COMMERCIAL ARBITRATION PETITION (L) NO. 3702 OF 2023

23rd March 2023

Petitioner Counsel: Mr. Rohaan Cama, Ms. Kavisha Shah, Mr. Anish Karande, Mr. Hamza Lakhani, India Law Alliance
Respondent Counsel: Ms. Soumya Priyadarshinee, Ms. Kritika Sethi, Mr. Mitesh Jain
Act Name: Code of Civil Procedure, 1908 Customs Act, 1962 Specific Relief Act, 1963 Arbitration and Conciliation Act, 1996

Section :
Section 108 Customs Act, 1962 Section 14(d) Specific Relief Act, 1963 Section 9 Arbitration and Conciliation Act, 1996

Cases Cited :
Para 18: Jabed Sheikh Vs. Taher Mallik, AIR 1941 Cal 639
Para 18: S. Milkha Singh Vs. N.K. Gopala Krishna Mudaliar, AIR 1956 Punj 174
Para 18: Iron and Hardware (India) Co. Vs. Firm Shamlal and Bros., AIR 1954 Bom 423
Paras 18, 23: Gangotri Enterprises Limited Vs. Union of India and Ors. (2016) 11 SCC 720
Para 19: Chetan Iron LLP Vs. NRC Limited. 2022 SCC OnLine Bom 159 : (2022) 2 AIR Bom R 225
Para 19: JWR Steel Limited Vs. Bellary Oxygen Company Pvt. Ltd. and Anr. Comm. Arb. Appln. No.131 of 2022

JUDGEMENT

1. By consent of parties, Arbitration Petition is taken up for final hearing. By the present Commercial Arbitration Petition, Petitioner seeks interim reliefs under Section 9 of the Arbitration and Conciliation Act, 1996 (for short “the said Act”), inter alia, seeking release of its goods / shipments withheld by Respondent in its warehouse at Mumbai.

2. Petitioner is a limited Company engaged in the business of trading, export and logistics of goods based in Hong Kong. Respondent is a Company which owns a warehouse unit situated in FTWZ formed under the SEZ Act, 2005 in Mumbai. Petitioner approached Respondent for availing its warehousing services. Parties entered into Service Agreement dated 21.06.2022.

3. Clause 5.6 of the Service Agreement stipulated deposit of Rs.1,00,000/- (Rupees One Lac only), as Refundable Security Deposit. However, post execution, Respondent demanded 10,000 USD under the pretext of Company Policy vide email dated 01.07.2022. Petitioner transferred 10,000 USD towards Refundable Security Deposit to Respondent. This is not in dispute.

4. In August, 2022, Petitioner shipped 3 containers / consignment of goods from its Dubai warehouse to India and raised 3 Bills of Entry Nos. 1014255, 1014266 and 1014270, all dated 09.08.2022. These 3 consignments are collectively referred to as the “first tranche” of consignment. First tranche was received and stored by Respondent in its warehouse for onward transmission. The purchaser on inspecting the goods found them to be different than those mentioned in the invoices and therefore cancelled the purchase IDs. Goods were placed on hold. Respondent received a notice from Custom Authorities for inspection / investigation of goods. On examination, it was found that misdeclared / prohibited / restricted goods were imported as against the invoices raised and hence the authorities proceeded with appropriate action under Section 108 of the Customs Act, 1962.

5. Respondent alleged that its image and reputation was maligned by Petitioner’s act of shipping wrong goods, and hence it terminated the Service Agreement.

6. In the meanwhile, 7 containers / consignments shipped by Petitioner were in transit. Correspondence ensued between parties. Petitioner furnished undertaking to Respondent that the cargo in the 7 consignments was as per the invoices raised and requested Respondent to accept / receive the goods and store them in its warehouse until release. These 7 consignments are collectively referred to as the “second tranche”. The second tranche was cleared by the Custom Authorities.

