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2004 Supreme(Mad) 956
High Court of Judicature at Madras
K. GOVINDARAJAN & T.V. MASILARNANI
Fenner India Limited
Versus
BSES Limited a company & Another
C.M.A.(NPD)No. 1239 of 2004
Decided On :Decided on: 30-07-2004
For the Appellant:Sriram Panchu, SC, R. Veeraraghavan, Advocate.
For the Respondents:R1 - J.J. Bhatt, SC, AR.L. Sundaresan, R2 - U. Karunakaran, Advocates.
Courts can grant interim orders under Sec. 9 of the Arbitration and Conciliation Act, 1996 to protect the rights of parties involved in arbitration proceedings. Interference with bank guarantees is permissible only in exceptional cases where fraud or special equity is prima facie established to prevent irretrievable injustice.
Headnote:
Bank Guarantees - Arbitration Dispute - Arbitration and Conciliation Act, 1996, Sec. 9 - Sec. 17 - Sec. 9(ii)(b)
Fact of the Case:
The appellant completed the assigned work and additional work for the 1st respondent but was not paid the balance contract amount and the amount for the additional work. The 1st respondent threatened to invoke the bank guarantees. The appellant filed a petition under Sec. 9 of the Arbitration and Conciliation Act, 1996 seeking an order to prevent the 1st respondent from invoking the bank guarantees pending arbitration proceedings. The court dismissed the petition, directing the parties to approach the arbitrator for remedy and extended the interim order for one month.
Finding of the Court:
The court found that the dispute had to be decided by the arbitrator and dismissed the petition under Sec. 9. It also extended the interim order to safeguard the appellant's rights until the arbitrator's decision. The court held that the appeal was sustainable despite the pending Application under Sec. 17 of the Act before the arbitrators.
Issues: (1) Whether the appeal is sustainable after filing an Application under Sec. 17 of the Act before the Arbitrator? (2) Whether the relief sought for seeking an order in the nature of injunction restraining the 1st respondent from invoking the bank guarantees is sustainable in the light of the decisions of the Apex Court?
Ratio Decidendi: The court held that the appeal was sustainable despite the pending Application under Sec. 17 of the Act before the arbitrators. The court also found that the appellant was entitled to an order of injunction to prevent the 1st respondent from enforcing the bank guarantees, as special equity was prima facie made out.
Final Decision: The court set aside the lower court's order and allowed the appeal, holding that the appellant was entitled to an order of injunction as prayed for in the petition under Sec. 9 of the Act. The appellant was required to keep the bank guarantees in force until the arbitration was concluded, and the 1st respondent could enforce the guarantees based on the arbitrator's award.
K. GOVINDARAJAN, J.
1. The above appeal is preferred against the order dated 22.3.2004 passed by the learned Principal District Judge, Madurai, dismissing Ar.O.P. No. 1/2003 filed under Sec. 9 of the Arbitration and Conciliation Act, 1996, hereinafter called ‘the Act’, directing the parties to maintain status-quo for a period of one month from the date of the said order.
2. The 1st respondent was awarded with the contract by Godavari Sugar mills Limited for construction of a Captive Power Plant in their factory at Sameerwadi, Karnataka. The 1st respondent, in turn, awarded a part of that work to the appellant for the value of Rs. 70,00,000/-, Rs. 5,57,00,000/- and Rs. 90,00,000/-, totalling a sum of Rs. 7,17,00,000/- under three contracts namely –
(1) Design and Engineering
(2) Supply of equipment
(3) Civil works.
Pursuant to the said contract, four bank guarantees, namely, B.G. No. E1/288/99, 289/99, 290/99 and 291/99 of the value of Rs. 7,00,000/-, 55,70,000/-, 9,00,000/- and 38,35,000/- respectively, towards advances and security deposit were given by the appellant and such bank guarantees were executed on 23.3.2000. The expiration of the said bank guarantees also was extended from time to time at the instance of the appellant.
3. The appellant had completed the assigned work and also did additional work to the tune of Rs. 360 lakhs. But, according to the appellant, the 1st respondent has not only not paid the balance contract amount of Rs. 80.7 lakhs but also the amount payable towards additional work of a sum of Rs. 360 lakhs. Meanwhile, the 1st respondent sent a letter to the appellant asking the appellant to settle the account failing which recovery will be made from them. It is the further case of the appellant that a fax message was received from the 1st respondent that the 1st respondent is going to invoke the bank guarantees. At this stage, the appellant invoked Sec. 9 of the Act and filed Ar.O.P. No. 1/2003 on the file the District Court, Madurai seeking an order declaring that the 1st respondent is not entitled to invoke the four bank guarantees issued by the 2nd respondent bank in favour of the appellant-company under the bank guarantees as set out earlier, or receive payment of any amount under tnc bank guarantees from the 2nd respondent bank, pending adjudication of the disputes including the dispute relating to the above said bank guarantees through arbitration proceedings in terms of arbitration agreement between the parties and for injunction by way of interim relief. Along with the said O.P., I.A. No. 1427/2003 was filed seeking an order of interim injunction. The same was granted.
4. In the order dated 22.3.2004, the learned District Judge found that the dispute raised has to be decided by the arbitrator. This finding was given on the basis that the parties have come forward with the conflicting facts regarding the completion of work. The learned District Judge also found prima facie on the basis of Exs.P13, P14 and P15 that the advance amount has been adjusted in the bills. On that basis, it is found that even though the appellant is not entitled to an order of injunction, their right must be safeguarded till the matter is disposed of by the arbitrator. Since the learned District Judge felt that the dispute has to be dealt with and decided only by the arbitrator, the learned Judge dismissed the O.P., directing the parties to approach the arbitrator for appropriate remedy and taking into consideration the facts of the case, extended the interim order granted in I.A. No. 1427/2003 for a period of one month from the date of the said order.
5. One day prior to the filing of the petition before the District Court, Madurai, the appellant initiated arbitration proceedings invoking Clause 5.3.2 of the contract. The arbitrators were appointed. Before such arbitrators, the appellant filed an Application under Sec. 17 of the Act for the relief with reference to the bank guarantees. But, admittedly, till date
