Union of India (UOI) vs Saravana Constructions Private Limited

P. Jyothimani, J.—Application No. 1432 of 2009 has been filed by the Union of India u/s 9 of the Arbitration and Conciliation Act, 1996

(for brevity, ""the Act"") for a direction against the respondent (Construction Company) to furnish security for a sum of Rs. 50,00,000/- till the

finality in the subject-matter of No. CECZ/STM/MH/01/2002-2003 is reached.

The Union of India has also filed O.A. No. 287 of 2009 for an injunction restraining the respondent (Construction Company) from drawing any

sum, which is subject-matter of E.P. No. 66 of 2008 on the file of the Principal District Court, Visakhapatnam, Andhra Pradesh in the subject-

matter of contract No. CEMZ/ARK/28 of 1987-88; till the finality in the subject-matter of No. CECZ/STM/MH/01/ 2002-03 is reached. By

order dated 6-4-2009, this Court has granted an order of injunction, which was subsequently continued.

The respondent in Original Application No. 287 of 2009, which is a Construction Company, has filed Application No. 2239 of 2009 to vacate

the said order of injunction.

The facts leading to the filing of the said application are that the respondent was awarded a contract for provision of Anciliary Accommodation

for M.H. (Phase II) at Chennai in CECZ/STM/MH/01/2002-03, as per the letter dated 13-1242002 and the value of the contract being Rs.

6,98,48,539.86. The contract contains three phases, namely Phase-I for three months, Phase-II for 9 months and Phase-III for 24 months

commencing from 9-1-2003.

The case of the Union of India is that the work, which was to be commenced on 9-1-2003, has not progressed in accordance with the terms of

the contract and therefore, the contract stood cancelled with effect from 16-1-2006. It is also stated that the respondent/ Contractor has not

performed its contract even in respect of a contract issued by the Chief Engineer, Kochi. The contract was cancelled by the Union of India at the

risk and cost of defaulter, namely the respondent and the dispute has been referred to the sole Arbitrator, before whom the arbitration is pending.

Before the Arbitrator, the Union of India has made ten claims, which are relating to compensation for non-completion of work within the

stipulated period to the extent of Rs. 25 lakhs; amount of expenditure being incurred for completion of the balance work at respondent''s risk and

cost to the extent of Rs. 4,75,55,764.99; non return of classified documents to the extent of Rs. 300/-; non return of schedule ''B'' stores to the

extent of Rs. 4,22,736.10; shifting of respondent''s materials to the extent of Rs. 98,962.40; additional expenditure for conclusion of risk and cost

contract, relating to salaries of staff and legal expenses, to the extent of Rs. 4,65,000/-; loss of reputation of claimant to the extent of Rs. 50 lakhs;

interest from 6-1-2006 till recovery of amount at the rate of 20% per annum; cost of reference to arbitration to the extent of Rs. 2 lakhs; and the

expenditure incurred on account of Court cases filed by the respondent to the extent of Rs. 10 lakhs. The total claim, as stated above, is Rs.

5,72,42,763.49, apart from interest.

As per one of the terms of the contract, the Government is entitled to adjust any amount against the Contractor and in the event of the

contractor neglecting to make payment or not agreeing to effect adjustment, the Government is entitled to withhold an amount not exceeding the

amount of claims from any sum which become due to the contractor and such amount retained or withheld by lien shall continue till the claims of the

contractor are settled.

The dispute referred to the sole Arbitrator Brig. N. K. Panwar, DDG & CE, Mumbai was numbered as C.A. No. CECZ/STM/MH/ 01/2002-

In the meantime, since the respondent has filed E.P. No. 66 of 2008 on the file of the Principal District Court, Visakhapatiiam, Andhra

Pradesh for the purpose of executing an earlier award of the Arbitrator passed in C.A. No. CEMZ/ARK/28/1987-88, it is stated that the

Government has deposited Rs. 13,92,014/- on 24-3-2009.

Since the above said amount deposited is the only security available in respect of the present claim of the applicant raised before the Arbitrator,

an application in O.A. No. 287 of 2009 was filed for an injunction against the respondent from drawing any amount which is the subject-matter of

E.P. No. 66 of 2008 on the file of the Principal District Court, Visakhapatnam, Andhra Pradesh and an Application No. 1432 of 2009 was filed

for a direction against the respondent to furnish security for a sum of Rs. 50 lakhs till the finalisation of the matter before the Arbitrator.

