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Union of India Vs. International Chemicals Corporation (India) - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberOriginal Miscellaneous Petition Appeal No. 26 of 1976
Judge
Reported inAIR1977Delhi99; ILR1976Delhi798
ActsArbitration Act, 1940 - Sections 41
AppellantUnion of India
Respondentinternational Chemicals Corporation (India)
Advocates: A.B. Saharia and; D.C. Singhania, Advs
Cases ReferredUnion of India v. Raman Foundry
Excerpt:
.....under the arbitration act. the court will, thereforee, have all the powers with respect to arbitration proceedings pending before it, as if it has under the said code with respect to any other proceeding before it. section 41(b) provides that the court shall have for the purpose of, and in relation to, arbitration proceedings, the same power to making orders in respect of any of the matters set out in iind schedule as it has for the purpose of, and in relation to, and proceedings before the court. the court has the power and jurisdiction to secure the amount of difference in the reference or to make an order of interim injunction in appropriate cases. this power is to be exercise to the same extent and in the same manner as the court does for purposes of and in relation to any..........making orders with respect to any such matters. nothing has been brought to my notice which may empower the arbitrator to secure the amount of difference in the reference or issue any interim injunctions. the arbitrator has not been vested by the act with any power to grant interim injunction or secure the amount in difference. only the court has been clothed with the power in relation to arbitration proceedings to issue interim injunctions or securing the amount in difference. thus this court has full power to grant interim injunctions or secure the amount in difference in appropriate cases during the pendency of arbitration proceedings before the arbitrator. (7) the subject matter of the arbitration proceedings is the claim for damages of rs. 43,144.04 raised by the petitioner. safeer.....
Judgment:

S.S. Chadha, J.

(1) On the receipt of a tender from M/s. International Chemicals Corporation (India) (the respondents herein), an Acceptance of Tender No. CDP-2/103/52/049/28-7-73(7)/PAOD/ 1152 dated August 13, 1974 for the supply of 3,700 numbers Piperazine Adipate Container of 500 grams @ Rs. 34 per unit amounting to Rs. 1,25,800 by November 30, 1974 was issued by the Union of India (the petitioner herein). The said Acceptance of Tender was subject to the conditions of the contract contained in Form No. DGS&D-68; (Revised) including Clause 24 contained therein which is the arbitration agreement between the parties. Certain disputes and differences arose between the parties to the said contract. An application under Section 20 of the Arbitration Act, 1940 (hereinafter referred to as the Act) was filed by the respondents herein praying that the said arbitration agreement be filed in this Court and disputes/differences between the parties to the contract be referred to arbitration in accordance with the said arbitration clause. This was registered as suit No. 240-A of 1975.

(2) The respondent herein also filed an application, being is 1063 of 1975 in suit No. 240-A of 1975 alleging therein that they had received communications dated November 27, 1974 and March 6, 1975 from the Union of India to the effect that M/s. International Chemicals Corporation (India) have failed to perform their part of the contract to the satisfaction of the Union of India and thus the Union of India is entitled to claim Rs. 43,144.04 towards extra expenditure incurred on account of risk purchase in terms of clause 14 of the General Conditions of the Contract between the parties. On April 28, 1975 this Court issued notice on that Interlocutory Application and an interim order was granted that Union of India will not recover the sum of Rs. 43,144.04. The interim order granted on April 28, 1975 was made absolute on May 23, 1975 and is 1063 of 1975 was disposed of. It was, however, observed that as and when the Union of India wants any variation in the order, it is at liberty to move an appropriate application.

(3) On July 23, 1975 counsel for the parties in the said suit made statements that the said arbitration agreement be filed in the Court and the disputes be referred to the sole arbitration of an officer in the Ministry of Law who will be appointed by the Director General of Supplies & Disposals. The Court directed that the arbitration agreement be filed and that the Director General of Supplies & Disposals in the Ministry of Supply may appoint an officer in the Ministry of Law to act as an arbitrator in order to decide all the disputes that have arisen between the parties. Accordingly, an arbitrator was duly appointed. The appointed arbitrator has entered upon the reference and took upon himself the task of settling the disputes between the parties but the proceedings are still pending.

