Kris Heavy Engineering v. Pnhb Lanco Khec

ORDER

VINOD K. SHARMA, J.

This application has been filed for seeking interim measure of prohibition, by granting an interim pro-order, prohibiting respondent no. 2.Garnishee from releasing the amounts due and payable to the 1st respondent as on the date of this order under the contract No. CNT/WSS/CWSAP-I/MWB/03/2001-Package III dated 31.10.202 in respect of supply and laying of raw water transmission main and all other connected works from Vadakuthu to Ongur in the State of Tamil Nadu.

2. The applicant and two others incorporated companies formed a joint venture for the purpose of participating in the tender floated by the Chennai Metropolitan Water Supply and Sewerage Board. The applicant was holding a minority share in the joint venture, but played an important role in bringing about the contract.

3. The entire project was to be completed within a period of 18 months. The joint venture was also awarded the contract relating to operation and maintenance (O&M) for a period of five years, commencing from the taking over of the works by the Metro under the contract.

4. That for the purpose of convenient execution, the joint venture decided to divide the entire work of execution barring the supply part and operation and maintenance into various sub packages of varying lengths and got it executed through other subcontracto.

5. It is submitted, that the applicant, besides being a partner in the joint venture, offered to take up the execution of a portion of the work and accordingly, the joing venture awarded to the sub package 8 of a length of 28.5 km in favour of the applicant. Under the sub-contrat, it was the obligation of the joint venture company to supply pipes required for the works to the subcontractors.

6. The case of the applicant is that though the contract was competed and taken over by Metro on 19.01.2005, the joint venture exhibited non cooperative 5 attitude towards the applicant and did not issue completion certificate and also withheld huge amount payable to it for the work executed.

7. That the dispute between the parties to be decided under Clause 3 of Special Conditions of Contract - Part I of the contract. On application made, an Arbitral Tribunal was constituted of three arbitrators. The applicant filed 34 claims, totalling Rs. 9,17,29,391/- (Rupees Nine Crores Seventeen Lakhs Twenty Nine Thousand Three Hundred and Ninety One only), whereas the joint venture raised counter claim to the tune of Rs. 13,61,00,000/- (Rupees Thirteen Crores and Sixty One Lakhs only).

8. The case of applicant is that it was kept away in administering the affairs of the joint venture, even though it was one of the shareholders. The applicant was also aware, that joint venture had substituted bank guarantee for the release of the balance retention money.

9. It is the case of the applicant, that joint venture submitted a final bill seeking additional payments and according to the applicant, the joint venture would be receiving about Rs. 10 Crores from Metro, when the defect liability certificate is issued.

10. This application has been moved to restrain respondent no. 2 from releasing payment to the respondent no. 1, pending arbitration proceedings.

11. Learned counsel for the applicant vehemently contended, that as the applicant had undertaken sub-contract and filed claim for Rs. 9,17,29,391/- (Rupees Nine Crores Seventeen Lakhs Twenty Nine Thousand Three Hundred and Ninety One only). On the other hand, the claim filed by respondent no. 1 is frivolous, therefore, the applicant is entitled to interim protection by restraining respondent no. 2 from releasing payment due to respondent no. 1, pending arbitration proceedings.

12. The application is opposed by the respondents, by contending, that in the garb of garnishee order, the applicant is seeking injunction against respondent no. 2 from releasing the amount. This is not permissible in law, in view of the law laid down by the Hon'ble Kerala High Court in the case of Shoney Sanil v. Coastal Foundations (P) Ltd. & Ors., AIR 2006 Ker. 206, wherein the Hon'ble Kerala High Court has been pleased to lay down, that interim injunction can be granted only against the party to arbitration agreement at the instance of other party to the agreement and not against third party. The operative part of judgment reads as under:

