Meghalaya Tourism Development Corporation Vs. S.A. Builders Ltd. and anr. - Court Judgment

Excerpt:
- - 5,00,000/- and also bank guarantee against mobilisation of advance as well as proper performance of the contract work strictly in accordance with the time schedule agreed to, and also against breach of any terms of contract and to the extent of loss or damage to be caused or suffered by the petitioner on account thereof. district judge at chandigarh as well as by the punjab and haryana high court in civil revision no. however, even if it be assumed that civil courts at chandigarh have jurisdiction to entertain the suit of the construction company still as discussed earlier, it has failed to bring its case under either of the two exceptions recognise and applied for restraining beneficiary from encashment of the bank guarantee. the failure on the part of getsco to specify the..... s.k. homchaudhuri, j. 1. this revision petition is directed against the ex parte order dated 24-1 -92 passed by the learned asstt. district judge, shillong in misc. arbitration case no. l(h)/92 in exercise of power under section 41 of the arbitration act, restraining the petitioner and the state bank of patiala, the opposite party no. 2 from taking any step of any kind to encash the 11 (eleven) bank guarantees for a sum of rs. 25,60,000 / - which was executed by the opposite party no. 2 in favour of the petitioner.2. the impugned order has been challenged in the following grounds :-- ' (i) the learned asstt. district judge after disposing of the proceeding under section 20 of the arbitration act by order dated 27-11-89 having become functus officio, has acted illegally and without.....

Judgment:

S.K. Homchaudhuri, J.

1. This revision petition is directed against the ex parte order dated 24-1 -92 passed by the learned Asstt. District Judge, Shillong in Misc. Arbitration Case No. l(H)/92 in exercise of power under section 41 of the Arbitration Act, restraining the petitioner and the State Bank of Patiala, the opposite party No. 2 from taking any step of any kind to encash the 11 (eleven) Bank Guarantees for a sum of Rs. 25,60,000 / - which was executed by the opposite party No. 2 in favour of the petitioner.

2. The impugned order has been challenged in the following grounds :--

' (i) the learned Asstt. District Judge after disposing of the proceeding under section 20 of the Arbitration Act by order dated 27-11-89 having become functus officio, has acted illegally and without jurisdiction in entertaining the application under Section 41 of the Arbitration Act without any proceeding pending before it;

(ii) the prayer made in the application by the opposite party No. l, M/s. S. A. Builders Ltd. before the learned Asstt. District Judge in an application under Section 41 of the Arbitration Act is barred by res judicata, inasmuch as, on identical prayer for grant of injunction restraining the petitioner from encashing the Bank Gurantee for the same sum of Rs. 25,60,000/- had been rejected by the learned Additional District Judge, Chandigarh in MCA case No. 53/90 by its judgment and order dated 21-8-91 and the Civil Revision petition filed against the said judgment passed by the learned Addl. District Judge, Chandigarh, was rejected by the Punjab and Haryana High Court; and

(iii) where in the work of contract Bank Guarantees were executed by the opposite party No. 2, State Bank of Patiala on behalf of the opposite party No. 1, in favour of the petitioner, the learned Asstt. District Judge acted illegally and with material irregularity in the exercise of jurisdiction duly vested in law in issuing ad interim ex parte order in the exercise of power under Section 41 of the Arbitration Act since there was no case of fraud or of special equities in the form preventing irretrievable injustice between the parties.

