Moser Baer Entertainment Limited Vs. Goldmines Telefilms Private Limited - Court Judgment

Excerpt:
civil procedure code – order 39 rule 2 - arbitration and conciliation act 1996 – section 2(1), section 9, section 17, section 36, section 37, section 37(1), section 37(2)(b) - specific relief act – section 14, section 17, section 41, section 41(e) - arbitration petition - respondent granted sole and exclusive rights to petitioner to manufacture record copy sell and distribute various films through dvds vdcs and all devices for home video markets in territory of india - order passed by arbitrator indicates that he has not only interpreted clause 1.6 of agreement but has finally concluded the rights and obligations of party under that clause while deciding application under section 17 of arbitration and conciliation act 1996 - arbitrator restrained petitioner from marketing.....1. by this petition filed under section 37(2)(b) of the arbitration and conciliation act, 1996 (for short `arbitration act, 1996), the petitioner seeks to challenge an order passed by the learned arbitrator granting interim measures in favour of the respondents on application filed under section 17 of the act. some of the relevant facts for the purposes of deciding this petition are setout hereunder:- 2. by an agreement dated 28th february, 2012 entered into between the petitioner and the respondent, the respondent granted sole and exclusive rights to the petitioner to manufacture, record, copy, sell and distribute various films through dvds, vdcs and all devices for the home video markets in the territory of india. the said agreement was to commence w.e.f. 1st march, 2012 and the terms.....

Judgment:

1. By this petition filed under section 37(2)(b) of the Arbitration and Conciliation Act, 1996 (for short `Arbitration Act, 1996), the petitioner seeks to challenge an order passed by the learned arbitrator granting interim measures in favour of the respondents on application filed under section 17 of the Act. Some of the relevant facts for the purposes of deciding this petition are setout hereunder:-

2. By an agreement dated 28th February, 2012 entered into between the petitioner and the respondent, the respondent granted sole and exclusive rights to the petitioner to manufacture, record, copy, sell and distribute various films through DVDs, VDCs and all devices for the home video markets in the territory of India. The said agreement was to commence w.e.f. 1st March, 2012 and the terms of the agreement was of three years. The said agreement however provided for one year lock in period under clause 3.1. Clause 1.4 provided that the petitioner was given a right to exploit the film rights at the prices to be fixed by them from time to time based on market requirement. Clauses 1.6 and 5.1 to 5.3 of the said agreement are extracted below:-

1.6 Copyright Holder hereby grants a non-exclusive license to MBEL to use the Trademarks/Trade Names/logos for the purpose of this Agreement. MBEL shall prominently display only the logo of Goldmines on the front and back of the DVD and VCD inlay covers and on the SDVD inlays where two or more films of Goldmines are featered.

5.1 Copyright Holder hereby agrees, assures and undertakes with MBEL that Copyright Holder shall upon execution of this Agreement and no later than 7 (seven) days thereof, handover to MEBL:-

5.2 The true copies of the Third Party Agreements by virtue of which the rights in and to the said Films vests in Copyright Holder and photo copies of the censor certificates for the said Films;

5.3 Free of charge, all the publicity materials in respect of the said Films. The publicity material supplied by Copyright Holder to MBEL shall always remain the absolute property of MBEL and MBEL shall not be under obligation to return the same to Copyright Holder upon the expiry of this Agreement.

3. It is the case of the petitioner that the respondent though was required to deliver source material for all 305 films within the date of execution of the agreement alongwith true copy of the third parties agreement by virtue of which it had acquired rights in and to the said films, the respondent could provide source material only for 51 films and failed to provide the link documents with respect to any films. It is the case of the petitioner that the respondent committed breach of the very essence of the agreement. The respondent was under obligation to provide minimum source material of 275 films to the respondent and in the event of failure to do so, the minimum guarantee royalty was to be reduced proportionally on monthly basis. According to the petitioner the respondent never provided the source material of 305 films nor it provided link documents nor it provided the publicity material and it has committed a serious breaches of the agreement which has resulted in huge financial losses and loss to the reputation of the petitioner.

