Judgment :- 1. The applicant VOLTAS INTERNATIONAL LTD. Chennai, have filed this application for interim injunction restraining the 2nd respondent from making any pavment to the 1st respondent under the Bank Guarantee Nos. LG/612/8641 dated 13.11.1995 & LG/612/8642 dated 13.11.95 pending arbitration proceedings. 2. The main averments found in the affidavit filed alongwith the application are as follows: The applicant and the 1st respondent entered into a work contract in SR/CIVIL/YELA/WO-1 dated 19 10.1995 for construction of Phase II cottages compound wall etc. at Yelagiri Hills and the total value of the work was Rs. 4,77,30,357/-. The contract was deemed to have commenced on 24.2.1996 and on that date mobilisation advance was received. The contract was to be completed within 15 months from the date of commencement of the work. Cement and steel required for the construction will be supplied by the 1st respondent. As per the contract the applicant furnished a performance guarantee through the 2nd respondent-bank vide guarantee No. LG/612/8641 dated 13.11.1995 for a sum of Rs. 47,73,036/- being 10% of the value of the contract. The said guarantee was to remain in force till 13.2.1998. The applicants have also furnished another bank guarantee towards mobilisation advance vide guarantee No. LG/612/8642 dated 13.11.1995 for Rs. 47,73,036. The said guarantee was to remain in force till 13.2.1997. The 1st respondent failed to supply steel and cement as agreed by them from time to time, with the result the construction work had to be stopped. The applicant wrote to the 1st respondent for the resumption of work during September/early October 1997 failing which for a mutual agreement to determine the contract. The applicants have also stated that they will furnish a bank guarantee to the revised value of Rs. 30,09,720/- instead of the earlier guarantee for Rs. 47.73 lakhs and on 26.6.1997 the 1st respondent have agreed to receive the revised bank guarantee; even thereafter the work was not progressed. The 1st respondent have to pay a total sum of Rs. 55,32389.21/- to the applicant. In the meantime, the 1st respondent are trying to invoke the bank guarantee. 30,09,720/- instead of the earlier guarantee for Rs. 47.73 lakhs and on 26.6.1997 the 1st respondent have agreed to receive the revised bank guarantee; even thereafter the work was not progressed. The 1st respondent have to pay a total sum of Rs. 55,32389.21/- to the applicant. In the meantime, the 1st respondent are trying to invoke the bank guarantee. Under Clause 4.57.1 of the agreement there is a provision for the arbitration by a Single arbitrator being a Chartered Engineer in the relevant discipline to be agreed upon and appointed by both the parties or in case of disagreement as to the appointment of a single arbitrator, to the arbitration of two arbitrators both being Chartered Engineers in respect of discipline, one to be appointed by each party, which arbitrators shall before taking upon themselves the burden of reference appoint an Umpire. The applicants are taking steps to appoint an arbitrator as per the said Clause in the agreement. This is filed under Section 9 of the Arbitration and Conciliation Act 1996 for an order of injunction against the respondents from invoking the bank guarantees executed by the applicant. The 1st respondent have been writing letters to the 2nd respondent for invoking the bank guarantee since 21.5.1997 and the last letter was written by them on 23.4.1998. The balance of convenience is in favour of the applicant. In such circumstances interim injunction has to be passed against the respondents from invoking the bank guarantees. 3. The 1st respondent in their counter have denied the main allegation that the work had to be stopped because of the non-supply of the materials by the 1st respondent. The 1st respondent are not liable to pay any amount to the applicant as contended in the affidavit. The applicant has stopped the work unilaterally much against the terms of the contract. During the joint discussion, the respondent made their claim for the unutilised mobilisation advance of Rs. 32,05,950/-. The applicant have invoked the bank guarantee for the mobilisation advance well within the claim period i.e. on 5.2.1997. and subsequently reminders were sent to the 2nd respondent on various dates. The 1st respondent are not liable to pay any amount to the applicant, whereas the applicant owes a sum of Rs. 32,05,950/- together with commercial interest to be paid to the 1st respondent. and subsequently reminders were sent to the 2nd respondent on various dates. The 1st respondent are not liable to pay any amount to the applicant, whereas the applicant owes a sum of Rs. 32,05,950/- together with commercial interest to be paid to the 1st respondent. The invocation of bank guarantees is valid and the 2nd respondent have defaulted in paying the assured sum to the 1st respondent. The following is bad for (a) the Court ought not have interfered with the bank guarantees which is an irrevocable commitment by the bank, (b) The applicant have not come to Court with clean hands and have not disclosed all material facts, (c) The prayer without seeking for appointment of arbitrator is not maintainable, (d) the Work Order/Tender documents provides that the applicant can continue the work even if the 1st respondent fails to supply materials, (e) The applicant have come forward belatedly after lapse of more than one year of invocation of the bank guarantees, (f) Courts can interfere only in case of fraud and there is no pleading alleging fraud, (g) The applicant are guilty of material suppression of fact, and (h) the persons swearing the affidavit had no valid authorisation. For the foregoing reasons the application has to be dismissed. 