Maheswari And Co. Pvt. Ltd. And Another v. The Corporation Of Calcutta Opposite Party.

1. This is an application under Section 20 read Section 41 of the Arbitration Act, 1940. The petitioner which is a company incorporated under the Companies Act, 1956 is the owner of a business called Calcutta Spun Pipes and Industries. The petitioner in this application asks for an order of injunction restraining the defendant Corporation of Calcutta from opening or accepting any tender or entering into any contract with any third party pursuant to a public press notice inviting tenders issued on the 24th January, 1974. The petitioner further asks for an injunction restraining the Corporation of Calcutta from inviting any tender from the public with regard to the supply of any portion of the said 170 pieces of the pipes and collars or from entering into any fresh contract with any third party and for certain other incidental reliefs.

2. In order to appreciate the controversy it would be necessary to refer briefly to the facts in this case. The plaintiff being the petitioner herein submitted to the defendants rates for the supply of R.C.C Spun Pipes and Collars of N.P 2 Class as per ISS 458 of 1956. On the 17th May, 1973 the defendant requested the plaintiff for the execution of the agreement after deposit of 5% security money. The plaintiff on the 19th May, 1973 wrote to the defendant recording that the contract papers had not yet been sent by the defendant and as such the security money could not be deposited, but offers were made for delivery immediately because stocks were ready. Thereafter there was a request for deposit of security of Rs. 6020/- on the 21st May, 1973 by the defendant to the plaintiff. On 7th June, 1973 there was an indent for stores from the defendant to the plaintiff requesting supply and delivery of the pipes and collars at site as directed by the defendant. On the 26th June, 1973 the plaintiff wrote to the defendant recording delivery of 70 pipes and stating that another lot was ready for delivery but nobody was receiving the same on behalf of the defendant. On the same day the defendant wrote to the plaintiff in continuation of the earlier letter dated 16th July, 1973 directing removal of rejected pipes within a week. It was stated that the pipes were rejected because of alleged cracks and damages and not being properly cast. The plaintiff on 30th July, 1973 replied stating that the goods had been manufactured as per ISS 458 of 1956 specification and the plaintiff was ready to replace the damaged pipes and collars but before doing so a joint inspection was asked for. On 1st August, 1973 the plaintiff again wrote to the defendant stating that the entire lot of 170 sets of pipes had already been manufactured and ready for delivery, and the defendant should arrange for inspection of the materials at the plaintiff's factory so that delivery might commence. The defendant had also asked to intimate the date of joint inspection of the materials already supplied at the site. On 7th August, 1973 the defendant wrote to the plaintiff reiterating rejection of the goods and requesting removal thereof within a week. In default, it was stated, that purcase would be made at the risk and cost of the plaintiff. This was according to the defendant in terms of the contract that is to say, if the goods were not according to specification or were damaged then the defendant was entitled to make purchases of those materials at the costs and risk of the plaintiff. On 22nd August, 1973 a reply was received from the defendant reiterating that the goods had been rejected and as such could not be accepted. It was stated that no further supply would be accepted from the plaintiff until the rejected pipes had been removed. In the meantime there was further correspondence between 27th August, 1973 and 19th September, 1973 reiterating each other's stand about rejection and removal of the goods. On the 15th October, 1973 the plaintiff wrote to the defendant requesting for joint inspection and recording that the entire goods had been manufactured. It was stated by the defendant on the 17th October, 1973 that the pipes had been inspected and had been rejected and, as such the question of joint inspection did not arise. On the 24th October, 1973 it was arranged that the joint inspection would take place on the 29th October, 1973 at Garden Reach. Thereafter there was a joint inspection and it was alleged that the record of joint inspection dated 30th October, 1973 indicated that only a few pieces had been rejected and the rest had been accepted. After some further correspondence on the 8th December, 1973 the plaintiff sent a bill to the defendant for the sum of Rs. 49,573/-. The defendant on 12th December, 1973 wrote to the plaintiff intimating that the rejected pipes could not be accepted and the same should be removed within 10 days. The defendant also intimated thereafter that as the