4. By a letter dated 5th March, 2012, the respondent asked the petitioner to send inlays of front or back of VCDs, etc. if ready. It is the case of the respondent that the petitioner failed to respond despite several correspondence. By letter dated 26th April, 2012, the respondent asked the petitioner to ensure that the inlays were in conformity with clause 1.6 of the agreement and to send the inlays if ready. In response to the said letter, the petitioner in its letter dated 27th April, 2012 replied that they would follow the agreement and in case of any deviation discuss/agree then only proceed. The petitioner also agreed to mail designs of posters and inlays by 28th April, 2012. On 28th April, 2012 the respondent received designs of inlays and posters from the petitioner.

5. By letter dated 2nd May, 2012 the respondent informed the petitioner that the front and back inlays was not in conformity with clause 1.6 of agreement and to bring about the required changes in them. The respondent also enquired whether or not VCDs, etc. had been released in the market. By letter dated 22nd May, 2012 the petitioner informed the respondent that the petitioner was not required to obtain any approval from the respondent regarding the inlays, etc.

6. The respondents by its letter dated 28th May, 2012 asked the petitioner to discharge all the obligations under the agreement first and secondly to withdraw all VCDs, etc. launched in the market contrary to the said agreement. By letter dated 6th June, 2012, the petitioner denied the allegations made in the letter dated 28th May, 2012. On 17th July, 2012, the respondent filed a petition under section 9 of the Act in this court for injunction against the petitioner from marketing VCDs, DVDs, etc. save and except in accordance with the agreement and also for direction against the petitioner to forthwith withdraw the VCDs, DVDs etc. from the market.

7. By an order dated 11th October, 2012, this court disposed of the said arbitration proceedings (929 of 2012) and permitted the respondent to treat the said petition as application under section 17 of the Act and to agitate the same before the learned arbitrator. By the said order, this court directed the learned arbitrator to dispose of the said application on or before 26th November, 2012 and kept all the contentions of both parties open. Both parties thereafter filed pleadings before the learned arbitrator. By an order dated 26th November, 2012, the learned arbitrator restrained the petitioner herein from in any manner marketing VCDs, DVDs, etc. save and except in accordance with the agreement until such time the arbitration proceedings to be held between the petitioner and the respondent and passing of the award therein. Being aggrieved by the said order, the petitioner has filed the present proceedings under section 37 of the Act.

8. The learned counsel appearing for the petitioner made following submissions:-

(a) Under section 17, the Arbitral Tribunal is empowered to pass an order directing a party to take any interim measures of protection in respect of the subject matter of the dispute and in the said order, the arbitrator is not empowered to decide the merits of the matter.

(b) when compensation is remedy sought for, the specific performance of the agreement could not have been granted by the learned arbitrator at an interim stage under section 17.

(c) The arbitrator is not empowered to decide the claim of injunction predicated on the respective merits of the claims in the dispute before him whereas he has entered into merits of the respective claims of the parties before him while deciding the application under section 17.

(d) The arbitrator made final determination of the rights of the parties and more particularly the issue of alleged breach of clause 1.6 of the agreement under section 17 of the Specific Relief Act. The agreement was not specifically enforceable. It was terminable and if the respondent would succeed, it would be compensated in terms of the money. The learned arbitrator therefore by way of mandatory injunction could not grant relief in teeth of section 14 of the Specific Relief Act and direct the petitioner to comply with petitioners part of obligation under the contract by way of interim order.

(e) There was gross delay in filing application under section 9 of the Act for seeking interim measures. The petitioner had been producing, distributing and marketing CDs, VCDs, DVDs, SDVDs etc. in the market since April 2012 whereas application under section 9 was filed only on 11th October, 2012 and the learned arbitrator had passed the impugned order on 26th November, 2012. The agreement is expiring on 28th February, 2013. the balance of convenience was thus in favour of the petitioner and no irreparable injury would be caused to the respondent if no such relief would have been granted.

(f) The learned counsel placed reliance upon the judgment of the Supreme Court in case of Firm Ashok Traders and another vs. Gurumukh Das Saluja and others (2004) 3 SCC 155)judgment of the Supreme Court in case of AdhunikSteels Ltd. vs. Orissa Manganese and Minerals (P) Ltd. (2007) SCC 125)and unreported judgment of Delhi High Court dated 28th April, 2008 in case of National Highways Authority vs. Elsamex Tws-Snc Joint Venture.

