Bombay High Court: Under A&C Act, Court's Jurisdiction Limited To Arbitrary And Perverse Orders

Bombay High Court: Under A&C Act, Court's Jurisdiction Limited To Arbitrary And Perverse Orders

The single-Judge bench had earlier denied the appellant's request stating that the termination was not as per the sub-contract

The Bombay High Court has held that the appellate jurisdiction under Section 37 of the Arbitration and Conciliation (A&C) Act, 1996, is limited to cases where the lower Court's order was arbitrary, capricious, perverse, or ignored settled legal principles on interlocutory injunctions.

The division bench of Justice A.S. Chandurkar and Justice Rajesh S. Patil clarified that Section 37 allowed appeals against specific orders related to arbitration, including refusal to refer to arbitration, measures under Section 9, and decisions on arbitral awards under Section 34.

The appellant, Halliburton Indian Operations Pvt Ltd (appellant) won a tender from the Oil and Natural Gas Corporation (ONGC) and entered a contract to charter hire a stimulation vessel for Mumbai Offshore for three years.

Halliburton further subcontracted the work to Vision Projects Technologies Pvt Ltd (respondent), which agreed to provide necessary services using its Platform Supply Vessel (PSV). It was to be converted into a Well Stimulation Vessel (WSV) by adding specialized equipment. Halliburton was responsible for installing, maintaining, and eventually removing this equipment at its own cost.

Later, the Directorate General of Shipping notified a change in law, restricting Offshore Support Vessels (OSVs) from carrying hydrochloric acid unless reassessed and certified under the Offshore Service Vessel Chemical Code.

Initially, an exemption was granted to the vessel for ONGC use, but later it required the installation of lifeboats by 31 March 2023.

Since further extensions were not granted, Vision Projects invoked the force majeure clause on 03 April 2023.

Halliburton also invoked the force majeure clause under the main contract and the sub-contract, but on 15 May 2023, Vision Projects rejected the invocation.

Because of the refusal to extend the compliance time beyond 31 May 2023, the vessel was docked at the port on 01 June 2023.

Subsequently, Halliburton issued a termination notice to Vision Projects.

While ONGC rejected Halliburton's force majeure invocation, Vision Projects reiterated the rejection. It stated that Halliburton was liable for charter payments from June 2023 until the equipment was removed.

In March 2024, Halliburton filed a petition before the commercial Court under Section 9 of the A&C Act. It sought interim relief to remove its equipment from the vessel and restraining Vision Projects from cold laying the vessel.

However, the single-Judge bench denied Halliburton's request. It stated that the termination was not in accordance with Clause 6.1 of the sub-contract and that the relief sought was in the nature of final relief.

Aggrieved by the denial of interim relief by the single-Judge bench, Halliburton appealed before the Bombay High Court under Section 37 of the A&C Act.

Halliburton contended that the lack of an extension from the Directorate General of Shipping necessitated invoking the force majeure clause. Since Vision Projects did not challenge the termination, the former was justified in seeking interim measures.

The appellant cited the decision of the Supreme Court in the Indian Oil Corporation Ltd. vs. Amritsar Gas Service and Others [1991) 1 SCC 533] case. It argued that the action of termination would not fall even if a shorter notice period was given. Halliburton emphasized that no activities were conducted since 01 June 2023. Therefore, it was reasonable for Halliburton to remove its equipment.

Halliburton added that the vessel could not meet the Directorate General of Shipping's requirements, necessitating the invocation of the force majeure clause. It terminated the sub-contract with Vision Projects, providing 15 days' notice instead of the 90 days as stipulated in the sub-contract. Justifying the move, the appellant contended that the short notice could be monetarily compensated, which was a matter to be adjudicated in arbitration.

On the other hand, Vision Projects submitted that the scope of the appeal was limited and that the interim measure sought was essentially a final relief, which was rightly denied by the single-Judge bench. It stated that the termination notice was defective due to insufficient notice period, and Vision Projects had a possessory lien (security interest) on the vessel until the dues were paid. The defendant also mentioned that allowing the equipment removal would place it at a disadvantage in recovering its dues.

The defendant stated that it owed dues from Halliburton from 01 June 2023 onwards, as it maintained the vessel and specialized equipment. It had, therefore, incurred related expenditures including Goods and Services Tax (GST) liabilities.

Vision Projects reiterated its rights as a bailee under Sections 148 and 170 of the Contract Act, 1872, claiming it could retain the equipment until dues were settled. However, Halliburton disputed this, stating that Vision Projects had no bailment rights over the specialized equipment since no services were rendered.

Justice Chandurkar and Justice Patil observed that Halliburton sought permission under Section 9 of the A&C Act to remove its equipment from Vision Project's vessel, but the single-Judge bench viewed this as a request for final relief, which was inappropriate for interim measures.

Thus, the bench held that Halliburton's appeal was against the exercise of discretionary jurisdiction under Section 9 of the A&C Act. According to established legal principles, the appellate Court should not interfere with the lower Court's discretion unless it was exercised arbitrarily, capriciously, or perversely, or if the lower Court ignored the settled legal principles governing interlocutory injunctions.

The Court noted that the decision of the single-Judge bench was reasonable and not perverse. The disputes regarding contract termination, force majeure invocation, and financial liabilities were issues for arbitration. The vessel had not been in use since 01 June 2023 due to non-compliance with shipping regulations. Therefore, in arbitration, the monetary rights of both entities could be resolved.

The Judges expressed that there was no exceptional reason to interfere with the decision of the single-Judge bench under Section 37(1)(b) of the A&C Act. They noted that the single Judge's observations were limited to the interim measure context and would not prejudice the arbitration.

Thus, the Court dismissed the commercial appeal filed by Halliburton.