V. Ramkumar, J.
1. In this appeal filed under S.37(1)(a) of the Arbitration and Conciliation Act, 1996 ("the Act" for short), the appellant i.e. the Board of Trustees, Port of Cochin, challenges the order dated 05.09.2011 passed by the District Judge, Ernakulam dismissing on merits OP (Arbitration No. 505/2011) filed by the appellant under Section 9 of the Act.
2. The appellant is a major Port constituted under the Major Port Trusts Act, 1963 having its office at Willingdon Island, Kochi - I and is represented by its Chairman Sri. Paul Antony. The first respondent i.e. Jaisu Shipping Company Private Ltd. is company incorporated under the Companies Act, 1956, having its registered office at Kewal Remany House, Dinshaw Building Road, Nedar Custom House, Kandala Port, Gujrat - 370 220 and having a branch office at Link Horizon, Marine Drive, Ernakulam. The additional second respondent i.e. Jaisu Dredging and Shipping Ltd., Gujrat got itself impleaded as per the order dated 04.10.2011 in IA 2557/2011 and claims ownership rights over the dredgers and equipments in respect of which the appellant sought a conditional order of attachment.
3. As per the impugned order the learned District Judge dismissed on merits the original petition filed by the appellant under Section 9 of the Act. Hence, this appeal.
4. We heard Sr. Advocate Sri. Joseph Markos, the learned counsel appearing for the appellant and Sr. Advocate Sri. K. L. Varghese, the learned counsel appearing for the first respondent and Advocate Sri. Millu Dandapani, the learned counsel appearing for the 2nd respondent.
THE BACKGROUND FACTS
5. Before analysing the rival contentions of the parties it may be necessary to have an insight into the background facts. The following is the chronological narration of the undisputed facts leading to the final hearing of this appeal: -
31.01.2005 The appellant (Board of Trustees, Port of Cochin) executed an agreement with India Gateway Terminal (P) Ltd., (IGTPL for short - a subsidiary of Dubai Port World) for development, operation and management of an International Container Transhipment Terminal (ICTT) at Vallarpadom in Kochi.As per the terms of the agreement the appellant undertook to carry out capital dredging (fresh dredging) of a Berth Basin and approach channels so as to provide 14.5 meter draft (depth) required for 8000 +TEU capacity container vessels.IGTPL, however, insisted subsequently that in order to enable them to meet their project cargo requirements an interim depth at the basin area should be achieved and that they will themselves undertake the work of dredging for that purpose from December 2008 till July 2009. The work so undertaken by IGPTL was the dredging of the channel in front of the quay and retaining wall and in between the piles.15.12.2008 Appellant entered into Ext. A1 Agreement No. 52 of 2008-2009 (containing General Conditions of Contract) with the first respondent (Jaisu Shipping Company Ltd.) for carrying out the work of "capital dredging for deepening and widening of outer channel of Group B of Cochin Port Trust, deepening of inner channel of Group B leading to ICTT and creating a basin in front of ICTT for providing sufficient depth required for 14.5 m. draft container vessels and maintenance dredging for maintaining specified depths in the Group C channels of Cochin Port Trust during the period from 01. 09.2008 to 31.12.2010 by deploying Trailing Suction Hopper Dredgers (TSHDs) of suitable cap10 to 17acity and other type of dredgers, if required, and carrying out survey works as stipulated."The length of the proposed outer channel from the channel mouth till Buoy 10 was 13.2 kms. and the length of the proposed inner channel from Buoy 10 to the basin was 1.8 kms.
The contract amount was Rs.525.50 crores. The appellant termed as the "employer" and the first respondent termed as the "contractor" were the "parties" to the contract. The contract period as originally fixed was from 01.09.2008 to 31.01.2010. Ext. A2 is the Special Conditions of Contract specially mentioning the scope of the work. Article 2.39 of Ext. A2 Special Conditions of Contract provides for resolution of any dispute or difference between the parties by arbitration under the Arbitration and Conciliation Act, 1996 ("the Act" for short) if attempts by the parties to settle the disputes or differences, fail. Article 2.39 reads as follows: -"2.39 Settlement of Disputes and Arbitration2.39.1. Except where otherwise provided in the Contract all questions and disputes relating to the meaning of the "Specifications, design, Drawings and instructions here - in before mentioned and as to the quality of workmanship or equipments used on the Work or as to any other question claim, right, matter or thing whatsoever in any way arising out of or relating to the Contract, designs, Drawings, Specifications, estimates, instructions, orders or these conditions or otherwise concerning the Works or the execution or failure to execute the same whether arising during the progress of the work or after the cancellation, termination, completion or abandonment thereof shall be dealt with as mentioned hereinafter.2.39.2. If the Contractor considers any Work demanded of him to be outside the requirements of the Contract, or disputes any Drawings, record or decision given in writing by the Engineer on any matter in connection with or arising out of the Contract or carrying out of the work, to be unacceptable, he shall promptly within 15 days request the Engineer in writing for written instruction or decision. Thereupon, the Engineer shall given his written instructions or decision within a period of one month from receipt of the Contractor's letter.2.39.3. If the Engineer fails to give his instructions or decisions in writing within the aforesaid period or if the Contractor is dissatisfied with the instructions or decision of the Engineer, the Contractor may within 15 days of the receipt of Engineer's decision, appeal to the Chairman. The Chairman shall hear the Contractor and dispose off the appeal within 15 Days of receipt of the appeal. The Chairman may constitute an Expert Committee to assist him to dispose off the appeal in his absolute discretion.2.39.4. If the Chairman did not dispose off the appeal within 15 Days of receipt of appeal or his order is not satisfactory to the Contractor, the dispute may be referred for arbitration under the clause 2.39.6 (Arbitration) below.2.39.5. Before commencement of arbitration, both Parties shall attempt to settle the dispute amicably. However, unless both Parties agree otherwise, arbitration may be commenced on or after the fifty-sixth Day after the Day on which notice of dissatisfaction was given, even if no attempt at amicable settlement has been made.2.39.6. Arbitration(i) ArbitratorsFailing amicable settlement and/or settlement with the assistance of Expert, the dispute or differences or claims, as the case may be, shall be finally settled by binding Arbitration under the Arbitration and Conciliation Act, 1996. The Arbitration shall be by a panel of three Arbitrators, one to be appointed by each Party and the third to be appointed by the two Arbitrators appointed by the Parties. A Party requiring Arbitration shall appoint an Arbitrator in writing, inform the other Party about such appointment and call upon the other Party to appoint its Arbitrator. If the other Party fails to appoint its Arbitrator, the party appointing Arbitrator shall take steps in accordance with Arbitration and Conciliation Act, 1996.ii) Place of ArbitrationThe place of Arbitration shall be Kochi.iii) English LanguageThe request for Arbitration, the answer to the request, the terms of reference, any written submissions, any orders and rulings shall be in English and, if oral hearings take place, English shall be the language to be used in the hearings.(iv) Procedure(a) The arbitration proceedings under this clause and the rule of evidence, which are to apply, shall be in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) or any statutory modifications or re- enactment thereof and the rules made there under and for the time being in force.(b) It is a term of this contract that the party invoking arbitration shall give a list of disputes with amounts claimed in respect of each such dispute along with the notice for appointment of arbitrator and giving reference to the rejection by the Chairman of the appeal.(c) It is also a term of this Contract that if the Contractor does not make any demand for appointment of arbitrator in respect of any place in writing as aforesaid within 120 Days of receiving the intimation from the Engineer that the final bill is ready for payment, claim of the Contractor shall be deemed to have been waived and absolutely barred and the Employer shall be discharged and released of all liabilities under the Contract in respect of these claims.(d) It is also a term of this Contract that the arbitrator shall give separate award against each dispute and claim referred to him an in all cases where the total amount of the claims by any party exceeds Rs.1,00,000/-, the arbitrator shall give reasons for the award.(e) It is also a term of this contract that in case interest is allowed on arbitration amount it shall be limited to PLR + 2%.(v) Fees and ExpensesThe fees and expenses of the Arbitrators and all other expenses of the Arbitration shall be equally shared by the Parties.