pipes had been rejected the bills had been returned. On the 7th January, 1974 defendant again asked the plaintiff to remove the rejected pipes and intimated that if this was not done within 7 days and replaced, purchases would be made at the risk and costs of the plaintiff. On 15th January, 1974 the plaintiff appointed its Arbitrator and forwarded its claim to the said Arbitrator. It is stated that on 24th January, 1974 there was an advertisement in the press by the defendant calling for tenders for supply of 70 pipes on or before 5th February, 1974. Thereupon on 25th January, 1974 the plaintiff gave notice to the defendant under Section 9 (b) of the Arbitration Act, 1940 regarding the appointment of the sole Arbitrator on or before 5th February, 1974, and on 30th January, 1974 the defendant nominated its Arbitrator. On 5th February, 1974 two applications were made, one under Section 20 of the Arbitration Act, 1940 and another under Section 41 of the said Act and the second application has come up for hearing before me. It is further stated that on the application under Section 41 of the Arbitration Act, 1940 an ad interim order was made whereby it was directed that the defendant would be entitled to receive the tender pursuant to the advertisement but would not take any further steps in respect thereof. I have already mentioned the reliefs that have been asked for by the applicant plaintiff in this application. On behalf of the respondent it was contended, firstly, that this application was misconceived. It was urged that the parties having proceeded under Chapter II of the Arbitration Act, 1940 Chapter III of the said Act was inappropriate and inapplicable and as such an application under Section 20 of the Arbitration Act, 1940 was misconceived. In the premises it was submitted that the application under Section 41 for the interim relief was also not maintainable. It was argued that Section 20 of the Arbitration Act gave an option to the parties of either proceeding under Chapter II of the Arbitration Act, 1940 or under Chapter III of the Arbitration Act and the applicant-plaintiff having chosen to proceed under Chapter II by appointment of the Arbitrator and reference to him had no right to apply under Section 20 of the Arbitration Act, 1940 and as such this application for relief pending the application under Section 20 of the Act was, therefore, not maintainable. It was further urged that there had in any event been suppression of material facts by the applicant in this application and as such the applicant was disentitled to any relief by way of injunction or any other relief by way of interim order. It is true that the plaintiff and indeed the parties have proceeded to accept the arbitration agreement and make the appointment of the Arbitrators in accordance with the arbitration agreement. I am told that the Arbitrators have entered into the reference on 19th February, 1974. The question, therefore, is whether in such a situation the applicant is entitled to maintain this application. It is not necessary to set out the provisions of Section 20 of the Arbitration Act, 1940. It is true that where there is an arbitration agreement, the Arbitration Act, 1940 provides an alternative to the parties either to proceed with the arbitration as contemplated by the agreement and proceed to nominate arbitrators as indicated in the agreement or in the alternative to come to Court to have the arbitration agreement filed and ask for certain consequential orders as to the further prosecution of the arbitration reference. Sub-section (1) of Section 20 clearly gives that option to the parties. But Sub-section (1) of Section 20 of the Arbitration Act, 1940, in my opinion, does not exclude operation of the other provisions of Section 20 in so far as these are applicable even in a case where parties have chosen to make a reference and proceed with arbitration under Chapter II of the Arbitration Act, 1940. Sub-section (4) of Section 20, in my opinion, is clear indication of the fact that where arbitration agreement is filed the Court can and has a right to make either an order directing the arbitration to proceed in accordance with the arbitration agreement by the parties or appoint an arbitrator directly which is a consequential order following from the filing of the arbitration agreement. Chapter II of the Arbitration Act, 1940 does not deal with filing of arbitration agreement. Therefore, in so far as Section 20 in its substantive provision deals with rights of the parties for filing of arbitration agreement, there is no parallel provision in Chapter II of the Arbitration Act, 1940. In such a situation, no question of having exercised option by the parties in my opinion arises. Indeed, in my opinion, support of this view may be obtained from the observations of the Supreme Court in the case of Dhanrajamal Gobindaram v. Shamji Kalidas and Co., AIR 1961 SC 1285 at 1290 and 1293.