(4) Union of India (the petitioner herein) has now moved the present O.M.P. on the apprehension that the respondents with a view to defeat the claims of the petitioner that may be allowed by the arbitrator, are likely to withdraw the amounts payable to the respondents which amounts may be pending payments by the Pay & Accounts Officer. It is pleaded that the interest of the petitioner will be seriously prejudiced and it will be difficult for the petitioner to recover the amount from the respondents in spite of an award to be made by the arbitrator in its favor. A prayer is made for modification of the order dated May 23, 1975 passed by the Court and for restraining the respondents from Realizing the amounts in dispute from the Pay & Accounts Officer till the award to be made by the arbitrator is made a rule of the Court.

(5) In the reply it is averred that the petitioner was yet to establish before the arbitrator that it were the respondent who committed the breach of the contract and because of breach the petitioner suffered a loss of Rs. 43,144.04 before it can file such an application seeking the injunction restraining the respondents from Realizing the amounts from goods supplied under other contracts becomes immediately and presently payable to the respondents in law as well as in the contact and no injunction can be granted restraining the respondents from Realizing the amounts due under other contracts till the determination of the disputed claims of the petitioner for alleged breach of the contract. It is also pleaded that the alleged apprehension of the petitioner is ill-founded as no proof has been furnished of such apprehension and action of the respondents which may show it would be difficult for the petitioner to recover the amount from the respondents in case the arbitrator makes an award in favor of the petitioner. The jurisdiction and power of the Court to grant the interim injunctions or attachments in arbitration proceedings pending before an arbitrator is challenged.

(6) It will be convenient to set out Section 41 of the Act which reads as follows :

'SUBJECT to the provisions of this Act and of rules made there under- (a) the provisions of the Code of Civil Procedure, 1908, shall apply to all proceedings before the Court, and to alt appeals, under this Act, and (b) the Court shall have, for the purpose of, and in relation to, arbitration proceedings, the same power of making orders in respect of any of the matters set out in the Seceond Schedule as it has for the purpose of, and in relation to, any proceedings before the Court : Provided that nothing in clause (b) shall be taken to prejudice any power which may be vested in an arbitrator or umpire for making orders with respect to any of such matters.'

A plain reading of section 41(a) makes it clear that all the provisions of the Code of Civil Procedure are made applicable to proceedings under the Act. The Court will, thereforee, have all the powers with respect to arbitration proceedings pending before it as if it has under the said Code with respect to any other proceeding before it. Section 41(b) provides that the Court shall have for the purpose of, and in relation to, arbitration proceedings, the same power of making orders in respect of any of the matters set out in the IInd Schedule as it has for the purpose of, and in relation to, any proceedings before the Court. The IInd Schedule enumerates specific powers of the Court in relation to certain matters. Para 2 is for securing the amount of difference in the reference. Para 4 is for interim injunctions or the appointment of a receiver. The Court has the power and jurisdiction to secure the amount of difference in the reference or to make an order of interim injunction in appropriate cases. This power is to be exercised to the same extent and in the same manner as the Court does. for purposes of and in relation to any other proceedings before it. The power to secure the amount in difference in the reference or to issue interim injunctions is derived by the Court under Section 41(b) read with IInd Schedule but the procedure to be followed in disposing of applications for the purpose is regulated by virtue of Section 41(a). This is the effect of combined reading of Section 41(a) and (b) of the Act. Inother words, sub-section (b) of Section 41 of the Act read with the IInd Schedule confers power on the Court to issue interim injunctions or for securing the amount in difference in the reference whereas sub-section (a) of Section 41 of the Act regulates the procedure to be followed in' dealing with applications for interim injunction or for securing the amount in difference in the reference even when the arbitration proceedings are pending before the arbitrators. The practice and procedure of the Court in issuing interim injunctions of attachment before judgment would be equally applicable in such cases. But the power and jurisdiction of the Court conferred under Section 41(b) cannot be exercised, if the exercise of such power would prejudice any power which might be vested in an arbitrator or umpire for making orders with respect to any such matters. Nothing has been brought to my notice which may empower the arbitrator to secure the amount of difference in the reference or issue any interim injunctions. The arbitrator has not been vested by the Act with any power to grant interim injunction or secure the amount in difference. Only the Court has been clothed with the power in relation to arbitration proceedings to issue interim injunctions or securing the amount in difference. Thus this Court has full power to grant interim injunctions or secure the amount in difference in appropriate cases during the pendency of arbitration proceedings before the arbitrator.

