Municipal Corporation of Greater Bombay Vs. Patel Engineering Company Limited - Court Judgment

1. This is an appeal preferred by original Respondents to challenge Order dated January 27th 1993 passed by the Learned Single Judge in Arbitration Petition No. 45 of 1993. By the impugned order, the Learned Single Judge made the petition absolute and pending arbitration, restrained the Appellants herein from encashing or receiving any amount under the Bank Guarantees mentioned in Exhibit 'F' thereto. The facts which gave rise to the filing of the said Petition are as follows :--

In or about the year 1987, the Appellants had floated a tender notice inviting tenders in respect of construction of an underground tunnel which was part of the Bombay III Water Supply Project. Along with their letter dated 16th May J9S8, the Respondents had submitted their tender for construction of underground tunnel between Dr. E. Moses Road and Ruparel College, Bombay, a part of the said project which was accepted by the Appellants and a contract bearing No. 2769-IN/1750-IN/W/20 (for short 'the said Contract') was entered into by and between the Appellants and Respondents in respect thereof on the terms and conditions mentioned therein including the general conditions of Contract. Under the terms of the saidContract, the Respondents were required to deposit with the Appellants the sum of Rs. 33,06,948/- as security. In respect of the said amount, the Respondents furnished a bank guarantee of Dena Bank, being the Bank Guarantee No. IPB/608/89 dated 15th September 1989 to the Appellants. As per Condition No. 83(2)(d) of the General Conditions of Contract, the Respondents were entitled to advance of Rs. 66,13,895/- being 4% of the contract sum for being utilized for construction work only against bank guarantees. Accordingly, the Respondents furnished six bank guarantees of Dena Bank bearing Nos. IFB/349/90, IFB/350/90, IFB/351/90, IFB/352/90, IFB/353/90 and IFB/354/90 all dated 6th June 1990 for Rs. 10 lacs each and a bank guarantee bearing No. IFB/355/ 90 dated 8th June 1990 for Rs. 13,895/- to the Appellants. On or about 16th October 1989, the Respondents commenced the work under the said Contract. However, disputes and differences arose between the Appellants and Respondents including with regard to threatened termination/cancellation of the said Contract by the Appellants. The Respondents filed an arbitration suit being suit bearing No. 2984 of 1992 under S. 20 of the Arbitration Act, 1940 (for short 'the Act') in this Court for filing the arbitration agreement in this Court and for an order of reference to arbitration. By consent an order being Order dated 16th October 1992 was passed in the said suit by which all disputes by and between the Appellants and the Respondents including and pertaining to and arising out of the said Contract including the dispute regarding validity of termination thereof were referred to the sole arbitration of Mr. Justice D. M. Rege (Retired). On 20th November 1992, a meeting before the Arbitrator was held whereat directions including for filing respective claims and replies were given to the Appellants and Respondents. On 5th December 1992, the Appellants addressed a letter to the Respondents, inter alia, terminating the said Contract. By their letter dated 1st January 1993, addressed to the Respondents, the Appellants demanded payment of Rs. 1,02,64,728.88 for refund of balance advance and interest calculated upto 15thJanuary 1993 and communicated to the Respondents that all the said bank guarantees furnished to them would be encashed if the payment of the said amount would not be made to the Appellants within the time specified therein. In view of the threatened action of the Appellants to invoke the said bank guarantees, pending the arbitration proceedings, the Respondents filed the Arbitration Petition No. 45 of 1993 under S. 41 of the Act to restrain the Appellants from encashing or receiving any amount under the said bank guarantees. The impugned order was passed in the said Arbitration Petition on January 27, 1993.

2. Mr. Kapadia, the learned Counsel appearing for the Respondents, has raised a preliminary objection to the maintainability of the appeal. In the submission of Mr. Kapadia, the learned single Judge has issued injunction under Cl. (b) of S. 41 read with para 4 of the Second Schedule of the Act and since such an Order is not included among the appealable orders u/S. 39 of the Act, no appeal lies against such an order.