4. The 2nd respondent in their counter and additional counter have stated that the bank guarantees were valid till 13.2.1997 and the guarantees inter alia stipulated that unless the claim on the amounts payable under the guarantees were made within three months to the expiry of the guarantee, the banks liabilities under guarantee would cease. Though the 1st respondent have requested the bank to extend the period, the bank guarantee No. LG/612/8642 was not renewed after 13.5.1997. The 1st respondent are not entitled to invoke the bank guarantee beyond the stipulated claim period. 5. The applicant VOLTAS INTERNATIONAL LTD. Chennai and the 1st respondent Sterling Holiday Resorts International, Chennai, entered into a contract in SR/CIVIL/YEL/WO-1, dated 19.10.1995 for the construction of Phase-II cottages compound wall etc. at Yelagiri Hills and the total value of the work was Rs. 4,77,30,357/- and the work had to be completed within 15 months from the date of commencement. The applicant had executed two bank guarantees in favour of the 1st respondent through the 2nd respondent-bank vide guarantee No. LG/612/8641 dated 13.11.1995 for a sum of Rs. at Yelagiri Hills and the total value of the work was Rs. 4,77,30,357/- and the work had to be completed within 15 months from the date of commencement. The applicant had executed two bank guarantees in favour of the 1st respondent through the 2nd respondent-bank vide guarantee No. LG/612/8641 dated 13.11.1995 for a sum of Rs. 47,73,036/- being 10% of the value of the contract and the guarantee had to rema. in force till 13.2.1998. Another guarantee towards mobilisation advance was executed in guarantee No. LG/612/8642 dated 13.11.95 for a sum of Rs. 47.73,036 and the said guarantee had to remain in force till 13.2.1997. Clause 4.57.1 provides arbitration and the said clause is as follows: “All disputes and differences of any kind whatever arising out of or in connection with or touching with the contract or the carrying out of the works whether during the progress of the works or after their completion and whether before or after the determination, abandonment or breach of the contract, shall be referred to arbitration and final decision of a single arbitrator being a Chartered Engineer in the relevant discipline to be agreed upon and appointed by both the parties or in case of disagreement as to the appointment of a single arbitrator, to the arbitration of two arbitrators both being Chartered Engineers in the respective discipline, one to be appointed by each party, which arbitrators shall before taking upon themselves the burden of reference appoint an Umpire.” On the strength of the above arbitration clause the applicant have filed this application under Section 9 of the Arbitration and Conciliation Act, 1996 for interim injunction. This Court during the vacation sitting, granted injunction till 10.6.1998 and the interim injunction was extended from time to time. The respondents have filed their counter challenging the grant of injunction in favour of the applicant on well set-out grounds in para 20 (a) to (h). 6. The major contention of the 1st respondent is that no injunction can be granted from invoking the bank guarantees as per the various decisions of the Supreme Court. The respondents have filed their counter challenging the grant of injunction in favour of the applicant on well set-out grounds in para 20 (a) to (h). 6. The major contention of the 1st respondent is that no injunction can be granted from invoking the bank guarantees as per the various decisions of the Supreme Court. In (U.P. Co-operative Federation Ltd. v. Singh Consultant and Engineers Private Ltd.) ( 1988 1 SCC 174 at pages 186 & 189 the Supreme Court held: — “An irrevocable commitment either in the form of confirmed bank guarantee or irrevocable letter of credit cannot be interfered with except in case of fraud or in case of question of apprehension of irretrievable injustice has been made out. This is the well settled principle of the law in England. This is also a well settled principle of law in India, In order to restrain the operation either of irrevocable letter of credit or of confirmed letter of credit or of bank guarantee, there should be serious dispute and there should be good prima facia case of fraud and special equities in the form of preventing irretrievable injustice between the parties. Otherwise the very purpose of bank guarantees would be negatived and the fabric of trading operation will get jeopardised.” In (General Electric Technical Services Company Inc. v. Punj Sons (P) Ltd.) (1991) 4 SCC 230 at page 238 the Supreme Court held: — “The demand by GETSCO is under the bank guarantee and as per the terms thereof. The Bank has to pay and the Bank was willing to pay as per the undertaking. The Bank cannot be interdicted by the court at the instance of respondent 1 in the absence of fraud or special equities in the form of preventing irretrievable injustice between the parties.” In (Svenska Handelsbanken v. Indian Charge Chrome and others) (1994) 1 SCC 502 . in (State Trading Corporation of India v. Jainsons Clothing Corporation) (1994) 6 SCC 597 . in (National