3. Brief fact of the case is that the petitioner -- The Meghalaya Tourism Development Corporation with a view to constructing a 3-star Hotel at Shillong under the name and style 'Crow Borough' Hotel for the purpose of development of tourism, issued notification inviting tenders from construction contractors. The opposite party No. 1 along with other tenderers submitted tender and the tender of the opposite party No. 1 was accepted and thereafter the opposite party No. 1 entered into an agreement of contract with the petitioner for construction of the Hotel building. The terms of the contract required the opposite party No. 1 to furnish security deposit of Rs. 5,00,000/- and also bank guarantee against mobilisation of advance as well as proper performance of the contract work strictly in accordance with the time schedule agreed to, and also against breach of any terms of contract and to the extent of loss or damage to be caused or suffered by the petitioner on account thereof. In all, eleven Bank Guarantees were executed by the opposite party No. 2, the State Bank of Patiala in favour of the petitioner. According to the petitioner, the opposite party No. 1 having committed breach of contract and subjected the petitioner to loss, the contract was rescinded on 26-3-89. The petitioner thereafter, lodged a claim with the opposite party No. 2, the State Bank of Patiala invoking the bank guarantees which was duly received by the said Bank. However, the bank did not release the amount. In the meantime, the opposite party No. 1 filed an application under Section 20 of the Arbitration Act, hereinafter mentioned as 'the Act', in the court of learned Asstt. District Judge, Shillong for issuing direction to the petitioner to file the original arbitration agreement in the court and on perusal of the agreement to refer the dispute/difference arose between the parties to joint arbitrator nominated by the court with the direction to give award within 4 months. In the said application under Section 20 an additional prayer was made for restraining the petitioner from withholding, realising or adjusting any amount from the bills due to the opposite party No. 1 in respect of the contract works already done and also restraining the petitioner from calling any risk and cost of contract in term of Clause 29 of the contract agreement. The learned Asstt. District Judge after hearing the parties by order dated 27-11 -89 directed the petitioner to file original arbitration agreement in the court and to appoint an arbitrator from their side within two months of the order and refer the dispute for joint arbitration. The learned Asstt. District Judge further directed that the petitioner shall be at liberty to take measurement of the work already completed by the opposite party No. 1 through a mitral agency either from the P. W.D. or from C.P. W.D. in the presence of both parties within 2 months and on completion of the measurement, the petitioner shall be at liberty to complete the remaining part of the work done through any other contractor of their own choice. 'The opposite party M/s. S. A. Builders Ltd. instituted the Civil Suit No. 193/89 in the court of Sub-Judge, 1st Class, Chandigarh against the petitioner and the opposite party No. 2 the State Bank of Patiala. In that suit the opposite party No. 1 also filed an application under Order 39, Rules 1 and 2 read with Section 151, CPC for granting ad interim injunction restraining the petitioner and opposite party No. 2 from encashing the bank guarantees and the learned Sub-Judge, Chandigarh by order dated 28-7-89 granted ad interim injunction. Against the said order the petitioner preferred an appeal registered as MCA No. 53/91 in the court of learned Addl. District Judge, Chandigarh. The learned Addl. District Judge, Chandigarh by the order dated 21-8-91 allowed the appeal and set aside the order of temporary injunction granted by the Sub-Judge. The opposite party No. 11 thereafter preferred a revision petition in the Punjab and Haryana High Court which was registered as Civil Revision No. 2832/91 and the said High Court after hearing the parties dismissed the revision petition in lamine by order dated 22-1-92. Soon after the order of dismissal of the revision petition, the opposite party No. 1 withdrew the suit from the court of Sub-Judge, Chandigarh and the suit was dismissed on withdrawal. After dismissal of the revision petition, the petitioner approached the opposite party No. 2 for encashment of the eleven bank guarantees. Thereafter, the opposite party No. 1 approached the court of learned Asstt. District Judge, Shillong in an application Under Section 41 of the Act, praying for an order restraining the petitioner and opposite party No.2 from taking any steps for encashment of the bank guarantees. The said application was registered as Arbitration Misc. Case No. l(H)/92.

The learned Asstt. District Judge by the impugned ex parte order dated 24-1 -92 issued ad interim order restraining the petitioner and the opposite party No. 2 from taking any steps for encashment of the bank guarantees. Feeling aggrieved, the petitioner has approached this court in this revision petition.

4. I have heard Mr. N. M. Lahiri, learned counsel for the petitioner and Mr. A. M. Mazumdar, learned counsel for the opposite party No. 1.