It is the case of the respondent, who has filed Application No. 2239 of 2009 to vacate the injunction, in the counter-affidavit that the above

applications filed by the Union of India before this Court are not maintainable as this Court has no territorial jurisdiction, since the matter pending

before the Principal District Court, Visakhapatnam cannot be the subject-matter of any order passed by this Court; that the respondent/Contractor

has raised certain disputes pertaining to arbitration in C.A. No. CECZ/STM/MH/27/1999-2000 at Chennai and the same has been referred to

Sole Arbitrator- Brig. N. K. Panwar and the Union of India has not made any claim before the Sole Arbitrator and in such view of the matter, the

Government, who is the respondent in the arbitration proceedings, cannot move this application u/s 9 of the Act; that the filing of O.A. No. 287 of

2009 is an abuse of process of law since E.P. No. 66 of 2008 pending on the file of the Principal District Court, Visakhapatnam, Andhra Pradesh

relates to an award passed by the Arbitrator in 1987-1988, which has been confirmed by the Hon''ble Supreme Court, in pursuance of which this

respondent has filed execution petition, in which the amount was deposited and therefore, the order of injunction virtually amounts to an order

passed against the final judgment of the Supreme Court in respect of the arbitration decree; that the Government, having voluntarily deposited the

award amount before the Execution Court, cannot prevent the Contractor from enjoying the fruits of the award. Therefore, the Contractor has filed

the application not only to vacate the injunction, but also for dismissal of the applications filed by the Union of India.

As stated above, a reference to the pleadings show that, in respect of provision of Ancillary Accommodation for M.H. (Phase II) at Chennai,

the Government has made ten claims before the Sole Arbitrator to a total extent of Rs. 3,50,15,161.86 with interest, even though it is stated in the

affidavit filed by the Government that the total claim pending before the Arbitrator in respect thereof is Rs. 5,72,42,763.49. The above applications

are filed by the Government on the basis of the general conditions of contract, especially related to recovery from contractor, namely condition No.

67, which is as follows:

Recovery from contractor, (a) whenever any claim(s) for payment of sum of money arise(s) out of or under this Contract against the

contractor, the Contractor shall on demand make the payment of the same or agree for effecting adjustment from any amount due to him by the

Government. If, however, he refuses or neglects to make the payment on demand, or does not agree for effecting adjustment from any amounts

due to him, Government shall be entitled to withhold an amount not exceeding the amount of the claim(s), from any sum when due or which at any

time thereafter may become due to the Contractor, under this or any other contract with the Government or from any other sum due to the

contractor from the Government (which may be available with the Government) or from the Contractor''s Security Deposit or Security Bond

amount, and retain the same by way of lien till such time payment is made by the Contractor or till the claim(s) is/are settled or adjudicated upon,

or till the Contractor, at his expenses furnishes fixed Deposit Receipt (s) duty endorsed as directed the Accepting Officer, or a Guarantee Bond

from a Scheduled Bank from an amount equal to the amount of the claim(s), in the form as directed by the Accepting Officer.

(b) It is an agreed condition of this Contract that the sum of money so withheld or retained as and by way of lien under this condition by the

Government, will be kept withheld or retained as such by the Government, till the claim(s) arising out of or under this Contract is/are settled or

adjudicated upon and that the Contractor will have no claim for interest or damages whatsoever on any account in respect of such sum so

withheld.

(c) For the purpose of this Condition, where the contractor is a Partnership Firm, the Government shall be entitled to withhold in whole or in part

as may be necessary, to cover the . amount claimed, any sum found payable to any partner of the Firm, whether in his individual capacity or

otherwise.

(d) Any amount due to the Contractor under this contract may be withheld by way of lien against any amount claimed or which may at any time

hereafter be claimed by the Government from the contractor on any account whatsoever, under this or any other contract between them and

retained, till the claim(s) is/ are settled or adjudicated upon.

(e) Government reserve the right to carry out post-payment audit and technical examination of the work and Final Bill, including all supporting

voucher, abstracts, etc. Government further reserve the right to carry out the aforesaid examination and enforce recovery when detected,

notwithstanding the fact that the amount of the Final Bill may have been included by one of the parties as an item of dispute before an Arbitrator

appointed under the Arbitration clause of the Contract and notwithstanding the fact that the amount of the Final Bill figures in the Arbitrator''s

award.

(f) If, as a result of such audit and technical examination, any over-payment is discovered in respect of the work done under this Contract, the

contractor shall on demand make payment of a sum equal to the amount of overpayment or agree for effecting necessary adjustment from any

amount due to him by Government. If however, he refuses or neglects to make the payment on demand or does not agree for effecting adjustment

from any amounts due to him, Government shall be entitled to take action as in sub-para (a) hereinbefore. If as a result of such audit and technical

examination an under payment is discovered, the amount of under payment shall be duly paid to the Contractor by Government.

