fly -by night operator , and has a dequate commercial footing in
the country. He further submits that against this background position, there
is absolutely no basis for any apprehension on the part of Power Mech ,or
this Court , with respect to SEPCO’s bonafide or its ability to satisfy the
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award amount. He submits that SEPCO’s primary grievance with respect to
the direction for deposit is stemming from the fact that the principal amount
liability of INR 142,41,14,499/ – under the award, being a substantial sum, if
required to be paid by way o f deposit or Bank Guarantees at this stage
would adversely impact its overall liquidity and , therefore , cause snags in its
presently pending construction projects which demand regular cash inflow.
He submits that no such direction for deposit of the entire principle awarded
amount could have been made by the learned Single Judge , without
considering the relevant factors pointed out by SEPCO at the time of
arguments.
8. Mr. Chidambaram further submits that the impugned judgment
proceeds on the erroneous presum ption that the decision in Hindustan
Construction Company Limited Vs. Union of India (2019) SCC Online SC
1520 contains a fleeting mandate to direct deposit of 100% awarded amount
in all cases involving a challenge to an award under Section 34 of the Act.
He submits that the decision merely reiterates the need to secure the
awarded amount to ensure that the fruits of arbitration do not stand
compromised at the time of enforcement , and all Section 9 proceedings
instituted post arbitration serve as a step -in-aid of that purpose. However,
considering that the financial health of SEPCO is sound and adequately
secured as on date, there is no question of the awarded amount being
unsecured as on date. He submits that , in fact, any directions for deposit of
the entire awarded sums, on a misinterpretation of the decision in Hindustan
Construction (supra), would be an excessive step against SEPCO, not a step
in aid of enforcement of the award.
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9. Lastly, Mr. Chidambaram submits that Power Mech had attempted to
mislead the learned Single Judge into believing that SEPCO had acted in an
improper manner by accepting payments in its off -shore bank accounts to
avoid complying with the directions passed on 27.04.2018, which in
substance required SEPCO to deposit 10% of the amount s deposited in its
Indian bank accounts before this Court every fifteen days in order to secure
the awarded amount. He submits that this was merely a bald assertion by
Power Mech which remained completely unsubstantiated by any evidence
and could not be ta ken into account at all.
10. On the other hand, Mr. Arvind Nigam, learned senior counsel for
Power Mech supports the findings of the learned Single Judge by contending
that the same suffer from no infirmity and are based on a correct
appreciation of the facts on record. He submits that all claims of sound
financial health made by SEPCO fall flat in the face of the findings of the
Court -appointed Valuer who had examined the assets of SEPCO which were
present within the territory of India. While SEPCO, in its af fidavit before
this Court , had claimed having immovable and movable assets worth INR
92.67 crores comprising of furniture, electrical fitting, plant and machiner ies
including cars, computers and software, and books within the territory of
India, the Valuer had estimated the same to be worth I NR 20 crores. Even
the machineries held in India have been overestimated in value by SEPCO
which has claimed it as one of its assets, when in reality they are in a junk
condition, unfit to even fetch the cost of scrap a nd cannot be regarded as an
asset in any respect.
11. Mr. Nigam draws our attention to the cycle of events which ensued
following the passing of the order dated 24.07.2018. On that date SEPCO
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had pleaded before this Court that it was executing several high va lue
construction projects in the country which were likely to yield significant
receivables in the bank accounts which were mentioned in its affidavit of
assets dated 02.01.2018. The Court had, thus, directed SEPCO to make
deposits of 10% of the receivable s deposited in these accounts every fifteen
days, but SEPCO began the practice of receiving all amounts in its off -shore
accounts in order to bypass the directions of this Court. This led to a
complete failure on SEPCO’s part to meet its obligations under the
directions of this Court, which in itself is proof of the fact that SEPCO is
incapable of meeting its liabilities under the award. He further submits that
insofar as the remaining contentions of SEPCO are concerned, the learned
Single Judge did not at all misinterpret the decision in Hindustan
Construction Limited (supra) at all, but only relied on the same to draw
attention to the important function served by pre -deposit directions , in
principle, especially in post award situations. However, since the entire case
of SEPCO relies entirely on its own financially sound position in India,
which stands sufficiently rebutted, there is absolutely no merit in this appeal
preferred by SEPCO. He, thus, prays for this appeal to be dismissed with
costs.
12. We have c onsidered the submissions of the parties and perused the
record, including the judgment impugned herein.
13. What emerges is that the parties are ad idem to the extent of the
general principle apropos a direction for pre -deposit in proceedings for
interim rel iefs instituted pursuant to the making of an arbitral Award for
money, and that the same can be made in order to ensure that the amounts
awarded in arbitration are secured for the purpose of enforcement. It appears
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that SEPCO is, however, aggrieved that th e learned Single Judge has
proceeded to pass the impugned order without dealing with its contentions
that this was not a case which necessitated the issuance of directions for any
sort of deposit of the awarded amount, much less 100% of the principle
award ed amount . An ancillary grievance arising therefrom is that its
submissions pertaining to its ability of satisfying the liability arising under
the award, were not duly considered by the learned Single Judge while
passing the impugned judgment . The second primary grievance raised by
SEPCO in this appeal is that the findings in the impugned judgment are
based on a misinterpretation of the decision in Hindustan Construction
(supra ) to arrive upon the erroneous conclusion that the decision mandated
100% deposi t of awarded amount by the judgment debtor in all cases.
14. During arguments, extensive submissions have been made on behalf
of SEPCO regarding its sound financial health and its genesis as a
Government -owned entity of the People’s Republic of China, its pas t
projects and its market reputation as a testament to this averment. In its
sworn affidavit filed before the Court on 02.01.2018 in the proceedings
under Section 9 of the Act , it even claimed to have movable and immovable
assets within the territory of In dia worth INR 92.67 crores which included
furniture, electrical fittings, plant and machinery, cars, computers and
software, and books. However, notwithstanding the veracity of this
valuation, a prima facie consideration of the same itself reveals that the
purported value of these assets claimed to be held by SEPCO in India , even
as per its own estimates, is significantly less than the amount of INR
142,41,14,499/ – required to be secured for the purpose of enforcement .
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15. We also find that , even in the initia l stages of the Section 9
proceedings, SEPCO had repeatedly asserted its sound financial health
before the Court and, to that effect, went on to submit that it was regularly
receiving monies in its Indian bank accounts as receivables from the projects
it was engaged in at the time, as proof of its liquidity. This was the basis of
the order passed on 27.04.2018 by the Court directing SEPCO to deposit
10% of the amounts received in these accounts every fifteen days with the
Registry , until the sums required t o be secured stood deposited. However,
since the affidavit dated 02.01.2018 filed by SEPCO had failed to set out the
exact particulars and location of the assets it claimed to have, it was required
to furnish an additional affidavit furnishing these detail s as well. The
relevant extracts of the order passed on 27.04.2018 read as under:
“1. I have been taken through the affidavit dated 2.1.2018, filed on
behalf of the Sepco Electric Power Construction Corporation
(‘SEPCO’). This affidavit, it appears, has be en wrongly filed in
O.M.P. (COMM) 432/2017, which is listed as item no.30 on my
Board, today.