5. In support of the contention that in the absence of any proceeding pending before it, the learned Asstt. District Judge had no jurisdiction to pass the impugned order, the learned counsel for the petitioner has placed reliance on the following decisions--

(i) decision of this Court in the case of Raj Rewal v. North Eastern Hill University, reported in 1989 (1) GLR 325; and

(ii) decision of the Punjab and Haryana High Court in the case of Mahavir Spinning Mills Ltd. v. Utility Engineers (India) Pvt. Ltd., reported in AIR 1990 P&H; 31.

In the case of Raj Rewal supra it has been held that a court shall have all powers in respect of arbitration proceedings pending under it, as if it has been under the C.P.C. in respect of any other proceeding before it. But this decision is silent as to whether a court can exercise power under Section 41(b) of the Act when no case is pending before it, although the matter in dispute is pending before the arbitrator. In the case of M/s. Mahavir Spinning Mills Ltd. supra, the Punjab and Haryana High Court has held that once an application under Section 20 of the Act was decided finally by a court it had become functus officio and had no jurisdiction to consider the subsequent application for amendment of the reply filed in the proceedings under Section 20 of the Act.

6. Mr. A. M. Mazumdar, learned counsel for the opposite party No. 1 has submitted that whether a proceeding is pending before it or not, when a dispute is pending before the Arbitrator, the competent court has jurisdiclion to pass interim order in exercise of power under Section 41(b) of the Act for preservation or safety of the subject matter of the dispute before an arbitrator. In support of his contention Mr. Mazumdar has placed reliance on the following decisions--

(1) Vaktavarmal Seshmull v. Shah Nain-muil Umaj and Co., reported in AIR 1962 Mad 436,

(2) Daulat Ram Phoolchand v. Shriram reported in AIR 1964 MP 219,

(3) Maheshwari and Company v. Corporation of Calcutta, reported in AIR 1975 Cal 165; and

(4) Brahmagiri 'B' Estate v. Thoman Joseph Kalathur, reported in 1990 (2) Arb. Law Reporter 11.

7. To appreciate rival contentions it is appropriate to have look into the provision of Section 41 of the Act, which are as follows :--

'Subject to the provisions of this Act and of rules made thereunder:--

(a) the provisions of the Civil Procedure Code, 1908 shall apply to all proceedings before the Court, and to all appeals, under this Act, and

(b) the Court shall have, for the purpose of, and in relation to, arbitration proceedings, the same power of making orders in respect of any of the matters set out in the Second Schedule as it has for the purpose of, and in relation to, any proceedings before the Court.

Provided that nothing in Clause (b) shall be taken to prejudice any power which may be vested in an arbitrator or umpire for making orders with respect to any of such matters.'

In the case of Vaktavarmal supra, the Madras High Court held that power under Clause (b) of Section 41 of the Act relates to proceedings which were not before the Court, but which were pending before the arbitrator. This power is given to Court purely to prevent a party to the arbitration proceedings from secreting the properties involved in the arbitration proceedings and to defeat any award that may be passed therein. In the case of Daulat Ram supra, the Madhya Pradesh High Court held that power of the Court under second schedule to the Arbitration Act can be exercised even in the case where reference to arbitration has been made without intervention of the Court and no proceedings are pending in connection therewith in' the Court. In the case of Maheswari and Co. supra, the Calcutta High Court held a similar view that appropriate relief can be sought under Section 41 of the Arbitration Act whether there is any application under Section 20 of Arbitration Act or the proceedings under Chapter III is pending before the Court or not and the Court has the power under Section 41 of the Act to make order for interim protection.

8. In respectful agreement with the views expressed by the Madras High Court, Madhya Pradesh High Court and Calcutta High Court, I hold that power of the Court under Section 41(b) of the Arbitration Act can be invoked when a proceeding is pending before the Arbitrator, although no proceeding is pending before the Court in connection therewith.

