Delhi High Court
Dalmia Cement (Bharat) Limited vs Jaiprakash Associates Limited on 24 January, 2020
Author: Jyoti Singh
Bench: Jyoti Singh
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment reserved on: 12.09.2019
% Judgment pronounced on: 24.01.2020
+ ARB.A. (COMM) 5/2019
DALMIA CEMENT (BHARAT) LIMITED ..... Appellant
Through: Mr. Akhil Sibal, Sr. Advocate with
Mr. Sahil Narang, Mr. Saransh Kumar
& Ms. Ridhi Jad, Advocates.
versus
JAIPRAKASH ASSOCIATES LTD. ..... Respondent
Through: Mr. Sandeep Sethi, Sr. Advocate with
Mr. Pawan Upadhyay, Mr. Rajesh
Chhetri, Ms. Meenakshi Rawat, Mr.
Ratik Sharma, Mr. Akash Tyagi &
Mr. Rajeev Chhdetri, Advocates.
CORAM:
HON'BLE MS. JUSTICE JYOTI SINGH
JYOTI SINGH, J
1. The present appeal has been filed under Section 37(2)(b) of the
Arbitration & Conciliation Act, 1996, („the Act‟) challenging the order dated
04.11.2018 passed by the Arbitral Tribunal („Tribunal‟) whereby it has
declined to grant interim relief to the appellant on its application under
Section 17 of the Act.
2. Respondent Jaiprakash Associates Limited („JAL‟) and Steel
Authority of India Limited („SAIL‟) incorporated a Joint Venture Company
namely Bokaro Jaypee Cement Limited („BoJCL‟) for manufacturing, selling
and dealing in "Portland Slag Cement" („Cement‟). Respondent had 74%
ARB.A. (COMM) 5/2019 Page 1 of 36
shareholding and SAIL had 26%. BoJCL established a unit at Bokaro,
Jharkhand with an annual manufacturing capacity of 2.1 million tonnes
cement.
3. To ensure continued supply of Clinker to Bokaro Plant respondent
entered into "Long Term Clinker Sale Agreement" dated 09.07.2008 with
BoJCL. In terms of the agreement, Clinker was to be supplied by the
respondent from its Dalla Plant in U.P. Clinker is one of the raw materials
for manufacturing cement. The Bokaro Plant became operational on
20.05.2011 and the respondent started the supply of Clinker in accordance
with the said agreement.
4. In 2014, Dalmia Group Company entered into "Share Purchase
Agreement" dated 24.03.2014 with the respondent for purchase of the
respondent‟s shareholding in BoJCL. On 26.11.2014 itself BoJCL executed
an "Amended and Re-stated Long Term Clinker Sale Agreement" with the
respondent for continued supply of Clinker from its Dalla Plant.
5. In 2016, respondent started negotiations with UltraTech Cement for
sale of Dalla Plant. The appellant objected to this sale vide its letter dated
15.02.2017 apprehending that this would adversely impact the Clinker
supply to the Bokaro Plant. The respondent however vide its letter dated
17.02.2017 assured that the said sale would not impact the Clinker supply
and that it would ensure long term and uninterrupted supply of Clinker to the
appellant. Accordingly, the appellant proceeded to notify an "annual agreed
quantity of 9,00,000 MT for 2017-18" which was to be supplied as per a
monthly schedule. The respondent in fact accepted this position and supplies
commenced for the Financial Year 2017-18.
6. It is averred in the appeal that from April, 2017 the respondent started
supplying less than the scheduled monthly quantity and by the end of June,
ARB.A. (COMM) 5/2019 Page 2 of 36
2017 there was a short fall of about 50% in the supply. Repeated protests by
the appellant were met with by several excuses, such as problems with the
machinery, non-supply of trucks etc., but with an assurance that the short
falls would be made good.
7. Contrary to the assurances, respondent stopped the supply of Clinker
from 27.06.2017. Although, the respondent could have supplied Clinker
from other plants including the "Rewa Plant", but the same was not done.
Despite the non-supply, the appellant paid an advance sum of Rs.1.5 crore to
the respondent on 19.07.2017. In order to mitigate its losses, the appellant
tried procuring Clinker from other parties, but most parties were located at
far away distances and it was not economically viable to procure Clinker
from them.