3. There is, furthermore, another aspect of the matter. Under Section 41 of the Arbitration Act, the Court has power to make order for interim protection even in a case where there is no application under Section 20 of the Arbitration Act or where proceedings under Chapter III of the Arbitration Act, 1940, have not been taken. Clause (b) of Section 41 of the Act indicates that, in that view of the matter, even if it be assumed, which I do not hold as I indicated before, that the application under Section 20 was misconceived in this case under Section 41 the Court has right to pass orders if the facts and circumstances of the case so justify. It was then contended by counsel for the respondent that this application was not under Section 41 as such, but this was an application interlinked with Section 20 in the application filed under Section 20. As I find necessary averments for an order under S. 41 are there, I am of the opinion that to sustain this objection of counsel for the respondent would be to uphold a mere technicality for which I find no justification in the scheme of the Arbitration Act, 1940. It was then urged, as mentioned before, that the application suffers from suppression of material facts. Reading the application as a whole, I do not think there was such non-statement of facts which were material or germane which would disentitle the applicant to the reliefs asked for. In the aforesaid view of the matter, this objection raised on behalf of the respondent is therefore rejected.

4. There, however, remains the main question whether the plaintiff-applicant is entitled to the reliefs asked for in this application. It was contended in support of this application that the reliefs asked for in the arbitration proceeding were mainly based on specific performance of the contract, and therefore, in aid of that relief for specific performance of the contract, the plaintiff was entitled to, on the principle of equity and under the provisions of Section 10 of the Specific Relief Act as well as Section 42 of the Specific Relief Act and the provisions of Order 39, Rule 2 of the CPC to have an order as asked for in this application. In this connection, my attention was drawn, firstly, to Section 58 of the Sale of Goods Act. The said section of the Sale of Goods Act, in my opinion, deals with the converse case, that is to say it deals with a case of purchaser of specific goods in respect of a contract to deliver specific and ascertained goods. In my opinion, the applicant is not entitled to draw support from the provisions of Section 58 of the Sale of Goods Act, firstly, because on principle the position of purchaser of certain goods was entirely different to that of a seller in respect of these goods. Secondly, the statute in expressed terms deals with the case of a purchaser and does not provide the case of a seller. It would not be proper where the statute did not cover the case of a seller to read into Section 58 that the case of a seller was also intended to be covered by it., in that view of the matter, I am of opinion that Section 58 of the Sale of Goods Act cannot be of any assistance to the applicant. Counsel for the applicant drew my attention to the provisions of Section 10 of the Specific Relief Act, 1963, and he drew my attention to clause (ii) of Explanation of Section 10 of the Specific Relief Act and clause (a) of the said Section and contended that as the pipes had been manufactured and prepared according to special specification and instruction of the defendant and which had no other market to be sold and the goods were not ordinary articles of commerce, these articles are of special value or interest and were not easily obtainable. This again, in my opinion, would apply mainly in the case of a purchaser. Secondly, I am not quite that sure when the sub-clause (a) speaks of ‘property which is not an ordinary article of commerce’ it did not contemplate an article manufactured or prepared at the instance or specification of a contracting party. But it really meant or spoke of certain rare things which could not be produced or manufactured even at the specification or at the behest of the party in question. Lastly, my attention was drawn to the decision in the case of James Jones and Sons Limited v. Earl of Tankerville, 1909(2) Ch 440 and reliance was placed on the observations of Parker J. at pages 443 and 444 of the aforesaid decision. It is to be noted that this was not a case really of a seller but it is a case of revocation of a licence. Grant of a licence creates certain obligations and certain rights and cancellation of that licence involves certain other legal consequences. It is on this principle the Court proceeded in determining the aforesaid case. That principle in my opinion, cannot be applicable to the facts of this case.

5. Shortly put, the facts seem to be this: The plaintiff alleges that the plaintiff has manufactured certain types of pipes which have no market other than to the defendant and these pipes were manufactured only at the specification of the defendant. These pipes have been rejected; according to the plaintiff rejected wrongfully and arbitrarily and in breach of the terms of the contract. According to the defendant, the rejection is valid and proper. That is the dispute pending before the Arbitrators and the form of the relief will depend upon the dispute. That dispute can resolve itself in either way. It may be held that the alleged rejection by the defendant was wrongful and the defendant was bound to buy; in that event, the plaintiff would be entitled to full price of the goods manufactured without any claim for mitigation of damages. If, on the other hand, it is found that rejection was valid and proper then the plaintiff would be entitled to the price subject to the right of mitigation of damages. Looking at it from either point of view in equity I do not see how can a party be compelled to use a specific type of pipes assuming it was manufactured at the behest of the party and assuming it was rejected arbitrarily. Second aspect of the relief is dependent on having negative covenant between the parties. Negative covenant would depend upon the terms of the contract express or implied. In this case it is admitted that there was no such negative covenant expressly.

6. It is argued from the facts of this case a negative covenant should be implied. I see no justification, in view of the nature of controversy as indicated before, to imply a negative covenant in a contract of this nature on a transaction of moveables of this nature by two contracting parties. I am, of the opinion, in that event, even at the highest if the conduct of the defendant was wholly wrongful and unjustified, the plaintiff would be fully protected by the amount of price and the plaintiff can claim no higher relief than that. In the aforesaid view of the matter, I am of the opinion that the plaintiff-applicant is not entitled to the reliefs asked for in this application.

7. The application, therefore, fails and is accordingly dismissed.

8. Costs of this application will be cost in the arbitration proceeding.

9. Application dismissed.