M/s. Chandra Agencies vs State of H.P. and Others

V.P. Bhatnagar, J.—This order is meant to dispose of an application filed by M/s Chandra Agencies, under the provisions of Section 41 of the Indian Arbitration Act, 1940 praying that the State of Himachal Pradesh and the Director of the State Lotteries, Himachal Pradesh Government be restrained from encashing the bank guarantee No. 31/85 furnished on April 27, 1985 by the Chief Manager, Indian Bank, New Delhi (Respondent No. 4) till the final disposal of the matter in dispute. This application was originally moved on November 8, 1985 and M/s Chandra . Agencies apprehended that attempts were being made to encash the bank guarantee before a stay order from the Court could be obtained. Therefore, Anr. prayer has been made in this application that in case the State of Himachal Pradesh succeeds in so encashing the bank guarantee, the position as it existed on November 8, 1985 be restored.

The facts which have led to the filing of the present application are these. M/s Chandra Agencies (here-in-after referred to as ''the applicant'') entered into an agreement with the State of Himachal Pradesh on April 18, 1985 to organise and conduct lotteries known as "Him Laxmi" on behalf of the State Government. According to clause 10(c) of this agree ment, the applicant undertook to pay expenses on the following items to the State Government with respect to the holding of the lotteries:

(a) Guaranteed amount of profit to the State Government on draw or draws as agreed to between the parties;

(b) Prize money;

(c) Printing and checking of tickets, including cost of papers; and

(d) Other miscellaneous expenses incurred, and in connection with the holding of draw or draws.

As stated above, the agreement between the parties was entered into on April 18, 1985. According to a supplemen tary agreement executed on the same day, it was agreed that the first draw of "Him Laxmi Weekly" would be held on Monday, the 27th May, 1985 and the subsequent draws thereafter would be held on the dates following on Monday of every week. It was further agreed that the first draw of "Him Laxmi Bumper" would be held on July 11, 1985 and that the dates of subsequent draws would be settled mutually by the parties. The period of agreement was fixed as one year commencing from May 27, 1985. The number of lottery draws in the aforesaid period was not to be less than 52 in respect of weekly lotteries and four in respect of bumper draws. The applicant agreed to pay to the Government guaranteed amount of profit to the tune of Rs. 1,45,35,000/- for weekly lottery and Rs. 1,06,00,000/- or 8% of the face value of the total number of tickets printed for bumper draw, whichever was higher. The amount of expenses payable to the Government was to be calculated roughly for each draw separately and paid in cash or through bank drafts at least seven clear days before holding of the draw. In case of failure to do so, the Government was at liberty to reimburse itself all this amount from the bank guarantee to be furnished by the applicant, without prejudice to its rights to recover the dues through other lawful course available to it under the terms and conditions of the agreement or otherwise.

Consequently, Indian Bank Ltd. issued bank guarantee No. 31/85 on April 27, 1985 in the sum of Rs. 1.5 crores in favour of the State Government through the Director, Hima-chal Pradesh State Lotteries, Shimla. The relevant portion of the bank guarantee may be usefully extracted. It reads:

We, INDIAN BANK, G-41 Connaught Circus, NEW DELHI-110 001 hereby unconditionally guarantee to Himachal Pradesh Government unconditional and immediate payment of the said expenses not exceeding Rupees 150.00 lakhs (Rupees one crore and fifty lakhs only) for draw or draws of lottery on demand and on the date and in the manner as may be indicated to us by the Director, Himachal Pradesh State Lotteries, Shimla.

This Guarantee shall be continuing one and remain in force commencing from 27-4-85 till the said agreement remains in force or till the liability is fully discharged whichever is later, but this agreement would not extend beyond 27-5-1986.

Should the said M/s Chandra Agencies, New Delhi fail to make the payment on due date as aforesaid, such payment not exceeding Rupees 150.00 lakhs (Rupees one crore and fifty lakhs only) for draw or draws shall be payable by us on demand without notice of default or other notice being served on said M/s Chandra Agencies or upon us and shall be made in cash to the Director, Himachal Pradesh State Lotteries, Shimla immediately but in no case later than 3 days of the demand made on us by him.

