Delhi High Court Directs Respondents to Secure ₹157.75 Crores in Gas Supply Dispute Under Section 9 of Arbitration Act

"The protection of arbitral proceedings requires securing the disputed amount when there is a strong prima facie case, and the balance of convenience lies in favor of the petitioner. The risk of a potential paper award cannot be overlooked when foreign parties or insufficient assets are involved," observed the Delhi High Court.
Delhi High Court, presided over by Justice Jasmeet Singh, ruled on a Section 9 petition under the Arbitration and Conciliation Act, 1996, filed by GAIL (India) Limited against Focus Energy Ltd. and others. The Court directed the respondents to provide solvent security worth ₹157.75 crores via a bank guarantee or unencumbered immovable assets to safeguard the petitioner’s claims during pending arbitral proceedings.
"A Strong Prima Facie Case and Balance of Convenience Favor Interim Relief"
GAIL entered into a Gas Sale and Purchase Agreement (GSPA) with the respondents in 2009 for the supply of gas from the SGL field in Rajasthan. The agreement expired on September 30, 2024, with a subsequent Restoration Period of four months ending on January 31, 2025, allowing GAIL to claim Make-Up Gas for shortfalls during the contract period.
GAIL alleged that despite paying ₹197.13 crores under the Annual Take or Pay (AToP) clause, the respondents failed to supply the contracted gas quantities, resulting in a shortfall valued at ₹156.75 crores. GAIL sought interim relief to secure this amount, citing the inability of the respondents to supply the remaining Make-Up Gas during the Restoration Period.
The respondents invoked Force Majeure (FM) under the GSPA, attributing the shortfall to adverse reservoir behavior, which they claimed excused them from their obligations. However, GAIL disputed the validity of the FM invocation, arguing that the respondents failed to comply with procedural requirements under Clauses 7.5 and 7.7 of the GSPA.
Interim Relief and Security for the Disputed Amount
The Court held that GAIL had established a strong prima facie case, as the respondents had admitted the existence of the unpaid amount of ₹156.75 crores without full adjustment.
"The petitioner has made a substantial payment of ₹197.13 crores, of which ₹156.75 crores remain unadjusted, and the Restoration Period is nearing its end. Without adequate security, the petitioner’s claims risk becoming irrecoverable," the Court noted.
The Court directed respondent No. 1 to provide solvent security in the form of a bank guarantee or unencumbered immovable assets for the disputed amount. This measure was necessary to prevent the arbitral award from becoming a mere paper award, especially since respondent Nos. 2 and 3 are foreign entities without assets in India.

Force Majeure Invocation and Procedural Compliance
The respondents claimed Force Majeure (FM) under Clause 7.2(ii)(b) of the GSPA, citing adverse reservoir behavior as the reason for their inability to meet gas supply obligations. However, GAIL challenged this, asserting that the respondents failed to meet the procedural requirements for invoking FM under Clauses 7.5 and 7.7, which mandate timely notice and proof of reasonable efforts to remedy the situation.
The Court refrained from determining the substantive merits of the FM claim, observing that:
"The legitimacy of FM invocation, compliance with procedural clauses, and whether FM absolves the respondents of liability are triable issues to be decided by the arbitral tribunal."
Applicability of Order XXXVIII Rule 5 CPC
The Court invoked Order XXXVIII Rule 5 of the Civil Procedure Code (CPC), which governs the attachment of property to prevent dissipation of assets. Noting the inadequacy of details regarding the respondents' assets and the potential enforcement challenges involving foreign parties, the Court held:
"There is a strong possibility of diminution of assets, and securing the amount in dispute is necessary to prevent irreparable harm."
"Interpretation of Contractual Clauses is the Domain of the Arbitral Tribunal"
The Court underscored the limited scope of judicial intervention under Section 9 of the Arbitration Act. Relying on precedents such as Essar House (P) Ltd. v. Arcelor Mittal Nippon Steel India Ltd. (2022) and Sanghi Industries Ltd. v. Ravin Cables Ltd. (2022), the Court held that:
"The Court's role is not to adjudicate the substantive merits of the dispute but to ensure that the subject matter of the arbitration is preserved and protected."
The Court declined to interpret the GSPA’s terms regarding Make-Up Gas, AToP payments, or the validity of the FM claim, emphasizing that these issues fall exclusively within the arbitral tribunal’s jurisdiction.
Security for Disputed Amount: The Court directed respondents to secure ₹157.75 crores to ensure enforceability of a potential arbitral award, particularly given the foreign status of some respondents.
Force Majeure: The Court deferred the determination of whether FM was validly invoked, leaving the matter to the arbitral tribunal.
Restoration Period: The Court acknowledged that the petitioner’s rights to Make-Up Gas would expire at the end of the Restoration Period, increasing the urgency for interim relief.
Limited Judicial Intervention: The Court emphasized its limited role under Section 9 and avoided adjudicating on the substantive terms of the GSPA or liability issues.
The Delhi High Court granted interim relief to GAIL, directing the respondents to secure ₹157.75 crores through a bank guarantee or unencumbered immovable assets. The ruling balances the petitioner’s rights to safeguard its claims during arbitration with the respondents’ defense under the contractual scheme.
This judgment reinforces the principles of interim protection under Section 9 of the Arbitration Act while leaving the substantive issues to be decided by the arbitral tribunal.

Date of Decision: January 7, 2025