(vi) Performance during ArbitrationPending the submission of and/or final decision on a dispute, difference or claim or until the Arbitral Award is published, the Parties shall continue to perform of all their obligations under this Agreement, without prejudice to a final settlement in accordance with such Award".A reduced copy of the plan made available to us by the appellant's counsel showing the scheme for capital dredging of the basin area and the outer and inner channels of Group B channel, is given below: -(Contract period was mutually extended till 30.04.2010 and by that time capital dredging of the approach channel of Group B channel was completed by the first respondent. The period for completion of the Basin Area capital dredging was extended till 30.09.2010).15.12.2008 The Ist respondent entered into a time-charter agreement with the 2nd respondent (Jaisu Dredging and Shipping Ltd., Gujrat) for taking on hire, 8 vessels together with the crew belonging to the 2nd respondent for operating Ext. A1 contract on payment of hire charges. The 8 vessels are:1. Hopper Barge "M.V. Sahayak"2. Hopper Barge "M.V. Kiran"3. Hopper Barge "M.V. Kabir"4. Anchor handling Barge "M.V. Kamal XXXII"5. Survey Boat "M.T. Jai Jhulelal"6. Crew Boat "M.T. Kamal XVI"7. Motor Vessel "M.V. Saraswathi"8. Mooring Launch "Kamal XI"03.10.2009 Contrary to the undertaking given by IGTPL that they will start the dredging of the channel in front of the quay and retaining wall and in between the piles in December 2008, IGTPL started the work only from 03.10.2009. On account of the deployment Back hoe dredgers (BHD dredgers) and other equipments used by the contractors engaged by IGTPL, the first respondent was unable to carry out the capital dredging as scheduled. Even a massive bucket dredger with 5 long sling wires each 200 m. long and barges (for removing the dredged material) used by the first respondent had to be demobilised. (Vide Annexure R-VI).12.12.2009 Due to the prolonged occupation of the dredging area by the IGTPL, the first respondent was asked to demobilise a large bucket dredger mobilised by it as per the time schedule given by IGTPL. This was to prevent collision between the crafts of the two contractors.30.04.2010 IGTPL was able to complete their part of the dredging work at the ICTT berth basin only by 30.04.2010 i.e. after a delay of 9 months. By that time the Ist respondent had completed the capital dredging of the approach channels of Group B channel. When the appellant conducted a survey along with MPSO on 30.04.2010 it was noticed that the IGTPL had not achieved the designated dredging targets of 16 M depth and even a vessel with 10m draft could not be successfully berthed. (See Annexure R VI).June- 2010 While conducting capital dredging in the berth frontage area, the dredgers of first respondent picked up several blocks of concrete, timber logs, steel scrap and other construction debris in front of the berth. (Vide Annexure A18).12.07.2010 Ext. A1 agreement was amended by executing Ext. A3 Amendment Agreement modifying certain terms and conditions specified in Ext. A2 Special Conditions of Contract. The contract period was extended till 31.03.2011. But there was no amendment made to the arbitration clause in Ext. A2.15.07.2010 When a vessel M. V. Zen Hua 10 was brought along the side berth she had met with patches of hard material and other obstructions necessitating diversion of the vessel to Q 5 berth of Ernakulam wharf. Thereafter the first respondent had to mobilise a mechanical grab dredger from Mumbai and also hire the appellants' dredger GHD Nehru Shatabdi for tackling the hard-material in front of the berth. (See Annexure A18).09.02.2011 The Vallarpadom ICTT was formally inaugurated by the Prime Minister Sri. Manmohan Singh.The ICTT was not fully commissioned at that time.21.03.2011 Appellant sent Ext. A4 letter to the first respondent accusing the latter for not completing the capital dredging in the Basin and not achieving the specified depths in the channels and directing the first respondent to continue the work of capital dredging achieving the specified depths in the Group B channels till attaining the required depth or till 15.05.2011 whichever was earlier reserving the right of the appellant to claim compensation.23.03.2011 The first respondent sent Ext. A5 reply to Ext. A4 letter and refuted the allegation therein and stated that as on 30.04.2010 the first respondent had completed capital dredging of the inner and outer channels and had commenced maintenance dredging from 01.05.2010 and relying on clause 22 of Ext. A3 demanded payment for the work based on the hopper volume of the dredged material.23.03.2011 The appellant sent Ext. A6 reply to Ext. A5 letter reiterating the appellants' contentions and stating that as per clause 2.46 of Ext. A3 amendment agreement it was for the first respondent to ensure the completion of capital dredging in the Basin and to achieve the specified depth in the Group B channel with liability to pay compensation to the appellant for the left over quantity of the work. The appellant also denied the applicability of clause 22 of Ext. A3.25.03.2011 First respondent sent Ext. A7 reply to Ext. A6 letter and reiterated its earlier stand and its inability to continue the dredging work and told the appellant that the first respondent will stop the work and demobilise the dredgers on 31.03.2011.26.03.2011 As per Ext. A8 letter the appellant informed the first respondent that the attempt to stop the work will be treated as a default on the part of the first respondent.28.03.2011 The first respondent sent Ext. A9 letter to the appellant reiterating its earlier stand and indicating that the matter of payment relating to dredging beyond 31.03.2011 could be referred to arbitration if the dispute cannot be settled amicably.31.03.2011 The first respondent removed a dredger TSHD KAMAL XXXIII from the dredging site.01.04.2011 The appellant filed O.P. (Arbitration) 442 of 2011 before the District Court, Ernakulam under Section 9 of the Act seeking a temporary injunction restraining the first respondent from removing the dredgers and equipments from the Cochin Port Area. Appellant alleged that the first respondent which was directed to do the work till 15.05.2011 had carried away one dredger from the dredging site, detrimentally affecting the right of the appellant to seek specific performance of the contract which was breached by the Ist respondent.02.04.2011 The District Court granted an ex-parte order of injunction.02.04.2011 The appellant issued Ext. A12 (Ext. B1) termination notice to the first respondent giving 14 days' notice to the first respondent to the effect that the first respondent had unilaterally abandoned the work with effect from 01.04.2011 and had unlawfully taken away one dredger from the Cochin Port Trust Limits and that the appellant proposes to carry out the remaining work at the risk and cost of the first respondent and on the expiry of the notice period, the contract shall stand terminated with the harsh consequences indicated therein.NOTE: The notice period would expire on 16.04.2011.04.04.2011 The appellant issued a show cause notice for blacklisting the first respondent for a period of 5 years.05.04.2011 The appellant issued Ext. B5 re-tender notice inviting tenders for re-arranging the balance work. This was issued even before 16.04.2011 which is the date of expiry of the notice period in Ext. A12.12.04.2011 District Court passed Ext. B7 order dismissing OP (Arb) 442 /2011 and vacated the ad interim injunction holding that the appellant which obtained the ad interim injunction on the ground that the appellant wanted the contract to be specifically enforced, had, by terminating the contract, sought to sustain the OP (Arb) with unclean hands.Note. - No arbitration proceedings were commenced by the appellant during the period between 01.04.2011 and 12.04.2011.12.04.2011 On the same day of dismissal of OP (Arb) 442/2011, the appellant filed the present OP (Arb) 505/2011 for a direction to the first respondent to furnish security for Rs.300 crores and in the meanwhile to pass an order of conditional attachment of the dredgers and equipments of the first respondent. (No averment that the appellant proposes to go for arbitration).The appellant also filed IA No. 2015 of 2011 for an ex parte order of conditional attachment.No ex-parte order of attachment granted.As per IA 2014/2011 the appellant also sought the appointment of an advocate commission for conducting hydrographic survey to ascertain the dredging depth with the assistance of a Government approved hydro graphic agency.20.04.2011 R1 filed its counter affidavit in OP (Arb) 505/11 contending inter alia that there was no basis at all in the claim of the appellant for furnishing security for Rs.300 crores.26.04.2011 Appellant terminated the contract of the first respondent.28.04.2011 Appellant issued Ext. B8 work order for maintenance dredging to M/s. Dredging Corporation of India for three years from 01.04.2011 onwards for Rs.319.50 crores.03.05.2011 A London based company by name Clashmore Holdings Ltd. filed a Writ Petition as WP (C) No. 12392/2011 before the High Court of Kerala and obtained an order for release of two dredgers TSHD KAMAL XXXV and TSHD KAMAL XXXVI which they had hired to first respondent.06.05.2011 Appellant filed Arb. Appeal 27/2011 before the High Court challenging the order of the District Court dismissing OP (Arb) 442/2011.Note. - No arbitral proceedings were commenced by the appellant even on the date of appeal.09.05.2011 Appellant issued Ext. B9 work order for the balance capital dredging work to M/s. Mercator Lincs Ltd. for a total cost of Rs.60.80 crores.17.05.2011 Writ Appeal No. 566/2011 filed by the appellant against the release order of 2 dredgers granted to Clashmore Holdings, dismissed by the Division Bench.19.05.2011 Appellant sent Ext. A15 letter (Annexure A15 in this appeal) to first respondent calling upon the first respondent to remit within 7 days of receipt of the letter Rs.259.97 crores after arriving at a total compensation of Rs.308.68 crores - Annexure to Ext. A15 shows the break up of the compensation. A sum of Rs.192.86 crores is computed as compensation recoverable as per certain clauses of Ext. A3 amended agreement. Another sum of Rs.3.98 crores is shown as associated claims. A further sum of Rs.111.83 crores is shown as consequential claims. From the grand total of Rs.308.68 crores constituting the above claims of compensation, Rs.48.71 crores shown as payable to the first respondent, is deducted to arrive at Rs.259. 97 crores.