9. As regards next submission of the learned counsel for the petitioner as to whether the relief sought before the learned Asstt. District Judge by the opp. party was barred by res judicata in view of the decision of the Additional District Judge, Chandigarh in MCA No. 53/91, between the same parties on the same cause of action, namely, order/ injunction to restrain the petitioner and the opp. party No. 2 from taking any step for encashment of the Bank guarantees. In the application made before the learned Asstt. District Judge, the opp. party has stated that their prayer for injunction or order to restrain the petitioner and opp. party No. 2, from taking any step for encashment of bank guarantees, was rejected by the Addl. District Judge at Chandigarh as well as by the Punjab and Haryana High Court in Civil Revision No. 2832/91 on the ground of want of jurisdiction. It appears that on the basis of the statements made in the application, the learned Asstt. District Judge assumed jurisdiction holding that the prayer for similar injunction to restrain the petitioner and opp. party No. 2 from taking any steps for encashment, was rejected on the ground of want of jurisdiction. Mr. N. M. Lahiri, learned counsel for the petitioner has submitted that the prayer of opp. party No. 1 for ad interim injunction to restrain the petitioner and opp. party No. 2, from taking any steps for encashment of bank guarantees was rejected in deciding the case on merits and not on the question of jurisdiction.

10. Mr. Mazumdar, learned counsel for the opp. party No. 1 on the other hand, has submitted that although the Addl. District Judge touched the merit of the case, however, the prayer for injunction was rejected mainly on the ground of jurisdiction. A copy of the order passed by the learned Addl. District Judge at Chandigarh in MCA No. 53/91 has been annexed as Annexure 4 to this petition. I have perused the judgment passed by the learned Addl. District Judge, Chandigarh and it is apparent that the learned Addl. District Judge set aside the ad interim order of injunction, passed by the trial Court after deciding the entire case on merits, although while setting aside the ad interim injunction on the reasons and grounds stated in the judgment, the learned Addl. District Judge at para 34 has observed as follows:--

It is rather surprising as to why the construction company thought of filing the suit at Chandigarh particularly when it had moved the Civil Court at Shillong for the reference of the dispute with the corporation for arbitration and the corporation is having its registered office at Shillong and the work was to be executed there and the bank guarantees were accepted at Shillong and the bank did not receive any objection to the encashment of these guarantees. This act and conduct of the construction company seem to betray lack of bona fides.

However, even if it be assumed that Civil Courts at Chandigarh have jurisdiction to entertain the suit of the construction company still as discussed earlier, it has failed to bring its case under either of the two exceptions recognise and applied for restraining beneficiary from encashment of the Bank guarantee.'

Drawing my attention to the aforesaid observation, Mr. Mazumdar has strenuously argued that the learned Addl. District Judge in fact held that the Court at Chandigarh had no jurisdiction to entertain the suit. I am unable to accept the submissions of the learned counsel for the opp. party. It is clear from the judgment passed by the learned Addl. District Judge that the petitioner's case for injunction was decided on merit. The Punjab and Haryana High Court has by its order dated 22-1-92 rejected the revision petition registered as Civil Revision No. 2832/91 preferred against the judgment and order passed by the learned Addl. District Judge, Chandigarh in limine.

11. The learned counsel for opp. party No. 1 further submitted that even if the Court at Chandigarh assumed jurisdiction and decided on merits, in case, it is found from facts and circumstances of the case that the Court at Chandigarh had no territorial jurisdiction to adjudicate the suit, instituted before it, the order passed by the learned Addl. District Judge at Chandigarh and affirmed by the Punjab and Haryana High Court would not operate as res judicata, inasmuch as, that order would be without jurisdiction and non est in law. Mr. Mazumdar has also submitted that the petitioner has raised the question of lack of jurisdiction of the Court at Chandigarh. Now, on the facts and circumstances, let us consider whether the Court at Chandigarh had jurisdiction to entertain the suit filed by the opp. party No. 1. Admittedly, the bank guarantees were executed at Chandigarh by the State Bank of Patiala, the opp. party No. 2, and the letter of the petitioner dated 10-7-89 invoking bank guarantees was received by the opp. party No. 2 at Chandigarh. As such, in my opinion so far as the litigation pertaining to encashment of bank guarantees is concerned, both the Courts at Chandigarh and at Shillong have jurisdiction. Accordingly, the judgment and order passed by the learned Addl. District Judge at Chandigarh and affirmed by the Punjab and Haryana High Court, rejection the prayer for injunction to restrain the petitioner and opp. party No. 2 from taking any steps for encashment of the bank guarantees, cannot be held to be without jurisdiction. The subject matter of the application under Order 39, Rules 1 and 2, CPC filed in the Court of learned Sub-Judge at Chandigarh and the subsequent application under Section 41 of the Act filed in the Court at Shillong, are identical and the parties to the litigation are same before the Court at Chandigarh and at Shiltong. That being so, the judgment and order passed by the Addl. District Judge at Chandigarh and affirmed by the Punjab and Haryana High Court operates as res judicata to the subsequent proceedings initiated in the Court of learned Asstt. District Judge, Shillong in Misc. Arbitration Case No, l(H)/92 and the impugned order is therefore, illegal and without jurisdiction on this count.