7. In the correspondence that ensued between parties, Respondent sought deposit of 1,50,000 USD as Security Deposit in respect of any potential action / claim for damages in respect of the first tranche (which was under investigation) and only on that condition, agreed to release the second tranche to Petitioner’s purchasers.

8. At this stage it is pertinent to note the value of the goods in the two tranches. First tranche is valued at 1,31,053.50 USD and second tranche is valued at 4,18,633.08 USD. Admittedly receipt of goods in both tranches are unrelated to each other. Goods are electronic devices and claimed to be perishable / deteriorate by Petitioner.

9. Petitioner sought immediate release of one out of the 7 consignments in the second tranche where order had already been placed. Petitioner agreed to pay 50,000 USD in two installments to secure the Respondent. On 01.10.2022 it transferred 15,000 USD and on 10.10.2022 transferred another 35,000 USD.

10. Petitioner also sought reduction of the Security Deposit from 1,50,000 USD to 75,000 USD in reply to Respondent’s letter dated 04.10.2022. Though Petitioner sought immediate release of 2 other consignments out of 7 consignments in the second tranche, on 21.12.2022, Respondent released one consignment to the customer of the Petitioner. Petitioner found that goods were missing in this consignment and has raised a grievance separately with Respondent. Petitioner has also raised grievance for causing loss in respect of not releasing the other / second consignment as per its due date and causing loss to Petitioner.

11. On 10.01.2023, Respondent addressed a letter to Petitioner, demanding 1,50,000 USD as Security Deposit and claimed potential loss due to mental harassment, disrepute and revenue loss for the first time.

12. By this time, admittedly Respondent was holding the following:-
(i) 10,000 USD – Original Security Deposit (paid in June’ 2022);
(ii) 50,000 USD – Additional Security Deposit (paid in October’ 2022);
(iii) 1,31,053.30 USD – Value of goods in the first tranche;
(iv) 4,18,633.08 USD – Value of goods in the second tranche (except release of 1 consignment on 21.12.2022).

13. Respondent refused to release the second tranche and withheld it as security due to the pending investigation by Custom Authorities in respect of the first tranche against a potential claim of damages / penalty, mental harassment, disrepute etc. and exercised a general lien over the second tranche.

14. Hence the present Petition.

15. It is seen that consignments in respect of the second tranche were in transit and were received by Respondent and are now withheld by Respondent.

16. According to Respondent, if Petitioner desires release of the second tranche, Petitioner would have to deposit an amount of 1,50,000 USD for securing the Respondent against any potential futuristic actionable claim for damages in respect of the first tranche.

17. It is argued on behalf of Petitioner that all payments under the contract / bills of lading, inter alia, pertaining to consignments received under the second tranche have been duly paid. Necessary indemnity has also been filed with Respondent. According to Petitioner, Respondent has withheld goods under second tranche and insisted upon payment of an amount of 1,50,000 USD in view of the pending custom proceedings in respect of the goods in the first tranche.

18. At the outset, Mr. Cama learned Advocate for Petitioner, has drawn my attention to the Service Agreement dated 21.12.2022 which is at Exh.B, page No.69 to the Petition. He has referred to the following clauses in the Service Agreement:-
(i) Clauses 3.4, 8.1 and 8.2 of the Service Agreement, when read together, would mean that Petitioner is only required to / liable to indemnify the Respondent in the manner stated therein i.e. Petitioner is required to furnish the indemnity to the Respondent by undertaking to pay all expenses of examination, penalty and fine, if any, imposed by the Custom Authorities in respect of consignments received;
(ii) Under clause 5.5 of the Service Agreement, Respondent is entitled to retain and withhold goods received in its warehouse only in the event of default on the part of Petitioner in making of payment of service / storage charges; that in the present case there has been no default on the part of Petitioner in payment of service / storage charges; that the said clause does not refer to Petitioner requiring to make payment of any Security Deposit in excess of Rs.1,00,000/- (Rupees One Lac only), which is now demanded by Respondent;
(iii) that under clause 14 of the Service Agreement it is stated that in the event of all timely payment having been made, Respondent shall have no lien on the Petitioner's goods;
(iv) that under clause 5.6, Refundable Security Deposit stipulated is Rs.1,00,000/- (Rupees One Lac only), whereas Petitioner has already paid 60,000 USD as Security Deposit to Respondent to secure Respondent’s claim.