There is a threat in the letter that if the amount is not paid within 7 days it will bear interest at the rate of 18 percent per annum and that the appellant will also be constrained to initiate appropriate legal proceedings for recovery of the amount.23.05.2011 Since the dredgers and other vessels of second respondent were lying idle in the Cochin Port area incurring heavy expenditure and also since those vessels were required by second respondent for their work in the Port of Goa, the second respondent applied to the appellant for a clearance to remove those vessels. No action on the said application.26.05.2011 Second respondent filed W.P. (C) No. 14331/2011 seeking release of their vessels from the Cochin Port Area. After detailed argument, Judgment has been reserved in that case.26.05.2011 The appellant filed I.A. No. 2742/2011 in O.P. (Arb) 505/2011 again seeking conditional attachment over 11 more equipments including 3 dredgers.08.06.2011 As per Annexure - R-V judgment, Arbitration Appeal 27/2011 was disposed of by the High Court allowing the appellant to withdraw O.P. (Arb) 442 of 2011. The Division Bench also set aside Ext. B7 order dated 12.04.2011 passed by the District Court dismissing O.P. (Arb.) 442/2011. It was however made clear that the option of the first respondent to comment upon the alleged unfair and improper conduct of the appellant in the proceedings initiated by it before the District Judge shall remain unfettered by the dismissal of that appeal.Note. - No arbitral proceedings were commenced by the appellant between 12.04.2011 and 08.06.2011.02.09.2011 Pending O.P. (Arb) 505/2011, Chief Engineer issued Annexure R II notice referring to Ext. A15 letter and called upon the first respondent to appear before him on 14.09.2011 for a determination of the appellant's claim for payment of Rs.259.97 crores.05.09.2011 The District Court as per the impugned order dismissed on merits the present O.P. (Arb) 505 of 2011.09.09.2011 First respondent submitted Annexure R III objection to Annexure R II notice. In the said objection the first respondent, relying on 1987 (2) SCC 160, 2009 (2) SCC 337 and JT 2011 (5) SC 380 contended inter alia that it was not permissible to the Chief Engineer who is an officer of the appellant (a party to the contract) to adjudicate upon the question regarding the breach of contract allegedly committed by the other party to the contract and which party was disputing the alleged breach.19.09.2011 The present appeal (Arb. Appeal 44 of 2011) filed by the appellant against the order dated 05.09.2011 passed by the District Court dismissing OP (Arb) 505 of 2011.22.09.2011 Pending this appeal as per Annexure R XI letter the Chief Engineer informed the first respondent that the latter did not attend the hearing in compliance of Annexure R-II notice dated 02.09.2011 and that the objections raised in Annexure R - III were not relevant and accordingly determined that the amounts (i.e. Rs.259.97 crores) claimed in Ext. A15 letter issued by the appellant to the first respondent are due and payable by the first respondent to the appellant.22.09.2011 The first respondent filed a detailed counter affidavit in this appeal. In paragraph 2 (i) and (ii), the first respondent has specifically contended that the appellant has not taken any steps for reference of the dispute forming the subject matter of O.P. (Arb) 505.2011, to arbitration and that the appellant has not evinced any manifest intention to take recourse to arbitration.27.10.2011 This appeal argued in part before another Division Bench of the High Court. The first respondent inter alia contended in the written notes of arguments that even till 27.10.2011 no arbitral proceedings were commenced by the appellant.15.11.2011 Nearly two months after the filing of this appeal, the appellant made a counter - claim of the present dispute through courier to the 3 arbitrators who were arbitrating some other claim raised by the Ist respondent and arising out of the same contract.(This, according to the appellant amounts to commencement of arbitration proceedings).03.12.2011 This appeal finally heard by this Bench
ARGUMENT OF THE PORT OF COCHIN (APPELLANT)
6. Sr. Advocate Sri. Joseph Markos appearing for the appellant made the following submissions before us in support of the appeal: The objection raised by the Ist respondent that the OP filed by the appellant before the District Court under Section 9 of the Act was not maintainable for failure to initiate arbitration proceedings within reasonable time, is untenable. All that is necessary is that the intention of the applicant to go for arbitration should be discernible from the application filed under Section 9. That is the manifest intention as highlighted in Sundaram Finance Ltd. Vs. NEPC India Ltd., (1999) 2 SCC 479. When under Section 9 the Court can be approached for an interim measure of protection even before arbitral proceedings, it may not be correct in insisting upon a notice under Section 21 of the Act as a condition precedent to the filing of the application. The exigencies of the case may compel a party to move the Court for an urgent interim measure and in such a case all that the Court need be satisfied is that there exists a valid arbitration agreement and the applicant intends to take the dispute to arbitration. If at the time of passing the order under Section 9 of the Act, the Court has any doubt regarding the proposed commencement of arbitral proceedings, the Court should, as was done in Firm Ashok Traders Vs. Gurumukh Das Saluja, AIR 2004 SC 1433, ask the applicant as to what steps he intents to take for commencement of arbitral proceedings and the Court may even pass a conditional order. Once the Court arrives at such satisfaction, it will have jurisdiction not only to entertain the application under Section 9, but also to pass appropriate order granting an interim measure of protection. In this case, when the appellant has already commenced arbitral proceedings on 15.11.2011 by filing a counter claim before the arbitrators, the question as to whether the appellant had the manifest intention to go for arbitration, is really irrelevant at this stage. In State of Goa Vs. Praveen Enterprises, 2011 (7) SCALE 131 the Apex Court has held that arbitral proceedings can also be commenced by raising the dispute by way of counter claim in pending arbitration proceedings. Ext. A25 proceedings dated 14.06.2011 of the Presiding Arbitrator pertaining to the pending arbitral proceedings between the Ist respondent and the appellant, shows that the initial statement of claims (SOC) filed by the Ist respondent containing 6 claims on 04.04.2011 was subsequently amended by the Ist respondent under Section 23 (3) of the Act by raising 5 more claims in the 2nd week of April 2011 and yet another claim was made on 06/06.2011 and consequently the appellant could file its statement of defence and counter claim only after 01.08.2011 till which time the presiding Arbitrator granted time to the appellant. Ext. B10 application dated 25.04.2011 filed by the appellant before the Arbitrator seeking time for filing its statement of defence and counter claims will show that the appellant also had its claims to be made before the Arbitrator. It was granting the above application that the Arbitrator gave the appellant time till 01.08.2011. The delay in filing the counter claim was not due to any laches on the part of the appellant. At any rate, on 15.11.2011 the appellant filed his counter claim before the Arbitrator and with that the appellant should be deemed to have commenced the arbitral proceedings for the purpose of his application under Section 9. In Sundaram Finance (supra) the Apex Court has held that in order to ensure that effective steps are taken to commence arbitral proceedings the Court while passing conditional order under Section 9 can put the applicant to such terms as it may deem fit to see that effective steps to commence arbitral proceedings within a reasonable time, are taken. In Firm Ashok Traders Vs. Gurumukh Das Saluja, AIR 2004 SC 1433 the Apex Court has held that the Court while passing orders under Section 9 can direct the applicant to take steps for appointment of arbitrator without any further loss of time. Now that the appellant has already commenced the arbitral proceedings by filing the counter claim before the Arbitrator on 15.11.2011, the question of manifest