(g) The learned counsel disputed the observations made by the learned arbitrator in para (28) of the impugned order that in the course of correspondence, the petitioner had stated that they would follow the said agreement. The petitioner also disputed the observations made by the learned arbitrator that it was ever admitted by the petitioner that the marketing rights vest with the respondent. It is submitted that balance of convenience was in favour of the petitioner. The respondent having failed to comply with its part of obligation, could not have called upon the petitioner to comply with petitioners obligations under the agreement. The learned arbitrator has not dealt with this issue raised by the petitioner in the impugned order.

9. Mr.Sen, the learned counsel appearing on behalf of the respondent on the other hand submits that the respondent was liable to make the publicity material to the petitioner only if available. He submitted that in any event, publicity material was provided by the respondent to the petitioner. The petitioner was required to return the source material after manufacturing of CDs, VCDs, DVDs, SDVDs etc. It is submitted that though under clause 1.6 of the contract, the petitioner was obliged to display at the prominent place the logo of the respondent and such clause was inserted with a view to achieve brand recognition of the respondent, the petitioner placed its own logo prominently and did not display the logo of the respondent prominently. It is submitted that under clause 1.6, the petitioner was not permitted to display its logo but was required to display the logo only of the respondent on all DVDs etc. It is submitted that as the petitioner failed to make payment and failed to return the source material in respect of 50 DVDs, the respondent was not required to deliver source material and publicity material in respect of the remaining films. The learned counsel submits that as the last letter was addressed by the petitioner to the respondent in the month of June 2012 by which the petitioner refused to comply with its part of the obligation in the month of July 2012, petition was filed under section 9 of the Act. It is submitted that after filing such petition, parties again negotiated for the settlement. No sooner the petitioner put an end to the negotiation in the month of September, 2012, the respondent immediately moved for ad-interim reliefs before this court.

10. The learned counsel submits that in case of trade mark matter relief by way of temporary injunction is granted though it may be of permanent nature. The learned counsel submits that similarly even in case of copyright, in view of the negative covenant such as under clause 1.6, as the petitioner did not display the logo of the respondent at the prominent place, the respondent was entitled to seek injunction against the petitioner. It is submitted that as the petitioner had not terminated the contract during one year lock in period and kept the contract subsisting, the petitioner was under obligation to comply with its part of obligation under clause 1.6. It is submitted that the learned arbitrator by the impugned order has prevented the petitioner from continuing breach of the contract. It is submitted that balance of convenience was in favour of the respondent and not the petitioner.

11. The learned counsel submitted that in any event, the view of the learned arbitrator is a possible view, the learned arbitrator has exercised its discretion in granting interim arrangement which is left to the discretion of the learned arbitrator and thus no interference is warranted under section 37 of the Act.

12. In rejoinder, the learned counsel appearing for the petitioner submits that there was no express exclusion under clause 1.6 from the petitioner displaying logo of the petitioner. It is submitted that the petitioner had entered into contract with the respondent not only for manufacturing and selling of CDs, VCDs, DVDs, SDVDs etc. but also to establish petitioners reputation in market. It is submitted that the learned arbitrator could not have interpreted the terms of the contract so as to come to the final conclusion while deciding the matter under section 17 of the Act. Though the learned arbitrator has made observations that such issue was to be decided only at the trial and at the same time has interpreted the agreement finally and has granted permanent injunction which is in the nature of specific performance which is not permissible under section 17 of the Act.

13. The Supreme Court in case of Firm Ashok Traders and another (supra) has dealt with the scope of power of court under section 9 of the Arbitration and Conciliation Act, 1996. Paragraphs 13, 17, 18 and 20 of the said judgment read thus:-