18.1. He has next drawn my attention to the letters dated 29.08.2022 at Exhibit - ‘K’, page Nos.92 and 93 of the Petition which are Indemnity letters issued by Petitioner's in accordance with clauses 3.4, 8.1 and 8.2 of the Service Agreement indemnifying the Respondent.

18.2. In view of the above, he would submit that Respondent cannot have a general lien on the Petitioner's goods received under the second tranche namely the seven consignments and call upon the Petitioner to furnish any additional security to Respondent for a potential damages claim for loss and mental harassment in respect of goods which are under investigation by the Custom Authorities under the first tranche, wherein proceedings under the Customs Act are pending. He would submit that claim of Respondent seeking to retain Petitioner's goods as security on account of, inter alia, purported ‘loss of reputation and revenue losses’, ‘mental harassment’ and ‘to protect itself from potential losses and penalties’ is contrary to the terms of the Service Agreement between parties.

18.3. In the alternative he would submit that Respondent's claim is purportedly a futuristic claim of damages and does not relate to any debt in presenti payable to Respondent by Petitioner nor there exists any crystallised pecuniary liability due and payable by Petitioner to Respondent. Hence, in that view of the matter, under the Service Agreement, Respondent cannot withhold and detain Petitioner's goods in the second tranche, save and except as provided in the Service Agreement which admittedly is not the case. He would submit that Respondent has not invoked arbitration for seeking additional Security Deposit amount for securing its potential claim for damages, loss, mental harassment against the Petitioner.

18.4. That apart, he has made two further submissions which I find extremely relevant namely;
(i) Petitioner's electronic goods received in the second tranche under the seven consignments are perishable electronic goods which would rapidly deteriorate over time; and
(ii) that under the Service Agreement though the Security Deposit stipulated therein is Rupees One lac only, Petitioner has in excess thereof deposited an amount of 60,000 USD with Respondent towards Security Deposit. That apart, Respondent is already holding goods valued at approximately 1,31,053 USD (value of goods in first tranche) which are also a form of security. He would submit that there is no stipulation in the Service Agreement whereby Respondent can withhold and retain Petitioner's goods and have a general lien on them for an uncrystallized potential claim.

18.5. Hence, he has pressed for release of the goods received under the second tranche, considering that Respondent is already reasonably secured and conditions in the Service Agreement having been complied with in all due respects to secure the Respondent by furnishing the indemnity to Respondent.