intention has become purely academic. On the merits, the prayer in the OP filed by the appellant was to direct the 1st respondent to furnish security for Rs.300 crores and in the meanwhile to pass a conditional order of attachment in respect of 11 dredging vessels and one accessory vessel. The appellant had also sought the appointment of an Advocate Commission assisted by an expert to conduct a hydrographic survey to ascertain the dredging depth. The appellant admits that by 30.04.2010 the Ist respondent had completed the capital dredging of the approach channels of Group B channel. But the Ist respondent had not completed the capital dredging of the basin area. The period of completion of the basin area capital dredging was extended till 30.09.2010 within which also the said work was not completed by the Ist respondent. They were permitted to complete the said work by 31.03.2011. On 09.02.2011 the International Container Transhipment Terminal was inaugurated by the Prime Minister, without any of the specified category of ships being able to enter the basin area. During the period beyond 30.09.2010 the Ist respondent was willing to carry out the work only on additional payment. The appellant insisted that the Ist respondent who was at fault was bound to complete the work without any additional payment. Exts. A4 to A9 are the correspondence passed between the parties. On 31.03.2011 the Ist respondent stopped work disregarding the direction of the appellant in Ext. A4 letter to work till 15.05.2011. On 02.04.2011 the appellant issued 14 days' notice of termination of the contract to the Ist respondent and informed them that the appellant will carry out the work under their risk and cost. In the meanwhile on 31.03.2011 the Ist respondent unauthorisedly removed a dredger from the dredging site. That was what compelled the appellant to file O.P. (Arb) No. 442 of 2011 seeking a temporary injunction. But the cause of action for the present OP (Arb) was different and the surviving interest of the appellant was to ensure the security for the favourable award which might be passed in favour of the appellant. The Court below had obviously not looked into Ext. A15 letter in which the total compensation due to the appellant consequent on the breach of contract by the Ist respondent was assessed at Rs.308.68 crores of which Rs.192.86 crores are recoverable as per the terms of Ext. A3 contract itself. The balance amount of Rs.111.83 crores and 3.98 crores constituted consequential and associated claims. Deducting the sum of Rs.48.71 crores due to the Ist respondent, the appellant had demanded Rs.259.97 crores from the Ist respondent. In any view of the matter, the claim of compensation for Rs.192.86 crores was strictly in accordance with the clauses under Ext. A3 and can be fully supported by the decision of the Apex Court in J. G. Engineers Vs. Union of India, (2011) 5 SCC 758, in which clause 25 of the contract was almost identical with clause 2.39 of Ext. A1. As per the terms of the contract, the Ist respondent was bound to retain all the dredgers and other equipments till the completion of the work. When the Ist respondent had abandoned the work leaving it incomplete, the appellant was fully justified in approaching the Court, particularly when the Ist respondent had unauthorisedly removed one of the dredgers from the dredging site. Even if the averments in O.P. (Arb) 505.2011 are not sufficient to invoke Order 38 Rule 5 CPC, there were proper averments in IA No. 2015/2011 filed for ad interim conditional order of attachment. The Ist respondent has no case that they completed the work either as on 30.09.2010 or as on 31.03.2011 There is no contradiction in the stand of the appellant with regard to the backlog of the unfinished work left by the Ist respondent. The volume of the work for re-tender as per Annexure A19 dated 05.04.2011 is two million Cu.m. Eventhough the volume of work stated by the Chief Engineer in Annexure R XVI minutes of the meeting was 1.5 million cu.m., the Assistant Vice President did not agree with the statement of the Chief Engineer. Similarly, just because the appellant has in Annexure A18 letter blamed the IGTPL that it was their fault in delaying the capital dredging work in front of the berth by 9 months, the same cannot be taken advantage of by the Ist respondent in not completing its commitment under the contract. Moreover, the quantity shown as two million in the re-tender notice has been specified as indicative quantity. As for the claim put up by the 2nd respondent over the vessels sought to be attached, no such claim was made before the Court below. Second respondent got itself impleaded only in this appeal. Until then, the first respondent was claiming the vessels as its own. From the very fact that there are common directors in both first and second respondent companies, it is a matter for interference that it is really one and the same company and the decision making is by the same persons. The learned District Judge has overlooked all the above vital aspects before dismissing the OP filed by the appellant.
7. We are afraid that we find ourselves unable to accept the above submissions made on behalf of the appellant. By now, it is well settled that the Civil Court while disposing of an application under Section 9 of the Act, can avail of the auxiliary or incidental powers which are at its disposal under the Code of Civil Procedure, 1908 ("CPC" for short). This is so by virtue of the latter part of Section 9 itself which reads "and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it". (Vide paragraph 11 Adhunik Steels Limited Vs. Orissa Manganese and Minerals (P) Ltd., (2007) 7 SCC 125 and the Judgment dated 28.11.2011 in Muthukoya Thoopiyakkal Vs. Union of India and Others (Arbitration Appeal No. 48 of 2011). That apart, Rule 11 of the Kerala Arbitration and Conciliation (Court) Rules, 1997 specifically makes the CPC as well as the Kerala Civil Rules of Practice, 1971 and even the Circular Orders issued by the High Court of Kerala from time to time, applicable to all proceedings under the Act.
PRE-REQUISITES FOR A CONDITIONAL ORDER OF ATTACHMENT BEFORE JUDGMENT
8. Attachment before Judgment is an extraordinary power which has to be exercised by the Court with due care and caution. It cannot be granted on a mere assertion by the plaintiff that the defendant is attempting to dispose of property or remove property from the jurisdiction of the Court. Woody's Hotel Pvt. Ltd. Vs. Prasanth Kumar Panigrahy, 1998 (1) KLT 149 DB specific act of the defendant with intent to directly or indirectly obstruct or delay the execution of the decree that may be passed, is required. Vague or evasive allegations are not enough to pass an order under Order XXXVIII Rule 5 CPC Retnamma Pillai Deepa Vs. Govinda Pillai Gopala Pillai, ILR 1995 (2) Ker. 354. It is incumbent upon the plaintiff to state the grounds on which he entertains the belief or apprehension or to furnish the source of his information and belief that the defendant would dispose of or remove property. (Rai Prem Chand Vs. P.K. Ahammed and Co., 1981 KLT 294. Even where the Court passes a conditional order of attachment that does not take away the right of the defendant to show cause why he should not furnish security. Shalimar Rope Works Ltd. Vs. N.C. John and Sons. Ltd. 1986 KLT 1366 (DB). Where particulars of the plaintiff's claim in the plaint are not specific, no relief by way of attachment before Judgment can be granted. Raman Tech and Process Engg. Co. Vs. Solanki Traders, (2008) 2 SCC 302. In the absence of a prima facie case for the plaintiffs, mere shifting or removal of machinery by the defendant from one place to another, by itself is not a ground for granting attachment before judgment. Vide Raman Tech (supra). Applying the above principles to the facts of this case, we are of the view that the following circumstances dis entitle the appellant to claim the discretionary relief under Section 9(ii)(b) of the Act. If a strict interpretation of the above provision is attempted it could even be said that the interim measure of protection by way of "securing the amount in dispute in the arbitration" cannot be granted in a case where there is no dispute in arbitration. Well, having regard to the serious, if not disastrous, consequences which such an interpretation might give rise to, we are not inclined to go to such extreme.