3. Mr. Singhvi, the learned Counsel appearing for the Appellants, has submitted that an appeal lies u/S. 39 of the. Act if the order is passed dehors the Act. Since, in the submission of Mr. Singhvi the impugned order was passed de hors the Act, the appeal lies. Mr. Singhvi has further submitted that even under cl. 15 of the Letters Patent, an appeal lies from an Order granting injunction and as such, the present appeal filed by the Appellants is maintainable.

4. Section 41 of the Act reads as under :

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

(a) the provisions of the Code Procedure, 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.'

The Second Schedule of the Act deals with powers of Court. Para 4 of the Schedule reads as under :

'4. Interim injunctions or the appointment of a Receiver'.

Clause (a) of S. 41 of the Act makes only the Procedural rules of the Code of Civil Procedure, 1908 (for short, 'the Code') applicable to the proceedings in Court under the Act. This clause does not authorise the Court to pass an order of injunction. The power to pass an order of injunction is conferred by Clause (b) of S. 41 of the Act. The Court has power under S. 41(b) read with para 4 of the Second Schedule of the Act to issue interim injunction, but such interim injunction can only be 'for purposes of and in relation to arbitration proceedings' but not necessarily to arbitration proceedings before the Court. In arbitration proceedings an injunction cannot be issued under Order XXXIX of the Code by invoking the provision with the aid of clause (a) of S. 41 of the Act.

5. The Act is a consolidating and amending statute. Section 39 of the Act which deals with appeals, provides :

'39(1). An appeal shall lie from the following orders passed under this Act (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the Order :--

An order -

(i) superseding an arbitration;

(ii) on an award stated in the form of a special case;

(iii) modifying or correcting an award;

(iv) filing or refusing to file an arbitration agreement;

(v) staying or refusing to stay legal proceedings where there is an arbitration agreement;

(vi) setting aside or refusing to set aside an award;

Provided that the provisions of this Section shall not apply to any order passed by a SmallCause Court.

(2) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to appeal to the Supreme Court.'

The two sub-sections of S. 39 are manifestly part of a single legislative pattern. The language of the section is plain and unambiguous. By sub-sec. (1) the right to appeal is conferred against the specified orders and against no other orders; and from an appellate order passed under sub-sec. (1) no second appeal except an appeal to Supreme Court lies. In order that an appeal may lie against an order, it must be shown to be one included in any of the clauses (i) to (vi) of sub-sec. (1) of S. 39 of the Act since an appeal being a creature of statute, the right of appeal cannot be extended by implication and the legislature has plainly expressed itself that the right of appeal against orders passed under the Act may be exercised only in respect of certain orders. The right to appeal against other orders is expressly taken away.

6. In the case of State of West Bengal v. M/s. Gourangalal Chatterjee reported in : [1993]3SCR640 on which reliance has been placed by Mr. Kapadia, the Supreme Court while following its earlier judgment in The Union of India v. The Mohindra Supply Co. reported in : [1962]3SCR497 has held that an appeal would lie only from the orders mentioned in sub-sec. (1) of S. 39 of the Act. A Division Bench of this Court (Desai & Rele JJ.) in Appeal No. 43 of 1977 decided on March 11, 1982, Bhavnagar Salt & Industrial Works Pvt. Ltd. v. Surendra Overseas Ltd. (Judgment not reported), also relied upon by Mr. Kapadia, has held that the Act provides for appeals under S. 39 thereof which contains a list of appealable orders and that an appeal shall lie only from the specified orders passed under the Act and from no others. In the case RenusagarPower Co. v. General Electric Company, reported in : (1990)92BOMLR70 also relied upon by Mr. Kapadia, Division Bench of this Court (C. Mookerjee, C.J. and Mrs. Sujata Manohar J.) has held that a right to file an appeal is a right created by statute and it is permissible to legislate only a restricted right of appeal.

