STATE OF GUJARAT THROUGH CHIEF SECRETARY & ANR. versus AMBER BUILDERS

STATE OF GUJARAT THROUGHCHIEF SECRETARY & ANR.

AMBER BUILDERS

(Civil Appeal No. 8307 of 2019)

JANUARY 8, 2020

[DEEPAK GUPTA AND ANIRUDDHA BOSE, JJ.]

Gujarat Public Works Contracts Disputes ArbitrationTribunal Act, 1992 – Issue as to whether the Gujarat Public WorksContract Disputes Arbitration Tribunal constituted u/s. 3 of the saidAct has jurisdiction to make interim orders in terms of s.17 of the1996 Act – Respondent-contractor was awarded contract forstrengthening section of National Highway under work order dtd.31.07.07, which contained an arbitration clause – According tothe contractor, he completed the work on 30.04.08 and final billwas paid – Road was damaged and the State called upon thecontractor to repair the damaged portion and according to thecontractor, this repair was completed – Case of the contractor isthat in terms of the contract, the contractor was only liable to removedefects for period of 3 years which period ended on 30.04.11 –State issued letter dtd. 11.11.14 calling upon the contractor to payRs.1,09,00,092/- on the premise that the contractor had not carriedout the road repair work in accordance with the contract –Challenged – Writ petition allowed by the High Court – Held:Appropriate remedy for the contractor was to approach the arbitraltribunal constituted under the 1992 Act, since that would havejurisdiction to decide whether the notice issued by the Governmentwas legal notice and whether the Government was, in fact, entitledto recover any amount from the contractor – It would also be withinthe jurisdiction of the Tribunal to decide whether the contractormade out prima facie case for grant of interim relief – Insofar as thepowers vested in the Arbitral Tribunal in terms of s.17 of the 1996Act are concerned, such powers can be exercised by the Tribunalconstituted under the 1992 Act because there is no inconsistency inthese two Acts as far as the grant of interim relief is concerned –Merits of the case purposely not gone into – Judgments of the High

CDEF

ACourt set aside – Liberty given to the contractor to approach theGujarat Public Works Contract Disputes Arbitration Tribunal – Ifthe Tribunal is approached within 2 months from today, tribunalnot to dismiss the claim on the issue of limitation and to decide thesame on merits – Arbitration and Conciliation Act, 1996 – ss.2-43and ss.9, 17 – Arbitration Act, 1940.B

Gujarat Public Works Contracts Disputes Arbitration TribunalAct, 1992 – ss.2(a), 3, 8(3), 9, 12, 13, 21 – Scheme of the Act –Discussed.

Arbitration and Conciliation Act, 1996 – ss.9, 17 – Held: s.9Cempowers the Court to grant interim measures – However, s.9(3)clearly provides that once an arbitral tribunal is constituted, theCourt shall not entertain an application u/s.9(1) unless the Courtcomes to the conclusion that such circumstances exist which wouldmake the remedy u/s.17, which provides for interim measures to begranted by the arbitral tribunal, not efficacious.D

Arbitration and Conciliation Act, 1996 – Applicability of PartI of the Act to arbitrations carried out under any other enactment –Held: Part I of the Act i.e. from s.2 to s.43 deals with Arbitrationand s.2(2) clearly states that the said Part would apply to allArbitrations which take place in India – s.2(4) makes it clear thatEother than ss.40(1), 41 and 43, Part I of the Act shall apply to allarbitrations even if they are carried out under any other enactmentas if the arbitrations were pursuant to an arbitration agreementexcept insofar as the provisions of Part I are inconsistent with theother enactment or any rules made thereunder.FDisposing of the appeals, the CourtHELD: 1.1 Section 9 of the Arbitration and ConciliationAct, 1996 empowers the Court to grant interim measures.However, Section 9(3) clearly provides that once an arbitraltribunal is constituted, the Court shall not entertain an applicationGunder Section 9(1) unless the Court comes to the conclusion thatsuch circumstances exist which would make the remedy underSection 17 not efficacious. Section 17 of the A&C Act providesfor interim measures to be granted by the arbitral tribunal. Part Iof the A&C Act i.e. from Section 2 to Section 43 deals withArbitration and Section 2(2) clearly states that the said Part wouldH