18.6. In support of his above propositions, Mr. Cama has referred to and relied upon the following decision of the Supreme Court in the case of Gangotri Enterprises Limited Vs. Union of India and Ors. (2016) 11 SCC 720. He has drawn my attention to Paragraph No.37 of the said decision which is relevant regarding assessment and consideration of a potential claim for damages before adjudication. Paragraph No.37 is reproduced hereunder:-
“37. Their Lordships in Raman Iron Foundry Case approved the view taken by Chagle, C.J. in Iron and Hardware (India) Co. v. Shamlal and Bros. By observing in para 11 as under: (Roman Iron Foundry Case, SCC p.244-45, paras 11-12)
“11. … The same view has also been taken consistently by different High Courts in India. We may mention only a few of the decisions, namely, Jabed Sheikh v. Taher Mallik, AIR 1941 Cal 639 S. Milkha Singh v. N.K. Gopala Krishna Mudaliar, AIR 1956 Punj 174 and Iron and Hardware (India) Co. v. Firm Shamlal and Bros., AIR 1954 Bom 423. Chagla, C.J. in the last mentioned case, stated the law in these terms: (SCC OnLine Bom : AIR pp. 425-26)
‘… In my opinion it would not be true to say that a person who commits a breach of the contract incurs any pecuniary liability, nor would it be true to say that the other party to the contract who complains of the breach has any amount due to him from the other party. As already stated, the only right which he has is the right to go to a Court of law and recover damages. Now, damages are the compensation which a Court of law gives to a party for the injury which he has sustained. But, and this is most important to note, he does not get damages or compensation by reason of any existing obligation on the part of the person who has committed the breach. He gets compensation as a result of the fiat of the Court. Therefore, no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages. Therefore, when damages are assessed, it would not be true to say that what the Court is doing is ascertaining a pecuniary liability which already existed. The Court in the first place must decide that the defendant is liable and then it proceeds to assess what that liability is. But till that determination there is no liability at all upon the defendant.’
This statement in our view represents the correct legal position and has our full concurrence. A claim for damages for breach of contract is, therefore, not a claim for a sum presently due and payable and the purchaser is not entitled, in exercise of the right conferred upon it under clause 18, to recover the amount of such claim by appropriating other sums due to the contractor. On this view, it is not necessary for us to consider the other contention raised on behalf of the respondent, namely, that on a proper construction of clause 18, the purchaser is entitled to exercise the right conferred under that clause only where the claim for payment of a sum of money is either admitted by the contractor, or in case of dispute, adjudicated upon by a court or other adjudicatory authority. We must, therefore, hold that the appellant had no right or authority under clause 18 to appropriate the amounts of other pending bills of the respondent in or towards satisfaction of its claim for damages against the respondent and the learned Judge was justified in issuing an interim injunction restraining the appellant from doing so.
12. We accordingly dismiss the appeals. The appellant in each appeal will pay the costs of the respondent all throughout.”

19. PER-CONTRA, Ms. Priyadarshinee, learned Advocate for the Respondent would submit that on account of misdeclaration of goods by Respondent in respect of the first tranche, Custom Authorities initiated investigation involving the Petitioner and Respondent and in that view of the matter, Respondent terminated the Service Agreement dated 21.06.2022 vide its email dated 20.08.2022. She would fairly submit that, despite termination, Petitioner requested Respondent to accept further consignments of the Petitioner which were in transit and Respondent accepted them. According to her, once the Service Agreement was terminated and the second tranche was received thereafter, a new proposed agreement / arrangement in respect of handling of the goods / consignments received under the second tranche would come into play. She would submit that goods received under the second tranche were required to be examined by the Custom Authorities before they could be warehoused by Respondent. According to her, it is an admitted position that goods received in the second tranche were cleared by the Custom Authorities.

19.1. She would submit that detailed negotiations took place between parties for furnishing of ‘Security Deposit’ by Petitioner as a pre-condition to accept further consignments of Petitioner namely the second tranche. Further this Security Deposit would secure the Respondent against all penalties and losses that might arise on account of pending Customs Investigation in respect of the first tranche. She would submit that both parties had agreed at the amount of Security Deposit of 1,50,000 USD which is contained in the email dated 10.01.2023 issued by Respondent. This position is however refuted by Petitioner as correspondence would show that Petitioner sought reduction of the Security Deposit amount to 75,000 USD. However, Petitioner made only partial payment of 50,000 USD and hence Respondent was constrained to withhold the goods in the second tranche as security.

19.2. She would submit that parties agreed that arrangement between parties would continue after termination of Service Agreement, provided, Respondent was secured. In that view of the matter, she would submit that Petitioner be directed to pay the balance Security Deposit, failing which Respondent would suffer an irreparable loss and it would have no means of realising its loss arising out of potential penalty that may be imposed by the Custom Authorities, since Petitioner is a foreign entity and does not have any office / property in India. She would fairly submit that Custom Authorities have not imposed any penalty so far and investigation is on. Finally, she would submit that goods received in the second tranche were received after termination of the Service Agreement and under the new proposed temporary arrangement arrived at between parties and the temporary arrangement being a separate and distinct agreement from the Service Agreement, cannot be covered under the arbitration clause contained in the Service Agreement. She has therefore prayed for the present Petition to be dismissed on the ground of maintainability.

