Union of India (Uoi) Vs. Builders Enterprises and ors. - Court Judgment

M.Y. Eqbal, J.

1. This appeal filed by the defendant/appellant is directed against the order dated 24.1.1997 passed by Sub-Judge IV at Ranchi in money suit No. 11 of 1993 whereby he has allowed the prayer of the plaintiffs/respondents and granted interim injunction restraining the defendant to proceed with the notice and refer the dispute to the arbitration by appointing Arbitrator.

2. It appears that plaintiff/respondent M/s Builders Enterprises being the partnership firm entered into a contract with the defendant/Union of India for the purpose of undertaking construction work. Although plaintiff commenced the construction work but because of some reasons the contract could not be completed. Plaintiffs' case was that because of default on the part of the defendant, the plaintiffs suffered huge loss to the extent of Rs. 8,25,000/-. Consequently, the aforementioned suit was filed by the plaintiff for a decree of Rs. 8,74,500/-. The defendant/ appellant contested the suit by filing written statement stating inter alia that the suit is not maintainable inasmuch as there is specific clause namely, arbitration clause i.e. Clause 70 in the Agreement which provides that all disputes relating to the contract work is to be decided by appointment of Arbitrator. The defendant also denied and disputed the claim of the plaintiffs.

3. During the pendency of the suit the defendant filed a petition on 17.11.1994 praying to the Court to decide the issue of maintainability of the suit as preliminary issue. It was contended that as per arbitration clause contained in the agreement the suit is not maintainable because all disputes are to be decided by the Arbitrator. The learned Court below after hearing the parties in terms of order dated 23.1.1996 held that the suit is maintainable even if there is Arbitration clause in the agreement. However, It was observed in the said order that if the defendants are ready to get the disputes settled as per Arbitration clause they can take steps and serve notice to the plaintiff. Consequent upon the aforesaid order, defendant served a notice upon the plaintiff and invoked the arbitration clause contained in the agreement and sought to refer the matter to the Arbitrator named in the agreement. On receipt of the notice plaintiff filed a petition on 18.4.1996 in the aforesaid suit and made a prayer to restrain the defendant by an order of interim injunction not to proceed with the said notice and not to refer the matter to the authority for arbitration. The Court below by the impugned order allowed the application and restrained the defendant/appellant from proceeding with the arbitration.

4. I have heard Mr. P.K. Prasad, learned counsel for the appellant and Mr. S.K. Bakshi, learned counsel for the respondents.

5. As noticed above, undisputedly there is an arbitration clause in the agreement according to which all disputes and differences relating to the contract is to be adjudicated through arbitration. The defendant/appellant in their written statement have taken a very specific defence that suit is not maintainable in view of the arbitration clause and prayed to the Court to decide the maintainability of the suit as a preliminary issue. While deciding the application filed by the appellant the Court below in its earlier order dated 23.1.1996 observed as under :

'So far question of stay of suit under Section 34 of Arbitration Act is concerned there is neither prayer of the defendant nor there is stage for the same since the defendants have already filed written statement. Since there is no provision in law for non-maintainability of suit in Civil Court hence present suit is maintainable in this Court. Thus the issue of maintainability of present suit on the ground of arbitration clause is being decided as preliminary issue in this suit, which is issue No. 1 in this suit in favour of the plaintiff. The present suit is maintainable even if there is any arbitration clause in agreement. However, if the defendants are ready and willing to get the dispute settled as per arbitration clause if the work has completed they can take step and serve a notice effect to the plaintiff during pendency of this suit. Put up on 8.2.1996 for hearing of the suit on all the other Issue.'

6. From the observation quoted herein above, it appears that the Court below has totally misconceived and misconstrued the law in holding that there is no provision in law for non- maintainability of suit in the Civil Court and hence the suit is maintainable. The Court below further committed serious illegality in holding that even there is an arbitration clause in the agreement the suit is maintainable.

7. Be that as it may, the said order is not the subject matter of this appeal. But the order is relevant for the reason that the Court had observed that defendant can take step and serve notice invoking arbitration clause. Inspite of the aforesaid observation, the Court below passed the impugned order restraining the defendant from proceeding with the arbitration. The relevant portion of the impugned order is quoted herein below :

'Heard learned advocate of the plaintiff and learned Government Pleader on behalf of defendant. It appears that the plaintiff has instituted tills money suit for a decree of realisation of Rs. 8,74,500/- from the defendants being the amount due on account of loss caused by illegal rescine of agreement by defendants. On summons issued by this Court the defendants appeared and contested the suit by filing written statement stating therein, inter alia, that the suit is not maintainable in view of arbitration clause contained in the agreement. After hearing the parties, it was held by this Court that the suit is maintainable since the defendants have already appeared and filed the written statement. But in last portion of order however, some observation was made to the effect that if the defendants are willing and ready to get the dispute settled as per arbitration clause if the work is completed they can take step and serve a notice to the plaintiff during the pendency of this suit. Further appears that the defendant has served a notice to refer the dispute for appointment of arbitrator as per arbitration clause as per order of this Court. But since the adjudication of the entire dispute is pending in this hence it will be proper to start a separate arbitration proceeding for the same cause. It will definitely lead to conflict of decisions. Further the defendant has already filed written statement. If they are entitled to claim anything after completion of work they can even prefer counter claim in this suit itself instead of referring the dispute to a arbitrator by starting separate proceeding which will cause harassment and conflict of decision. Learned G.P. submitted that the arbitrator has not yet been appointed. Hence I find that it is fit case in which defendant should be restrained from referring this present dispute to arbitration by appointing arbitrator to avoid conflict of decisions and harassment. Hence prima facie case, balance of convenience and irreparable loss is in favour of the plaintiff. If arbitrator is appointed in pendency of this suit for same dispute it will lead to conflict of decisions and harassment. If arbitrator Is not appointed the defendant may bring their dispute by presenting counter claim if any and they are not going to sustain any irreparable loss. Hence for the above reasons the defendants are hereby restrained by an order of interim Injunction to proceed with the notice dated 13.3.1996 give by Brig. Chief Engineer, Lucknow Zone to the plaintiff and refer the dispute to an arbitrator by appointing the arbitrator at this stage, Put up on 6.2.1997 for framing of issues and filing documents by the parties.'

8. The Court has power and jurisdiction to appoint an receiver to make an order on interim injunction or to pass orders in respect of other matters set out in the second schedule of the Act for the purpose of and in relation to arbitration proceedings but such power and jurisdiction of the Court can not be exercised if it prejudices the right of the party that may be affected Jn an arbitration proceeding before the arbitrator empowered to make orders with respect to any such matter. A suit is maintainable in respect of a conduct but in such a case Court cannot restrain the arbitration proceeding by granting injunction. In such contract where there is arbitration clause and if there is dispute then a party to the contract can not be restrained at the instance of the party by an order of injunction restraining him from proceeding with the arbitration merely on the ground that a suit in respect of the same is pending.

9. In the instant case, as noticed above, the Court below in the earlier order gave liberty to the petitioner to Invoke arbitration clause but surprisingly the same Court issued interim injunction restraining the petitioner from proceeding with the arbitration. The impugned order passed by the Court below is, therefore, absolutely illegal and wholly without jurisdiction. The Court below is completely misconstrued the law in holding that the petitioner can file counter claim in the suit and Instead of referring the dispute to the arbitrator. In my considered opinion the impugned order suffers from serious illegality and the Court below has exceeded in exercise of its jurisdiction in passing the impugned order.

10. For the reasons aforesaid, this appeal is allowed and the impugned order passed by the Court below is set aside.