apply to all Arbitrations which take place in India. Section 2(4)makes it absolutely clear that other than Section 40(1), 41 and43, Part I of the A&C Act shall apply to all arbitrations even ifthey are carried out under any other enactment as if thearbitrations were pursuant to an arbitration agreement exceptinsofar as the provisions of Part I are inconsistent with the otherenactment or any rules made thereunder. plain reading wouldshow that the provisions of Part I of the A&C Act would apply toall arbitrations where the place of arbitration is within India. Evenstatutory arbitrations under other Acts would be governed byPart I. The only exception is that if there is any departure fromPart I in the special enactment then the special enactment willprevail and the A&C Act will give way to the special enactment.[Paras 12, 13 and 15][787-D-E; 788-F-H; 789-A]

1.2 Reference and procedure of the Tribunal is governedby Chapter 3 of the Gujarat Public Works Contracts DisputesArbitration Tribunal Act, 1992. Section 8 provides that whereany dispute within the meaning of the said Act, arises betweenthe parties, the said dispute shall be referred to arbitration underthe said Act whether the agreement in question contained anarbitration clause or not. Basically, the intention of the StateLegislature was that all disputes relating to works contractbetween the State Government and the persons executing theworks defined as works contract would be compulsorily referredto the Arbitral Tribunal constituted under Section 3 of the GujaratAct. Section 8(3) clearly provides that where the Tribunal admitsa reference under sub-section (2) it will make an award or aninterim award giving its reasons thereof. This Section recognizesthe power of the Tribunal to make interim awards. However, theTribunal took view that an interim award could not be in thenature of an injunction. The practice and procedure of the Tribunalis governed by Section 9 of the Act. Section 12 of the Act vestsrevisional powers in the High Court of Gujarat where an awardor any interim award can be challenged on the grounds set outtherein. The High Court also has suo motu powers in this regard.Section 13 specifically bars the jurisdiction of the Civil Courts.This clearly means that powers vested in Civil Court under theA&C Act, such as the powers to grant interim relief in terms ofSection 9 of the A&C Act and the powers for setting aside an

Aaward under Section 34 of the Act cannot be exercised by CivilCourts insofar as the awards made under the Gujarat Act areconcerned. As far as Gujarat Act is concerned, the power to setaside/modify an award is vested in the High Court under Section12. The appropriate remedy for the contractor was to approachthe arbitral tribunal constituted under the Gujarat Act since thatBwould have jurisdiction to decide whether the notice issued bythe Government was legal notice and whether the Governmentwas, in fact, entitled to recover any amount from the contractor.It would also be within the jurisdiction of the Tribunal to decidewhether the contractor has made out prima facie case for grantCof interim relief. The Court is purposely not going into the meritsof the case because once it is held that the Tribunal has thejurisdiction to entertain and adjudicate upon the dispute it wouldnot be proper to make any comments on the merits. [Paras 16-18][789-B-E, H; 790-A, C-E]D1.3 On conjoint reading and careful analysis of the Actstogether, the Court is of the view that insofar as the powers vestedin the Arbitral Tribunal in terms of the Section 17 of the A&C Actare concerned, such powers can be exercised by the Tribunalconstituted under the Gujarat Act because there is noinconsistency in these two Acts as far as the grant of interimErelief is concerned. This power is already vested in the tribunalunder the Gujarat Act and Section 17 of the A&C Act complimentsthese powers and therefore it cannot be said that the provisionsof Section 17 of the A&C Act are inconsistent with the GujaratAct. The judgments of the High Court of Gujarat are set aside.FHowever, liberty is given to the contractor(s) to approach theGujarat Public Works Contract Disputes Arbitration Tribunal andif the Tribunal is approached within 2 months from today, thetribunal shall not dismiss the claim on the issue of limitation. Itshall decide the same on merits. [Paras 21, 22][793-D-G]

GGangotri Enterprises Limited v. Union of India andOthers (2016) 11 SCC 720 : [2016] 2 SCR 1074 – heldper incuriam.

