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1998 DIGILAW 279 (RAJ)

State of Rajasthan v. Bharat Construction Co.

1998-02-24

SHIV KUMAR SHARMA

body1998
Honble SHARMA, J.–All these appeals involve common question of fact and law therefore were heard analogously and are being disposed of by a common judgment. (2). Under challenge in these appeals are orders identical dated April, 5, 1997 of the learned Distt. Judge Banswara passed in Civil Misc. Cases No. 10/96, 11/96, 12/96, and 13/96 whereby applications of the respondent Company (for short the Company) under Section 9 of the Arbitration and Conciliation Act, 1996 (for short the Act) were allowed and two fold directions were issued with the consent of the parties thus: (i) the State of Rajasthan (for short the State) shall be entitled to retain the security deposit of the Company amounting to Rs. 97.28 lacs till further orders to as to secure the amount due towards company. (ii) the State shall be restrained from withholding the payment of Running bills and other amount payable to the Company. (3). The brief resume of the facts is that the Company submitted for applica- tions in the court of learned District Judge Banswara under Section 9 of the Act praying therein that the State be restrained from effecting the recovery of excess payment made in respect of excavation of Earth Work to the Company from its Running bills and the letters of recovery issued by the Executive Engineer Mahi Sangwara Canal Division Mahi Project may also be stayed. The State hotly contested the applications. It was averred in the reply that in respect of excess payment to the Company the Executive Engineer requested the Superintendent of Police Dungarpur for making investigation into the matter and to register a criminal case. Thereafter the Company by invoking clause 23 of the Conditions of Contract moved application under Section 11 of the Act for appointment of Arbitrator. It appears from the record that State decided to effect the detailed enquiry in the matter and Shri Diwakar Mahant, Superintendent Engineer was appointed as Enquiry Officer. A committee was also constituted to assist the Enquiry Officer. The re-enquiry disclosed that excess payment to the tune of Rs. 180.00 lacs was made to the company. Learned Distt. Judge allowed the applications under Section 11 of the Act and appointed Shri O.P. Yadav, Additional Chief Engineer Irrigation Jodhpur as an Arbitrator. The applications under Section 9 of the Act were also disposed of by the learned District Judge by issuing directions mentioned hereinabove. (4). Mr. 180.00 lacs was made to the company. Learned Distt. Judge allowed the applications under Section 11 of the Act and appointed Shri O.P. Yadav, Additional Chief Engineer Irrigation Jodhpur as an Arbitrator. The applications under Section 9 of the Act were also disposed of by the learned District Judge by issuing directions mentioned hereinabove. (4). Mr. B.P. Agarwal, learned Advocate General, made a scathing criticism of the impugned orders and canvassed that the State could not have been restrained from withholding the payment of Running Bills and other amount payable to the Company. Reliance was placed on U.O.I. vs. Raman Iron Foundary (1), M/s. H.M. Kamaluddin Ansari & Co. vs. U.O.I. (2) and Sant Ram vs. State (3). (5). On the other hand Mr. D.S. Shishodia learned Sr. Advocate supported the impugned orders and vehemently contended that the impugned orders have been passed by the learned Distt. Judge with the consent of the State. Learned counsel further submitted that in the prayer clause of instant appeals the State only made a request to suitably modify the impugned orders by directing the Company to furnish Bank guarantee for the amount paid excess to the Company in order to secure it. It was also canvassed that the authorities cited on behalf of the State are distinguishable as they are based on Section 41 of the Arbitration Act, 1940. Now under Section 9(e) of the new Act, a party can seek interim measure from the court and the court can pass interim orders that may appear to the court to be just and convenient. This general power was not vested in the Court under Section 41 of the old Act. (6). I have given my anxious consideration to the rival submissions and carefully scanned the material or record. (7). A bare perusal of Section 9 of the Act demonstrates that it provides for making of the orders for interim measures by the court in respect of arbitrations. The corresponding provision under the Arbitration Act, 1940 was Section 41 which provides as follows: ``41. (7). A bare perusal of Section 9 of the Act demonstrates that it provides for making of the orders for interim measures by the court in respect of arbitrations. The corresponding provision under the Arbitration Act, 1940 was Section 41 which provides as follows: ``41. Procedure and powers of Court subject to the