National Building Construction Corporation Ltd.(Nbcc) v. Ircon International Ltd

D.K Jain, J. (Oral)— It is indeed unfortunate that despite the judgment of the Supreme Court in Oil and Natural Gas Commission and Anr v. Collector of Central Excise, JT 1991 (4) SC 158, expressing the hope that disputes between government departments and public sector undertakings of the Union of India may be resolved at the government level itself, the Committee (of Secretaries) on Disputes has expressed its helplessness to resolve the disputes and the two public sector undertakings are fighting like two private litigants.

By this petition under Section 9 of The Arbitration and Conciliation Act, 1996 the petitiioner seeks ad interim ex parte injunction against the respondents, restraining them, or their agents and servants, from invoking and/or encashing the bank guarantees amounting to Rs. 6.09 crores, the details whereof have been given in Annexures F & G(collectively) to the petition.

I have heard Mr. Mukul Rohatgi, learned Senior counsel appearing for the petitioner and Mr. Ashok Desai, learned Attorney General of India for respondent No. 1.

Briefly stated, the material facts emanating from the petition are that on 13 March 1989 City and Industrial Development Corporation (hereinafter referred to as the CIDCO) awarded a contract to Indian Railway Construction Company Ltd. (for short the IRCON) for commercial construction of railway station-cum-commercial complexes at various railway stations in New Bombay. Pursuant to the contract dated 5 April 1990 between CIDCO and IRCON and as per clause 51 of the agreement, IRCON sub-contracted the said works to National Building Construction Corporation Ltd. (for short the NBCC), the petitioner herein, for construction of railway station-cum-commercial complexes at Vashi and Belapur, amounting to Rs. 30.42 crores.

Consequently, on 16 July 1990 two separate agreements were executed between IRCON and NBCC in respect of Vashi and Belapur works. In terms of the agreements, NBCC furnished bank guarantees amounting to Rs. 6.09 crores with the State Bank of Patiala, Kasturba Gandhi Marg, New Delhi, State Bank of India, Connaught Place, New Delhi and Syndicate Bank, Nehru Place, New Delhi, respondents No. 2, 3 and 4 respectively for securing mobilisation advance, security deposit, security and material advance.

It appears that some disputes arose between IRCON and NBCC with regard to the said contracts and as a result thereof the IRCON terminated the contract with NBCC and invoked the bank guarantees given by NBCC amounting to Rs. 6.09 crores. Thereafter the matter was referred to Committee on Disputes, constituted in terms of judgment of the Supreme Court in ONGC's case (supra). The Committee met on various dates, deliberated on the disputes between IRCON and NBCC and it is claimed by the petitioner that during all this period the bank guarantees in question were directed to be kept alive and were not to be invoked.

From letter dated 11 August 1995(page 140), it appears that there was some correspondence between the IRCON and NBCC with regard to encashment of bank guarantees in question. In the said letter from IRCON to NBCC, the NBCC had been informed that the bank guarantees having been invoked prior to the directive of the Cabinet Secretariat it could not be withdrawn at that stage as the issue was still not settled. It is said that the issue of encashment of bank guarantees again came up for consideration and resolution before the Committee on Disputes but no decision was taken on the issue.

It appears that when the matter was still under consideration of the Committee on Disputes the NBCC filed a writ petition in this Court challenging some decisions taken by the Committee. Taking note of this fact in its meeting held on 24 July 1997 the Committee washed its hands of the matter, discussed its earlier decision taken in its meeting held on 10 April 1997 regarding encashment of bank guarantees, and permitted the parties to seek appropriate legal remedies in the Court of competent jurisdiction.

It is stated by learned counsel for the petitioner that the said writ petition has since been dismissed as withdrawn with liberty to seek appropriate remedy available to the petitioner. It is also stated that interim relief for stay of encashment of bank guarantees was also prayed for in the miscellaneous application filed with the writ petition, but was not granted.

Vide letter dated 25 July 1997 the IRCON, while making reference to the earlier letter dated 8 March 1995, on the subject of encashment of bank guarantees, requested the Syndicate Bank, Nehru Place, New Delhi to hand over the proceeds under the eight bank guarantees mentioned therein. It is this letter of IRCON against which the petitioner has now approached this Court by means of the present petition for stay of encashment of bank guarantees.

Before I advert to the question as to whether the petitioner is entitled to the interim relief of stay sought for, I feel that on the facts in hand the present petition per se is not the appropriate remedy and is otherwise not maintainable under Section 9 of The Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act).