CURCUMSTANCES AGAINST THE APPELLANT
We now proceed to give the aforesaid circumstances:
a) No specific pleading in the OP in terms of Order 38 Rule 5 CPC.
9. What is averred in paragraph 14 of the OP filed by the appellant herein before the Court below reads as follows:
"14. Now since the Respondent has not come up to complete the work in consonance with the terms of the contract the only option left with the petitioner is to carryout the remaining work at the Respondent's risk and cost as stated in the notice dated 02.04.2011. It is submitted that at any rate the petitioner will have to shell out huge amounts approximately to the tune of Rs.300 crores for completion of the dredging works left over by the Respondent. In the meanwhile, if the Respondent happens to remove the dredgers and other allied equipment scheduled hereunder from the Port waters clandestinely and illegally the petitioner will not be in a position to realise the amounts out by the petitioner for completing of the dredging work which has to be exactly ascertain and resolved though Arbitration as per the arbitration clause in the Special Conditions of Contract".
There is no averment in the OP that the Ist respondent herein is about to remove the dredgers or other equipments from the local limits of the jurisdiction of the Court. No doubt, in paragraph 3 affidavit in support of IA 2015/2011 it is stated that it is understood that the respondent therein (R1 herein) is intending to clandestinely and illegally take away the equipments and dredgers without the permission of the Chief Engineer. The OP itself is for an interim measure of protection under Section 9 of the Act. When the OP does not contain an allegation that the Ist respondent is about to remove the equipments from the local limits of the jurisdiction of the Court below, it is doubtful whether an averment as above in an interlocutory application filed in the above OP could be looked into. Even if the said averment in the IA could be looked into by the Court, it does not further say that the apprehended removal is with intent to obstruct or delay the execution of any award that may be passed against the Ist respondent. The OP also does not contain an averment to that effect. Hence the impugned order cannot be faulted on that account.
b) No manifest intention shown to go for arbitration and no pleading also in that behalf.
10. This is a case where the appellant approached the District Court for an interim measure of protection under Section 9 of the Act before arbitration proceedings. Unlike the former statute, namely, the Arbitration Act, 1940, the present law enables a party to an arbitration agreement to move the Civil Court for an interim measure of protection not only during or after arbitral proceedings but also before the commencement of such arbitral proceedings.
11. It is pertinent to note that under Arbitration Act, 1940 Section 20 thereof enabled a party to apply to the Court merely for appointing an arbitrator when no matter was pending before the Court and such party could simultaneously move an application before the Court for any of the interim reliefs under the second schedule read with Section 41 (b) thereof. But there is no corresponding provision in the new Act. Under the new Act the ordinary Civil Court cannot be approached for the mere purpose of appointing an arbitrator. As per Section 8 of the new Act the Court gets jurisdiction to refer the parties to arbitration (where there is an arbitration agreement) only if an action is pending before the Court. (Vide para 12 of Sundaram Finance (supra). Under the old Act, in a case where an action was pending before the Civil Court and there was an arbitration agreement, the proceedings could only be stayed under Section 34, and that too, if the conditions specified therein were present.
12. As per the new Act the Court has jurisdiction to grant an interim measure of protection under Section 9 not only during arbitral proceedings and after the award but also before the commencement of arbitral proceedings. Section 9 of the new Act reads as follows: -
Section 9 of the Act reads as follows:"9. Interim measures, etc. by Court. - A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to Court:i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; orii) for an interim measure of protection in respect of any of the following matters, namely: -a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;b) Securing the amount in dispute in the arbitration;c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;d) interim injunction or the appointment of a receiver;e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it".
There cannot be any difficulty regarding the power of the Court in the exercise of the above jurisdiction both during and after arbitral proceedings. The justification for conferring the power to pass interim measure of protection during arbitral proceedings in spite of the fact that the arbitral tribunal has been given similar powers under Section 17 of the Act, is that the orders of the arbitral tribunal cannot be enforced unlike those passed by the Court. (Vide para 11 of Sundaram Finance (supra). But in a case, as the present one, where the Court is approached by invoking Section 9 for an interim measure of protection before arbitral proceedings are commenced, should not the party approaching the Court plead or at lease exhibit a manifestintention to go for arbitration within a reasonable time?. Or, is it enough that after securing an interim measure of protection disabling the opposite party, the applicant can sit back and leisurely commence arbitral proceedings at his convenience and sweet will?
13. In Sundaram Finance (supra) the Supreme Court examined the question whether it was open to the Court to entertain an application under Section 9 and pass an interim order before the commencement of arbitral proceedings. This is what the Supreme Court held:
"13. Under the 1996 Act, the Court can pass interim orders under Section 9. Arbitral proceedings, as we have seen, commence only when the request to refer the dispute is received by the respondent as per Section 21 of the Act. The material words occurring in Section 9 are "before or during the arbitral proceedings." This clearly contemplates two stages when the Court can pass interim orders, i.e. during the arbitral proceedings or before the arbitral proceedings. There is no reason as to why Section 9 of the 1996 Act should not be literally construed. Meaning has to be given to the word "before" occurring in the said section. The only interpretation that can be given is that the Court can pass interim orders before the commencement of arbitral proceedings. Any other interpretation, like the one given by the High Court will have the effect of rendering the word "before" in Section 9 as redundant. This is clearly not permissible. Not only does the language warrants such an interpretation but it was necessary to have such a provision in the interest of justice. But for such a provision, no party would have a right to apply for interim measure before notice under Section 21 is received by the respondent. It is not unknown when it becomes difficult to serve the respondents. It was therefore, necessary that provision was made in the Act which could enable a party to get interim relief urgently in order to protect its interest. Reading the section as a whole it appears to us that the Court has jurisdiction to entertain an application under Section 9 either before arbitral proceedings or during arbitral proceedings or after the making of the arbitral award but before it is enforced in accordance with Section 36 of the Act."
It was then argued before the Supreme Court that where a party invokes the jurisdiction of the Court under Section 9 of the Act before the commencement of arbitration proceedings, then such party must express a manifest intention to go for arbitration. The said argument was upheld by the Supreme Court thus:
"18. It was submitted by Mr.Subramanium that even if the Court can exercise jurisdiction under Section 9 before the arbitral proceedings have commenced, the party seeking to invoke Section 9 must express a manifest intention to arbitrate. The learned counsel submitted that this intention can take the following forms:(a) in an application under Section 9 the party would have to state that it inequivocally relies on the arbitration agreement and makes an averment that it would invoke the arbitration clause.(b) At the time when the Court passes an interim order under Section 9 an express undertaking is given by the party before the Court that it would invoke the arbitration clause forthwith and within a fixed period and(c) a notice invoking the arbitration clause should have been issued to the opposite party.
It was contented that mere filing of an application under Section 9 was not sufficient to establish manifest intention to this extent.
