Kris Heavy Engineering vs PNHB Lanco Khec

Vinod K. Sharma, J.—This application has been filed for seeking interim measure of prohibition, by granting an interim pro-order,

prohibiting respondent no. 2/Garnishee from releasing the amounts due and payable to the 1st respondent as on the date of this order under the

contract No. CNT/WSS/CWSAP-I/MWB/03/2001 Package III dated 31.10.202 in respect of supply and laying of raw water transmission main

and all other connected works from Vadakuthu to Ongur in the State of Tamil Nadu. The applicant and two others incorporated companies

formed a joint venture for the purpose of participating in the tender floated by the Chennai Metropolitan Water Supply and Sewerage Board. The

applicant was holding a minority share in the joint venture, but played an important role in bringing about the contract.

The entire project was to be completed within a period of 18 months. The joint venture was also awarded the contract relating to operation and

maintenance (O & M) for a period of five years, commencing from the taking over of the works by the Metro under the contract.

That for the purpose of convenient execution, the joint venture decided to divide the entire work of execution barring the supply part and

operation and maintenance into various sub packages of varying lengths and got it executed through other subcontractor.

It is submitted, that the applicant, besides being a partner in the joint venture, offered to take up the execution of a portion of the work and

accordingly, the join venture awarded to the sub package 8 of a length of 28.5 km in favour of the applicant. Under the sub-contract, it was the

obligation of the joint venture company to supply pipes required for the works to the subcontractors.

The case of the applicant is that though the contract was competed and taken over by Metro on 19.01.2005, the joint venture exhibited non

cooperative 5 attitude towards the applicant and did not issue completion certificate and also withheld huge amount payable to it for the work

executed.

That the dispute between the parties to be decided under Clause 3 of Special Conditions of Contract Part I of the contract. On application

made, an Arbitral Tribunal was constituted of three arbitrators. The applicant filed 34 claims, totalling Rs. 9,17,29,391/- (Rupees Nine Crores

Seventeen Lakhs Twenty Nine Thousand Three Hundred and Ninety One only), whereas the joint venture raised counter claim to the tune of Rs.

13,61,00,000/- (Rupees Thirteen Crores and Sixty One Lakhs only).

The case of applicant is that it was kept away in administering the affairs of the joint venture, even though it was one of the shareholders. The

applicant was also aware, that joint venture had substituted bank guarantee for the release of the balance retention money.

It is the case of the applicant, that joint venture submitted a final bill seeking additional payments and according to the applicant, the joint venture

would be receiving about Rs. 10 Crores from Metro, when the defect liability certificate is issued.

This application has been moved to restrain respondent no. 2 from releasing payment to the respondent no. 1, pending arbitration proceedings.

Learned counsel for the applicant vehemently contended, that as the applicant had undertaken sub-contract and filed claim for Rs.

9,17,29,391/- (Rupees Nine Crores Seventeen Lakhs Twenty Nine Thousand Three Hundred and Ninety One only). On the other hand, the claim

filed by respondent no. 1 is frivolous, therefore, the applicant is entitled to interim protection by restraining respondent no. 2 from releasing

payment due to respondent no. 1, pending arbitration proceedings.

The application is opposed by the respondents, by contending, that in the garb of garnishee order, the applicant is seeking injunction against

respondent no. 2 from releasing the amount. This is not permissible in law, in view of the law laid down by the Hon''ble Kerala High Court in the

case of Shoney Sanil Vs. M/s. Coastal Foundations (P) Ltd. and Others, , wherein the Hon''ble Kerala High Court has been pleased to lay down,

that interim injunction can be granted only against the party to arbitration agreement at the instance of other party to the agreement and not against

third party. The operative part of judgment reads as under:

