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High Court Of Delhi
AIR FOAM INDUSTRIES PRIVATE LIMITED - Appellant
Versus
UNION OF INDIA - Respondent
Interim Application 846 of 1972
Decided On : 11/15/1972
ARBITRATION - INTERIM ORDER - RECOVERY OF SUMS DUE - CLAUSE 18 OF THE GENERAL CONDITIONS OF CONTRACT - POWER OF THE COURT TO MAKE AN ORDER UNDER SECTION 41 READ WITH SECOND SCHEDULE OF THE ARBITRATION ACT - INTERPRETATION OF CLAUSE 18 - WHETHER THE UNION OF INDIA HAS THE POWER TO WITHHOLD PAYMENT.
Fact of the Case:
The petitioner, a contractor, entered into a contract with the respondent, Union of India, subject to the conditions of contract laid down in Form No. DGS and D 1968 revised upto 1966. Clause 24 of the contract dealt with the settlement of disputes by arbitration. A dispute arose between the parties and the petitioner made a claim for Rs. 2,35,800.00 against the Union of India on account of breach of contract. The Union of India filed a counter-claim for Rs. 2,28,900.00 on account of general damages. Both matters were referred to arbitration. The Union of India wrote to the petitioner asserting that it was entitled to recover a sum of Rs. 2,28,900.00 from the petitioner on account of general damages and called upon the petitioner to pay this sum failing which the respondent threatened to recover the amount from the pending bills of the petitioner without any further reference to him. The petitioner made an application under Section 41 read with Second Schedule of the Arbitration Act praying that status quo be maintained and the respondent may be restrained from effecting recoveries by withholding payment of the bills of the petitioner.
Finding of the Court:
The court held that the Union of India did not have the power to withhold payment under clause 18 of the general conditions of contract. The court interpreted clause 18 as giving the Union of India the power to appropriate any sum then due or which at any time thereafter becomes due to the contractor from the purchaser or the Government. The court held that this did not give the Union of India the power to withhold payment. The court also held that clause 18 must be read subject to clause 24 of the Arbitration Act, which provided for arbitration of disputes. The court held that the Union of India could not be allowed to be judges in their own cause and that the court had the power to make an order under Section 41 read with Second Schedule of the Arbitration Act to restrain the Union of India from withholding payment to the contractor of his other pending bills.
Issues: 1. Whether the Union of India had the power to withhold payment under clause 18 of the general conditions of contract? 2. Whether clause 18 must be read subject to clause 24 of the Arbitration Act? 3. Whether the court had the power to make an order under Section 41 read with Second Schedule of the Arbitration Act to restrain the Union of India from withholding payment to the contractor of his other pending bills?
Ratio Decidendi: 1. Clause 18 of the general conditions of contract did not give the Union of India the power to withhold payment. 2. Clause 18 must be read subject to clause 24 of the Arbitration Act, which provided for arbitration of disputes. 3. The court had the power to make an order under Section 41 read with Second Schedule of the Arbitration Act to restrain the Union of India from withholding payment to the contractor of his other pending bills.
Final Decision: The court accepted the applications and restrained the Union of India from effecting recovery of the amounts claimed to be due from the other pending bills of the petitioner.
( 1 ) THIS is an application under Section 41 and Schedule 2 of the Arbitration Act read with Order 39, Rule 2 and Section 151 of the Code of Civil Procedure.
( 2 ) THE brief facts are as follows: The petitioner entered into a contract with the respondent Union of India. The contract is contained in the Acceptance of Tender dated July 16, 1968. The Acceptance of Tender is subject to the conditions of contract laid down in Form No. DGS and D 1968 revised upto 1966. These are standard terms. These terms are generally annexed to the contract which is entered into by the purchaser, Union of India with the seller or supplier of goods. One of the terms, Cl. 24 of this contract deals with the settlement of disputes by arbitration.
( 3 ) ON April 24. 1971, the petitioner made a petition under Section 20 of the Indian Arbitration Act calling upon the Court to file the arbitration agreement as contained in clause 24 of the general conditions of the contract. In this petition it was alleged that the Acceptance of Tender contains an arbitration clause and that disputes and differences have arisen between the parties. It was said that for the settlement of disputes and differences the matter may be referred to the arbitrator. The Union of India was not willing to refer the matter. Consequently the application was made. This application was accepted by the Court and the arbitration agreement was ordered to be filed. It is an admitted position that the matter is now before the arbitrator. In this arbitration matter the petitioner has made a claim for Rs. 2,35,800. 00 against the Union of India on account of breach of contract.
( 4 ) ON March 30, 1971. the Union of India wrote a letter to the petitioner in which it was asserted that the Union of India was entitled to recover a sum of Rs. 2,28,900. 00 from the petitioner on account of general damages in terms of clause 14 of the general conditions of contract. The respondent called upon tile petitioner to pay this sum failing which the respondent threatened to recover the amount from the pending bills of the petitioner without any further reference to him.
( 5 ) ON January 17, 1972 the petitioner made an application under Section 41 read with Second Schedule of the Arbitration Act praying that status quo be maintained and the respondent may be restrained from effecting recoveries by withholding payment of the bills of the petitioner. This prayer was again repeated in another application IA 846 of 1972, which was filed on May 18, 1972. The prayer in this application is the same as was made in the earlier application.
( 6 ) THIS matter came up before my brother Chawla, J. on May 19, 1972, and an interim order was made on the aforesaid date restraining the respondent from making recovery in pursuance of the letter dated March 31. 1971. This matter has now been placed before me for making the order dated May 19, 1972 absolute.
( 7 ) THE Union of India has strenuously opposed this application. Mrs. Shamla Pappu appearing for the Union of India has raised a number of contentions. Firstly it is submitted that power is vested in the respondent Union of India to make recovery by reason of clause 18 of the conditions of contract and since this is a valid clause it is binding on the parties and the Union of India is perfectly justified in making recoveries under this clause. It has further been submitted that the petitioner has not challenged the validity of this clause and as he entered into the contract with the Union of India with his eyes open it does not now lie in the mouth of the petitioner to say that he is not bound by clause 18. The second submission is that In any case the action of the Union of India in making recoveries from the other pending bills of the petitioner is not a dispute or difference falling within Cl. 24 in this case. It is contended that the Court has no power to make an interim order under the second Schedule of the Arbitration Act as this matter is not a dispute
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