19.3. In support of her submissions, Ms. Priyadarshinee has referred to and relied upon the decision of this Court in the case of Chetan Iron LLP Vs. NRC Limited. 2022 SCC OnLine Bom 159 : (2022) 2 AIR Bom R 225. Paragraph No.18 of the said decision is relevant and reads thus:-
“18. Having heard learned Counsel for the parties and having perused the record, it is quite clear that the contract as awarded by the respondent to the petitioner has not been terminated and/or that the contract is partly performed by the petitioner by lifting some material on payment of the price to the respondent. However, even in these circumstances, when a question arises before the Court, to consider granting of reliefs in the nature as prayed for by the petitioner, in my opinion, the basic consideration for the Court would be to examine as to what is the nature of the contract between the parties. Perusal of the contract and the general terms and conditions as appended thereto, more particularly, Clause (5) thereof, clearly indicate that the parties have provided that either of the parties can terminate the contract with a fifteen days notice to be served on the other party. Further such clause also provides for the validity of the contract up to 30 June 2022. It is thus clear that nature of the contract in question is determinable. If that be so, then Mr. Nankani would be correct in his contention that the provisions under sub-clause (d) of Section 14 of the Specific Relief Act which provides that a contract which is in its nature determinable, cannot be specifically enforced becomes applicable.”

19.4. She has next referred to and relied upon another decision of this Court in the case of JWR Steel Limited Vs. Bellary Oxygen Company Pvt. Ltd. and Anr. Comm. Arb. Appln. No.131 of 2022 dated 18.11.2022. Paragraph No.55 of the said decision is relevant and reads thus:-
“55. In so far as the applicant’s contention that both the agreements are inextricably connected, is certainly not a sound argument considering the nature of both these agreements. Merely because there are recitals in regard to the background facts, a clear intention much less in a manner known to law to bring about an arbitration agreement in relation to the disputes which may arise between the parties under the Second Agreement, is certainly not to be seen.”

20. I have heard Mr. Cama, learned Advocate for Petitioner and Ms. Priyadarshinee, learned Advocate for Respondent at length and with their able assistance perused the record and pleadings of the case.

21. At the outset, Respondent has raised the question of maintainability of the present Petition. It is argued by Respondent that the Service Agreement dated 21.06.2022 stands terminated on 20.08.2022 by Respondent and a new proposed arrangement has come in place of the original Service Agreement under which Petitioner was required to correspond with the Custom Authorities directly and carry out pre-examination of goods before the same could be warehoused. Record indicates that there is detailed correspondence on email between parties to accept the seven consignments under the second tranche which were in transit in the date of the termination of the Service Agreement. The consignments were duly received by Respondent, pre-examination of goods was carried out and the goods stood cleared by Customs Authority. The alleged new proposed arrangement or agreement between parties in respect of the second tranche of goods received by Respondent is not placed on record nor does it exists, nor can it be implied from the correspondence placed on record. On the contrary in if the correspondence is perused, it is clear that though terminated, Respondent has acted on the Service Agreement even after termination.