(7) The subject matter of the arbitration proceedings is the claim for damages of Rs. 43,144.04 raised by the petitioner. Safeer J restrained the petitioner from recovering the sum of Rs. 43,144.04 from the other bills of the respondents. This is clearly within the power of the Court under Section 41(b) because the claim forms the subject matter of the arbitration proceedings. This interim injunction is for the purpose of and in relation to the arbitration proceedings. The question whether any amounts are payable by the petitioner to the respondents under any other contract is not the subject-matter of the arbitration proceedings. The Court cannot, thereforee, make any interim order either directing the petitioner to pay or restrain the respondents from receiving the amounts due under other contracts. Any such direction would clearly not be for the purpose of or in relation to the arbitration proceedings.

(8) I am not suggesting that the Court has no power to secure the amount of the reference. Specific power has been conferred under para 2 of the IInd Schedule for securing the amount of difference in the reference but the power is not arbitrary. Granting of interim injunctions or securing the amount is a matter of judicial discretion. Such a power has to be exercised by the Court on well established principles governing the issue of attachment before judgment. Guiding principles have been laid down under Order 38 Rule 5 of the Code of Civil Procedure as interpreted by the authorities. The practice and procedure of issuing attachment before judgment with respect to arbitration proceedings is as if the Court is exercising powers under the Code of Civil Procedure with respect to any other proceedings before it. The allegation in the application is only to the extent that it is apprehended that the respondents with a view to defeat the claims of the petitioner are likely to withdraw the amounts, and that it will be difficult for the petitioner to recover the amounts from the respondents. The affidavit in support thereof is that of one Shri O. P. Srivastava working as Deputy Director of Supplies in the office of Director General of Supplies & Disposals, New Delhi who deposes that the contents are true on information derived from the official records and believed to be correct. The affidavit does not disclose any basis for the alleged apprehension. The official records would not contain the alleged apprehension. No facts have been disclosed on the basis of which the petitioner has a reason to suspect that the respondent is withdrawing the amounts to defeat the claims of the petitioner. The jurisdiction of the Courts for securing the amount in difference in the reference is of an extraordinary nature and is to be exercised sparingly only when the Court is satisfied that the respondents are likely to withdraw the amounts with an intention to obstruct or delay execution of the decree that may be passed on the basis of the award. There has to be definite evidence and not mere allegation. Mere apprehension as is alleged in this case, is not enough. What the counsel is urging is that the respondents were recovering the amounts due under other contracts and in doing so their intention was to obstruct or delay execution of the decree that might be passed. Recovery of the price is the ordinary feature of the contract. The respondents are entitled to receive the amount due under other contracts on the basis of performance of the contract for it is an ordinary incidence of a contract. The withdrawal of the amounts is not with a view to delay or obstruct the execution of any decree that the petitioner may obtain on the basis of the award, but as reciprocal consideration for the completion of the contract. The respondents must have expended money on the material and labour for the goods supplied and thus would be out of pocket. They may have an overdraft at the bank or may have otherwise secured the amount spent. The respondents when actually receiving money due under other contracts cannot be doing so to defeat the possible claims of the petitioner in the contract in dispute.

(9) The interim injunction prayed for is for restraining the respondents from Realizing the amount in dispute from the Pay & Accounts Officer till the award to be made by the arbitrator is made rule of the Court. Clause 18 of the General Conditions of the Contract contained in DGS&D-68; (Revised) has been brought to my notice. The contention of Mr. A. B. Saharya, the learned counsel for the petitioner is that the petitioner has a claim for payment of Rs. 43,144.04 against the respondents which claims is pending adjudication before the arbitrator. The counsel argues that clause 18 provides a mode of recovery of this claim for payment of sum of money arising out of or under the contract and if no injunction is granted and the respondents are able to realise the amounts due under other contracts, then that mode of recovery would not be available to the petitioner. There is a contract, according to the counsel, between the parties under which the respondents have agreed to allow the petitioner to make a recovery in the mode provided therein and this mode of recovery would be frustrated unless the respondents are restrained from Realizing the amount due under other pending bills or future bills. The counsel urges that this mode of recovery has been considered by the Supreme Court and also recognised.