“13. The A and C Act, 1996 is a long leap in the direction of alternate dispute resolution systems. It is based on UNCITRAL Model. The decided cases under the preceding Act of 1940 have to be applied with caution for determining the issues arising for decision under the new Act. An application under Section 9 under the scheme of A and C Act is not a suit. Undoubtedly, such application results in initiation of civil proceedings but can it be said that a party filing an application under Section 9 of the Act is enforcing a right arising from a contract? "Party" is defined in Clause (h) of Sub-section (1) of Section 2 of A and C Act to mean a party to an arbitration agreement'. So, the right conferred by Section 9 is on a party to an arbitration agreement. The time or the stage for invoking the jurisdiction of Court under Section 9 can be (i) before, or (ii) during arbitral proceedings, or (iii) at any time after the making of the arbitral award but before it is enforced in accordance with Section 36. With the pronouncement of this Court in SundaramFinance Ltd. v. NEPC India Ltd. - MANU/SC/0012/1999 : [1999]1SCR89 the doubts stand cleared and set at rest and it is not necessary that arbitral proceedings must be pending or at least a notice invoking arbitration clause must have been issued before an application under Section 9 is filed. A little later we will revert again to this topic. For the moment suffice it to say that the right conferred by Section 9 cannot be said to be one arising out of a contract. The qualification which the person invoking jurisdiction of the Court under Section 9 must possess is of being a "party' to an arbitration agreement, A person not party to an arbitration agreement cannot enter the Court for protection under Section 9. This has relevance only to his locus standi as an applicant. This has nothing to do with the relief which is sought for from the Court or the right which is sought to be canvassed in support of the relief. The reliefs which the Court may allow to a party under Clauses (i) and (ii) of Section 9 flow from the power vesting in the Court exercisable by reference to 'contemplated', 'pending' or 'completed' arbitral proceedings. The Court is conferred with the same power for making the specified orders as it has for the purpose of and in relation to any proceedings before it though the venue of the proceedings in relation to which the power under Section 9 is sought to be exercised is the arbitral tribunal. Under the scheme of A and C Act, the arbitration clause is separable from other clauses of the Partnership Deed. The arbitration clause constitutes an agreement by itself. In short, filing of an application by a party by virtue of its being a party to an arbitration agreement is for securing a relief which the Court has power to grant before, during or after arbitral proceedings by virtue of Section 9 of the A and C Act. The relief sought for in an application under Section 9 of A and C Act is neither in a suit nor a right arising from a contract. The right arising from the partnership deed or conferred by the Partnership Act is being enforced in the arbitral tribunal; the Court under Section 9 is only formulating interim measures so as to protect the right under adjudication before the arbitral tribunal from being frustrated. Section 69 of the Partnership Act has no bearing on the right of a party to an arbitration clause to file an application under Section 9 of A and C Act.

17. There are two other factors which are weighing heavily with us and which we proceed to record. As per the law laid 'down by this Court in M/s. Sundaram Finance Ltd. an application under Section 9 seeking interim relief is maintainable even before commencement of arbitral proceedings. What does that mean? In M/s. Sundaram Finance Ltd., itself the Court has said --

"It is true that when an application under Section 9 is filed before the commencement of the arbitral proceedings there has to be manifest intention on the part of the applicant to take recourse to the arbitral proceedings".

Section 9 permits application being filed in the Court before the commencement of the arbitral proceedings but the provision does not give any indication of how much before. The word 'before' means, inter alia, "ahead of; in presence or sight of; under the consideration or cognizance of. The two events sought to be interconnected by use of the term 'before' must have proximity of relationship by reference to occurrence; the later event proximately following the preceding event as a foreseeable or 'within sight' certainty. The party invoking Section 9 may not have actually commenced the arbitral proceedings but must be able to satisfy the Court that the arbitral proceedings are actually contemplated or manifestly intended (as M/s Sundaram Finance Ltd. puts it) and are positively going to commence within a reasonable time. What is a reasonable time will depend on the facts and circumstances of each case and the nature of Interim relief sought for would itself give an indication thereof. The distance of time must not be such as would destroy the proximity of relationship of the two events between which it exists and elapses. The purpose of enacting Section 9, read in the light of the Model Law and UNCITRAL Rules is to provide 'interim measures of protection'. The order passed by the Court should fall within the meaning of the expression 'an interim measure of protection' as distinguished from an all-time or permanent protection.

18. Under the AandC Act 1996, unlike the predecessor Act of 1940, the arbitral tribunal is empowered by Section 17 of the Act to make orders amounting to interim measures. The need for Section 9, in spite of Section 17 having been enacted, is that Section 17 would operate only during the existence of the arbitral tribunal and its being functional. During that period, the power conferred on the arbitral tribunal under Section 17 and the power conferred by the Court under Section 9 may overlap to some extent but so far as the period pre and post the arbitral proceedings is concerned the party requiring an interim measure of protection shall have to approach only the Court. The party having succeeded in securing an interim measure of protection before arbitral proceedings cannot afford to sit and sleep over the relief, conveniently forgetting the 'proximately contemplated or 'manifestly Intended' arbitral proceedings itself. If arbitral proceedings are not commenced within a reasonable time of an order under Section 9, the relationship between the order under Section 9 and the arbitral proceedings would stand snapped and the relief allowed to the party shall cease to be an order made 'before', i.e. in contemplation of arbitral proceedings. The Court, approached by a party with an application under Section 9, is justified in asking the party and being told how and when the party approaching the Court proposes to commence the arbitral proceedings. Rather, the scheme in which Section 9 is placed obligates the Court to do so. The Court may also while passing an order under Section 9 put the party on terms and may recall the order if the party commits breach of the terms.