19. When a party applies under Section 9 of the 1996 Act, it is implicit that it accepts that there is a final and binding arbitration agreement in existence. It is also implicit that a dispute must have arisen which is referable to the Arbitral Tribunal. Section 9 further contemplates arbitration proceedings taking place between the parties. Mr.Subramanium is, therefore, right in submitting that when an application under Section 9 is filed before the commencement of the arbitral proceedings, there has to be manifest intention on the part of the applicant to take recourse to the arbitral proceedings if at the time when the application under Section 9 is filed, the proceedings have not commenced under Section 21 of the 1996 Act. In order to give full effect to the words "before or during arbitral proceedings" occurring in Section 9, it would not be necessary that a notice invoking the arbitration clause must be issued to the opposite party before an application under Section 9 can be filed. The issuance of a notice may in a given case, be sufficient to establish the manifest intention to have the dispute referred to an Arbitral Tribunal. But a situation may so demand that a party may choose to apply under Section 9 for an interim measure even before issuing a notice contemplated by Section 21 of the said Act. If an application is so made, the Court will first have to be satisfied that there exists a valid arbitration agreement and the applicant intends to take the dispute to arbitration. Once it is so satisfied, the Court will have the jurisdiction to pass orders under Section 9 giving such interim protection as the facts and circumstances warrant. While passing such an order and in order to ensure that effective steps are taken to commence the arbitral proceedings, the Court while exercising jurisdiction under Section 9 can pass a conditional order to put the applicant to such terms as it may deem fit with a view to see that effective steps are taken by the applicant for commencing the arbitral proceedings."
14. In Firm Ashok Traders (supra) also the Supreme Court approved the above ratio in Sundaram Finance (supra). There the applicant had even commenced arbitral proceedings by issuing a notice under Section 21 of the Act on 02.06.2003 to the opposite party (which, however, denied receipt of the said notice). It was, thereafter, on 22.07.2003 that the party approached the Addl. District Judge for interim measure of protection under Section 9 (ii) (d) of the Act. In spite of that the Supreme Court held that the applicants should have post haste sought for the appointment of arbitrator under Section 11 if the opposite party to whom notice under Section 21 was given had failed to respond. This inaction was held sufficient to deny relief to the applicant who had failed to exhibit manifest intention to go for arbitration. However, on the peculiar facts of the case the Apex Court did not consider it necessary to set aside the order of the Madhya Pradesh High Court which had appointed a receiver for the conduct of the partnership business. Instead of the applicants, the opposite party which was conducting the business for past 9 out of 12 months, were appointed as receivers to conduct the business and with duty to account for the same. During the course of discussion the Supreme Court observed as follows:
17. There are two other factors which are weighing heavily with us and which we proceed to record. As per the law laid down by this Court in M/s. Sundaram Finance Ltd. an application under Section 9 seeking interim relief is maintainable even before commencement of arbitral proceedings. What does that mean? In M/s. Sundaram Finance Ltd., itself the Court has said- "It is true that when an application under Section 9 is filed before the commencement of the arbitral proceedings there has to be manifest intention on the part of the applicant to take recourse to the arbitral proceedings. "Section 9 permits application being filed in the Court before the commencement of the arbitral proceedings but the provision does not give any indication of how much before. The word "before" means, inter alia, ahead of; in presence or sight of; under the consideration or cognizance of ". The two events sought to be interconnected by use of the term 'before' must have proximity of relationship by reference to occurrence; the later event proximately following the preceding event as a foreseeable or 'within sight' certainty. The party invoking Section 9 may not have actually commenced the arbitral proceedings but must be able to satisfy the Court that the arbitral proceedings are actually contemplated or manifestly intended (as M/s.Sundaram Finance Ltd. puts it) and are positively going to commence within a reasonable time. What is a reasonable time will depend on the facts and circumstances of each case and the nature of interim relief sought for would itself give an indication thereof. The distance of time must not be such as would destroy the proximity of relationship of the two events between which it exists and elapses. The purpose of enacting Section 9 read in the light of the Model Law and UNCITRAL Rules is to provide 'interim measures of protection'. The order passed by the Court should fall within the meaning of the expression 'an interim measure of protection' as distinguished from an all-time or permanent protection.
18. Under the A and C Act, 1996, unlike the predecessor Act of 1940, the arbitral Tribunal is empowered by Section 17 of the Act to make orders amounting to interim measures. The need for Section 9, in spite of Section 17 having been enacted, is that Section 17 would operate only during the existence of the arbitral Tribunal and its being functional. During that period, the power conferred on the arbitral Tribunal under Section 17 and the power conferred by the Court under Section 9 may overlap to some extent but so far as the period pre and post the arbitral proceedings is concerned the party requiring an interim measure of protection shall have to approach only the Court. The party having succeeded in securing an interim measure of protection before arbitral proceedings cannot afford to sit and sleep over the relief, conveniently, forgetting the proximately contemplated or 'manifestly intended' arbitral proceedings itself. If arbitral proceedings are not commenced within a reasonable time of an order under Section 9 the relationship between the order under Section 9 and the arbitral proceedings would stand snapped and the relief allowed to the party shall cease to be an order made 'before', i.e. In contemplation of arbitral proceedings. The Court approached by a party with an application under Section 9 is justified in asking the party and being told how and when the party approaching the Court proposes to commence the arbitral proceedings. Rather the scheme in which Section 9 is placed obligates the Court to do so. The Court may also while passing an order under Section 9 put the party on terms and may recall the order if the party commits breach of the terms.
19. During the course of hearing, we asked the learned counsel for Group "A" what steps have they taken for initiation of arbitral proceedings ever since 02.06.2003 the date on which they claim to have invoked arbitration clauses, or since 22.07.2003 the date on which the application under Section 9 was filed? We were told that Group "A" was awaiting for the orders of the Court under Section 9 of the Act. This is hardly an explanation. Commencement or arbitral proceedings is not dependent on the interim relief being allowed or denied. It was expected of Group "A" to have post-haste sought for the appointment of arbitrator under Section 11 of the Act if the partners noticed had failed to respond to the demand of Group "A" for arbitration. This, by itself, in our opinion, would have been enough to deny relief to Group "A". However, in the facts and circumstances of the case, as we find the High Court having felt convinced of the need for appointment of receiver and as we are inclined only to suitably modify the order, we do not deem it proper to dismiss the application under Section 9 in its entirety and for this reason alone. We direct the applicant under Section 9 to take steps for appointment of arbitrator/s, without any further loss of time.
15. If the contention of the appellant is accepted then an applicant under Section 9 of the Act before the commencement of arbitral proceedings, should be asked by the Court as to when and in what manner does he propose to commence the arbitral proceedings and if the answer is vague or evasive, the Court can even pass an order granting interim measure of protection subject to the condition that within a specified time limit the applicant shall take effective steps to commence arbitral proceedings. Merely because the Apex Court in Firm Ashok Traders (supra) asked the applicant in that case as aforesaid, it does not follow that such a procedure which is not insisted by the statute should invariably be followed by the Court in all cases. What the law, as interpreted in Sundaram Finance (supra) as affirmed in Firm Ashok Traders (supra) enjoins is a manifest intention on the part of the applicant to go for arbitration in a case where he approaches the Court before the arbitral proceedings. Such manifest intention can be discerned from the positive averments in the petition, followed by effective steps taken in that behalf by the applicant.
16. A perusal of the application in O.P. (Arb) 505/2011 running into 17 paragraphs, shows that there is not even an averment in the application that the appellant proposes to initiate arbitration proceedings with regard to the dispute raised by it. The learned counsel for the appellant had to strain much to make out from paragraph 14 of the OP that the allegation therein to the effect that if the respondent clandestinely and illegally removes the dredgers and allied equipments, the appellant will not be in a position to realise the amounts which are to be ascertained and resolved through arbitration, spells out the manifest intention of the appellant to go for arbitration. We cannot agree. There is not only no positive averment in the above O.P. filed on 12.04.2011 that the appellant proposes to resolve its claim through arbitration, but no steps were also taken in that direction by the appellant either during the pendency of the OP before the Court below till 05.09.2011 or at least when the appellant filed this appeal before this Court on 19.09.2011. No steps were taken even after the Ist respondent filed its counter-affidavit in this appeal on 22.09.2011 or thereafter on 27.10.2011 when this appeal was heard in part by another Division Bench of this Court and when the Ist respondent had filed a written notes of argument contending inter alia that no arbitral proceedings have so far been taken by the appellant. It was only on 15.11.2011 that the appellant filed a counter-claim in a pending arbitration proceedings in which the Ist respondent is the claimant. There is no dispute that on 04.07.2011 the Apex Court in Praveen Enterprises, 2011 (7) SCALE 131 laid down that arbitral proceedings can also be commenced by means of a counter-claim in a pending arbitration, but after notice. This is what the Supreme Court has held in paragraph 26 of the above decision:
"26. A counter claim by a respondent pre-supposes the pendency of proceedings relating to the disputes raised by the claimant. The respondent could no doubt raise a dispute (in respect of the subject matter of the counter claim ) by issuing a notice seeking reference to arbitration and follow it by an application under Section 11 of the Act for appointment of Arbitrator, instead of raising a counter claim in the pending arbitration proceedings. The object of providing for counter claims is to avoid multiplicity of proceedings and to avoid divergent findings. The position of a respondent in an arbitration proceedings being similar to that of a defendant in a suit, he has the choice of raising the dispute by issuing a notice to the claimant calling upon him to agree for reference of his dispute to arbitration and then resort to an independent arbitration proceedings or raise the dispute by way of a counter claim, in the pending arbitration proceedings."