8. Vide e-mail dated 08.09.2017, respondent again assured that it would
resume the supply of Clinker and requested for more advance payment.
Meanwhile, the appellant issued a Purchase Order dated 12.02.2018 for the
"annual agreed quantity" of 10,00,000 MT for Financial Year 2018-19 and
respondent accepted the Purchase Order. However, the short supply
continued on the pretext that the production of Clinker was low at the Rewa
Plant.
9. It is the averment of the appellant that though the Rewa Plant
continued to produce Clinker, which the respondent was consuming for its
own purposes and also supplying to third parties, it did not make up the short
fall qua the appellant.
10. This action of the respondent prompted the appellant to file a petition
under Section 9 of the Act in this Court, seeking interim injunction
restraining the respondent from supplying Clinker to third parties and for
using the same for its own operations. While the matter was pending in this
ARB.A. (COMM) 5/2019 Page 3 of 36
Court, respondent issued a Termination Notice dated 30.06.2018 terminating
the Clinker Sale Agreement and declaring „Force Majeure‟ under the said
agreement. The ground of termination was poor financial condition of the
respondent coupled with an order of the Apex Court whereby the respondent
had been directed to deposit a sum of Rs.1,000 crores for giving a refund to
Jaiprakash Infratec Limited, a subsidiary of the respondent. Faced with this,
the appellant filed an urgent application in the petition under Section 9 of the
Act seeking restraint on the respondent from transferring, selling, alienating
or creating third party interests in its Clinker Manufacturing Plant and/or
dealing with its Clinker Manufacturing plant in any manner whatsoever,
without preserving and protecting the appellant‟s rights under the Clinker
Sale Agreement. The said petition together with the application was heard
by this Court on 05.07.2018 and it was directed that the Arbitral Tribunal
would be constituted between the parties and the petition under Section 9 of
the Act would be treated as an application under Section 17 of the Act before
the Tribunal.
11. In the meanwhile, the Apex Court in the final judgment, in the case of
Chitra Sharma Vs. Union of India & Ors. in W.P.(C) No. 744/2017
absolved the respondent of its obligation to make the deposit.
12. The respondent filed a detailed reply to the application under Section
17 of the Act filed by the appellant. The Tribunal heard arguments on the
application and passed the impugned order, declining relief of injunction to
the appellant.
13. The argument of the appellant before the Tribunal was that the terms
and conditions of the Share Purchase Agreement as well as the „Amended
and Restated Clinker Sale Agreement‟ were binding on the respondent and it
was under an obligation to ensure uninterrupted supply of Clinker to the
ARB.A. (COMM) 5/2019 Page 4 of 36
appellant, which was the lifeline for manufacturing cement. It was
contended that both the agreements were executed with a solemn assurance
for continued supply from the Dalla Plant, but in order to wriggle out of the
obligations, respondent sold the Dalla Plant to UltraTech Cement. It was
argued that various e-mails exchanged between the parties clearly indicated
that repeated assurances were given by the respondent for continued supply
of Clinker. Clause 7.2.1 of the Clinker Sale Agreement was relied upon to
show the unequivocal commitment of the respondent to supply Clinker to
BoJCL and not to supply to any third party, till the commitment towards
BoJCL was met.
14. The appellant had further contended that Clauses 4.2.2 and 4.3.1 of the
Clinker Sale Agreement cannot be interpreted as diluting the obligation of
the respondent to ensure uninterrupted Clinker supply as per the agreed
schedule. It was also the case of the appellant that it was not open for the
respondent to either rely on Clause 7.4 relating to Liquidated Damages or the
„Force Majeure‟ Clause 8 to defend breach of its undertakings. Respondent
could not fall back on its own requirements as a ground to stop supply to the
appellant as the inhouse requirement of the respondent was known to it
before executing the Agreements with the appellant.
15. On the issue of supply of Clinker from other sources, appellant had
sought to argue that this was not a commodity which was freely available in
the market, and thus there was no certainty of its supply. In view of the
above, it was prayed that an interim direction be given to the respondent to
continue the supply of Clinker to the Bokaro Plant, failing which irreparable
injury shall be suffered by the appellant and the plant would have to shut
down.
