Structured Summary of the Opinion (S.S. Chadha, J.)
Factual and Procedural Background
The Union of India (petitioner) issued an Acceptance of Tender No. CDP-2/103/52/049/28-7-73 (7)/PAOD/1152 dated 13 August 1974 to M/s International Chemicals Corporation (India) (respondents) for supply of 3,700 units of Piperazine Adipate containers at Rs. 34 per unit for Rs. 1,25,800, with delivery by 30 November 1974. The acceptance incorporated the contract conditions in Form DGS & D-68 (Revised), including Clause 24, the arbitration clause.
Disputes arose under the contract. The respondents filed an application under Section 20 of the Arbitration Act, 1940 to have the arbitration agreement filed in the Court and to have disputes referred to arbitration; this was registered as Suit No. 240-A of 1975. In IA 1063 of 1975 the respondents alleged communications from the Union of India claiming Rs. 43,144.04 as extra expenditure incurred on account of "risk purchase" under clause 14. On 28 April 1975 the Court issued notice and granted an interim order restraining recovery of Rs. 43,144.04; that interim order was made absolute on 23 May 1975 and IA 1063 disposed of (with liberty to apply for variation).
On 23 July 1975 counsel for the parties agreed that the arbitration agreement be filed and that disputes be referred to the sole arbitration of an officer in the Ministry of Law appointed by the Director General of Supplies & Disposals; an arbitrator was appointed and has entered upon the reference; proceedings before the arbitrator are still pending.
The Union of India subsequently moved the present O.M.P. (O.M.P. 26 of 1976) seeking modification of the earlier order of 23 May 1975 and an injunction restraining the respondents from realising amounts payable to them by the Pay & Accounts Officer until the arbitrator's award is made a rule of the Court. The petitioner alleged apprehension that the respondents might withdraw such amounts to defeat any award in the petitioner's favour.
The respondents opposed the petition, challenging the sufficiency of the petitioner's material and the Court's jurisdiction/powers to grant interim injunctions in arbitration proceedings; they argued that the petitioner had not yet established breach and that no proof was furnished of any intention by respondents to defeat recovery.
Legal Issues Presented
- Whether this Court can modify its earlier order (dated 23 May 1975) to restrain the respondents from realising amounts payable to them from the Pay & Accounts Officer pending arbitration.
- What is the scope of the Court's power under Section 41 of the Arbitration Act, 1940 (particularly sub-sections (a) and (b) and the IInd Schedule) to grant interim injunctions or to secure the amount in difference in a reference while arbitration is pending?
- Whether Clause 18 of the General Conditions of Contract (DGS & D-68 Revised) permits the purchaser (Union of India) to prevent the contractor (respondents) from realising sums due under other contracts merely because a claim for damages has been preferred before an arbitrator.
- If the Court has the statutory power to grant an interim injunction or attachment in arbitration proceedings, whether the material before the Court satisfies the established principles (including those underlying Order 38 Rule 5 of the Code of Civil Procedure) necessary to exercise that extraordinary jurisdiction.
Arguments of the Parties
Petitioner's (Union of India) Arguments
- The petitioner seeks modification of the prior injunction so as to restrain the respondents from realising amounts payable to them by the Pay & Accounts Officer until the arbitrator's award is made a rule of Court, because it apprehends respondents might withdraw such amounts to defeat any award in the petitioner's favour.
- Relying on Clause 18 of the General Conditions of Contract (DGS & D-68), the petitioner contends that the contract provides a mode of recovery that would be frustrated if the respondents are permitted to realise amounts under other contracts; counsel (Mr. A.B. Saharya) argued Clause 18 has been considered and recognised by the Supreme Court.
Respondents' Arguments
- The respondents contended that the petitioner has yet to establish that the respondents committed any breach and that the petitioner therefore cannot seek an injunction restraining respondents from realising amounts under other contracts.
- They argued the petitioner's apprehension is unfounded and no proof was furnished to show any intention by respondents to defeat recovery by the petitioner; the affidavit relied on does not disclose a basis for such apprehension.
- The respondents challenged the jurisdiction and power of the Court to grant interim injunctions or attachments in arbitration proceedings pending before an arbitrator.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Union Of India v. Raman Iron Foundry, A.I.R. 1974 S.C. 1265 |
The Supreme Court's interpretation of Clause 18 (DGS & D-68): Clause 18 provides only a mode of recovery for sums that are presently due and payable; it does not create substantive rights such as a lien on other sums nor permit recovery of sums that are not presently payable.