Even assuming that the appellants' explanation regarding the delay in filing the counter claim is acceptable, still, it is an admitted fact that no notice was given by the appellant to the Ist respondent before the appellant filed the counter claim. After giving our anxious consideration to the above observation by the Apex Court, we do not think that it is permissible for a party to unilaterally impose a counter claim on the opposite party even without a previous notice in that behalf. Nor are we inclined to accept the argument on behalf of the appellant that the observation regarding notice made by the Apex Court is only for initiation of fresh arbitration proceedings and not while submitting a counter claim in a pending arbitration. In any view of the matter, until 15.11.2011 when the appellant submitted its counter claim before the arbitrators, there was no manifest intention to go for arbitration revealed by the appellant either to the District Court below or to this Court in appeal.
17. The satisfaction to be arrived at by the Court regarding the manifest intention of the applicant under Section 9 of the Act in a case where the Court is approached before the commencement of arbitral proceedings, should be that of the Court of first instance itself. The applicant cannot be heard to say that he need satisfy the existence of the manifest intention only at the appellate stage and that too, long after the filing of the appeal as was attempted to be shown by the appellant herein. It is pertinent to note in this connection that prior to the present O.P. the appellant had filed O.P. (Arb) 442 of 2011 also under Section 9 seeking an injunction against the first respondent from removing any of the dredgers or other equipments from the dredging site. There the appellant had initially secured an ad interim injunction which was eventually vacated by the District Judge holding inter alia that the appellant had approached the Court with unclean hands. An appeal preferred from the final order in that case was later on disposed of by this Court allowing the appellant to withdraw the O.P. No steps for commencement of arbitration proceedings were taken by the appellant either during the pendency of O.P. (Arb) 442 /2011 (i.e. from 02.04.2011 to 12.04.2011) or during the pendency of Arbitration Appeal 27/2011 (i.e. from 06.05.2011 to 08.06.2011). The conduct of the appellant in filing O.P. (Arb) 442 of 2011 on 01.04.2011, and securing an ad interim injunction on 02.04.2011 and on the same day issuing Ext. A12 (Ext. B1) notice of termination of the contract and before expiry of the notice period issuing Ext. B5 re-tender notice inviting tenders for the completion of the work allegedly abandoned by the Ist respondent, had invited adverse comments at the hands of the District Judge. This Court while permitting the appellant to withdraw O.P. (Arb.) 442 of 2011 had however, allowed the Ist respondent to highlight in O.P. (Arb) 505/2011 the lack of bona fides of the appellant. The learned District Judge in the impugned order has upheld the contention of the Ist respondent that the appellant was not acting in a fair manner but instead was abusing the process of the Court. We, are therefore, of the considered opinion that in a case where the Civil Court is approached for an interim measure of protection under Section 9 at a stage before the commencement of arbitral proceedings, there should be clear averment in the petition under Section 9 evincing a manifest intention on the part of the applicant to go for arbitration and such intention should also be discernible from the subsequent conduct of the applicant. Without being satisfied about the existence of such manifest intention the District Court also will not be justified in granting any interim order of protection to such applicant. We also hold that it will be impermissible for the applicant in such a case to contend before the Court of first instance that he will prove the manifest intention eventually before the Appellate Court. In that view of the matter we have no hesitation to hold that the appellant failed to convince the Court that it has the manifest intention to go for arbitration so as to be entitled to an interim order of protection. Of course, the question as to whether the counter claim submitted by the appellant in the pending arbitration is allowable or not and if so to what extent, are all matters to be decided by the arbitrators.
c) THE CONDUCT OF THE APPELLANT
18. Eventhough the filing of OP (Arb) 442/2011 by the appellant earlier does not have any direct impact on the present proceedings, the circumstances leading to the dismissal of the said OP, are certainly relevant in assessing the lack of bona fides of the appellant and the abuse of the process of Court committed by the appellant. There is no dispute that as on 30.04.2010 that the first respondent had completed the capital dredging of the approach channels of Group B channels. Thereafter what remained was only the capital dredging of the basin area and maintenance dredging of Group C channel. As per Ext. A3 contract, Trailing Suction Hopper Dredgers (TSHDs) with a total hopper capacity of not less than 14000 Cu. m. were to be deployed by the Ist respondent during the period from 01.10.2010 to 31.03.2011 for achieving the specified depths during the maintenance dredging of the basin area (Vide the Note to Table B2(b) of Ext. A3 contract). But from November 2010 to January 2011 the Ist respondent had deployed 7 dredgers with a total hopper capacity of 30478 M3 as against the contractual requirement of 14000 M3. Details of those dredgers and their hopper capacity are as follows:
|Sl.No.||Name of dredger||hopper capacity M3|
|1||TSHD KAMAL XXV||2980|
|2||TSHD KAMAL XXXV||8205|
|3||TSHD KAMAL XXXIII||3205|
|4||BLD KAMAL XXXVI||5544|
|6||TSHD KAMAL XXIX||2000|
|7||BLD KAMAL XXVI||5544|
d) Sustainability of the appellants' demand for Rs.259.97 Crores by way of compensation for the alleged breach of contract
19. After terminating the contract of the Ist respondent and awarding the balance maintenance dredging work to M/s. Dredging Corporation of India and the balance capital dredging work to M/s. Mercator Lines Ltd. the appellant sent Ext. A15 letter dated 19.05.2011 to the Ist respondent claiming a total compensation of Rs.259.97 crores of which Rs.192.86 crores was allegedly recoverable as per the terms of Ext. A3 contract and the balance being "consequential" and "associated" claims. Thereafter the Chief Engineer of the appellant during the pendency of OP (Arb) 05/2011 before the District Court, proposed to determine the above compensation stated to be due to the appellant. The Chief Engineer as per Annexure R-II notice dated 02.09.2011 called upon the Ist respondent to appear before him for a determination of the above claim. Even though the respondent denied the alleged breach of contract by it and objected to the authority of the Chief Engineer (who was only an officer under the appellant who in turn, is a party to the contract) the Chief Engineer overruled the objection and confirmed the demand of Rs.259.97 crores as the compensation due to the appellant. Reliance placed by the appellant on M/s. J. G. Engineers (Pvt) Ltd., Vs. Union of India, (2011) 5 SCC 758 before us to justify the above demand is of no avail to it because in paragraph 14 thereof it is specifically held by the Supreme Court that the authority of the Engineer to decide the percentage of compensation due to the employer from the contractor (for the latter's delay) by recourse to the terms of the contract itself can be justified only if the contractor admits that he was responsible for the breach of the terms of contract. Here the Ist respondent is not admitting the breach. As for the delay in not executing the 4% balance work, the Ist respondent has very many explanations. Suffice it to say that one does not require much brains to conclude that a demand of Rs.259.97 crores as compensation for the work of capital dredging of the basin area which now stands entrusted with Mercator Lines for Rs.60.80 crores, ex-facie arbitrary and exorbitant. In the case of an alleged breach of contract which is either disputed or not admitted, a party to the contract cannot unilaterally decide the said question of breach and demand any compensation for the alleged breach of contract. (Vide- State of Karnataka Vs. Shree Rameshwara Rice Mills, (1987) 2 SCC 160 paras 7 and 8; Bharat Sanchar Nigam Ltd. Vs. Motorola India pvt. Ltd., (2009) 2 SCC 337 paras 33 and 34 and M/s. J. G. Engineers Pvt. Ltd. Vs. Union of India, (2011) 5 SCC 758 paras 15 and 16. There is a controversy between the parties as to what exactly was the balance work left behind by the Ist respondent. According to the appellant the left over work is not only the capital dredging of the basin area but also the maintenance dredging of the Group C channels. But according to the Ist respondent what remains to be performed by it is only the capital dredging work in the basin area. This is a matter for resolution during the arbitral proceedings. But there is no dispute that the Ist respondent had completed the capital dredging of the outer and inner channels of Group B channel by 30.04.2010 which was within the contract period and with regard to the balance work, the appellant had even published in its web site that the Ist respondent had completed 96 % of the work leaving a balance of 4%. Thus, the appellant's demand for Rs.259.97 crores by way of compensation in Ext. A15 letter dated 19.05.2011 followed by Annexure R-XI demand of the very same amount by the Chief Engineer employed by the appellant, is not only not founded on any adjudication by any independent agency, but also is ex facie unconscionable.