12. In support of the submissions that the learned Asstt. District Judge, Shillong acted illegally with material irregularity in the exercise of jurisdiction duly vested in it by in law, in passing the impugned order restraining the petitioner and opp. party No. 2 from taking steps for encashment of the bank guarantees. Mr. Lahiri learned counsel for the a petitioner, has. placed reliance on the follow ing decisions of the Apex Court--

(1) U. P. Co-operative Federation Ltd. v. Singh Consultant Engineering Pvt. Limited, reported in 1988 (1) SCC 174; (2) General Electric Service Co. v. Pung Sons Pvt. Ltd., reported in AIR 1991 SC 1994 : (1991 AIR SCW 2136). The learned counsel for the petitioner has submitted that the nature of the bank guarantees in the instant case and the bank guarantees in respect of which the judgment was passed by the Apex Court in the case of General Electric Service supra, are more or less similar. In the case of U. P. Co-operative Federation supra, the Hon'ble Supreme Court after taking into consideration a catena of earlier decisions of the Supreme Court, amongst other, held that in order to restrain operation of either irrevocable letter of credit or bank guarantees, there should be serious dispute and there should be special equities in the form of preventing irretrievable injustice between the parties, otherwise the very purpose of bank guarantees would be negatived and the fabric of trading operation will get jeopardised. In the case of G.E.T. Service Company Ltd. (GETSCO) supra, the Apex Court at para 10 of the said decision amongst other held that--

'10. ... ... The mobilisation advance is required to be recovered by GETSCO from the running bills submitted by the respondent. If the full mobilisation advance has not been recovered, it would be to the advantage of the respondent. Secondly, the bank is not concerned with the outstanding amount payable by GETSCO under the running bills. The right to recover the amount under the running bills has no relevance to the liability of the bank under the guarantee. The liability of the bank remained intact irrespective of the recovery of mobilisation advance or the nonpayment under the running bills. The failure on the part of GETSCO to specify the remaining mobilisation advance in the letter for encashment of bank guarantee is of little consequence to the liability of the Bank under the guarantee. The demand by GETSCO is under the Bank guarantee and as per the terms thereof. The Bank has to pay and the Bank was willing to pay as per the under-taking. The Bank cannot be interdicted by the Court at the instance of respondent in the absence of fraud or special equities in the form of preventing irretrievable injustice between the parties. The High Court in the absence of prima facie case on such matters has committed an error in restraining the Ban from honouring its commitment under the Bank Guarantee.'

13. Mr. Mazumdar learned counsel for the opp. party No. 1 on the other hand, has submitted that the materials on record clearly show that there is serious dispute between the parties and the dispute is pending before the arbitrator. Mr. Mazumdar has submitted that in the counter-claim made in the arbitration proceeding, the petitioner has also admitted that a considerable amount of mobilisation advance had already been recovered from the running bills of opp. party No. 1, but the said fact has been suppressed by the petitioner while invoking Bank Guarantees for realisation of the entire mobilisation advance and that suppression amounts to commission of fraud by the petitioner in invoking the bank guarantees. Mr. Mazumdar also submitted that the facts and circumstances of the case clearly make out a case of special equity in the form of preventing irretrievable injustice between the parties. In support of his contentions Mr. Mazumdar has placed reliance on the following decisions--

(1) Banerjee and Banerjee v. Hindustan Steel Works Construction Ltd., reported in AIR 1986 Cal 374; (2) Arul Murugan Traders v. Rastriya Chemicals and Fertilisers Ltd. Bombay, reported in AIR 1986 Mad 161; and (3) M/s. Synthetic Foams Ltd. v. Simplex Concrete Piles (India) Ltd, reported in AIR 1988 Delhi 207.