2. A perusal of paragraph 4 of the affidavit shows that SEPCO
claims that it owns immovable and movable assets, such as,
furniture, electrical fittings, plant an d machinery including cars
and computers, softwares, books, etc. worth Rs.92.67 crores
approximately.

2.1 What is, however, not disclosed in the affidavit is the exact
particulars and the location of these assets.

xxx

7. As indicated above, the affidav it filed on behalf of SEPCO does
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not inspire confidence at least not at present that it has sufficient
resources available at its command to satisfy the award if it were to
fail in its challenge to the same.

7.1 Therefore, for the moment, SEPCO is directe d to do the
following: –
(i) SEPCO will disclose the exact particulars and the
location of the assets mentioned in paragraph no.4 of its
affidavit dated 2.1.2018.

(ii) 10% of the amount available in the bank accounts
referred to in paragraph no.5 of th e very same affidavit, as
on 24.7.2018, shall be deposited with the Registry of this
Court. Furthermore, deposits, if any, made hereafter in the
said accounts to the extent of 10%, will also be deposited
with the Registry of this Court every 15 days.

(iii) Liberty is, however, given to SEPCO to seek variation of
the direction contained in Clause (ii) above, if security worth
Rs.142 crores is furnished to the Court favouring PMPL.

(iv) The affidavit, as directed above, will be filed within one
week from today.”