e) Prima facie breach of the guiding principles for awarding compensation.
20. The aforementioned sum of Rs.259.97 crores by way of compensation demanded by the appellant appears to be in the nature of penalty. The law on the question of damages or compensation in such types of contracts is well settled. Sections 73 to 75 in Chapter VI of the Indian Contract Act, 1872 deal with the consequences of breach of contract. Whether it is compensation by way of unliquidated damages falling under Section 73 or whether it is compensation by way of liquidated damages falling under Section 74 of the Contract Act or whether it is compensation consequent on anticipatory breach, the claimant will only be entitled to reasonable compensation. In other words, unless actual loss or damage is proved to have resulted on account of the breach of contract or rescission of contract, as the case may be, no amount by way of compensation would be payable to the claimant. Fateh Chand Vs. Balakishan Dass, AIR 1963 SC 1405 Maula Bux Vs. Union of India, (1969) 2 SCC 554, Union of India Vs. Rampur Distillery and Chemical Co., Ltd., (1973) 1 SCC 649 State of Kerala Vs. United Shippers and Dredgers Ltd., 1982 KLT 738. When the first respondent was disputing the alleged breach of contract, it was not open either to the appellant or to any officer of the appellant to unilaterally demand any amount by way of compensation by taking shelter under any of the terms in the contract. The first respondent has been disputing the very basis of arriving at the quantum of the backlog of the work and consequently the resultant calculation of the damages.
f) Balance of convenience and comparative hardship
21. As per Ext. B1 notice of termination issued by the appellant to the first respondent invoking clause 14.2 of the contract the first respondent was to vacate the site and withdraw its crew in the vessels. According to the first respondent, the dredgers and other vessels available at the site are costing about Rs.209 crores and there are more than 200 crew members employed in those vessels of which two of them are kept 10 kms. away from the port limits and lying exposed to the vagaries of weather. Going by the contentions of the first respondent drifting of vessels in heavy rains and adverse climatic conditions may lead to their collision with ships and other vessels coming to the port and going out of the port and unless proper care is taken the vessels may even sink. The first respondent would have it that it is finding it difficult to maintain the crew, keep the dredgers idling and meeting the expenses towards the salary, wages accommodation and food of the crew members. According to the first respondent as per the contract the above expenses together with idling charges of the vessels come to Rs.4784160/- per day. That apart, the appellant has been claiming berthing charges for the detention of the first respondent's vessels and a Writ Petition filed against that as W.P. (C) 15070/2001 is pending judgment. The further case of the first respondent is that its annual turn over in the last three years has been more than Rs.250 crores and the appellant has no case that all the directors of the first respondent who are Indians will leave the country or that the first respondent will become insolvent. Over and above that there is a claim for about Rs.500 crores by the first respondent in the pending arbitration. It is the case of the first respondent that after the new Chairman took charge no payment has been made for the work done by the first respondent in February and March 2011 and about Rs.85 crores have been retained with the appellant. The first respondent would further allege that the chairman of the appellant has encashed the bank guarantee pursuant to which its bankers have stopped all payments to the first respondent. Since all the dredgers have to be run on diesel for generating power without which the crew members cannot survive on board and constant maintenance is required using oil and lubricants for the smooth functioning of the dredging parts and for providing fresh drinking water to the officers and crew members on board Rs.3 lakhs per dredger per day will be required. Pending this appeal, notwithstanding the blacklisting of the first respondent by the appellant and conveying the said information to all the major Port Trusts in India, the Cochin Shipyard Ltd. had issued tender documents to the first respondent's company for carrying out an urgent work of launching of a new Indian Aircraft Carrier which is a prestigious venture undertaken by the Cochin Shipyard for the whole nation. Hence, the first respondent should be permitted to re-deploy the vessels and other equipments which have been detained by the appellant. The first respondent also may have to bring in other vessels and equipments for executing the above assignment for which purpose it has already filed IA No. 2858 of 2011 before us.
All the above factors cannot be lost sight of by the Court in evaluating the balance of convenience and comparative hardship before passing an order under Section 9 of the Act.
g) The first respondent has no attachable interest
22. Annexures R2 (a) to R2 (g) are the copies of the certificates of registration pertaining to 8 dredgers employed by the first respondent for carrying out the dredging work under Ext. A1 contract. Those certificates of registration show that the additional 2nd respondent is the owner of those dredges. As per Annexures R2 (h) to R2 (o) Time Charter Agreements those dredgers were hired by the first respondent on various dates commencing from 12.08.2008 to 15.05.2010. It was in respect of these and other vessels that the appellant sought an interim injunction in O.P. (Arb) 442/2011 and conditional attachment in the present OP (OP (Arb) 505 /2011). The real person affected by those proceedings was the Addl. R2. It is true that the additional R2 was not a party in the proceedings before the District Court. The appellant should have made the additional R2 a party before the Court below. The ad interim injunction granted by the District Court in OP (Arb) 442 /2011 on 02.04.2011 lasted only for 10 days and it was on the 10th day that the District Judge vacated the interim injunction. No ex parte conditional order of attachment was granted by the District Judge in the present OP. Hence, failure on the part of the additional R2 to intervene in the proceedings before the Court below cannot be taken advantage of by the appellant. Both R1 and additional R2 have other contractual commitments requiring the mobilization of the very same dredgers to other sites. It may be true that there are common directors in R1 and additional R2. But as long as the two companies are distinct legal entities having independent status and identity, the mere fact that they have common share holders or common Board of Directors will not make the two companies a single entity. Nor will the existence of common shareholders or directors lead to an inference that one company will be bound by the acts of the other. (See paragraphs 17 and 18 of Indowind Energy Ltd. Vs. Wescare India Ltd., (2010) 5 SCC 306
23. After giving our anxious consideration to the entire facts and circumstance of the case, we have absolutely no hesitation to conclude that the learned District Judge was fully justified in dismissing the O.P. refusing the interim measure of protection prayed for by the appellant. We do not find any good ground to interfere with the order passed by the District Judge. In the light of the averments in the affidavit in support of IA 2858 of 2011 filed by the first respondent, the prayer in the said I.A. will stand allowed.
24. This appeal is, accordingly, dismissed. There will be no order as to costs.
We place on record our appreciation for the remarkably fair, saintly and mature arguments addressed before us by Sr. Advocate Sri. Joseph Markos and the tenacious and razor sharp submissions of Sr. Advocate Sri. K. L. Varghese and the brief and pointed arguments of Adv. Sri. Millu Dandapani.