For appreciating the scope of Section 9, the term ''party'' has to be understood, following the definition of the said term in Section 2(1)(h), which

states that unless the context otherwise requires ''party'' means a party to an arbitration agreement. By Section 2(1)(b), ''arbitration agreement''

means an agreement referred to in Section 7, whatever be its form as conceived in Sub-section (2) of Section 5 thereof, arbitration agreement,

going by Sub-section (1) of Section 7, means an agreement by the parties to submit to arbitration, all or certain disputes which have arisen or

which may arise between them in respect of a definite legal relationship, whether contractual or not. Section 9 occurs in Chapter II in Part 1 which

defines an arbitration agreement and provides the power of a judicial authority to refer the parties to arbitration, where there is an arbitration

agreement and provides further, for interim measures by Court. These are the three provisions contained in Chapter II of Part I. So much so, the

interim measures which are conceived by the Legislature while enacting Section 9 are those interim measures which relate to the arbitration

agreement between the parties and being interim, they are to confine to the matters relating to the arbitration agreement between the parties. This

intention is explicit from the opening words of Section 9, which provides for the party to apply for interim measure u/s 9. Therefore, only a party to

the arbitration agreement can apply to a court invoking Section 9, which consists of two parts. Section 9(i) deals with appointment of a guardian

for a minor or a person of unsound mind for the purpose of arbitrary proceedings. Section 9(ii) enumerates five types of interim measures of

protection in respect of the matters enumerated in Clauses (a) to (e) of Section 9(ii). Clause (a) deals with preservation, interim custody or sale of

any goods which are the subject-matter of the arbitration agreement. Clause (b) provides for securing the amount in dispute in the arbitration.

Clause (c) provides for detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as

to which any question may arise therein and authorising, for any of the aforesaid purposes any person, to enter upon any land or building in the

possession of any party or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary

or expedient for the purpose of obtaining full information or evidence. A reading of the said provision would show that the orders u/s 9(ii)(c) can

be passed only in relation to the subject-matter of the dispute in arbitration which may be in the possession of any party since it is not the intention

of the Act or any arbitration proceedings as conceived by the law of arbitration, to interfere with or interpolate third party rights. The reason for

this is obvious, that, an arbitral tribunal rests its authority on the agreement between the parties to the arbitration agreement and it is not a Court, to

interfere with third party rights, as may the Courts authorised in that regard, by the law of the land. The issuance of interim injunction or

appointment of receiver provided for under Clause (d) and the residuary provision to issue such interim measure of protection as may appear to be

just and convenient in terms of Clause (e) of Section 9(i) and (ii) have to be read in the backdrop of the extent of jurisdiction which can be

exercised and, this is limited to the parties who are governed by the arbitral agreement and not in excess thereof. On a plain reading of Section 9 of

the Act and going by the scheme of the said Act, there is no room to hold that by an interim measure u/s 9, the rights of third party, holding

possession on the basis of a court sale could be interfered with, injuncted or subjected to proceedings u/s 9 of the Act. Section 9 of the Act

contemplates issuance of interim measures by the court only at the instance of a party to an arbitration agreement with regard to the subject-matter

of the arbitration agreement. This can be only as against the party to an arbitration agreement, or, at best, against any person claiming under him.

The writ petitioner is a third party auction purchaser in whose favour is a sale certificate, followed by delivery of possession. He cannot therefore

be subjected to proceedings u/s 9 of the Act, initiated on the basis of an alleged arbitral agreement between the respondents.

For the foregoing reasons, the impugned order, as against the writ petitioner, is without jurisdiction. I am of the considered view that the

proceedings before the court below, in so far as it is against the writ petitioner is a clear abuse of process of court.