Section 9 of the Act provides that a party may, before or during arbitral proceedings or at any time after making of the arbitral award but before it is enforced in accordance with Section 36 of the Act may apply to Court for an interim injunction. Admittedly the matter has neither been referred for arbitration nor anything has been done so far to move for reference. Not only that, indeed clause 62.3 of the agreement, on which reference could have been mutually made or sought by any of the parties, is denounced by the petitioner on the plea of its being illegal. In any case, no steps for substantive relief on it having been taken, I fail to see how without a substantive move for reference or declartion on the petitioner's stand on it by an appropriate forum, can Section 9 of the Act, be invoked for grant of interim relief. Reliance is, however, placed on the word “before” in Section 9 of the Act and the stand of the petitioner is that this word indicates that a party can apply for an interim order at any stage whether there is demand for arbitration or not. I do not feel persuaded to agree. In my view, the setting of the word “before” preceding “or during arbitral proceedings” suggests that Section 9 of the Act can be invoked during arbitral proceedings or during the interregnum when a request for reference for arbitration is conveyed by a party under Section 21 of the Act and the time taken when the reference is infact made to an arbitrator. The word “before”, in my opinion, takes care of this interregnum period only. For otherwise, it may lead to absurd results. Having obtained an interim order in this manner, a party may not move at all for reference of disputes to arbitration.

Section 21 of the Act defines “Commencement of arbitral proceedings”. It, inter alia, provides that arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent. Therefore, there is no doubt that when a party demands arbitration, or issues a notice to the respondent invoking the arbitration based on the arbitration agreement that the arbitration proceedings commence. There is no gain saying that a demand has to be in terms of an arbitration clause in the agreement between the parties. Section 7 of the Act defines the term “arbitration agreement” and Section 11 deals with the appointment of arbitrators by mutual consent or through court. Construing these provisions harmoniously, in my view, an interim order can be sought by a party under Section 9 only after a ground for settlement of disputes through arbitration has been laid by invoking the arbitration agreement and not by denouncing it. It is only when the arbitration is demanded that the arbitral proceedings commence and section 9 can be put into operation.

As noticed above, the petitioner's stand is that clause 62.3 of the agreement between the parties provides for adjudication of all disputes through arbitration by an arbitrator to be appointed by the Managing Director of CIDCO but claims that this arbitration clause is illegal being in violation of the office memorandum dated 30 March 1989 of Government of India and Presidential directives dated 17 April 1989 and 21 August 1989 and as such does not constitute a valid arbitration agreement on which reference could be made. In other words, the arbitration clause (62.3), as it exists, has not been acceptable to the petitioner. In letter dated 11 August 1995 IRCON has expressed its inability to unilaterally effect any change in the arbitration clause without the approval of CIDCO, and CIDCO being not agreeable to the change in the arbitration clause, it could not refer the matter to Permanent Machinery of Arbitrators(PMA), as desired by the petitioner. Admittedly the petitioner has not addressed any communication to IRCON invoking the arbitration clause and expressing its desire to go in for arbitration under the said clause. As such, no interim injunction under Section 9 of the Act can be issued in favour of the petitioner, who, as noted, is repudiating the arbitration agreement itself.

In view of the above it cannot be said that the arbitral proceedings between the petitioner and IRCON have commenced and for the view I have taken on the interpretation of Section 9 of the Act, the present petition itself is not maintainable.

Besides, Section 9 of the Act is discretionary. This discretion cannot be exercised as a matter of course. The petitioner as also the respondent are both public sector undertakings. It is not even shown, though averred in the petition, how a fraud in connection with the bank guarantees in question, of which the bank was or is aware, has been played and how the encashment of bank guarantees would result in irretrievable loss or injustice to the petitioner in case the bank guarantees are allowed to be encashed on the terms stipulated in them. No case of fraud, let alone of “egregious nature”, has been made out. Learned counsel for the petitioner has also failed to satisfy me that there would be no possibility whatsoever of the recovery of the amount from the respondent/beneficiary by way of restitution.

Keeping in view the principles laid down in various judgments of the Supreme Court, noticed in its recent judgment in Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd. & Anr., JT 1997 (5) SC 417, I feel that even on facts no case for grant of interim injunction in favour of the petitioner has been made out.

In the result the petition is dismissed.

Copies of this order may be given Dasti to counsel for the parties.