20. The other factor centers around the very factum of existence of partnership. The Deed dated 5.3.2002 relating to Partnership - II is a fixed term partnership agreed to stand terminated at the dose of the year as on 31st March,, 2003. The High Court has proceeded on the premises that in spite of the term of the partnership corning to an end by expiry of the contracted term if the partners have continued the business beyond the expiry of the term limited by the contract and without having expressly entered into a partnership agreement afresh, the relationship shall continue to exist and govern the parties so long as the business continues. It is not necessary for us, for the present, to pronounce upon the correctness of the view so taken. Suffice it to observe that in the liquor trade involving heavy investments and heavy stakes it appears highly improbable that the people in trade would continue as partners without entering into a fresh contract though fully aware of the expiry of the term limited by the previous contract, more so, when they are called upon to deal as a partnership firm with the State Government. No reason has been assigned as to why a fresh Deed of Partnership was not entered into. If the members of Group "A" have allowed the liquor business to proceed without entering into a formal Deed of Partnership for the year 2003-04 and thereby allowed the members of Groups "B" and "C" to bring into existence a Deed of Partnership excluding the members of Group "A" and filing it on the record of the State Government (or substituting the same, as Group "A" alleges) they have to thank themselves for the misadventure which they have Indulged into. Their lack of alertness in vigilantly protecting their rights tells adversely on the availability of strong prima facie case in their favour which only can persuade the Court to direct appointment of receiver over the business and in particular entrust the actual conduct of business in their hands, may be as receivers.”

14. The Supreme Court has held that the purpose of enacting Section 9 read in the light of the Model Law and UNCITRAL Rules is to provide 'interim measures of protection'. The order passed by the Court should fall within the meaning of the expression 'an interim measure of protection' as distinguished from an all-time or permanent protection.

15. In case of AdhunikSteels Ltd (supra) Supreme Court has held that intention behind Section 9 of the Act is the issuance of an order for preservation of the subject matter of an arbitration agreement. It has been held that if the carrying on any mining activity by the party cannot prejudice the other party, as if the other party succeed, would be entitled to get, if not the main relief, compensation for the termination of the contract on the principles well settled in that behalf. Paragraphs 10, 18, 19, 21 and 23 of the said judgments reads thus:-

“10. Learned Counsel for O.M.M. Private Limited submitted that Section 9 leaves it to a party to approach the court for certain interim measures and it enables the court to pass orders by way of interim measures of protection in respect of the matters enumerated therein. Neither this Section nor the Act elsewhere has provided the conditions for grant of such interim protection leaving it to the court to exercise the jurisdiction vested in it as a court to adjudge whether any protective measure is called for. In that context, neither the provisions of the Code of civil Procedure nor the provisions of the Specific Relief Act can be kept out while the court considers the question whether on the facts of a case, any order by way of interim measure of protection should be granted. So, the court had necessarily to consider the balance of convenience, the question whether at least a triable issue arises if not the establishment of a prima facie case by the applicant before it and the other well known restrictions on the grant of interim orders, like the principle that a contract of personal service would not be specifically enforced or that no injunction would be granted in certain circumstances as envisaged by Section 14 and Section 41 of the Specific Relief Act. Thus, it was contended that grant of an injunction by way of interim measure to permit Adhunik Steels to carry on the mining operations pending the arbitration proceedings notwithstanding the termination of the contract by O.M.M. Private Limited was not permissible in law.