State of Karnataka vs. Shree Rameshwara Rice Mills,Thirthahalli (1987) 2 SCC 160 : [1987] 2 SCR 398;

Union of India v. Raman Iron Foundry (1974) 2 SCC231 : [1974] 3 SCR 556; H.M. Kamaluddin Ansari &Co. v. Union of India (1983) 4 SCC 417 : [1983] 3SCR 607 – referred to.

Case Law Reference

[1987] 2 SCR 398referred toPara 6[2016] 2 SCR 1074held per incuriamPara 19[1974] 3 SCR 556referred toPara 19[1983] 3 SCR 607referred toPara 19

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8307of 2019.

From the Judgment and Order dated 18.02.2016 of the High Courtof Gujarat at Ahmedabad in Special Civil Application No. 5517 of 2015.

With

Civil Appeal No. 8308 of 2019.

Preetesh Kapoor, Sr. Adv., A.P. Mayee, Ms. Hemantika Wahi,Adv. for the Appellants.

K.G. Sukhwani, Anil K. Sharma, Chirag Sukhwani, Vishwa PalSingh, Advs. for the Respondent.

The Judgment of the Court was delivered by

DEEPAK GUPTA, J.

1. The main question which arises for decision in these appeals iswhether the Gujarat Public Works Contract Disputes Arbitration Tribunal(hereinafter referred to as ‘the Tribunal’) constituted under Section 3 ofthe Gujarat Public Works Contracts Disputes Arbitration Tribunal Act,1992 (hereinafter referred to as ‘the Gujarat Act’) has jurisdiction tomake interim orders in terms of Section 17 of the Arbitration andConciliation Act, 1996 (hereinafter referred to as ‘the A&C Act’).

2. At the outset, it may be noted that the Gujarat Act was enactedwith view to compulsorily refer all disputes arising out of “workscontract” entered into by the State Government or the Public SectorUndertakings with any other person for those works defined as “workscontract” in terms of Section 2 (k) of the Gujarat Act. As far as this

Acase is concerned, it is not disputed that the contract entered into betweenthe appellant State and the respondent-contractor was “works contract”.The contract order pertaining to the parties dated 31.07.2007 containedan arbitration clause, relevant portion of which reads as follows:-

“Clause : 30(1) Disputes to be referred to Tribunal : The disputeBrelating to this contract, so far as they relate to of the followingmatters, whether such disputes arise during the progress of thework of or after the completin or abandoned thereof, shall bereferred to the Arbitration Tribunal, Gujarat State…”

3. It is not disputed that the Gujarat Act is applicable in the presentCcases. We are mainly concerned with Clause 43.A of the contract enteredinto between the parties, which reads as follows:-

“43.A Any sum of money due and payable to the Contractor(including the security deposit returnable to the contractor)executing any Government work or work of any District PanchayatDwholly financed as grant-in-aid under this contract shall beappropriate by any District Panchayat/Government and shall besetoff against any claim of the Government/District Panchayat ofGujarat state by the District Panchayat of Gujarat State/Government for the payment of sum of money arising out orunder any other contract made by the contractor with theEGovernment/District Panchayat of Gujarat State for the workwholly financed as grant-in-aid by Government of Gujarat State.When no such amount for purpose of the recovery from thecontractor against any claim of the Government/District Panchayatof Gujarat state is available, such recovery shall be made fromthe contractor as arrears of land revenue.”F

4. In this judgment, we are only referring to the facts of CivilAppeal No.8307 of 2019 @ SLP(C) No.36095 of 2016. The respondent-contractor was awarded contract for strengthening section of NationalHighway under work order dated 31.07.2007. According to the contractor,Ghe completed the work on 30.04.2008 and final bill was paid to thecontractor. The road was damaged and, according to the contractor, thishad occurred due to heavy rains. The State called upon the contractorto repair the damaged portion and, according to the contractor, this repairwas completed after the rains stopped.