Thermal Power Corporation Limited v. Flowmore Pvt. Ltd) (1995) 4 SCC 515 . in (Larsen & Toubro v. Maharastra State Electricity Board) (1995) 6 SCC 68 , in (Ansal Engineering Projects Ltd. v. Tehri Hydro Development Corporation) (1996) 5 SCC 450 , and in (Larsen and Toubro Limited v. Maharashtra State Electricity Board) AIR 1996 SC 334 similar view was taken by the Apex Court. in (Larsen & Toubro v. Maharastra State Electricity Board) (1995) 6 SCC 68 , in (Ansal Engineering Projects Ltd. v. Tehri Hydro Development Corporation) (1996) 5 SCC 450 , and in (Larsen and Toubro Limited v. Maharashtra State Electricity Board) AIR 1996 SC 334 similar view was taken by the Apex Court. From all these decisions it is well settled that the invoking and encashing of the bank guarantee can be restrained in the case of fraud and irretrievable injury to the contractor. In no other case invoking and encashing the bank guarantee can be restrained by a Count under Section 41 of the Arbitration Act, 1940 and under Order 39 Rules 1 & 2 of C PC. 7. The applicant-company have not alleged fraud on the part of the 1st respondent herein and therefore one of the two grounds which could be alleged for invoking bank guarantee is not available to the applicant. The only ground relied on by the applicant herein is irretrievable harm or injustice. The reasons stated in the affidavit of the applicant are denied by the 1st respondent in the counter affidavit. 8. We have already shown a catena of unanimous decisions of the Apex Court since 1988 to 1997. In one of the decisions referred supra; in (Ansal Engineering Projects Ltd. v. Tehri Hydro Development Corporation Ltd.) (1996) 5 SCC 450 at p. 454 the Supreme Court held: — “It is equally settled law that in terms of the bank guarantee the beneficiary is entitled to invoke the bank guarantee and seek encashment of the amount specified in the bank guarantee. It does not depend upon the result of the decision in the dispute between the parties, in case of the breach. The underlying object is that an irrevocable commitment either in the form of bank guarantee or letters of credit solemnly given by the bank must be honoured. It does not depend upon the result of the decision in the dispute between the parties, in case of the breach. The underlying object is that an irrevocable commitment either in the form of bank guarantee or letters of credit solemnly given by the bank must be honoured. Following that dictum the Supreme Court further held — The question, therefore, is whether the petitioner had made out any case of irreparable injury by proof of special equity or fraud so as to invoke the jurisdiction of the Court by way of injunction to restrain the first respondent from encashing the bank guarantee.” To decide the question of irretrievable injury, it is better to refer some of the letter correspondence between the parties each blaming the other for the abrupt stoppage of the construction work. At this stage, we cannot go into the question as to who was responsible for the stoppage of the work before the completion. However, some of the letters written between the parties prior to the filing of this application could throw sufficient light on this aspect to prove a prima facie case. In their letter dated 7.3.1998 the applicant VOLTAS INTERNATIONAL LTD. have claimed a sum of Rs. 24,19,280/-. In their reply dated 24.3.1998 the 1st respondent have claimed sum of Rs. 32,05,950.80 p. The applicant have sent a rejoinder letter dated 2.4.1998 refuting the claim of the 1st respondent and confirmed the amount claimed in their earlier letter dated 7.3.1998. The 1st respondent have sent a reply dated 21.4.1998 reiterating their earlier claim and requesting the applicant to immediately deposit the sum of Rs. 42,20,436/- enabling them to close the contract. Thereafter the applicant have filed this application in the vacation court and obtained an ex parte order of injunction on 13.5.1998. While going through the various contentions shown in the letters sent by the 1st respondent herein, we cannot come to a safe conclusion that the applicant have made out a prima facie case in their favour to get an order of injunction. 9. The injunction prayed for by the applicant cannot be granted on one more ground also. The applicant in para-16 of the affidavit have stated that they have filed this application under Section 9 of the Arbitration and Conciliation Act. 1996. 9. The injunction prayed for by the applicant cannot be granted on one more ground also. The applicant in para-16 of the affidavit have stated that they have filed this application under Section 9 of the Arbitration and Conciliation Act. 1996. The contract in the instant case has been entered into in SR/CIVIL/YEL/WO-1 dated 19.10.1995 when arbitration Act 1940 (Act X of 1940) was inforce. The Arbitration and Conciliation Act 1996 (Act 26 of 1996) came into force on 16.8.1996. Therefore whether the applicant can invoke Section 9 of Act 26 of 1996 is a moot question which arises in this case. In Section 41 (b) of the Arbitration Act. 1940 there is a similar provision for grant of injunction in respect of the matters setout in the Second Schedule to the said Act. The Second Schedule deals with power of 40 Court. Clause 4 says — “interim injunctions or the appointment of a receiver”. Therefore even under the Act X of 1940 there is provision for grant of interim injunction. The real question arises not in the provision for grant of interim injunction, but