18. The approach that at the initial stage, only the existence of an arbitration clause need be considered is not justified. In The Siskina (Cargo Owners) v. Distos Campania Navieria SA (The Siskina), Lord Diplock explained the position:

“A right to obtain an interlocutory injunction is not a cause of action. It cannot stand on its own. It is dependent upon there being a pre-existing cause of action against the defendant arising out of an invasion, actual or threatened by him, of a legal or equitable right of the plaintiff for the enforcement of which the defendant is amenable to the jurisdiction of the court. The right to obtain an interlocutory injunction is merely ancillary and incidental to the pre-existing cause of action. It is granted to preserve the status quo pending the ascertainment by the court of the rights of the parties and the grant to the plaintiff of the relief to which his cause of action entitles him, which may or may not include a final injunction.”

He concluded:

“To come within the sub-rule the injunction sought in the action must be part of the substantive relief to which the plaintiff's cause of action entitles him; and the thing that it is sought to restrain the foreign defendant from doing in England must amount to an invasion of some legal or equitable right belonging to the plaintiff in this country and enforceable here by a final judgment for an injunction.”

19. Recently, in Fouriev. Le Roux , the House of Lords speaking through Lord Scott of Foscote stated:

“An interlocutory injunction, like any other interim order, is intended to be of temporary duration, dependent on the institution and progress of some proceedings for substantive relief”.

and concluded:

“33. Whenever an interlocutory injunction is applied for, the judge, if otherwise minded to make the order, should, as a matter of good practice, pay careful attention to the substantive relief that is, or will be, sought. The interlocutory injunction in aid of the substantive relief should not place a greater burden on the respondent than is necessary. The yardstick in Section 37(1) of the 1981 Act, "just and convenient", must be applied having regard to the interests not only of the claimant but also of the defendant.”

21. It is true that the intention behind Section 9 of the Act is the issuance of an order for preservation of the subject matter of an arbitration agreement. According to learned Counsel for Adhunik Steels, the subject matter of the arbitration agreement in the case on hand, is the mining and lifting of ore by it from the mines leased to O.M.M. Private Limited for a period of 10 years and its attempted abrupt termination by O.M.M. Private Limited and the dispute before the arbitrator would be the effect of the agreement and the right of O.M.M. Private Limited to terminate it prematurely in the circumstances of the case. So viewed, it was open to the court to pass an order by way of an interim measure of protection that the existing arrangement under the contract should be continued pending the resolution of the dispute by the arbitrator. May be, there is some force in this submission made on behalf of the Adhunik Steels. But, at the same time, whether an interim measure permitting Adhunik Steels to carry on the mining operations, an extraordinary measure in itself in the face of the attempted termination of the contract by O.M.M. Private Limited or the termination of the contract by O.M.M. Private Limited, could be granted or not, would again lead the court to a consideration of the classical rules for the grant of such an interim measure. Whether an interim mandatory injunction could be granted directing the continuance of the working of the contract, had to be considered in the light of the well-settled principles in that behalf. Similarly, whether the attempted termination could be restrained leaving the consequences thereof vague would also be a question that might have to be considered in the context of well settled principles for the grant of an injunction. therefore, on the whole, we feel that it would not be correct to say that the power under Section 9 of the Act is totally independent of the well known principles governing the grant of an interim injunction that generally govern the courts in this connection. So viewed, we have necessarily to see whether the High Court was justified in refusing the interim injunction on the facts and in the circumstances of the case.

23. The question here is whether in the circumstances, an order of injunction could be granted restraining O.M.M. Private Limited from interfering with Adhunik Steels' working of the contract which O.M.M. Private Limited has sought to terminate. Whatever might be its reasons for termination, it is clear that a notice had been issued by the O.M.M. Private Limited terminating the arrangement entered into between itself and Adhunik Steels. In terms of Order 39 Rule 2 of the Code of civil Procedure, an interim injunction could be granted restraining the breach of a contract and to that extent Adhunik Steels may claim that it has a prima facie case for restraining O.M.M. Private Limited from breaching the contract and from preventing it from carrying on its work in terms of the contract. It is in that context that the High Court has held that this was not a case where the damages that may be suffered by Adhunik Steels by the alleged breach of contract by O.M.M. Private Limited could not be quantified at a future point of time in terms of money. There is only a mention of the minimum quantity of ore that Adhunik Steels is to lift and there is also uncertainty about the other minerals that may be available for being lifted on the mining operations being carried on. These are impoundable to some extent but at the same time it cannot be said that at the end of it, it will not be possible to assess the compensation that might be payable to Adhunik Steels in case the claim of Adhunik Steels is upheld by the arbitrator while passing the award.”