22. Admittedly, initial Security Deposit stipulated under the Service Agreement is Rs.1,00,000/- only, but on Respondent’s demand and dehors the Service Agreement, amount of 10,000 USD was deposited by Petitioner with Respondent during subsistence of the Service Agreement. This is an important fact. It is pleaded by Respondent that Respondent agreed to accept further consignments of Petitioner namely the seven consignments in the second tranche provided Petitioner would deposit an additional Security Deposit of 1,50,000 USD to secure Respondent against all penalties and losses that might arise on account of the pending Custom Investigation in respect of the three consignments received under the first tranche. It is also pleaded by Respondent that the additional Security Deposit was to be refunded back to Petitioner after completion of investigation by the Custom Authorities. Though these pleadings exist in the correspondence made by Respondent, there is no acceptance of these pleadings by Petitioner, save and except one fact whereby Petitioner sought reduction of the Security Deposit to 75,000 USD and thereafter deposited additional Security Deposit of 50,000 USD with Respondent. Though Respondent has pleaded that it was agreed between parties that additional Security Deposit would be 1,50,000 USD, there is no such acceptance or arrangement between parties having being continued after termination of the Service Agreement which is placed on record. Correspondent clearly highlights that Respondent was actively involved in nogotiations even after termination and accepted 50,000 USD in addition to 10,000 USD already held by it. Further and most importantly, one consignment was also released by Respondent on 21.12.2022. In that view of the matter, the objection of maintainability would not survive, considering that Respondent not only received the seven consignments under the second tranche, but also received additional Security Deposit of 50,000 USD from Petitioner to secure itself. In that view of the matter, the objection of maintainability that the Service Agreement was terminated and dispute between parties was governed by another new proposed arrangement without an arbitration clause stands comprehensively rejected. All that the Respondent now contends is that there was an alleged agreement i.e. new proposed arrangement between parties and at the instance of Petitioner, Respondent reduced the Security Deposit from 3,00,000 USD to 1,50,000 USD. There is no correspondence or agreement between parties to this effect, save and except one letter dated 10.01.2023 addressed by Respondent to Petitioner pursuant to which legal notice was issued and the present Petition was filed. Suppression of material facts is also alleged by Respondent, but on going through the correspondence and Respondent’s pleadings, I do not find so.

23. Next it is argued by Respondent that the reliefs sought in the present Petition if allowed, would amount to attachment before judgment as contemplated under Order XXXVIII Rule 5 of the Civil Procedure Code, 1908 (for short “CPC”). Here it needs to be stated that, admittedly no penalty has been imposed by the Custom Authorities so far, but Respondent desires to secure itself for any potential losses and any penalty at this stage on its own terms and dehors the Service Agreement. Respondent has submitted that conduct of Petitioner required it to deposit the balance additional Security Deposit for release of goods under the second tranche as the Petitioner had deposited an amount of 60,000 USD to secure the Respondent. To this, the answer would be that claim of Respondent, if any, has not been crystallized as yet. It is an admitted claim of damages and a claim of damages is not a debt in presenti, as no pecuniary liability exists on this debt. This position has been reiterated by the Supreme Court in the case of Gangotri Enterprises (supra) (emphasis supplied).