5. The case of the contractor is that in terms of the contract, thecontractor was only liable to remove defects for period of 3 yearswhich period ended on 30.04.2011. On 10.09.2012, the contractor wrotea letter to the State to release the security amount. This amount wasaccordingly released vide letter dated 10.09.2012. The State issued letterdated 11.11.2014 calling upon the contractor to pay sum ofRs.1,09,00,092/-. This claim was based on the premise that the contractorhad not carried out the road repair work in accordance with the contract.The appellant State threatened to withhold the payments from the securitydeposits and bills of other pending works. This notice was challenged byfiling writ petition in the High Court of Gujarat on the ground that theState was not competent to withhold the amount payable to the contractorunder other contracts or recover the amount from payments made underother contracts until the liability of the contractor was determined andquantified by Court or forum of competent jurisdiction. The stand ofthe State was that since the work of the contractor was defective, theState had got the work done from another person at the risk of thecontractor. In case, the contractor has any dispute, he can approach theCourt and reliance was placed on Clause 43.A of the agreement quotedabove.6. The High Court relied upon the judgment of this Court in Stateof Karnataka vs. Shree Rameshwara Rice Mills, Thirthahalli[1] andthe consistent view of the Gujarat High Court in various judgmentsreferred to in the impugned judgment and held that without quantificationor crystallization of the amount sought to be recovered, the employer orthe contractor cannot unilaterally recover the said amounts from theongoing contract work of the same contractor in connection with anothercontract. It was further directed that the State could not recover theamounts sought to be recovered from the payments due and payable tothe contractor in other contracts. Liberty was, however, given to theState to seek recovery through other means as may be permissible underlaw. Accordingly vide judgment dated 18.02.2016 the petition was allowedand the communication dated 11.11.2014 was set aside.

7. This judgment has been challenged before us. Shri PreeteshKapoor, learned senior counsel appearing for the State of Gujaratcontends that the High Court has no jurisdiction to pass such an order.He submits that, in fact, the remedy, if any, of the respondent contractor

Awas to approach the State Tribunal as constituted under the Gujarat Actand the writ court could not have granted such relief. On the other hand,Shri. K. G. Sukhwani, learned counsel appearing for the respondentsubmits that the Tribunal constituted under the Gujarat Act has nojurisdiction to grant such relief and he has placed reliance on an order ofthe State Tribunal dated 24.11.2005 wherein the Tribunal held that it canBonly exercise jurisdiction, powers and authority conferred on it by orunder the Gujarat Act of which it is creation. It was further held that ifthe Gujarat Act does not empower the Tribunal to grant injunction, and itcannot take recourse to the Code of Civil Procedure, 1908 for grant ofinterim relief. It also held that an order of interim injunction, as prayedCfor like in the present case, does not fall within the ambit of ‘interimaward’. The Tribunal held that there is no power to grant such injunction.8. It appears to us that since then, in Gujarat, challenges to allcommunications/orders, whereby the State taking recourse to theprovision of the contract akin to Clause 43.A seeks to recover amounts

Dby setting it off against the claims of contractor in other contracts, aredealt with by the High Court.

9. We have extracted the main issue in the opening portion of theJudgment. Section 2(a) of the Gujarat Act defines an ‘Arbitration Act’to mean Arbitration Act, 1940. It is not disputed by the parties that thisEwill now read to mean the A&C Act.

10. We may also refer to certain provisions of the A&C Act.Section 2(e)(i) of the A&C Act defines ‘Court’ in the context of disputesother than the international commercial arbitration as follows:-

“(i) in the case of an arbitration other than international commercialFarbitration, the principal Civil Court of original jurisdiction in adistrict, and includes the High Court in exercise of its ordinaryoriginal civil jurisdiction, having jurisdiction to decide the questionsforming the subject-matter of the arbitration if the same had beenthe subject-matter of suit, but does not include any Civil CourtGof grade inferior to such principal Civil Court, or any Court ofSmall Causes;”

11. We may also refer to Section 2(2)& 2(4) of the A&C Actwhich read as follows:-

“(2) This Part shall apply where the place of arbitration is in India:

Provided that subject to an agreement to the contrary, the provisionsof sections 9, 27 and clause (a) of sub-section (1) and sub-section(3) of section 37 shall also apply to international commercialarbitration, even if the place of arbitration is outside India, and anarbitral award made or to be made in such place is enforceableand recognised under the provisions of Part II of this Act.”

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“(4) This Part except sub-section (1) of section 40, sections 41and 43 shall apply to every arbitration under any other enactmentfor the time being in force, as if the arbitration were pursuant toan arbitration agreement and as if that other enactment were anarbitration agreement, except in so far as the provisions of thisPart are inconsistent with that other enactment or with any rulesmade thereunder.”

