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2017 DIGILAW 886 (CAL)

SENBO ENGINEERING LTD v. UNION OF INDIA

2017-11-17

SABYASACHI BHATTACHARYYA, SANJIB BANERJEE

body2017
JUDGMENT : 1. The more important consideration in this appeal is the quantum of costs that should be imposed on the appellant. 2. The appellant has a contract with the railways for construction of a part of a Metro Railway project near the airport. The appellant asserts that the appellant has remained unpaid for a long time and upon the appellant insisting on its running account bills being cleared and dues in excess of Rs.3 crore being paid by the railways, the railways resorted to a specious plea of alleged overpayment having been made to the appellant to deny any further payment. 3. The appellant maintains that a contractor cannot be expected to continue with the work without being paid there for. The appellant insists that the railways being in a superior position, have arm-twisted the appellant into completing a substantial part of the work and it is only because of the complete failure on the part of the railways to release payment and the unjust manner in which a refund has been sought that the appellant has been constrained to stop further work. 4. The challenge in this appeal is to an order passed on a petition under Section 9 of the Arbitration and Conciliation Act, 1996. There is a history to the matter and it may not be apposite to immediately indicate the contents of the order impugned herein. 5. The story relevant for the present purpose begins with a rather remarkable order of August 21, 2017 that was passed on a previous petition under Section 9 of the said Act filed by this appellant. The arbitration Court found that there was an arbitration clause contained in the agreement between the parties, noticed that the grievance of the appellant herein was that a sum of Rs.2.47 crore had been held up by the railways which impeded the further work being continued by the appellant herein and promptly directed the railways to set apart a sum of Rs.2,47,81,885/- without the slightest of reasons being furnished as to why the Court was satisfied that such sum was due or that such sum had been wrongfully or arbitrarily withheld by the railways. It was a unilateral claim which immediately earned an order in the nature of security without a line in justification as to how the claim was justified or the security necessary. It was a unilateral claim which immediately earned an order in the nature of security without a line in justification as to how the claim was justified or the security necessary. It may also be repeated that the security in the form of deposit was required to be furnished by the railways and it could not have been the case of the appellant herein that the railways did not have the means to make the payment if the appellant herein was ultimately found to be entitled thereto. 6. The more alarming feature of the order dated August 21, 2017 was the manner in which it re-wrote the contract between the parties in a passing reference to a bank guarantee. It is necessary to notice the exact recording in such regard in the relevant order: “Mr. Mitra expresses the apprehension that the railways might take action against them by invoking the bank guarantee, issuing a show cause notice or by terminating the contract. “Considering the prima facie case as discussed above, I direct that in the event the railways propose to take any of these actions, they shall give the petitioner at least a fortnight’s notice to enable them to approach this Court for an appropriate order. I make this direction because these steps have not been so far contemplated by the railways, as per the existing records and hence are not the subject-matter of this application.” 7. Wonders never cease! Something which did not fall within the scope of the application was pronounced upon and the terms of a bank guarantee were altered by suspending the right of the beneficiary there under to claim and obtain immediate payment. 8. If the bank guarantee was not the subject-matter of the application, no order could have been made to affect the bank guarantee or its invocation or encashment. If the bank guarantee did not provide for any prior notice to be issued by the railways to the contractor before the bank guarantee were to be invoked, the Court had no authority – far less any business – to re-write the terms of such bank guarantee or impose such condition. 9. There is a reference in the passage quoted to a prima facie case having been found out. 9. There is a reference in the passage quoted to a prima facie case having been found out. The previous paragraphs do not indicate any basis for a prima facie opinion to be formed other than the unilateral claim of the appellant herein of a sum of Rs.2.47 crore being issued. 10. To boot, the petition under Section 9 was disposed of without calling for any affidavits as would be evident from the following paragraph: “All the papers are before this Court. No affidavits were invited. The allegations contained in the petition are, thus, not deemed to have been admitted by the respondents.” 