It is not disputed that fifteen weekly draws were held by the applicant strictly according to the terms of agreement. Although tickets had been printed for the holding of the 16th weekly draw, this draw was not held. The 17th weekly draw was held but it was found that some printing mistakes had crept in on the reverse side of the counter-foils of the tickets of the said draw. It was erroneously indicated on the reverse side of the said counter-foils that prizes would be awarded to the sellers and agents against the 5th, 6th and 7th prizes winning tickets. Actually, 7th prize was not to be awarded at all according to the scheme submitted by the applicant and approved by the State Government. The mistakes were delected by the applicant on September 26, 1985. The applicant''s case is that the responsibility for correct printing of the tickets was that of the Government and that he suffered considerable damages by way of financial loss and also loss to his reputation. He, therefore, requested the Government to cancel the draws, inter alia, due to the above reasons. The Director of State Lotteries agreed to the cancellation of draws subject to the condition that the printed tickets were to be destroyed under his supervision and secondly that the guaranteed amount of profit, additional profit and the printing charges would be paid by the applicant. The applicant agreed for the destruction of the tickets but not to the second condition pertaining to the payment of guaranteed profit, additional profit and printing charges. Thus, disputes arose between the parties due to which reason the applicant invoked clause No. 26 of the agreement which reads as follows:

(26)-If any dispute or controversy arises between the parties thereto concerning or relating to the rights, duties or liabilities of the parties hereunder or as to form and contents of any instrument, deed, or document to be made or executed in pursuance of the conditions here-in-before contained or for the purpose of giving effect to according to the true and correct intent of parties hereto, such difference, controversy or dispute shall be referred to the Sole arbitration of the Chief Secretary or his nominee to the Government of Himachal Pradesh whose decision thereon shall be final and binding on both the parties. It will be no objection to any party that the arbitrator is a Government servant, that he has to deal with the matters to which- the agreement relates and in the course of his duties as Government servant, he had expressed views on all or any of the matters in disputes, controversy or difference.

Subject as aforesaid the provisions of the Arbitration Act, 1940 or any statutory modification or re-enactment thereof and the rules made thereunder and for the time being enforced shall apply to the arbitration proceedings under this clause.

It is on the above facts that the applicant has filed an application under the provisions of Section 20 of the Indian Arbitration Act, 1940 praying that the agreement dated April 18, 1985 be filed in the Court and that a direction be issued to the Chief Secretary to enter into arbitration himself or nominate an Arbitrator for the said purpose as stipulated in clause 26. Along with this application u/s 20 ibid, the applicant has moved Anr. application for restraining the State Government and the Director of State Lotteries from enforcing the Bank guarantee, as stated above.

At the very out-set, the learned Advocate General has contended that no interim injunction of the nature sought can be issued within the ambit of Section 41 of the Indian Arbitration Act, 1940 due to the reason that such power is restricted to the issuance of making orders for the purpose of and in relation to the arbitration proceedings. His argument in other words, is that the enforcement of the bank guarantee has no nexus with such arbitration proceedings as may take place under Clause 26 of the agreement, dated April 18, 1985. I find much force in this contention.

The relevant portions of the bank guarantee No. 31/85 and clause 26 of the agreement have been extracted above. Their perusal shows that the guarantee furnished by the Indian Bank is unconditional and further postulates immediate payment of the expenses of the nature referred to above in the manner to be indicated by the Director, Himachal Pradesh State Lotteries, Shimla. Not only that, even notice of default or the serving of any other prior notice on the applicant or on the bankers has been dispensed with and it has been specifically provided that the cash will be paid to the Director, Himachal Pradesh State Lotteries "Immediately but in no case later than 3 days of the demand made�." To reiterate, the Indian Bank agreed to the immediate payment of the expenses not exceeding Rs. 1.50 lakhs without any demur. Mr. Devinder Gupta, learned Counsel for the applicant, has not been able to point out any clause in the agreement embodying that the encashment of the bank guarantee is linked or dependent in any manner on the final determination of the claims of the parties during the arbitration proceedings referred to in clause 26. Thus, the enforcement of the bank guarantee cannot be deemed to be the subject-matter of arbitration proceedings at all. If so, the provisions of Section 41 of the Arbitration Act cannot be brought into play for obtaining a stay order of the nature sought for in the application under consideration. I am fortified in the above view by the law laid down in H.M. Kamaluddin Ansari and Co. Vs. Union of India (UOI) and Others, wherein Hon''ble Supreme Court has delibrated upon the scope of Section 41 of the Arbitration Act. To the same effect is the ratio of the decision contained in ACC Babcock Limited Vs. Straw Products Limited,