provisions of this Act and of rules made thereunder- (a) the provisions of the Code of Civil Procedure, 1908 (5 of 1908), shall apply to all proceedings before the Court and to all appeals, under this Act; and (b) the Court shall have, for the purpose of, and in relation to, arbitra- tion proceedings, the same power of making orders in respect of any of the matters set out in the Second Schedule as it has for the purpose of and in relation to, any proceedings before the Court; Provided that nothing in clause (b) shall be taken to prejudice any power which may be vested in an arbitrator or umpire for making or- ders with respect to any of such matters. The Second Schedule reads thus- Powers of Court 1. The preservation, interim custody or sale of any goods which are the subject matter of the reference. 2. The detention, preservation or inspection of any property or thing which is the subject of the reference or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon or into any land or building in the possession of any party to the reference, 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. 3. Interim injunction or the appointment of a receiver. 4. The appointment of a guardian for a minor or person of unsound mind for the purposes of arbitration proceedings. (8). It appears that Section 9 of the Act is a substitute for the Second Schedule of the old Act. That Schedule defined `Powers of Court in reference to Section 41 of that Act. Section 41(a) legislated that ``the provisions of the Code of Civil Procedure, 1908 shall apply to all proceedings before the Court, and to all appeals, under this Act. That Schedule defined `Powers of Court in reference to Section 41 of that Act. Section 41(a) legislated that ``the provisions of the Code of Civil Procedure, 1908 shall apply to all proceedings before the Court, and to all appeals, under this Act. The New Act has now taken away most of the powers of the court by reducing the occasions for addressing it and also the law as to application of the provisions of CPC has been changed. Provisions of Section 41 of the Old Act apply to proceedings before the court. Now, there is hardly any proceeding before the court, no provision like that as in old Section 41 has been made in the new law. The law contained in Section 19 applies to proceedings before an arbitral tribunal. Section 9 is not related necessarily to the proceeding but it is an enabling section. Sub-section (i) enables a party to apply for appointment of a guardian for a minor or a person of unsound mind for purposes of arbitration proceedings. Sub-section (ii) enables that the party to apply to a court for an interim measure of protection in respect of matters specified in clauses (a) to (e). This section also empowers the court/courts to exercise such powers for making orders in respect of these matters as it has in any legal proceedings. Clause (e) of Section 9 confers a general power on the court to take interim measure of protection as may appear to the court to be just and convenient. (9). In Ms. H.M. Kamaluddin Ansari and Co. vs. Union of India & Ors. (supra), their Lordships of the Supreme Court had occasion to interpret section 41 of the Arbitration Act, 1940. It was observed by their Lordships in para 30 of the said judgment, thus :– ``30. We are clearly of the view that an injunction order restraining respondents from withholding the amount due under other panding bills to the contractor virtually amounts to a direction to pay amount to the contractor appellants. Such an order was clearly beyond the purview of clause (b) of section 41 of the Arbitration Act. The Union of India has no objection to the grant of an injunction restraining it from recovering or appropriating the amount lying with it in respect of other claims of the contractor towards its claim for damages. Such an order was clearly beyond the purview of clause (b) of section 41 of the Arbitration Act. The Union of India has no objection to the grant of an injunction restraining it from recovering or appropriating the amount lying with it in respect of other claims of the contractor towards its claim for damages. But certainly clause 18 of the standard contract confers ample power upon the Union of India to withhold the amount and no injunction order could be passed restraining the Union of India from withholding the amount. (10). In Santram and Co. vs. State of Raj. & Ors. (supra), again the provisions of Section 41 of the Old Act were interpreted and in paras 5 and 6 of the said judgment their Lordships observed thus: ``5. On merits, this Court held in similar circumstances that such an injunction cannot be granted as it amounts to granting a relief which is not warranted under Section 41(b) read with the Schedule of the Act. This court had recorded a finding as under: ``We are clearly of the view that an injunction order restraining respondents from withholding the amount due under other pending bills to the contractor virtually amounts to a direction to pay amount to the contractor appellants. Such an order was clearly beyond the purview of clause (b) of Section 41 of the Arbitration Act. The Union of India has no objection to the grant of an injunction restraining it from recovering or appropriating the amount lying with it in respect of other claims of the contractor towards its claim for damages. But certainly clause 18 of the standard contract confers ample power upon the Union of India to withhold the amount and no injunction order could be passed restraining the Union of India from withholding the amount. 