under what circumstances it can be granted? A learned Single Judge of this Court in (NEPC India Ltd. formerly NEPC Micon Ltd. v. Sundaram Finance Ltd. ) CRP Nos. 1421 to 1423 of 1998 held — “Second Schedule to the 1940 Act is the powers of the Court and item No. 4 is “Interim injunction or the appointment of a receiver”. Therefore, there is no virtual difference between Section 41 read with Schedule 2 and present Section 9 of the Arbitration Act. Moreover, if an interpretation such as the one contended by the learned Counsel for the appellant is to be given to Section 9 the very object of the Act would be defeated. Any party, who has an agreement for Arbitration with another can rush to Civil Court and straightaway get an order under Section 9 and thereafter keep quiet without referring the matter to Arbitration. That will have a very serious consequence on the provisions of the Act. It could not have been the intention of the legislature in enacting the present Arbitration Act. That will have a very serious consequence on the provisions of the Act. It could not have been the intention of the legislature in enacting the present Arbitration Act. Further, the very fact that Section 9 comes after Section 8 which deals with the reference of disputes to Arbitration, the only interpretation that could be given to Section 9 is that it could be availed of when an arbitration proceeding is pending before the Arbitral Tribunal or is at the reference stage before the Court or after the Arbitral award has been made.” This view is fortified by the decision of the Supreme Court in (Sant Ram & Co. v. State of Rajasthan) (1997) I SCC 147 at p. 150 = 1997 2 L.W. 456 “It will, therefore, be clear that to avail of the remedy under the provisions of the Code of Civil Procedure, when an application for injunction under Section 41 (b) read with the Second Schedule is tiled, the court shall have, pending proceedings for the purpose of and in relation to the arbitration proceedings availed of through the process of the Court, the same power of making orders in respect of any matters set out in the Second Schedule as it has for the purpose of and in relation to any proceedings before the Court. The initiation or pendency of any proceedings in the court in relation to the arbitration proceedings would, therefore, be a precondition for the exercise of the power by the Civil Court under the Second Schedule of the Act.” For any party to file an application for injunction by invoking the provisions of Section 41 (b) of the Arbitration Act, 1940, the pre-condition is that the arbitration proceedings should have been initiated or pending. In the instant case the applicant have not initiated any arbitration proceedings. Though they have stated that they are going to initiate the arbitration as per Clause 4.57.1 of the contract, till the filling of the present application no such arbitration proceedings has been initiated by the applicant. In the instant case the applicant have not initiated any arbitration proceedings. Though they have stated that they are going to initiate the arbitration as per Clause 4.57.1 of the contract, till the filling of the present application no such arbitration proceedings has been initiated by the applicant. The applicant have relied on a ruling of this Court in ( Larsen and Toubro Limited v. Tamil Nadu Minerals Ltd , (1998) (1) CTC 524 and in that decision arbitration proceedings have already been initiated and therefore the Court has held that there is provision under Section 41 (b) of the Arbitration Act, 1940 for grant of interim injunction, even then prayer for interim injunction against invoking the bank guarantee was rejected in that case. In the instant case, no arbitral proceedings was pending or initiated by the applicant on the date of application and by merely quoting the provision for arbitration in the contract and their intention to appoint an arbitrator will not absolve the necessary requirement of the pendency of arbitral proceedings before filing the arbitration proceedings. In the decision of the Single Judge stated supra ( NEPC India Ltd. Formerly NEPC Micon Ltd. v. Sundaram Finance Ltd. ) CRP Nos. 1421 to 1423 of 1998 it was held that though Section 9 of Act 26 of 1996 says “A party may before or during arbitral proceedings,” the word “before” shall not give a meaning that the interim injunction can be granted even before the arbitral proceedings. In the instant case, when no arbitral proceedings were pending on the date of filing of the present application, the application for interim injunction shall not lie. 10. The applicants have contended mat the balance of convenience is in their favour. While going through the various communications between the parties it is clear mat the parties have rival claims and it cannot be said that the applicants herein have madeout the prima facie case. The catena of decisions of the Supreme Court referred above, would also show that unless the grounds of fraud or irretrievable harm or injustice is madeout, the applicants are not entitled for order of injunction from invoking the bank guarantee and the applicants herein have failed to prove either one of these two grounds. For all these reasons, the application is liable to be dismissed. For all these reasons, the application is liable to be dismissed. In the result, the order of injunction granted on 13.5.1998 is set aside and original Application No. 240 of 1998 is dismissed with costs.