16. A cursory reading of this order shows that even this direction for
deposit given by the Court which required SEPCO to deposit the amount in
gradual deposits, instead of the entire sum in the form of a lump sum, was a
form of accommodat ion made fo r SEPCO by the Court; thus granting it time
to secure the total principal award amount of INR 142,41,14,499/ -. Yet, over
the subsequent months , SEPCO failed to make the deposits as required
which is a matter of record . Only a small amount of Rs.2.74 cror es has
been deposited towards 10% of the contractual receipts. Therefore, if
SEPCO is to be believed that it has not diverted its receivables in India
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overseas, it has received only about Rs.27 crores in India in over 2 ½ years.
This itself belies the claim of SEPCO that it has large ongoing projects in
India with huge receivables. Else, it points to diversion of receivables in
India to overseas locations. In either case, this raises various doubts about
the bonafides and the intentions of SEPCO to h onour the Award, in the
eventuality of its objections thereto being dismissed.
17. Thereafter on 10.09.2018, in the light of SEPCO’s apparent failure to
secure the awarded amount, the Court passed another interim order
appointing M/s P.N. Chopra & Co. as the Valuer, this time with the purpose
of ascertaining the realisable value of the assets of SEPCO in the country,
notwithstanding its own claims in the affidavits dated 02.01.2018 and
18.08.2018. The Valuer furnished its report on 23.10.2018 after conducting
a thorough analysis of SEPCO’s assets which were mentioned in its two
affidavits and estimated the true value of the same at INR 20 crores at the
time. Thus, the summary of the Valuer’s findings even at that stage, echoed
the observations of the Court as contained in paragraph 7 of its order dated
27.04.2018, in that the value of SEPCO’s assets failed to inspire any
confidence in its financial capabilities. The position at the time of the
passing of the impugned judgment, i.e. 17.02.2020, had not changed m uch
and the total amount deposited by SEPCO, barring the bank guarantees
submitted, stood at approximately INR 2. 70 crore. This amount, evidently, is
barely a fraction of the total principal amount of INR 142,41,14,499 /-
payable under the award. Over and a bove that amount, the interest is also
awarded, and is mounting. As things stand today, a major portion of the
amount accruing to Power Mech under the award stands unsecured.
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18. In response to Power Mech’s contention that SEPCO was deliberately
diverting pa yments, being made for its ongoing projects, to its offshore bank
accounts from its Indian ones , SEPCO has contended that these are baseless
assertions as the payments received in the off -shore accounts are receivables
from off -shore projects . But we find that SEPCO has not offered any
explanation as to why its Indian Bank accounts, assured to be in regular
receipt of receivables from its ongoing construction projects, dried up and /or
were insufficient to satisfy the directions for deposit. We also cannot l ose
sight of the lin e of argument adopted by SEPCO before this Court to the
effect that depositing the principal amount liability of INR 142,41,14,499/ –
under the award, being a substantial sum, is likely to have an adverse impact
on SEPCO’s liquidity and cause snags in its presently pending construction
projects. Were SEPCO as financially capable of securing the awarded
amount from its assets in India , as it claims, the same would have been
reflected either in the report furnished by the Valuer or in its a ctions , in
complying with the orders of this Court. Unfortunately, mere market
presence or commercial standing is not sufficient on its own for SEPCO to
establish that it has enough financial resources in India to satisfy the amount
payable under the award in case it fails in its Section 34 challenge to the
same, especially in the absence of any documentary evidence or judicially –
compliant action in support thereof . The claim of SEPCO that it is a
Government company of the Peoples Republic of China, or th at it is a part of
a fortune 500 company is no solace to the respondent, since it cannot be
expected to chase SEPCO around the globe to recover its dues under the
Award in question.
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19. Moving on to the submissions made on the grounds of law, SEPCO
has con tended that the impugned judgment suffers from a misinterpret ation
of the decision in Hindustan Construction (supra) to arrive upon the