Reliance was also placed on the judgment of the Hon''ble Calcutta High Court in Arch Hi-Rise (P) Ltd. Vs. Yatin Bhimani and Others,

On consideration, I find that this application is totally misconceived. The Hon''ble Supreme Court in the case of Adhunik Steels Ltd. Vs. Orissa

Manganese and Minerals Pvt. Ltd., has laid down as under:

It is true that Section 9 of the Act speaks of the court by way of an interim measure passing an order for protection, for the preservation,

interim custody or sale of any goods, which are the subject matter of the arbitration agreement and such interim measure of protection as may

appear to the court to be just and convenient. The grant of an interim prohibitory injunction or an interim mandatory injunction are governed by

well known rules and it is difficult to imagine that the legislature while enacting Section 9 of the Act intended to make a provision which was de

hors the accepted principles that governed the grant of an interim injunction. Same is the position regarding the appointment of a receiver since the

Section itself brings in, the concept of ''just and convenient'' while speaking of passing any interim measure of protection. The concluding words of

the Section, ""and the court shall have the same power for making orders as it has for the purpose and in relation to any proceedings before it"" also

suggest that the normal rules that govern the court in the grant of interim orders is not sought to be jettisoned by the provision. Moreover, when a

party is given a right to approach an ordinary court of the country without providing a special procedure or a special set of rules in that behalf, the

ordinary rules followed by that court would govern the exercise of power conferred by the Act. On that basis also, it is not possible to keep out

the concept of balance of convenience, prima facie case, irreparable injury and the concept of just and convenient while passing interim measures

u/s 9 of the Act.

The provisions with regard to the directions to the garnishee are governed by Order XXI Rule 46A, 46B and 46C, which read as under:

46A. Notice to garnishee

(1) The Court may in the case of a debt (other than a debt secured by a mortgage or a charge) which has been attached under rule 46, upon the

application of the attaching creditor, issue notice to the garnishee liable to pay such debt, calling upon him either to pay into Court the debt due

from him to the judgment-debtor or so much thereof as may be sufficient to satisfy the decree and costs of execution, or to appear and show cause

why he should not do so.

(2) An application under sub-rule (1) shall be made on affidavit verifying the facts alleged and stating that in the belief of the deponent, the

garnishee is indebted to the judgment-debtor.

(3) Where the garnishee pays in the Court the amount due from him to the judgment-debtor or so much thereof as is sufficient to satisfy the decree

and the costs of the execution, the Court may direct that the amount may be paid to the decree-holder towards satisfaction of the decree and costs

of the execution.

46B. Order against garnishee where the garnishee does not forthwith pay into Court the amount due from him to the judgment-debtor or so much

thereof as is sufficient to satisfy the decree and the costs of execution, and does not appear and show cause in answer to the notice, the Court may

order the garnishee to comply with the terms of such notice, and on such order, execution may issue as though such order were a decree against

him.

46C. Trial of disputed questions where the garnishee disputes liability, the Court may order that any issue or question necessary for the

determination of liability shall be tried as if it were an issue in a suit, and upon the determination of such issue shall make such order or orders as it

deems fit:

Provided that if the debt in respect of which the application under rule 46A is made is in respect of a sum of money beyond the pecuniary

jurisdiction of the Court, the Court shall send the execution case to the Court of the District Judge to which the said Court is subordinate, and

thereupon the Court of the District Judge or any other competent Court to which it may be transferred by the District Judge shall deal with it in the

same manner as if the case had been originally instituted in that Court.

The reading of the provisions shows, that the word used is ""judgment debtor"" and not a party to the litigation, the provisions for invoking the

relief against Garnishee therefore can only be after passing of decree and not during the pendency of the proceedings. The security pending

proceedings can be ordered under the provisions of Order 38 Rule 5 of CPC.

Therefore, in view of the judgment of the Hon''ble Supreme Court, it is only when the conditions stipulated under Order 38 Rule 5 are fulfilled,

that Court can pass order u/s 9 of the Arbitration and Conciliation Act to direct security or attach any property to secure the amount. No order

under directing garnishee to deposit quo amount therefore can be passed.

The application against garnishee would not be competent u/s 9, as the relief against third party is only with respect to the subject matter of

arbitration, when the third party is drawing title through parties to the arbitration.

The applicant therefore has also miserably failed to make out any case for grant of security, as it is yet to be determined as to whether payment

is due to the applicant or counter claim filed by respondents is to be accepted. The application therefore on the face of it, being totally

misconceived, is ordered to be dismissed, but with no order as to the costs.