12. Section 9 of the A&C Act empowers the Court to grant interimmeasures. However, Section 9(3) clearly provides that oncean arbitraltribunal is constituted, the Court shall not entertain an application underSection 9(1) unless the Court comes to the conclusion that suchcircumstances exist which would make the remedy under Section 17not efficacious.

13. Section 17 of the A&C Act provides for interim measures tobe granted by the arbitral tribunal. It reads as follows:-

“17. Interim measures ordered by arbitral tribunal.—(1) Aparty may, during the arbitral proceedings or at any time after themaking of the arbitral award but before it is enforced in accordancewith section 36, apply to the arbitral tribunal—

(i) for the appointment of guardian for minor or person ofunsound mind for the purposes of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of thefollowing matters, namely:—

(a) the preservation, interim custody or sale of any goods whichare 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 orthing which is the subject-matter of the dispute in arbitration,

or as to which any question may arise therein and authorisingfor any of the aforesaid purposes any person to enter uponany land or building in the possession of any party, or authorisingany samples to be taken, or any observation to be made, orexperiment to be tried, which may be necessary or expedientfor the purpose of obtaining full information or evidence;

(d) interim injunction or the appointment of receiver;

(e) such other interim measure of protection as may appear tothe arbitral tribunal to be just and convenient,

and the arbitral tribunal shall have the same power for makingCorders, as the court has for the purpose of, and in relation to,any proceedings before it.

(2) Subject to any orders passed in an appeal under section 37,any order issued by the arbitral tribunal under this section shall bedeemed to be an order of the Court for all purposes and shall beDenforceable under the Code of Civil Procedure, 1908 (5 of 1908),in the same manner as if it were an order of the Court.”

14. We may also refer to Section 31(6) of the A&C Act whichreads as follows:-

“31. Form and contents of arbitral award.-E

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(6) The arbitral tribunal may, at any time during the arbitralproceedings, make an interim arbitral award on any matter withrespect to which it may make final arbitral award.”

F15. Part I of the A&C Act i.e. from Section 2 to Section 43 dealswith Arbitration and Section 2(2) clearly states that the said Part wouldapply to all Arbitrations which take place in India. Section 2(4) makes itabsolutely clear that other than Section 40(1), 41 and 43, Part I of theA&C Act shall apply to all arbitrations even if they are carried out underany other enactment as if the arbitrations were pursuant to an arbitrationGagreement except insofar as the provisions of Part I are inconsistentwith the other enactment or any rules made thereunder. plain readingwould show that the provisions of Part I of the A&C Act would apply toall arbitrations where the place of arbitration is within India. Evenstatutory arbitrations under other Acts would be governed by Part I.HThe only exception is that if there is any departure from Part I in the

special enactment then the special enactment will prevail and the A&CAct will give way to the special enactment.

16. It is in this context that we have to examine the Gujarat Act.We have already referred to certain provision of the Gujarat Act.Reference and procedure of the Tribunal is governed by Chapter 3 ofthe Gujarat Act. Section 8 provides that where any dispute within themeaning of the said Act, arises between the parties, the said disputeshall be referred to arbitration under the said Act whether the agreementin question contained an arbitration clause or not. Basically, the intentionof the State Legislature was that all disputes relating to works contractbetween the State Government and the persons executing the worksdefined as works contract would be compulsorily referred to the ArbitralTribunal constituted under Section 3 of the Gujarat Act. Section 8(3)clearly provides that where the Tribunal admits reference under sub-section (2) it will make an award or an interim award giving its reasonsthereof. This Section recognizes the power of the Tribunal to make interimawards. However, as pointed above, the Tribunal took view that aninterim award could not be in the nature of an injunction.

17. The practice and procedure of the Tribunal is governed bySection 9 of the Act. Section 12 of the Act vests revisional powers in theHigh Court of Gujarat where an award or any interim award can bechallenged on the grounds set out therein. The High Court also has suomotu powers in this regard. Section 13 which is relevant for our purposereads as follows:-

“13. Bar of jurisdiction of Courts.- (1) Save as otherwiseprovided by section 12, no Civil Court shall have jurisdiction todeal with or decide any question which the Tribunal is empoweredto deal with and decide by or under this Act and no injunction shallbe granted by any Civil Court in respect of any action taken or tobe taken in pursuance of any power by or under this Act.