(10) Since the counsel for the parties had placed great reliance on certain different observations in Union of India v. Raman Foundry, : [1974]3SCR556 , it will be apposite here to state the ratio of that judgment. While interpreting clause 18 of the General Conditions of Contract, the Supreme Court held that the heading of clause 18 which reads Recovery of Sums due, suggest that the clause is intended to deal with the subject of recovery of sums due, that a sum would be due when there is an existing obligation to pay it, in presenti or, in other words, which is presently payable, that recovery of such sums is the subject matter of clause 18 according to the heading and is the dominant idea running through the entire clause 18, that the language used in the body of clause 18 also supports the view that it is with recovery of sums presently due and payable, that the clause does not lay down any substaning rights and obligations of the parties under the contract, that it is merely intended to provide a mode of recovery a claim for payment of a sum of money arising out of or under the contract, that it, thereforee, postulates a claim for a sum which is due and payable, i.e., presently recoverable, and may be recovered by the mode therein, provided, that it is difficult to believe that the contracting parties should have intended that even though a sum is not due and payable by the contractor to the purchaser under the contract, the purchaser should be entitled to recover it by adopting the mode set out in clause 18, and that clause 18 applies only where the purchaser has a claim for a sum presently due and payable by the contractor.

(11) The Supreme Court clearly laid down that clause 18 does no more than merely providing an additional mode of recovery, and the purchaser is entitled to exercise the right conferred under that clause only where there is a claim for a sum which is presently due and payable by the contractor. Clause 18 does not create a lien on other sums due to the contractor or give the purchaser a right to retain such sums unless his claim against the contractor is satisfied. The claim is for damages alleged to have been suffered due to the breach of the contract committed by the respondents. A claim for damages for breach of contract before the arbitrator is not a claim or a sum presently due and payable. It will become entitled to be paid only after it is an ascertained sum established and adjudicated upon by a competent forum or admitted to be payable. The claim for damages advanced by the petitioner herein being both challenged and lacking quantification, it is not possible to argue that clause 18 can afford any relief to the petitioner by imposing an obligation on the respondents not to withdraw the amounts due under other contracts to make the mode of recovery available. That would lead to a highly extraordinary result in commercial contracts. It could not be the intention of the parties that a mere making of a claim provided the mode of recovery. The respondents may have provided additional mode of recovery but the conferred right can be exercised where there is a claim for a sum which is presently due and payable by the respondents. The mere fact that a claim has been preferred before the arbitrators, should the respondents be prevented from recovering amounts due under other contracts is the question. The mode of recovery would become available only on quantification and adjudication. Till that it is only a stipulation that as soon as the sum is due and recoverable, it could be recovered from other pending bills. As the Supreme Court has said the clause does not lay down any substantive rights and obligations of the parties under the contract, but merely provide a mode of recovery. The purchaser had to pay the amount due under other contracts and could not appropriate or divert it to the contract in suit. The effect of clause 18 is that this obligation is modified giving a right to the purchaser to recover the amount when presently due and payable from other contracts. It is merely intended to provide an additional mode of the recovery. It does not postulate that the amount due under the other contracts cannot be withdrawn. In my opinion, no body can be prevented from dealing with his contracts and receiving money due under them simply because a claim has been preferred before the arbitrator. In other words, a contractor is not debarred from dealing with his contracts because a claim has been filed against him. There must be additional circumstances which disclose that the withdrawal is with an intention to defeat or delay the petitioner's claim. Threat or intention must be proved by definite evidence either by affidavit or otherwise and not by mere allegations of apprehension that the respondents with a view to defeat claims of the petitioner are likely to withdraw the amounts.

(12) From either point of view of interim injunction for securing the amount in difference, the facts of the case before me are such that they do not call for any modification of the injunction issued earlier.

(13) O.M.P.26 of 1976 is dismissed with costs.


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