7. Relying upon judgments of the Supreme Court in Cenlax (India) Ltd. v. Nimmar Impex Inc. reported in : AIR1986SC1924 , U.P. Co-operative Federation Ltd. v. Shingh Consultants & Engineers (P) Ltd'. reported in : [1988]1SCR1124 ; General Electric Technical Services Company Inc. v. M/s. Punj Sons (P) Ltd. reported in : [1991]3SCR412 and of this Court in Mohan Meakin Breweries Ltd. v. Oceanic Imports & Exports Corporation reported in 1980 MLJ 803 : Suresh Arjundas Bakhtiani v. Union of India, reported in 1990 MLJ 1243; M/s. S.C.I.L. (India) Ltd. v. Indian Bank, reported in : AIR1992Bom131 ; M/s. Andra Civil Construction Co. v. The Board of Trustees of the Port of Bombay reported in : 1992(2)BomCR132 ; Appeal No. 1204 of 1990 in Writ Petition No. 2420 of 1989 (Textile Commissioner v. Nav Ketan International decided by Pendse & Kapadia JJ. on February 10, 1993 and Appeal No. 294 of 1993 in Notice of Motion No. 841 of 1993 in Suit No. 902 of 1993 Mohinder Singh & Co. v. Municipal Corporation of Greater Bombay) decided by Mrs. Sujata Manohar & Kapadia JJ. on April 28, 1993 Mr. Singhvi has submitted that where a bank gives a guarantee in absolute and unconditional terms and where payment is to be made on demand irrespective of the dispute and differences between the parties to the underlying contract, the Bank is duty bound to honour its commitment and it cannot be prevented by an injunction from honouring the said obligation. Mr. Singhvi has further submitted that an irrevocable commitment either in form of confirmed bank guarantee or irrevocable letter of credit cannot be interfered with by the Courts except in case of fraud or In case of question of apprehension of irretrievable injustice has been made out. Wehave no quarrel with the propositions of law laid down in the above authorities cited by Mr. Singhvi.

8. Mr. Singhvi has submitted that the bank guarantees in question are separate and independent contracts between the bank and the beneficiary thereunder enforceable on their own terms independently of disputes between the Appellants and the Respondents being parties to the main contract in pursuance whereof the bank guarantees were furnished and that claim relating to enforcement of the said bank guarantees has not been deferred to arbitration. Mr. Singhvi has further submitted that the petition u/S. 41(b) of the Act to restrain the Appellants from encashing the said bank guarantees by an interim injunction was not maintainable and the impugned order being dehors the Act, appeal lies under S. 39 of the Act and as such, is maintainable.

9. A bank guarantee is very much like a letter of credit. The Courts will do their utmost to enforce it according to its terms. The Courts will not, in the ordinary course of things, interfere by way of injunction to prevent its due implementation. By consent of the Appellants and Respondents, all disputes by and between the Appellants and Respondents pertaining to and arising out of the said contract including the dispute regarding validity of termination thereof have been referred to the sole arbitration of Mr. Justice D.M. Rege (Retired). The Bank guarantees in question constitute separate and independent contracts between the Bank and the beneficiary thereunder. Only parties to such contracts of Bank guarantees are the bank and the beneficiary. The Respondents at whose instance the bank guarantees have been furnished are not parties to the said contracts of bank guarantees. The bank is not a party to the said Contract entered between the Appellants and Respondents. The Bank is not a party to the arbitration pending between the Appellants and Respondents. The claim relating to enforcement of the said bank guarantees is not referable to arbitration, However, in our view, the application by Way of Petition made by the Respondents for grant of interim injunction in the arbitrationproceedings could only be made u/S.41(b) read with para 4 of the Second Schedule of the Act. It could not have been made under any other provision of law because the Act is a complete code in itself. When the said petition was filed invoking this Court's jurisdiction under the provisions of S. 41(b) read with para 4 of the Second Schedule of the Act, the impugned order granting interim injunction for whatever reasons, was passed under the said provisions and not outside the Act. Hence, the submission of Mr. Singhvi to the effect that as the petition was to restrain invocation of the said Bank Guarantees, the learned single Judge had no jurisdiction to entertain the same under S. 41(b) of the Act and as such, the impugned order is not an order passed under the Act is devoid of any merit. Moreover, the question whether an appeal lies depends upon the jurisdiction which the Court below purports to have exercised and not the jurisdiction which it can or should have exercised. The order under appeal must be taken as it stands. It is an order which ex facie has been made by virtue of S. 41(b) of the Act. S. 39(1) of the Act does not provide for an appeal from the said order passed on the Petition filed u/S. 41(b) read with para 4 of Second Schedule of the Act. It is not possible to hold that the impugned order passed by the learned single Judge has been passed dehors the Act or that appeal therefrom lies u/S. 39 of the Act.