(g) Provided, that, nothing hereinbefore contained before shall entitle the Government to recover any over-payment in respect of any price agreed

between the C.W.E. or the G.E. And the Contractor under the circumstances specifically prescribed for such method of assessment and that the

said right of the Government to adjust over-payment from any sum due or from any sum which may become due to the contractor or from Security

Deposit or Security Bond amount and adjust under payment, shall not extend beyond a period of two years from the date of payment of the

undisputed portion of the Final Bill or in the case of a minus Bill, from the date, the net amount of final bill is communicated to the contractor.

Therefore, in effect, it is the case of the Union of India that when such a claim is pending in respect of the contract of the year 2002-2003, the

Government is entitled not only to adjust any amount which stands to the credit of the Contractor, but also any security deposit, guarantee bond,

etc., and it is by virtue of the agreed clause under Condition 67 the present application is filed u/s 9 of the Act for injunction as stated above, even

though the said amount was deposited on the file of the Principal District Court, Visakhapatnam, Andhra Pradesh in obedience to the final

judgment of the Apex Court, wherein the Apex Court has confirmed the earlier award passed by the Arbitrator, which was subsequently approved

by this Court in O.P. No. 246 of 2001. It is the case of the Union of India that the decree amount, as per the said award, which was confirmed in

O.P. No. 246 of 2001, deposited by the Union of India before the Execution Court at Visakhapatnam is sought to be now interfered with by the

order of injunction by invoking condition 67 of the General Conditions of contract stated above.

It is no doubt true that the earlier award passed by the Sole Arbitrator Mr. M. K. Chitkara dated 25-10-1999 was challenged before this

Court in O.P. No. 246 of 2001 and after confirmation of the said award, originally, the contractor has filed E.P. No. 124 of 2008 before this

Court, which was, subsequently, transmitted and renumbered as E.P. No. 66 of 2008 on the file of the Principal District Court, Visakhapatnam.

A construction of the said condition 67, which is relied upon by the Government makes it clear that any amount which is due and payable by

the Government under any contract to the respondent/Contractor, which is available with the Government or in security deposit or any bond,

which is retained by the Government by way of lien can be retained till the claims are settled or adjudicated upon. It also enables the Government

to compel the respondent/Contractor to furnish security. But, in the present case, when, ultimately, in respect of earlier terms of contract and the

previous award passed, which has been confirmed up to the Supreme Court, there was a legal obligation on the part of the Government to pay the

amount and when once the same is deposited in the Competent Court in execution proceedings, certainly it cannot be said to be an amount lying

with the Government so as to enable the Government to exercise its right of lien, namely to retain the amount till the adjudication of the subsequent

arbitration is completed. Therefore, there is no substance in the contention raised on behalf of the Government that the amount, which has been

deposited in the Execution Court (Principal District Court, Visakhapatnam) in E.P. No. 66 of 2008, can be deemed to be an amount lying with the

Government and in such view of the matter, there cannot be an order of injunction granted u/s 9 of the Act against the respondent Contractor

restraining them from claiming the amount deposited to the credit of E.P. No. 66 of 2008, in respect of an earlier contract of the year 1987-88, the

award passed which has become final up to the Supreme Court.

Section 9 of the Act, which can be invoked before this Court either before or during or after the award passed in the arbitration, for the

purpose of securing an amount, cannot be exercised to thwart execution of a decree confirmed by the Supreme Court in the guise of enforcing the

right of the Government as a contracting party, as per the general conditions in the agreement. It is, no doubt, true that the Government''s right to

move for a security in respect of the claim, which is pending before the arbitration, is always available and that does not mean that an amount lying

in the Court of competent jurisdiction, before whom the Government, being an obliged party, has voluntarily deposited the amount can be directed

to be kept to the credit of the Government. In such view of the matter, O.A. No. 287 of 2009 stands dismissed and the order of injunction granted

by this Court stands vacated allowing Application No. 2239 of 2009.

In respect of the other application in Application No. 1432 of 2009 filed by the Government for a direction against the respondent/Contractor

to furnish security for an amount of Rs. 50 lakhs, an objection is raised on behalf of the respondent that it is only the contractor''s claim in respect

of providing of 249. Bedded MH at Chennai in C.A. No. CECZ/ STM/MH/27 of 1999-2000, making a claim of Rs. 7,43,85,751.00, which is

pending and the same has been raised against the Government before the Sole Arbitrator Mr. K. Ravi Kishore, Hyderabad. It is the case of the

respondent/Contractor that there is no claim made by the Government at all which is pending before the Sole Arbitrator - Brig N. K. Panwar.