decision to direct 100% deposit of the awarded amount. We have carefully
considered th at part of the impugned judgment , which dealt with this aspect ,
and find that this contention arises out of SEPCO ’s own failure to appreciate
the reason for which the decision in Hindustan Construction (supra) had
been invoked in the first place. As noted previously, a primary ground
adopte d by SEPCO in the Section 9 petition was that the award, which had
already been challenged by it in OMP(Comm) 432/2017 under Section 34 of
the Act, was so perverse and bereft of reason that it was unlikely to
withstand the scrutiny of the Court. For this r eason, SEPCO had claimed
that it was all but sure of succeeding in its Section 34 challenge and,
therefore, any direction to secure the awarded amount was a mere formality
which could be done away with, especially since the same involved an
enormous amount . The learned Single Judge, in response to this line of
argument, invoked the ratio of the decision in Hindustan Construction
(supra) to reiterate a few principles that form the settled legal position today ,
viz. (i) mere institution of Section 34 proceed ings do not warrant automatic
stay of the award sought to be impugned, (ii) any decisions which lay down
otherwise are per incuriam, and that (iii) a stay is a creature of a judicial
decision, which can be made at the discretion of the Court and made subje ct
to certain conditions like those passed at the time of granting a stay on a
money decree. In effect, th e learned Judge sought to make it clear to
SEPCO , that any of its submissions on the perversity of the award could
only hold water before the Court de aling with the Section 34 petition , and its
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simple act of filing a Section 34 petition , neither nullified the principles
espoused by the scheme of the Act , nor dissolved the duty of the Court, in
post-arbitration Section 9 proceedings, to secure the amount under the
award. Another key point that we would like to add here is that a Court
exercising jurisdiction under Section 34 of the Act wields a limited scope of
interference , which means that the award remains binding for all intents and
purposes until it is tested against certain parameters within the limited scope
of Section 34 . So, in the present case, when the award dated 17.10.2017 is
yet to be put to such a test, SEPCO cannot attempt to shrug off its liabilities
thereunder. For these reasons, we are in complete agreement with the
interpretation of the learned Single Judge of the decision in Hindustan
Construction (supra) , and find absolutely no infirmity in the manner in
which the same was applied in the impugned judgment.
20. The contention of SEPCO that deposit /security of the Awarded
amount, or any part thereof is not mandatory in all cases cannot be disputed.
It would need examination on a case by case basis as to what arrangement
should be worked out by the Court to secure the Awarded amount. In thi s
regard, the learned Single Judge , in the impugned judgment has considered
and, we too have considered , the matter hereinabove . Considering the fact
that SEPCO is a foreign entity having negligible assets within the
jurisdiction of this Court , or even wit hin the territory of India , as confirmed
by the report of the Valuer dated 23.10.2018, it is of utmost import and
urgency to secure the amounts awarded in arbitration to prevent the
possibility of rendering the enforcement proceedings a farce . Not to
menti on, the interest component of the award, as on date, has escalated to a
sum of INR 50,00,00,000/ -, to secure which no directions have been passed
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in the impugned order. Add to that SEPCO’s inability to comply with
previous directions of deposit, or overall failure in satisfying the Court of its
financial health, the learned Single judge found this to be a fit case to direct
deposit of 100% of the principal awarded amount and, in our opinion ,
rightly so. It is the bounden duty of this Court in these proceedi ngs to protect
the enforceability of the award and pass directions which are intended to
ensure that the judgment debtor cannot evade payment under the award in
case the objections raised by it under Section 34 of the Act are ultimately
dismissed.
21. In the light of the aforesaid, we find absolutely no reason to interfere
with the discretion exercised by the learned Single judge while passing the
impugned judgment. The appeal, being meritless, is dismissed with no order
as to costs.

REKHA P ALLI, J

VIPIN SANGHI, J

JANUARY 11, 2021
gm
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