10. Clause 15 of the Letters Patent asapplicable to this Court on which reliance has been placed by Mr. Singhvi, reads as follows :

'And we do further ordain that an appeal shall lie to the said High Court ..... from the judgment (not being a judgment passed in exercise of appellate jurisdiction in respect of a decree or order made in the exercise of appellate jurisdiction by a Court subject to the superintendence of the said High Court and not being an order made in the exercise of revisional jurisdiction .....) of one Judge ofthe High Court .....'

The Supreme Court in the case of Union of India v. Mohindra Supply Co. (supra) while considering Clauses 10 and 37 of the Letters Patent of the High Court of Lahore (whichare similar to Clauses 15 and 44 respectively of the Letters Patent as applicable to this Court) has held -

'By this clause a right to appeal except in the cases specified, from one Judge of the High Court to a Division Bench is expressly granted. But the Letters Patent arc declared by Cl. 37 subject to the legislative power of the Governor-General in Council and also of the Governor-in-Council under the Governmentof India Act, 1915, and may in all respects be amended or altered in exercise of legislative authority. Under S. 39(1) an appeal lies from the orders specified in that sub-section and from no others. The legislature has plainly expressed itself that the right of appeal against orders passed under the Arbitration Act may be exercised only in respect of certain orders. The right to appeal against other orders is expressly taken away. If by the express provision contained in S. 39(1), a right to appeal from a judgment which may otherwise be available under the Letters Patent is restricted, there is no ground for holding that cl. (2) does not similarly restrict the exercise of appellate power granted by the Letters Patent. If for reasons aforementioned the expression 'second appeal' includes an appeal under the Letters Patent, it would be impossible to hold that notwithstanding the express prohibition, an appeal under the Letters Patent from an order passed in appeal under sub-sec. (1) is competent.'

The Supreme Court has further held -

'There is in the Arbitration Act no provision similar to S. 4 of the Code of Civil Procedure which preserves powers reserved to Courts under special statutes. There is also nothing in the expression 'authorised by law to hear appeals from -- original decrees of the Court' contained in S. 39(1) of the Arbitration Act, which by implication reserves the jurisdiction under the Letters Patent to entertain an appeal against the order passed in arbitration proceedings. Therefore, in so far as Letters Patent deal with appeals against orders passed in arbitration proceedings, they must be read subject to the provisions of S. 39(1) and (2) of the Arbitration Act.'

Under the Code, the right to appeal under .....Letters patent was saved both by S. 4 andthe clause contained in S. 104(1) of the Code, but by the Act, the jurisdiction of the Court 'under any other law for the time being in force' is not saved; the right of appeal can therefore be exercised against orders in arbitration proceedings only under S. 39 of the Act and no appeal except an appeal to the Supreme Court will lie. The Four-Judge Bench of the Supreme Court in the case of Mohindra Supply Co. (supra) has further held (at page 263 (of AIR) -

'The Arbitration Act which is a consolidating and amending Act, being substantially in the form of a Code relating to arbitration must be construed without any assumption that it was not intended to alter the law relating to appeals. The words of the statute are plain and explicit and they must be given their full effect and must be interpreted in their natural meaning, uninfluenced by any assumptions derived from the previous state of the law and without any assumption that the legislature must have intended to leave the existing law unaltered. In our view the legislature has made a deliberate departure from the law prevailing before the enactment of Act of 1940 by codifying the law relating to appeals in S. 39.'