The precise case of the respondent/ Contractor, as submitted by Mr. G. Jeremaiah, learned Counsel appearing for the respondent/ contractor

is that, in a claim of arbitration filed by the Contractor, it is not open to the Union of India to file an application u/s 9 of the Act. On the other hand,

it is the case of Mr. K. Mohanamuralal, learned Central Government Standing Counsel appearing for the Union of India that the claim made by the

Union of India is very much pending before the Sole Arbitrator and therefore, the application u/s 9 of the Act is maintainable.

It is, in fact, stated that the arbitration dispute raised by the Union of India pending before the Sole Arbitrator-Brig N. K. Panwar was posted

for hearing on 12-3-2009 and the same was subsequently adjourned to first week of May, 2009.

Be that as it may, Section 9 of the Act enables ""a party"" to the arbitration proceedings, before, during or after the arbitral award and before

being enforced as per Section 36 of the Act, to apply to a Court for various reliefs by way of interim measure, either for preservation, interim

custody or sale of any goods, securing the amount in dispute, etc. in the following terms:

Interim measures etc., by Court : A party may, before, or during arbitral proceedings or at any time after the making of the arbitral award but

before it is enforced in accordance with Section 36, apply to a Court:

(i) for the appointment of a guardian for a minor or person of unsound mind for the purpose of arbitral proceedings; or

(ii) for an interim measure or protection in respect of any of the following matters, namely:

(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) the 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;

(d) interim injunction or the appointment of a receiver;

(e) such other interim measure of protection as may appear to the Court to be just and convenient,

and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.

The word ""a party"" can only be construed as any of the party to the arbitration agreement, either claimant or respondent. In fact, the term

party"" is defined u/s 2(1)(h) of the Act as ""means a party to an arbitration agreement"".

Again the term ""Court"" explained u/s 9 of the Act is defined u/s 2(1)(e) of the Act as follows:

Section 2(1)(e): ""Court"" means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary

original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-

matter of a suit, but does not include any civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes.

A reference to Section 20 of the CPC is relevant at this stage. While Section 16 of the CPC provides the place of suing as where the subject-

matter is situated in respect of immovable property, Section 20 of the CPC deals about the other suits, making it. clear that such suits can be

instituted where either the defendants reside or cause of action has arisen. Section 20 of the CPC is as follows:

Other suits to be instituted where defendants reside or cause of action arises .:

Subject to the limitations aforesaid, every suit shall be instituted in Court within the local limits of whose jurisdiction:

(a) the defendant, or each of the defendants where there are more than one, at the time of the commencement of the suit, actually and voluntarily

resides, or carries on business, or personally works for gain; or

(b) any of the defendants, where there are more than one, at the time of the commencement of the suit actually and voluntarily resides, or carries on

business, or personally works for gain, provided that in such case either the leave of the Court is given, or the defendants who do not reside, or

carry on business, or personally work for gain, as aforesaid, acquiesce in such institution; or

(c) the cause of action, wholly or in part, arises.

Explanation.- A corporation shall be deemed to carry on business at its sole or principal office in India or, in respect of any cause of action arising

at any place where it has also a subordinate office, at such place.

However, Section 120 of the Code of Civil Procedure, which reads as under, specifically excludes the applicability of Section 20 of the CPC

to the High Courts:

Section 120: Provisions not applicable to High Court in original civil jurisdiction - The following provisions shall not apply to the High Court in

exercise of its original jurisdiction, namely, Sections 16, 17 and 20.

But, by virtue of the powers conferred under Clause 12 of the Letters Patent a suit may be filed before this Court in the following

circumstances:

Clause 12. Original jurisdiction as to suits.- And we do further ordain that the said High Court of Judicature at Madras, in exercise of its ordinary

original civil jurisdiction, shall be empowered to receive, try, and determine suits of every description if, in the case of suits for land or other

immovable property, such land or property shall be situated, or in all other cases if the cause of action shall have arisen, either wholly, or in case

the leave of the court shall have been first obtained, in part, within the local limits of the ordinary original jurisdiction of the said High Court, or if the

defendant at the time of the commencement of the suit shall dwell or carry on business or personally work for gain, within such limits; except that

the said High Court shall not have such original jurisdiction in cases falling within the jurisdiction of the Small Cause at Madras, in which the debt or

damage, or value of the property sued for does not exceed hundred rupees.