(2) No award or interim award or order made or proceedingstaken under this Act by the Tribunal shall be called in question inany Civil Court.”

Section 13 specifically bars the jurisdiction of the Civil Courts.This clearly means that powers vested in Civil Court under the A&CAct, such as the powers to grant interim relief in terms of Section 9 ofthe A&C Act and the powers for setting aside an award under Section

A34 of the Act cannot be exercised by Civil Courts insofar as the awardsmade under the Gujarat Act are concerned. As far as Gujarat Act isconcerned, the power to set aside/modify an award is vested in the HighCourt under Section 12. Section 21 of the Gujarat Act reads as follows:-

“21. Arbitration Act to cease to apply.- The provisions of theBArbitration Act, shall in so far as they are inconsistent with theprovisions of this Act, cease to apply to any dispute arising from aworks contract and all arbitration proceedings in relation to suchdispute before an arbitrator, umpire, court or authority shall standtransferred to the Tribunal.”

C18. We are clearly of the view that the appropriate remedy forthe contractor was to approach the arbitral tribunal constituted underthe Gujarat Act since that would have jurisdiction to decide whether thenotice issued by the Government was legal notice and whether theGovernment was, in fact, entitled to recover any amount from thecontractor. It would also be within the jurisdiction of the Tribunal toDdecide whether the contractor has made out prima facie case forgrant of interim relief. We are purposely not going into the merits of thecase because once we hold that the Tribunal has the jurisdiction toentertain and adjudicate upon the dispute it would not be proper for us tomake any comments on the merits.E

19. Shri Sukhwani, learned counsel appearing for the respondentshas placed reliance on judgment of this Court in Gangotri EnterprisesLimited vs.Union of India and Others[2 ]to submit that till the demandof the Government is crystallised or adjudicated upon, the Governmentcannot withhold the money of the contractor. Since this case beenFspecifically relied upon we are duty bound to go in the correctness of theview laid down in Gangotri Enterprises(supra). The judgment inGangotri Enterprises(supra) is primarily based on the judgment of atwo Judges’ Bench of this Court in Union of India vs. Raman IronFoundry[3 ]In this case, this Court held that the Government had no rightto appropriate the amount claimed without getting it first adjudicated.GThe relevant portion of the judgment reads as follows:

“6… But here the order of interim injunction made by the learnedJudge does not, expressly or by necessary implication, carry anydirection to the appellant to pay the amounts due to the respondent2 (2016) 11 SCC 720H3 (1974) 2 SCC 231

under other contracts. It is not only in form but also in substancea negative injunction. It has no positive content. What it does ismerely to injunct the appellant from recovering, suo moto, thedamages claimed by it from out of other amounts due to therespondent. It does not direct that the appellant shall pay suchamounts to the respondent. The appellant can still refuse to paysuch amounts if it thinks it has valid defence and if theappellantdoes so, the only remedy open to the respondent wouldbe to take measures in an appropriate forum for recovery of suchamounts where it would be decided whether the appellant is liableto pay such amounts to the respondent or not. No breach of theorder of interim injunction as such would be involved in non-payment of such amounts by the appellant to the respondent. Theonly thing which the appellantis interdicted from doing is to makerecovery of its claim for damages by appropriating such amountsin satisfaction of the claim. That is clearly within the power of theCourt under Section 41 (b) because the claim for damages formsthe subject matter of the arbitration proceedings and the Courtcan always say that until such claim is adjudicated upon, theappellant shall be restrained from recovering it by appropriatingother amounts due to the respondent. The order of interiminjunction made by the learned Judge cannot, therefore, be said tobe outside the scope of his power under Section 41 (b) read withthe Second Schedule.

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“11…We must, therefore, hold that the appellant had no right orauthority under Clause 18 to appropriate the amounts of otherpending bills of the respondent in or towards satisfaction of itsclaim for damages against the respondent and the learned Judgewas justified in issuing an interim injunction restraining the appellantfrom doing so.”