“For appreciating the scope of Section 9, the term ‘party’ has to be understood, following the definition of the said term in Section 2(1)(h), which states that unless the context otherwise requires ‘party’ means a party to an arbitration agreement. By Section 2(1)(b), ‘arbitration agreement’ means an agreement referred to in Section 7, whatever be its form as conceived in Sub-section (2) of Section 5 thereof, arbitration agreement, going by Sub-section (1) of Section 7, means an agreement by the parties to submit to arbitration, all or certain disputes which have arisen or which may arise between them in respect of a definite legal relationship, whether contractual or not. Section 9 occurs in Chapter II in Part 1 which defines an arbitration agreement and provides the power of a judicial authority to refer the parties to arbitration, where there is an arbitration agreement and provides further, for interim measures by Court. These are the three provisions contained in Chapter II of Part I. So much so, the interim measures which are conceived by the Legislature while enacting Section 9 are those interim measures which relate to the arbitration agreement between the parties and being interim, they are to confine to the matters relating to the arbitration agreement between the parties. This intention is explicit from the opening words of Section 9, which provides for the party to apply for interim measure under Section 9. Therefore, only a party to the arbitration agreement can apply to a court invoking Section 9, which consists of two parts. Section 9(i) deals with appointment of a guardian for a minor or a person of unsound mind for the purpose of arbitrary proceedings. Section 9(ii) enumerates five types of interim measures of protection in respect of the matters enumerated in Clauses (a) to (e) of Section 9(ii). Clause (a) deals with preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement. Clause (b) provides for securing the amount in dispute in the arbitration. Clause (c) provides for detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising, for any of the aforesaid purposes any person, to enter upon any land or building in the possession of any party 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. A reading of the said provision would show that the orders under Section 9(ii)(c) can be passed only in relation to the subject-matter of the dispute in arbitration which may be in the possession of any party since it is not the intention of the Act or any arbitration proceedings as conceived by the law of arbitration, to interfere with or interpolate third party rights. The reason for this is obvious, that, an arbitral tribunal rests its authority on the agreement between the parties to the arbitration agreement and it is not a Court, to interfere with third party rights, as may the Courts authorised in that regard, by the law of the land. The issuance of interim injunction or appointment of receiver provided for under Clause (d) and the residuary provision to issue such interim measure of protection as may appear to be just and convenient in terms of Clause (e) of Section 9(i) and (ii) have to be read in the backdrop of the extent of jurisdiction which can be exercised and, this is limited to the parties who are governed by the arbitral agreement and not in excess thereof. On a plain reading of Section 9 of the Act and going by the scheme of the said Act, there is no room to hold that by an interim measure under Section 9, the rights of third party, holding possession on the basis of a court sale could be interfered with, injuncted or subjected to proceedings under Section 9 of the Act. Section 9 of the Act contemplates issuance of interim measures by the court only at the instance of a party to an arbitration agreement with regard to the subject-matter of the arbitration agreement. This can be only as against the party to an arbitration agreement, or, at best, against any person claiming under him. The writ petitioner is a third party auction purchaser in whose favour is a sale certificate, followed by delivery of possession. He cannot therefore be subjected to proceedings under Section 9 of the Act, initiated on the basis of an alleged arbitral agreement between the respondents.

7. For the foregoing reasons, the impugned order, as against the writ petitioner, is without jurisdiction. I am of the considered view that the proceedings before the court below, in so far as it is against the writ petitioner is a clear abuse of process of court.”

13. Reliance was also placed on the judgment of the Hon'ble Calcutta High Court in Arch Hi-Rise (P) Ltd. v. Yatin Bhimani & Ors., 2006 (4) CHN 204.