Of course, there can be a set of exceptional circumstances disclosing gross violation of law or showing that a grave injustice is going to be perpetrated which may justify interference by the Court. Such circumstances, however, do not exist in the present case at all. It is admitted that the State Government has already released a sum of Rs. 1,26,10,388/- against the bank guarantee towards the liability outstanding against the applicant as on October 31, 1985. Its break-up has been furnished at annexures ''A'' and ''B'' to the reply filed by the Respondents No. 1, 2 and 3 to the amended application u/s 20 of the Arbitration Act. Although it would be for the Id. Arbitrator to determine the claims of the respective parties in depth in the eventuality of the main application u/s 20 of the Arbitration Act succeeding, it may be noticed here for the purpose of disposing of this application that Mr. Devinder Gupta, learned Counsel for the applicant, has not been able to effectively show any error or discrepancy in the figures stated in the aforesaid annexures. One of his main contentions has been that the applicant had furnished cash security to the tune of Rs. 4,00,000/- in accordance with the provisions of Clause 8 of the main agreement executed on April 18, 1985 and that this clause clearly stipulated that the aforesaid security amount was to be forfeited in the event of any breach of the term or conditions of the said agreement on the part of the applicant. Mr. Devinder Gupta has, therefore, urged that even if it be assumed that there has been a breach of contract on the part of the applicant, all that the State Government was entitled to do was to forfeit the above-mentioned cash security. His other contention has been that the guaranteed profit is payable only if the draws are held. I would restrain myself from expressing any opinion on the aforesaid contentions lest the same may prejudice the arbitration proceedings which may commence in the event of the main application being allowed. In such an eventuality, it would be purely within the domain of the learned Arbitrator to determine these points and their effect on the respective claims of the parties. Suffice to say that for the purpose of disposing the present application, these contentions do not pursuade me to allow the application. On behalf of the State Government, an argument has been developed on the basis of a letter written by the applicant that the applicant could not run the lotteries profitably and, therefore, wanted to wriggle out of its contractual obligation. For the same reasons as stated above, I do not think it necessary to deal with this contention.

M/s Harprashad and Co. Ltd. v. M/s Sudarshan Steel Rolling Mills and Ors. AIR 1983 Delhi 123 , has been cited by the learned Advocate General and it applies to the present case on all fours. The Calcutta High Court has also held like-wise in National Project Construction Corporation Ltd. Vs. G. Ranjan, The above two cases have followed the law laid down by the Hon''ble Supreme Court in United Commercial Bank Vs. Bank of India and Others, On the other side, reliance is placed on Union of India (UOI) and Others Vs. Meena Steels Limited and Another, , wherein it has been held by a Division Bench of that Court that balance of convenience lies in not allowing the bank guarantee to be encashed and that the same should await the determination of the dispute. In my opinion, with ail respect, the law laid down in Meena Steels Ltd.''s case (supra) does not appear to be correct law, specially in view of the observations made by the Supreme Court in United Commercial Bank Vs. Bank of India and Others, .

It is well-settled that in order to succeed in an application for the grant of interim injunction under the provisions of Order 39, Rules 1 and 2 Code of Civil Procedure, the applicant must show the existence of a prima facie case, that the balance of convenience lies in his favour, that irreparable loss will be caused to him in case the relief sought is not granted at that stage and that he cannot be adequately compensated by the award of damages. In the present case, I am not satisfied that all these pre-requisites exist so as to warrant the allowing of the application. As discussed above, the applicant has not been able to create even a small dent in the accuracy of the figures furnished in annexures ''A'' and ''B'' at the present stage of the proceedings. It, therefore, cannot be said that the claim preferred by the State Government is in anyway erroneous. The bank guarantee furnished by the applicant could not but be meant to meet situations of this type. Therefore, there is no good reason why the State Government or the Director of the State Lotteries be asked not to implement the bank guarantee which the applicant furnished of his free volition in order to reimburse the State Government expenses which are now being claimed.

Mr. Devinder Gupta, learned Counsel for the applicant, has relied upon The The Vulcan Insurance Co. Ltd. Vs. Maharaj Singh and Another, with respect to the jurisdiction of the Court while dealing with an application u/s 20 of the Arbitration Act. It has been held therein that the Court while dealing with such application is not required to go into merits of the case. There cannot be any dispute with this proposition of law but I fail to understand as to how it helps the applicant. Durg Transport Co. Private Ltd. Vs. Regional Transport Authority and Others, Malla Suranna v. Kalla Somulu and Ors. AIR 1969 All 368, and Joynarain Sarogi v. Brojendra Nath Misra and Ors. AIR 1951 Pat 546, have been cited by the learned Counsel for the applicant in support of his contention that the Court can issue mandatory injunction within the ambit of Order 39, Rules 1 and 2 CPC so as to restore the status quo as obtainable on the date of the institution of the application. I need not go into that question at all as the State Government, in my view, is entitled to enforce the bank guarantee.

As a result, the application u/s 41 of the Arbitration Act is hereby dismissed.