The judgment in Raman Iron Foundry (supra), was specificallyoverruled on the issue in hand by three Judge Bench of this Court inthe case of H.M. Kamaluddin Ansari & Co. vs. Union of India[4]. Inthis case there was general condition which entitled the Governmentto recover the damages claimed by appropriating any sum which maybecome due to the contractor under other pending bills. In this case, this4 (1983) 4 SCC 417

ACourt disagreed with the findings in the Raman Iron Foundry (supra)and held as follows:

“21…With profound respect we find that the aforesaid observationis incongruous with the proposition of law laid down by this Courtjust before this observation. We find it difficult to agree with theobservation of the Court that the impugned order in form andsubstance being the negative the respondent could refuse to paysuch amounts if it thinks it has valid defence, and if it chooses todo so there would be no breach of the injunction order.

22. It is true that the order of injunction in that case was in negativeform. But if an order injuncted party from withholding the amountdue to the other side under pending bills in other contracts, theorder necessarily means that the amount must be paid. If theamount is withheld there will be defiance of the injunction orderand that party could be hauled up for infringing the injunction order.It will be contradiction in terms to say that party is injunctedfrom withholding the amount and yet it can withhold the amountas of right. In any case if the injunction order is one which partywas not bound to comply with, the court would be loath and reluctantto pass such an ineffective injunction order. The court never passesan order for the fun of passing it. It is passed only for the purposeof being carried out. Once this Court came to the conclusion thatthe court has power under Section 41 (b) read with SecondSchedule to issue interim injunction but such interim injunctioncan only be for the purpose of and in relation to arbitrationproceedings and further that the question whether any amountswere payable by the appellant to the respondent under othercontracts, was not the subject matter of the arbitration proceedingsand, therefore, the court obviously could not make any interimorder which, though ostensibly in form an order of interim injunction,in substance amount to direction to the appellant to pay theamounts due to the respondent under other contracts, and suchan order would clearly be not for the purpose of and in relation tothe arbitration proceedings; the subsequent observation of the Courtthat the order of injunction being negative in form and substance,there was no direction to the respondent to pay the amount due tothe appellant under pending bills of other contracts, is manifestlyinconsistent with the proposition of law laid down by this Court inthe same case.

xxx xxx xxx

31. We are clearly of the view that an injunction order restrainingthe respondents from withholding the amount due under otherpending bills to the contractor virtually amounts to direction topay the amount to the contractor-appellant. Such an order wasclearly beyond the purview of clause (b) of Section 41 of theArbitration Act. The Union of India has no objection to the grantof an injunction restraining it from recovering or appropriating theamount lying with it in respect of other claims of the contractortowards its claim for damages. But certainly Clause 18 of thestandard contract confers ample power upon the Union of Indiato withhold the amount and no injunction order could be passedrestraining the Union of India from withholding the amount.”

20. In our opinion, the judgment rendered in Gangotri EnterprisesLimited (supra) is per incuriam because it relies upon Raman IronFoundry (supra) which has been specifically overruled by three JudgeBench in the case of H.M. Kamaluddin Ansari (supra).

21. On conjoint reading and careful analysis of the Acts together,we are of the view that insofar as the powers vested in the ArbitralTribunal in terms of the Section 17 of the A&C Act are concerned, suchpowers can be exercised by the Tribunal constituted under the GujaratAct because there is no inconsistency in these two Acts as far as thegrant of interim relief is concerned. This power is already vested in thetribunal under the Gujarat Act and Section 17 of the A&C Actcompliments these powers and therefore it cannot be said that theprovisions of Section 17 of the A&C Act are inconsistent with the GujaratAct.

22. In view of the above discussion, both the appeals filed by theState of Gujarat are allowed, and the judgments of the High Court ofGujarat are set aside. However, liberty is given to the contractor(s) toapproach the Gujarat Public Works Contract Disputes Arbitration Tribunaland if the Tribunal is approached within 2 months from today, the tribunalshall not dismiss the claim on the issue of limitation. It shall decide thesame on merits. Pending application(s), if any, shall stand(s) disposedof.

Divya Pandey

Appeals disposed of.