11. In the case of Bhavnagar Salt & Industrial Works (supra) which was an appeal from a decree passed by a single Judge of this Court on Notice of Motion for a decree in terms of Award, the Division Bench of this Court following the decision of the Supreme Court in Mohindra Supply Co. (supra) held that Clause 15 of the Letters Patent are required to be read subject to the provisions of S. 39(1) and 39(2) of the Act. However, in Shah Babulal Khimji v. Jayaben D. Kania reported in : [1982]1SCR187 , on which reliance has been placed by Mr. Singhvi, the Three-Judge Bench of the Supreme Court has held that whenever a Trial Judge decides a controversy which affects valuable rights of one of the parties, it must be treated to be a judgment within the meaning of the Letters Patent. It further held that every interlocutory order cannot be regarded as a judgmentbut only those orders would be judgments which decide matters of moment or affect vital and valuable rights of the parties and which work serious injustice to the party concerned. An order of the Trial Judge refusing to appoint a receiver or to grant an ad interim injunction was held undoubtedly a judgment within the meaning of Clause 15 of the Letters Patent. The Court further held that S. 104 of the Code merely provides an additional or supplemental remedy by way of appeal and, therefore, widens rather than limits the original jurisdiction of the High Court. In the context of dealing with other Acts which confer additional powers of appeal to a larger Bench within the High Court against the Order of a Trial Judge, the Court referred to S. 39 of the Act. In the context of interlocutory order passed in the suit for specific performance with which the Supreme Court was concerned and in the context of provisions of S. 39 of the Act providing for appeal to a larger Bench in specified six categories viz., clauses (i) to (vi) of sub-clause (1) of S. 39 of the Act, the Supreme Court in para 34 of the judgment has held -

'It cannot be contended by any show of force that the Order passed by the Trial Judge being an interlocutory order, no appeal would lie to the Division Bench or that the provisions of the Arbitration Act giving a right of appeal to a litigant from the order of a Trial Judge to the Division Bench in any way fetter or over-ride the provisions of the Letters Patent'.

Indeed, if we are to read paras 33 and 34 of the judgment in Shah Babulal Khimji's case, it would become apparent that the Supreme Court, while upholding the right of first appeal against judgment of a trial Judge from orders upon which appeal is permissible under S. 39 of the Act impliedly also held that the provisions of S. 39 of the Act would apply in appeals from orders from which appeal under S. 39 was impermissible. In Shah Babulal Khimji's case, Three Judge Bench of the Supreme Court noticed with approval the decision of the Supreme Court in the Mohindra Supply Company's case given byFour Judge Bench wherein maintainability of an appeal from an Order amounting to a judgment from which appeal is not permissible on a reading of S. 39 of the Act was specifically ruled out,