16. Delhi High Court in case of National Highways Authority of India (supra) has held that the Arbitral Tribunal could not have proceeded to consider the issue under section 17 of the Arbitration and Conciliation Act by predicating the discussion on the merits of the claim of the contract of the party. Para 71 of the said judgment reads as under:-

71. I thus eschew any reference to the merits of the respective claims of the parties before the arbitral tribunal. Indeed, the arbitral tribunal could not have proceeded to consider the issue under Section 17 of the Arbitration and Conciliation Act by predicating the discussion on the merits of the claim of the contractor. The reasons given by the arbitral tribunal pertaining to the performance guarantee while injuncting invocation thereof are indeed perverse. Admittedly, the contractor has not completed the work. Admittedly, the performance guarantee is an unconditional guarantee. Admittedly, the contract stipulated period is over. Whatever be the substantive disputes between the parties pertaining to who is in the breach of the contract, the performance guarantee is invocable on its terms.

17. Perusal of order passed by the learned arbitrator indicates that the learned arbitrator has not only interpreted clause 1.6 of the agreement but has finally concluded the rights and obligations of the party under that clause while deciding application under section 17. The learned arbitrator has restrained the petitioner from in any manner marketing VCDs, DVDs etc. save and except in accordance with the agreement. The effect of such order passed by the learned arbitrator is that it amounts to mandatory injunction against the petitioner to comply with the terms of the contract during the pendency of the arbitration proceedings till passing of the award therein. In my view, injunction of such nature which in effect grant specific performance is not permissible under section 17 of the Arbitration and Conciliation Act, 1996. Though the learned arbitrator refused to grant injunction directing the petitioner to withdraw the cassettes, VCDs, DVDs, etc. from the market as directed, the petitioner is directed to comply with the obligation of the petitioner on interpretation of clause 1.6 finally. In my view such order is clearly in teeth of section 17 of the Arbitration and Conciliation Act, 1996 and also contrary to section 41(e) of the Specific Relief Act.

18. In my view, the learned arbitrator could not have drawn the conclusion by interpreting clause 1.6 and decide the rights and obligations of the party finally under section 17. On one hand the learned arbitrator has held that such issue would be decided finally at the trial on the other hand has decided the issue finally. The order reflects the contradiction and inconsistency in the findings and observations made by the learned arbitrator. The learned arbitrator failed to appreciate that in the notice invoking arbitration and the correspondence, the respondent had demanded damages in the sum of Rs. 100 crores in the alternative. The learned arbitrator therefore ought to have prima facie consider the effect of such claim for damages before granting any interim order of this nature considering the provisions of section 14 of the Specific Relief Act.

19. If the respondent proves finally that the petitioner was at breach of clause 1.6 or any other provisions of the contract, remedy of the respondent would be to claim damages. The learned arbitrator also prima facie ought to have considered that in view of allegations of breach alleged by the petitioner against the respondent, whether mandatory injunction of this nature could be at all granted by the learned arbitrator.

20. In my view, the learned arbitrator ought to have considered as to whether the respondent had approached this court and thereafter before the learned arbitrator vigilantly or whether there was gross delay on the part of the respondent in praying for interim relief. The validity of the contract would expire in the month of February 2013. Even on ground of delay, the learned arbitrator could not have granted such relief under section 17 of the Act.

21. From the perusal of the order, it is clear that the learned arbitrator has not dealt with the allegations of the petitioner against the respondent in respect of the breaches alleged to have been committed by the respondent even prima facie while considering the relief prayed for by the respondent.

22. The learned arbitrator failed to appreciate that respondent had not even filed statement of claim and in the absence of such pleadings, no interim relief of such nature could be granted by the learned arbitrator. The learned arbitrator did not have entire pleadings and documentary evidence before him while considering the application under section 17 and thus no such order was warranted.

23. It is made clear that the observations made by this court are tentative and made for the purpose of deciding this appeal arising out of an interim order.

24. I, therefore, pass the following order:-

(a) Impugned order dated 26th November, 2012 passed by the learned arbitrator is set aside.

(b) Petition is allowed.

(c) It is made clear that the learned arbitrator shall decide the matter on merits without being influenced by the observations made by the learned arbitrator in the impugned order as well as the observations made by this court in this judgment.