(Emphasis supplied)

Thus, it is evident on a reading of the above provisions that the Letters Patent and CPC operate in separate fields i.e. the Letters Patent

specifically confers original civil jurisdiction on High Courts and the CPC confers jurisdiction on all other Courts, and there is clearly a difference

between the scope of the Letters Patent and the CPC and the same is candidly observable upon a plain reading of Section 120 of the Code of

Civil Procedure.

The said view is also fortified by the decision of the Apex Court in Jindal Vijayanagar Steel (JSW Steel Ltd.) v. Jindal Proxair Oxygen

Company Ltd. (2005) 11 SCC 521 : 2006 AIR SCW 5130 wherein it is held as under:

The principles of Section 20 cannot be made applicable to Clause 12 of the Letters Patent since the CPC itself by Section 120 specifically

excludes the applicability of Section 20 of the CPC to Chartered High Courts. It is submitted that when the CPC itself provides that Section 20 is

specifically excluded, the principles of Section 20 cannot be made applicable or be attracted when a corporation is being sued under the Letters

Patent. The judgment of this Court in Sarguja Transport Service Vs. State Transport Appellate Tribunal, M.P., Gwalior and Others, cannot apply

for the following reasons:

(i) The principles of CPC were made applicable to Writ Petitions on the premise that these would not be contrary to the provisions of Article 226.

(ii) If the appellant''s argument is accepted it would render Section 120 of the CPC nugatory and otiose since Section 120 expressly refers to three

sections (i.e. Sections 16, 17 and 20) and makes them inapplicable.

(iii) the Letters Patent, is a special charter conferring jurisdiction on Chartered High Courts. When there is a special enactment such as the Letters

Patent, which expressly lays down the criteria on the jurisdiction of the Chartered High Court. It is totally unnecessary and in fact futile to refer to

another legislation such as the CPC (which is not applicable) to determine the jurisdiction of the Chartered High Court.

(iv) The facts in the Sarguja Transport case (supra) were entirely different since there was no corresponding legislation which laid down the

territorial jurisdiction of the Court exercising writ jurisdiction.

Thus the judgment of this Court in Sarguja transport case cannot be applied in the facts of the present case.

(Emphasis supplied)

In respect of the contract in question, about which claims have been made before the Arbitrator, it is not in dispute that they relate to the

construction at Chennai and therefore, under Clause 12 of the Letters Patent, Chennai is a place where the subject-matter of suit can be instituted.

By applying the said analogy of Clause 12 of the Letters Patent to Section 2(1)(e) of the Act, it is clear that this Court would come within the

meaning of the terms ""Court"" u/s 9 of the Act.

u/s 9 of the Act, the interim measure, if it relates to preservation and interim custody or sale of any goods, it must relate to the subject-matter of

arbitration agreement. On the other hand, the construction of Section 9 of the Act in respect of securing the amount in dispute in the arbitration

makes it clear that the order need not relate to preservation, interim custody, etc., of the subject-matter of the arbitration agreement, for the

powers given to this Court u/s 9 of the Act in respect of securing the amount in dispute is wider, provided such order is satisfied to be just and

convenient to the Court. It is not open to this Court to traverse beyond those grounds mentioned u/s 9 of the Act, except if it may appear to the

Court to be just and convenient, especially not to interfere with the domain of arbitration, till the arbitration is completed. But, to secure the

amount, a wider power has been conferred to this Court u/s 9 of the Act.

In such view of the matter, the application in A. No. 1432 of 2009 for a direction against the contractor to furnish security in respect of Rs. 50

lakhs cannot be said to be beyond the jurisdiction of this Court. As I have stated earlier, the term ""a party"" should be construed as any party to the

arbitration agreement and inasmuch as it is not in dispute that both the applicant and the respondent are parties to the arbitral agreement, this Court

is certainly having jurisdiction to pass such orders. A direction to the respondent to furnish security is not antithesis to the concept enshrined u/s 9

of the Act. For the reasons aforesaid, Application No. 1432 of 2009 is allowed directing the respondent/Contractor to furnish security for a sum

of Rs. ,50 lakhs as prayed for in the application till the arbitration proceedings conclude.

In the result.

(i) O.A. No. 287 of 2009 stands dismissed. The order of injunction granted on 6-4-2009 and subsequently extended, shall stand vacated and

consequently, Application No. 2239 of 2009 stands allowed;

(ii) Application No. 1432 of 2009 stands allowed as prayed for with a direction to the respondent/Contractor to furnish security to an extent of Rs.

50 lakhs, by way of Bank Guarantee, till the finalisation of the arbitration proceedings and such Bank Guarantee shall be furnished within a period

of four weeks from the date of receipt of a copy of this order.