12. Mr. Singhvi has relied upon the decision of the Division Bench of this Court in the case of Vasudev C. Wadhwa v. Muktaben B. Khakhar reported in 1986 MLJ 931 which while relying upon the decision of the Supreme Court in the case of Shah Babulal Khimji (supra) though observed that if S. 39 of the Act alone were to hold the field, the appeal would not be maintainable, has held that although the appeal would not be maintainable under S. 39 of the Act, its maintainability will have to be considered under the provisions of Clause 15 of the Letters Patent. In that case, relying upon Clause 15 of the Letters Patent, the Division Bench held that the appeal would lie to a larger Bench. Subsequently, the Division Bench of this Court in Appeal No. 598 of 1989 in Arbitration Petition No. 1 of 1984 in the matter of Tungabhadra Industries Ltd. v. Northem Sales Co Ltd. (decided by Pratap and Kenia JJ. on April 2, 1990 (judgment not reported)) while considering, S. 6 of The Foreign Awards (Recognition & Enforcement) Act, 1961 which is similar to S. 17 of the Act has considered the earlier decisions of the Division Bench of this Court in Renusagar Power Co. (supra) and in Vasudev C. Wadhwa (supra) and the decision of Supreme Court in the Mohindra Supply Co. (supra) and held that appeal directed against the judgment and order of the learned single Judge in the Arbitration Petition was not maintainable. It may be mentioned here that in view of the decision of the Supreme Court in State of West Bengal v. M/s. Gourangalal Chatterjee (supra) following its earlier decision in the Mohindra Supply Co. (supra) wherein it has been held that appeal could be only from the orders mentioned in sub-sec. (1) of S. 39 of the Act, the decision of the Division Bench of this Court in the case of Vasudev C. Wadhwa (supra) has by implication been overruled. Since the order passed by the learned single Judge in the case of State of West Bengal (supra) revoking the authorityof the Chief Engineer on his failure to act as an arbitrator was not covered in either of the six clauses mentioned in sub-Clause (1) of S. 39 of the Act, it was held that no appeal therefrom could be filed.

12-1. Prior to the Act, appeals in regard to arbitration matters were provided for by S. 104 of the Code. Sub-sec. (1) of that Section provided :

'An appeal shall lie from the following orders, and save as otherwise expressly provided in the body of this Code or by any law for the time being in force, from no other orders....'

The words 'and save as otherwise expressly provided in the body of this Code or by any law for the time being in force' were not in the Civil Procedure Codes of 1877 and 1882, and when a question arose u/S. 588 of the Civil Procedure Code of 1877 as to whether the right of appeal under the Letters Patent was taken away, because of these provisions. Their Lordships of the Privy Council in Hurrish Chunder Chowdhry v. Kali Sundari Debia reported in 10 Ind App 17 held -

'It only remains to observe that their Lordships do not think that S. 588 of Act X of 1877, which has the effect of restricting certain appeals applies to such a case as this, where the appeal is from one of the Judges of the Court to the Full Court.'

This decision led to a conflict of view between the High Courts of Calcutta, Madras and Bombay on the one hand, and Allahabad High Court on the other, as to whether the right of appeal under Cl. 15 of the Letters Patent, was taken away by S. 588 of Civil Procedure Code, 1877 and it was in order to resolve this conflict that the Legislature, while enacting S. 104 of the Code, put in the words 'and save as otherwise expressly provided in the body of this Code or by any law for the time being in force'. S. 39(1) of the Act is modelled upon S. 104 of the Code and the words, which were added deliberately in order to save the right under the Letters Patent, were specifically omitted when S. 39(1) of the Act was enacted. Therefore, even S. 39(1) ofthe Act takes away the right of appeal given by Cl. 15 of the Letters Patent. If all that was intended to provide by sub-sec. (1) of S. 39 of the Act was to give a right of appeal, there was no necessity, in the first instance, to add to it the words 'and from no others'. The combined effect of the words 'and from no others' and the omission of the words 'and save as otherwise expressly provided in the body of this Code or by any law for the time being in force' is, so far as S. 39(1) of the Act is concerned, to take away the right of appeal given under Cl. 15 of the Letters Patent.

13. In our view, recourse to Cl. 15 of the letters Patent for the purpose of considering maintainability of this appeal is not permitted as Clause 15 of the Letters Patent are required to be read subject to the provisions of S. 39 of the Act.

14. In the result the preliminary objection is upheld. In this view of the matter, we feel that it will neither be appropriate nor proper for us to make any observations on merits. The appeal is, therefore, dismissed as not maintainable. However, in the facts of the case, there shall be no order as to costs.

Order accordingly.