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The Court applied that ratio to hold that the petitioner's claim for damages (Rs. 43,144.04) before the arbitrator was not a sum presently due and payable; therefore Clause 18 could not be invoked to restrain the respondents from realising moneys due under other contracts. The Court relied on the precedent to reject the petitioner's argument that Clause 18 alone justified an injunction preventing realisation of other contract payments.
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Court's Reasoning and Analysis
The Court began by examining Section 41 of the Arbitration Act, 1940. Section 41(a) makes the provisions of the Code of Civil Procedure (CPC) applicable to proceedings under the Act; Section 41(b) gives the Court, for purposes of and in relation to arbitration proceedings, the same power of making orders in respect of matters set out in the IInd Schedule (subject to not prejudicing any power vested in an arbitrator).
The IInd Schedule (para 2 and para 4) specifically contemplates powers for securing the amount of the difference in a reference and for interim injunctions or appointment of a receiver. The Court concluded that:
- The Court has the power to grant interim injunctions or secure the amount of difference during the pendency of arbitration proceedings (under Section 41(b) read with the IInd Schedule).
- Where such power is exercised, the procedure to be followed is governed by Section 41(a) (i.e., the provisions and practice under the CPC) — so the practice governing attachments before judgment (Order 38 Rule 5 CPC) applies.
- The arbitrator had not been vested with any power by statute to grant interim injunctions or secure the amount in difference; therefore those powers rest with the Court in relation to arbitration proceedings.
The Court then analyzed the specific facts and the sufficiency of the petitioner's material. The interim injunction previously granted (restraining the petitioner from recovering Rs. 43,144.04 from other bills of the respondents) was within the Court's power because the claim formed the subject-matter of the arbitration. But the Court emphasized limits:
- The Court cannot make orders (e.g., directing the petitioner to pay or restraining respondents from receiving amounts) that are not for the purpose of or in relation to the arbitration proceedings; sums payable under other contracts are not the subject of the arbitration.
- Although para 2 of the IInd Schedule confers specific power to secure the amount of the reference, the exercise of that extraordinary jurisdiction must follow established principles governing attachment before judgment (Order 38 Rule 5 CPC) and be exercised sparingly.
- There must be definite evidence (not mere apprehension) that the respondents are likely to withdraw amounts with intention to obstruct or delay execution of any decree that might be obtained on the basis of the award.
The petitioner's supporting affidavit (by Shri O.P. Srivastava) was based on information from official records and did not disclose facts showing any basis for the alleged apprehension. The court found no evidence that recovery of sums under other contracts by the respondents was intended to defeat the petitioner's claim; recovery of price under other contracts was characterized as an ordinary commercial incidence and did not prima facie amount to fraudulent withdrawal to defeat execution.
The Court further considered Clause 18 of the General Conditions (DGS & D-68) and relied on the Supreme Court's decision in Union Of India v. Raman Iron Foundry to explain that Clause 18 provides only an additional mode of recovery for sums presently due and payable; it does not create a substantive right to appropriate or retain other sums nor prevent the contractor from realising sums under other contracts simply because a claim has been preferred. Since the present claim is for damages (not presently due and payable), Clause 18 could not be invoked to restrain respondents from realising amounts under other contracts.
Applying these principles to the facts before it, the Court concluded that the material did not justify modification of the earlier injunction and did not satisfy the stringent requirements for attachment/securing the amount of the reference or for an interim injunction preventing the respondents from realising other contract payments.
Holding and Implications
Holding: The application (O.M.P. 26 of 1976) seeking modification of the earlier order and a restraint on respondents realising amounts payable by the Pay & Accounts Officer is dismissed. The Court ordered: Petition dismissed, and specifically recorded that O.M.P. 26 of 1976 is dismissed with costs.
Implications:
- Direct effect on the parties: The earlier interim order was not modified and the petitioner’s prayer to restrain respondents from realising amounts under other contracts was refused; the respondents are not restrained by this judgment from receiving moneys due under other contracts (subject to any other lawful process).
- On legal principles: The Court reaffirmed that it has statutory power under Section 41(b) read with the IInd Schedule to grant interim injunctions or secure the amount in difference in arbitration matters, but such power is extraordinary and must be exercised only upon adequate, definite evidence consistent with principles governing attachment before judgment (Order 38 Rule 5 CPC).
- No broader or new precedent was created by this decision beyond applying existing statutory provisions and the Supreme Court's interpretation of Clause 18; the Court applied established authority (Union Of India v. Raman Iron Foundry) to the facts at hand.
Judge: S.S. Chadha, J. (as stated in the opinion).
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