ARB.A. (COMM) 5/2019 Page 5 of 36
16. Respondent on the other hand had contended that the expression "pre-
existing commitment" used in Clause 7.2.1(b) of the Clinker Sale Agreement
would include the respondent‟s commitment to supply Clinker to its own
cement plant and the appellant cannot seek a mandatory direction for supply
of Clinker to the Bokaro Plant. It was argued that if the Clinker Agreement
is read as a whole it cannot be said that the respondent had undertaken to
supply the agreed quantity to the respondent, irrespective of its captive use.
The Clause of Liquidated Damages deals with contingencies in which the
respondent may not be able to supply Clinker and this itself shows that
obligation to supply Clinker to the appellant was not absolute. Respondent
also argued that in view of the directions given by the Apex Court,
respondent had sold 9 of its plants including the Dalla Plant and in fact even
the appellant had given its bid for the purchase of Dalla Plant. However, the
plant was sold to the successful bidder UltraTech.
17. Another argument of the respondent before the Tribunal was that the
balance sheets of the appellant showed that it had purchased Clinker from
the market and the Bokaro Plant did not suffer due to non-supply from the
Dalla Plant. In fact UltraTech had offered to supply Clinker from its Sidhi
Plant but the appellant had declined to accept the offer. The respondent also
sought to argue that even assuming that the appellant had succeeded in
making out a prima facie case, mandatory injunction should not be granted
because the two other ingredients of grant of injunction i.e. irreparable injury
and balance of convenience were absent.
18. It is important to note here that during the course of hearing the
respondent had made a statement that it shall not sell Clinker to any third
party. The Tribunal after hearing the respective arguments declined to grant
ARB.A. (COMM) 5/2019 Page 6 of 36
the interlocutory injunction sought by the appellant herein. The relevant part
of the observations and findings of the Tribunal are as under:
"Although, Dr. Singhvi relied upon the Share Purchase
Agreement, we do not find anything in it which may throw light
on the issue of supply of Clinker by the respondent to the
claimant. Of course, the 'Amended and Re-stated Long Term
Clinker Sale Agreement' is relevant for deciding whether the
respondent is legally and contractually bound to supply the
agreed quantity of Clinker to claimant and whether the tribunal
should entertain the prayer made by the claimant. A reading of
various clauses of the Clinker Sale Agreement does show that it
had a tenure of 30 years effective from 26.11.2014 and during
that period the respondent was to supply and deliver the annual
agreed quantity of Clinker determined in accordance with the
agreed schedule. However, prima facie this was subject to the
other provisions of agreement dated 26.11.2014. By virtue of
clause 4.2.2, the parties agreed that if the respondent is not
able to supply annual agreed quantity in accordance with the
agreed schedule then BOJCL (now claimant) shall be free to
procure Clinker from other sources. The respondent had agreed
to offer additional quantity of Clinker at mutually agreed
prices. Clause 7.2 of the Clinker Sale Agreement speaks of
rights and obligations of the respondent. By virtue of sub-
clause (a) of clause 7.2.1, the respondent undertook and
guaranteed to supply Clinker at the Clinker delivery location as
per agreed schedule and subject to annual agreed quantity.
Sub-clause (b) of Clause 7 .2.1 contained a prohibition against
the supply of Clinker by the respondent to any third party(ies)
without first fulfilling its obligation to supply Clinker to BOJCL
(claimant herein). This was prima facie subject to the pre-
existing commitments of the respondent and the quantity
contracted by the parties. Clause 7.4.1 postulated payment of
liquidated damages by the respondent if the shortfall in the
supply was more than 15% of the quarterly committed quantity.
Sub-clause (a) of Clause 7.4.1 generally provided for payment
of liquidated damages by the respondent. Sub-clause (b) of
7.4.1 contained a more stringent provision. It postulated levy of
penalty in case shortfall in any quarterly quantity is not made
good in the remaining quarters of the financial year. Clause
8.1.1 defines 'force majeure' and Clause 8.1.2 identifies the
ARB.A. (COMM) 5/2019 Page 7 of 36
events beyond the control of an affected party. Clause 8.2
provided that the party affected by force majeure shall inform
the other party about force majeure even(s). A notice of
cessation of force majeure event was also contemplated by
Clause 8.2.2. However, unavailability, late supply or changes
in cost of plant, machinery, equipment, materials, spare parts
or consumables of the project, delay in performance I non-
performance resulting from normal wear and tear and non-
performance caused due to negligent or intentional acts, errors
or omissions for non-compliance of the commission of law were
not treated as force majeure (Clause 8.3.1). Clause 9.1
identified BOJCL events of default and Clause 9.2 identified the
respondent's events of default. Clause 9.3 conferred a right
upon BOJCL to terminate the Clinker Sale Agreement by giving
one month prior notice to the respondent.