6. The Division Bench decision on which reliance was placed, has reiterated that principle, namely, that ``such an injunction can only be for the purpose of and in relation to the arbitration proceedings. The court could not make an injunction order which, though ostensibly in the form of an order of interim injunction, in substance, amounted to a direction to the appellant to pay the amounts due to the respondent under other contracts. In fact, the ratio therein which the learned counsel tried to propound, was not approved and the said decision was expressly overruled in Kamaluddin case. (11). In fact, the ratio therein which the learned counsel tried to propound, was not approved and the said decision was expressly overruled in Kamaluddin case. (11). In Union of India vs. Raman Iron Foundary (supra), their Lordships of the Supreme Court propounded that under Section 41(b), Arbitration Act read with the Second Schedule, the Court has power to issue interim injunction but such interim injunction can only be ``for the purpose of and in relation to arbitration proceedings.. (12). The words ``just and convenient employed in sub-section (ii) (e) of Section 9 of the Act, have been taken from sub- section(8) of Section 25 of the Judicature Act, 1873. The words in that Act are ``just or convenient but they have been construed to mean just and convenient. The words ``just and convenient do not mean that the Court is to pass orders in respect of interim measures simply because the court thinks it convenient, they mean that the court should pass the orders for the protection of rights or for the prevention of the injury according to legal principles. The order is discretionary and the discretion must be exercised in accordance with the principles on which the judicial discretion is exercised. These words were not the part of Section 41 of the Arbitration Act 1940. Therefore wide discretion has been given to the court under Section 9 of the Act to pass interim orders. (13). It is also necessary to examine the pecularities of the cases on hand. Admi- ttedly the impugned orders have been passed with the consent of the parties. Prayer clauses of these appeals demonstrate that the State has not assailed the second part of the impugned orders whereby the State was restrained from withholding amounts due under other pending bills to the company. The State has only requested to modify the interim orders by asking the company to furnish fresh Bank guarantee in the sum of the amount equivalent to the excess payment to the company. (14). Affidavits have been filed by Shri Suresh Kumar Singhvi, a partner of the company in all these four appeals stating therein that total amount in the sum of Rs. 103.25 lacs in lying with the State in the form of security deposit, Bank guarantee, work done and amount already recovered. Photostat copies of the relevant documents have also been filed along with the affidavits. 103.25 lacs in lying with the State in the form of security deposit, Bank guarantee, work done and amount already recovered. Photostat copies of the relevant documents have also been filed along with the affidavits. I do not want to express any opinion into the merits of the documents, but I am of the considered view that no illegality has been committed by the learned court below in passing the impugned orders. The case law relied upon by the learned Advocate General relates to inter- pretation of Section 41 of the Arbitration Act, 1940 and in view of sub-section (ii)(e) of Section 9 of the new Act, the learned court below had the discretion to issue interim direction. As already stated that clause (ii)(e) of Section 9 confers general powers on the court to take interim measures of protection as may appear to be just and convenient. The impugned orders have been passed, with the consent of the State of Rajasthan. Therefore in my view the State is estopped from assailing the said orders by filing these appeals. Nowhere in the appeals the State contended that it did not give consent. Under these circumstances I am not inclined to interfere in the impugned orders passed by the learned court below. (15). Resultantly, all the appeals stand dismissed. The record of the case be sent back forthwith.