24. Once the preliminary objection of the Respondent with respect to the maintainability and application of Order XXXVII Rule 5 of the CPC stands addressed, on the issue of merits the entire case revolves around five clauses in the Service Agreement namely; clauses 3.4, 5.5, 5.6, 8.1, 8.2 and 14. For convenience the said clauses are reproduced below and read thus:-
“3.4. Declaration in respect of Specified Goods: The storage of the following goods and the provision of service in relation thereto will be subject to advance declaration by the Client to the Unit holder in addition to the requirements under Clause
4.1 herinabove and acceptance of terms and conditions by the Client as applicable in respect of the goods mentioned here below:
(i) Hazardous and dangerous goods;
(ii) Precious cargo in the form of gold, bullion, silver bars, jewellery, gems, precious stones and other precious metals;
(iii) Traveller’s cheques, antiques, stamps, household effects;
(iv) Liquor, perishables, live-stock, human remains, paints, firearms, drugs etc.
(v) Highly inflammable chemicals and other items.
In the event of any non-declaration or wrong or improper or incorrect or insufficient or mis-declaration or documentation or mis-description in respect of any goods, the Client shall be solely liable / responsible for any consequences, action, liability etc and Unit holder shall not be liable in any manner for the same or in any capacity for such acts of the Client. The Cleint shall be liable to indemnify the Unit holder against all and every loss that may arise to the Unit holder on such account.
………
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5.5. Notwithstanding any other terms of this Agreement, during the subsistence of this Agreement or thereafter, timely payment of the charges and other amounts as demanded by the Unit holder is the essence of this Agreement. Hence, the Client specifically undertakes to make the payments within the due date. Any delay or non-payment will entitle the Unit holder to have a general lien on the goods stored and the goods stored shall not be released until all payments due are made fully to the Unit holder, failing which the Unit holder shall be entitled to sell the goods to realize the outstanding dues together with interest and costs of realizing the dues.
5.6. The Client agrees to keep deposited, in convertible foreign currency, a sum equivalent to INR 100,000/- (INR One Lack Rupees Only) being interest free refundable deposit (“Deposit”) on or before execution of this Agreement. The Deposit amount has been arrived at on the basis of present minimum requirement of service and the Deposit amount shall be enhanced, if additional service are required in future. Such Deposit shall remain with the Unit holder during the duration of the Agreement.
………
……..
8.1. The Client hereby agrees to indemnify and shall keep indemnified, the Unit holder, its directors, employees, shareholders and representative against any losses, actions, suits, proceedings and claims, liabilities, charges, expenses, costs (including reasonable attorney’s costs) or damages of whatsoever nature brought against, suffered or incurred by or caused to the Unit holder its directors, employees, shareholders and representative by reason of:
(i) the representations or warranties made by the Client to the Unit holder being materially untrue, incorrect or misleading;
(ii) non-observance or non-performance by the Client of the terms, conditions, covenants and provisions contained in this Agreement including but not limited to declaration under Clause 3 hereof and / or the statutory rules and regulations applicable and in force, from time to time, for carrying out its obligations under this Agreement.
(iii) any claim or demand that may be made on the Unit holder by the Client’s employees or lender or creditor and /or any court order obtained by such employees or lender or creditor in their capacity as employees of the Client against the Unit holder;
(iv) any claim or demand that may be made on the Unit holder by the end users or recipients of the Client’s goods and or court order obtained by such persons against the Unit holder owing to any dissatisfaction with or deficiency in, the provision of goods and/or services by the Client to such persons; and/or product liability; or
(v) any liability for payment whatsoever including liability for payment of any taxes including GST (Goods and Service Tax), cess, duties, statutory obligations or other levies payable by the Client but imposed upon the Unit holder or otherwise by any person / authority / court of law.
8.2. The Client agrees that the description and particulars of the cargo and packages provided are furnished by the Client and the Client warrants to the Unit holder that the description and particulars including but not limited to weight, content, measure, quantity, condition, marks, numbers and value are correct and the Client agrees that the Unit holder has no personal or direct knowledge an the Unit holder shall have no responsibility with respect to such description and particulars and the Client shall keep indemnified the Unit holder against all losses, expenses arising from any such inaccuracy / misstatement.
14. Subject to receipt of timely payment by Client, Unit holder shall have no lien on the goods since the ownership and the title to the goods shall always remain with Client unless and until the ownership is transferred to any person authorized by Client or on Client’s behalf by Unit holder pursuant to the terms and conditions of this Agreement.”