11. Several letters followed from the railways to the appellant herein. It is not necessary to go into the perceived mendacity on the part of the railways in issuing such letters or in demanding any refund from the petitioner or refusing to release the payment that the petitioner claimed to be admittedly entitled to. That is for the arbitrator to adjudicate on. 12. Buoyed by the Court largesse as evident from the initial order of August 21, 2017, a second petition under Section 9 of the said Act followed, the principal prayers whereof make interesting reading: “a) An order be passed directing the respondents to make payment of the current R.A. Bills of Rs.2,47,81,885.20/- as well as the Escalation bill of Rs.2,24,53,931/- as per Contract Agreement and make further payments that may be found due, to the Petitioner so that the Petitioner can continue and complete the job work with the protanto satisfaction of the Respondents upon renewals of the existing bank guarantees lying with the Respondents till the disposal of the arbitral proceeding or the adjudication of the Counter Claim of the Respondents before the Learned Arbitral Tribunal, whichever is earlier; b) An order of injunction restraining the Respondents and their men, agents and assigns from taking any coercive step in terms of the notices dated 3rd October, 2017 and 11th October, 2017; c) An order of injunction be passed restraining the respondent authority to encash the bank guarantees particulars of which referred in annexure “I” of this petition till the completion of the adjudication of claims and counter claims of the parties in the proposed arbitration proceeding;” 13. Prayer (a) was in the nature of a decree. Prayer (a) was in the nature of a decree. Prayer (b) was an omnibus prayer which, if granted, would have restrained the railways from even terminating the contract, whether or not the railways may not have been entitled to. Prayer (c) pertained to a bank guarantee that had, admittedly, not been invoked at the time that such second petition was carried to Court. 14. On the basis of the second petition, after noticing the grievances of the petitioner pertaining to the underlying contract and the claim on account of nonpayment, the following directions were issued: “Any bill which becomes payable by virtue of non-operation of the Sanction Memorandum dated 19th September, 2017 shall be forthwith paid by the Metro Railways to the petitioner, immediately. 15. The Metro Railway is directed to prepare and bring to this Court on the returnable date of this application, a statement to show the amounts which becomes payable to the petitioner on account of the running bills and escalation bills by virtue of stay of the Sanction Memorandum dated 19th September, 2017. The Railway authority will also be entitled to make payment on the basis of such statement. 16. I direct that the subject bank guarantee is not to be encashed and the termination of the contract not effected till 15th November, 2017 or until further orders, whichever is earlier to enable the parties to resolve the payment disputes on the basis of this order and to enable the petitioner to restart the work.” 17. The ad interim order of October 25, 2017 passed on the second petition, as quoted above, amounted to a decree for an unspecified sum by directing a particular memorandum to not be given effect to. The second paragraph of the direction pertained to a statement and the third was in respect of a bank guarantee that had not even been encashed or thought of being encashed at the relevant point of time. 18. It was on the returnable date of the second petition that the order impugned dated November 10, 2017 was passed and sanity returned to the matter. By the order impugned, the arbitration Court held that orders for mandatory injunction directing the railways to make payment could not be passed and that the proper approach would be to seek the relief before the arbitral tribunal. By the order impugned, the arbitration Court held that orders for mandatory injunction directing the railways to make payment could not be passed and that the proper approach would be to seek the relief before the arbitral tribunal. It was further held that with regard to the reliefs claimed by the appellant herein in respect of the running account and escalation bills, the same had to be adjudicated by the arbitral tribunal. As far as the injunction against the apprehended invocation of the bank guarantee was concerned, it was held that the bank was not a party to the arbitration agreement or the petition and the appellant herein could not obtain any order of injunction against the bank restraining the bank from making payment to the railways. There is nothing in the order impugned that calls for any interference, far less any correction. It is inconceivable that a prayer in the form of a mandatory injunction is made for payment of money in a petition under Section 9 of the said Act. The other prayers are equally audacious and, in any event, suffer as a consequence of the company they keep in the form of the initial prayer. 19. It is quite possible that the railways may have arm-twisted the appellant herein and the railways may have wrongfully retained money due to the appellant. But the Court in exercise of its limited authority under Section 9 of the said Act could not have provided any remedy in such regard. For one, unless the claim was admitted in writing by the railways, it called for an adjudication which is the exclusive domain of the arbitrator. No interim measure in respect of the grievances carried by the appellant to the arbitration Court could have been granted by the arbitration Court. 20. As far as the bank guarantee is concerned, it is well-known that Courts scarcely interfere with the invocation or encashment thereof; and certainly not on the basis of allegations pertaining to the underlying contract. Unless a case of egregious fraud is made out or fraud is complained of at the inception of the contract of bank guarantee, Courts can scarcely interfere with such lifeblood of commerce. 21. For the reasons aforesaid and for this hopelessly unmeritorious appeal being carried from an order which restored sanity to the matter, the appellant will pay costs assessed at Rs.5 lakh to the railways. 21. For the reasons aforesaid and for this hopelessly unmeritorious appeal being carried from an order which restored sanity to the matter, the appellant will pay costs assessed at Rs.5 lakh to the railways. APO No. 507 of 2017 and GA No. 3493 of 2017 are dismissed. 22. Urgent certified website copies of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.