Mr. Lahiri, learned counsel for the petitioner has submitted that the decisions of the Calcutta High Court, Madras High Court and Delhi High Court on which reliance has been placed on behalf of opp. party No. 1 has no application on the facts of the present case. That apart, in view of the decision of the Apex Court in the case of GETSCO supra, on similar facts, the decisions of the aforesaid High Courts are impliedly overruled.

14. A copy of the bank guarantee executed by the opp. party No. 2 has been annexed to the petition as Annexure 1, Clause 3 of the bank guarantee is as follows:-

'3. We further agree and confirm that this guarantee also covers all risks regarding security for the due and faithful fulfilment of the contract by M/s. S. A. Builders Limited and also any loss or damage caused to or suffered by the employer by reason of any breach by the said contractor or any of the terms and conditions contained in the said agreement or by reason of the contractors' failure to complete the work strictly in accordance with the time schedule agreed to. We further agree that the employer shall be sole Judge of and as to whether the said contractor has committed any breach of any of the terms and conditions of the contract and as to the extent of the loss or damage caused to or suffered by the employer on account thereof. ... ... ... '

It is evident from the aforesaid clause 3 that terms of the bank guarantee executed by the opp. party No. 2 that the petitioner shall be the sole Judge as to whether any loss or damage has been caused or suffered by it by any breach of contract on the part of opp. party No. 1. In the letter dated 10-7-89, the petitioner purported to invoke bank guarantees for the reasons stated in para 2 of the said letter which runs as follows:--

'M/s. S. A. Builders Ltd., have committed breach of the contract and have failed to perform their obligation under the Contract, consequent thereof the Meghalaya Tourism Development Corporation Ltd. has suffered huge losses far exceeding Rs. 25.60 Lakhs (Rupees twentyfive lakhs sixty thousand only). Moreover, we are entitled to receive compensation for delay and unrecovered advances and other losses from M/s. S. A. Builders Ltd., also. Consequently, the Contract has been cancelled vide our Project Manager's letter No. CRB-790 at 23-06-1989, a copy of which is enclosed herewith.'

It is thus clear that the petitioner sought encashment of the bank guarantees executed in hi favour not only for the unrecovered mobilisation advance, but also losses suffered by it exceeding to Rs. 25,60,000/- for breach of contract by the opposite party No. 1. On going though the terms of the bank guarantees executed by the opposite party No. 2, 1 find sufficient force in the submissions made on behalf of the petitioner that the facts of this case are more or less similar to the facts in the case of GETSCO (supra). From the materials on records, I do not find any prima facie case of fraud and/or case of special equity in the form of preventing irretrievable injustice between the parties, have been made out. The decisions of the Calcutta High Court, Madras High Court and Delhi High Court, on which reliance has been placed on behalf of the opposite party, has no application on the facts of the present case.

15. For the reasons stated above, I hold that the application under Section 41 of the Arbitration Act preferred before the learned Assistant District Judge, Shillong is barred by res judicata and, as such, the impugned order is illegal, without jurisdiction and void ab initio and is liable to be set aside on that count alone. I also hold that the learned Assistant District Judge passed the impugned order arbitrarily without application of mind and acted illegally with material irregularity in exercise of jurisdiction vested in it, by law in passing the impugned order which has caused failure of justice.

16. The petition is, therefore, allowed with cost of Rs. 1000/- and the impugned order dated 24-1-92 passed in Arbitration Misc. Case No. l(H)/92 is set aside.