25. Bare perusal of the above clauses would clearly show that Respondent has a general lien on the stored goods and has a right to retain such goods only for non-payment of service / storage charges under the Service Agreement. That apart, there is no other clause in the Service Agreement which would permit the Respondent to retain the goods stored in its warehouse. Admittedly, there is no default on the part of the Petitioner in making of such service / storage charges regarding the second tranche. There is no dispute on this aspect. Clause 14 of the Service Agreement in particular clarifies that Respondent has no lien on the Petitioner's goods. The only security to the Respondent is contained in conjoint reading of clauses 3.4, 8.1 and 8.2 of the Service Agreement whereby Petitioner is required to indemnify the Respondent. Such indemnity has been furnished by Petitioner to Respondent which is at Exhibit ‘K’, page Nos.92 and 93. Strictly speaking, on reading of the Service Agreement there is no deposit whatsoever required to be given apart from Rs. 1,00,000/- (Rupees One lac only) which is less than 1000 USD as stipulated in the Service Agreement. However subsequently parties agreed and Petitioner has paid amount of 10,000 USD initially and 50,000 USD later to Respondent towards additional Security Deposit. The letter dated 10.01.2023 addressed by Respondent to Petitioner clearly talks about negotiations held between parties. Though the figure of 1,50,000 USD in this letter is clearly denied by Petitioner, the said denial cannot be taken at face value because the Petitioner did seek reduction of the Security Deposit to 75,000 USD in its letter dated 04.10.2022 and has deposited an amount of 50,000 USD with Respondent towards additional Security Deposit. If Petitioner's case is to be accepted under the Service Agreement, there was no occasion for Petitioner to deposit the amount of 10,000 USD initially and 50,000 USD later with the Respondent. Petitioner should have refused to deposit the said amount. Petitioner did not choose do so since it wanted 3 of its consignments under the second tranche to be released to its purchasers immediately in September 2022. Another aspect which needs consideration in these facts is that Petitioner is a company based in Hong Kong. It is a foreign company. Apprehension is expressed by Ms. Priyadarshinee that if Petitioner is allowed to remove the second tranche without adequate security and Respondent is not allowed to have a general lien on the said goods, in the event if Respondent is saddled with any potential penalty / claim for damages in respect of the first tranche, Respondent would be completely helpless in recovering the same. She has strongly pleaded that it was agreed between parties that additional Security Deposit was reduced by Respondent from 3,00,000 USD to 1,00,000 USD. Despite that Petitioner deposited only 50,000 USD in addition to 10,000 USD held by Respondent. All this certainly would be a matter of evidence in arbitration. In the interregnum balance of convenience will have to be maintained. Though Mr. Cama is right in his submissions under the Service Agreement, but equally the above argument of Ms. Priyadarshnee is appealing considering that both parties trangressed the Service Agreement. Adequate security that Respondent seeks is 1,50,000 USD. Petitioner had agreed to provide 75,000 USD. Whereas, 60,000 USD is already provided. The act of Petitioner depositing the additional Security Deposit of 50,000 USD itself shows that negotiations did take place between the parties. What were those negotiations would be once again be the subject matter of arbitral proceedings and its effective determination therein. Without negotiations having been taken place, Petitioner could not have deposited 50,000 USD with Respondent towards additional Security Deposit. It is now argued by Mr. Cama that the additional Security Deposit of 60,000 USD held by Respondent is good enough and adequate to secure Respondent’s potential claim for damages / penalties, if any, and no further deposit could be required.

26. Hence, in the view of the above observations and findings and more specifically in view of the fact that the Petitioner is a foreign company with no assets in India, I am of the opinion that Respondent needs to be secured adequately in the interregnum. Hence, I direct Petitioner to deposit an amount of 40,000 USD / or give Bank guarantee of the equivalent amount which according to me is a reasonable amount for securing the potential claim for damages of Respondent. I do so keeping in mind that Respondent is already holding 60,000 USD as Security Deposit and also the goods in the first tranche valued at 1,31,053.50 USD which would also be a security, but only subject to its clearance and notwithstanding the fact that the goods are perishable. Hence the direction for deposit of 40,000 USD. In that view of the matter, the total Security Deposit would then be 1,00,000 USD. However it is directed that such deposit shall be made by Petitioner in this Court with the Prothonotary and Senior Master of this Court and the same shall stand invested in fixed deposit to be renewed from time to time until the disputes / arbitration proceedings between parties are culminated and shall be subject to the final Award or any interlocutory application made in the said Arbitration proceedings.

27. Upon such deposit of 40,000 USD having been made by Petitioner, Respondent is directed to release the lien on the goods i.e. the 7 consignments received under the second tranche and Petitioner is permitted to remove the said goods on payment of all service / storage charges to the Respondent in accordance with law. Liberty to both parties to apply.

28. With the above directions, Commercial Arbitration Petition is disposed.