14. On consideration, I find that this application is totally misconceived. The Hon'ble Supreme Court in the case of Adhunik Steels Ltd. v. Orissa Manganese and Minerals Pvt. Ltd. (A.I.R 2007 SC 2563), has laid down as under:

“10. It is true that Section 9 of the Act speaks of the court by way of an interim measure passing an order for protection, for the preservation, interim custody or sale of any goods, which are the subject matter of the arbitration agreement and such interim measure of protection as may appear to the court to be just and convenient. The grant of an interim prohibitory injunction or an interim mandatory injunction are governed by well known rules and it is difficult to imagine that the legislature while enacting Section 9 of the Act intended to make a provision which was de hors the accepted principles that governed the grant of an interim injunction. Same is the position regarding the appointment of a receiver since the Section itself brings in, the concept of ‘just and convenient’ while speaking of passing any interim measure of protection. The concluding words of the Section, “and the court shall have the same power for making orders as it has for the purpose and in relation to any proceedings before it” also suggest that the normal rules that govern the court in the grant of interim orders is not sought to be jettisoned by the provision. Moreover, when a party is given a right to approach an ordinary court of the country without providing a special procedure or a special set of rules in that behalf, the ordinary rules followed by that court would govern the exercise of power conferred by the Act. On that basis also, it is not possible to keep out the concept of balance of convenience, prima facie case, irreparable injury and the concept of just and convenient while passing interim measures under Section 9 of the Act.”

15. The provisions with regard to the directions to the garnishee are governed by Order XXI Rule 46A, 46B and 46C, which read as under:

“46A. Notice to garnishee

(1) The Court may in the case of a debt (other than a debt secured by a mortgage or a charge) which has been attached under rule 46, upon the application of the attaching creditor, issue notice to the garnishee liable to pay such debt, calling upon him either to pay into Court the debt due from him to the judgment-debtor or so much thereof as may be sufficient to satisfy the decree and costs of execution, or to appear and show cause why he should not do so.

(2) An application under sub-rule (1) shall be made on affidavit verifying the facts alleged and stating that in the belief of the deponent, the garnishee is indebted to the judgment-debtor.

(3) Where the garnishee pays in the Court the amount due from him to the judgment-debtor or so much thereof as is sufficient to satisfy the decree and the costs of the execution, the Court may direct that the amount may be paid to the decree-holder towards satisfaction of the decree and costs of the execution.

46B. Order against garnishee

Where the garnishee does not forthwith pay into Court the amount due from him to the judgment-debtor or so much thereof as is sufficient to satisfy the decree and the costs of execution, and does not appear and show cause in answer to the notice, the Court may order the garnishee to comply with the terms of such notice, and on such order, execution may issue as though such order were a decree against him.

46C. Trial of disputed questions

Where the garnishee disputes liability, the Court may order that any issue or question necessary for the determination of liability shall be tried as if it were an issue in a suit, and upon the determination of such issue shall make such order or orders as it deems fit:

Provided that if the debt in respect of which the application under rule 46A is made is in respect of a sum of money beyond the pecuniary jurisdiction of the Court, the Court shall send the execution case to the Court of the District Judge to which the said Court is subordinate, and thereupon the Court of the District Judge or any other competent Court to which it may be transferred by the District Judge shall deal with it in the same manner as if the case had been originally instituted in that Court.”

16. The reading of the provisions shows, that the word used is “judgment debtor” and not a party to the litigation, the provisions for invoking the relief against Garnishee therefore can only be after passing of decree and not during the pendency of the proceedings. The security pending proceedings can be ordered under the provisions of Order 38 Rule 5 of CPC.

17. Therefore, in view of the judgment of the Hon'ble Supreme Court, it is only when the conditions stipulated under Order 38 Rule 5 are fulfilled, that Court can pass order under Section 9 of the Arbitration and Conciliation Act to direct security or attach any property to secure the amount. No order under directing garnishee to deposit quo amount therefore can be passed.

18. The application against garnishee would not be competent under Section 9, as the relief against third party is only with respect to the subject matter of arbitration, when the third party is drawing title through parties to the arbitration.

19. The applicant therefore has also miserably failed to make out any case for grant of security, as it is yet to be determined as to whether payment is due to the applicant or counter claim filed by respondents is to be accepted.

20. The application therefore on the face of it, being totally misconceived, is ordered to be dismissed, but with no order as to the costs.