12. Although, there is considerable force in the argument of Dr.
Abhishek Singhvi that action taken by the respondent to
terminate the Clinker Sale Agreement is not in consonance with
the terms of the agreement in as much as Clause 9.3 thereof
contemplates termination of agreement by BOJCL (claimant
herein) and that the respondent could not have relied upon
Clause 8 for terminating the agreement, but at this stage of the
proceedings we are neither required nor inclined to pronounce
upon the legality of communication dated 30.06.2018 whereby
the respondent terminated the Clinker Sale Agreement. At the
stage of final adjudication of the arbitral dispute, this tribunal
will examine whether in the absence of specific challenge to
communication dated 30.06.2018, the claimant can seek a
declaration of invalidity thereof and whether the tribunal is
entitled to proceed on the premise that the action taken by the
respondent to terminate the Clinker Sale Agreement is void-ab-
initio.
13. At this stage, the tribunal is required to find out whether the
claimant has succeeded in making out a strong prima-facie
case warranting issue of a mandatory injunction to restrain the
respondent from supplying Clinker to third parties or using the
same in its own plant without fulfilling its contractual
obligation to supply Clinker to the claimant in accordance with
the Amended and Restated Long Term Clinker Sale Agreement
ARB.A. (COMM) 5/2019 Page 8 of 36
dated 26.11.2014 as per the agreed schedule and also whether
the balance of convenience warrants issue of a mandatory
injunction in the absence of which irreparable injury will be
caused to the claimant.
14. A revisit to various clauses of the Clinker Sale Agreement
does give an impression that the respondent had undertaken an
obligation to supply Clinker to BOJCL (now claimant) as per
the agreed schedule determined by the parties. However, prima
facie we find that obligation was not absolute.We further find
that prima facie, the supply of Clinker by the
respondentcommencing from the effective date till the end of the
term was subject to the provisions of the agreement (Clause
4.2.1). It was also subject to pre-existing commitments of the
respondent [Clause 7.2.1 (b)] Clause 4.2.2 contemplated a
scenario in which the respondent was notable to supply annual
agreed quantity of Clinker to the claimant in accordance with
the agreed schedule and that too for reasons other than force-
majeure. In that event, prima facie the claimant was free to
procure Clinker from other sources. The provisions of Clause
7.4 and its sub-clauses which contemplate imposition of
liquidated damages and penalty are also indicative of the fact
that the obligation of the respondent to supply Clinker to the
claimant for the entire term of the agreement and in
accordance with the agreed schedule was not absolute. At the
cost of repetition, we deem it proper to observe that Clauses
4.2.2, 7.2.1 (a) and (b), 7.4.1,7.4.4 are prima-facie sufficient to
negate the plea of the claimant that the respondent was duty
bound to supply agreed quantity of Clinker to the claimant as
per the agreed schedule and it could not commit any default in
that regard.
15. In conclusion, we hold that the claimant has not been able
to make out a prima-facie case of that degree which warrants
issue of a mandatory negative injunction to restrain the
respondent from using the Clinker manufactured by it for its
own plants or to sell the same to third parties. We may hasten
to add that during the course of hearing on the application iled
by the claimant under Section 17 of the Act, Shri P.
Chidambram, learned Senior Counsel emphatically stated that
ARB.A. (COMM) 5/2019 Page 9 of 36
during the pendency of these proceedings, the respondent will
not sell Clinker to third parties.
16. In view of our finding on the issue of prima-facie case, the
tribunal is not really required to examine whether the claimant
would suffer irreparable injury if the tribunal does not grant a
mandatory negative injunction and restrain the respondent
from using the Clinker for its own plant or selling the same to
third parties but keeping in view the fact that learned Senior
Counsel for the parties have advanced detailed arguments we
have decided to deal with this aspect of the matter.
17. The thrust of the grievance of the claimant is that if the
respondent is not restrained from using Clinker for its own
plant or sell the same to third parties, adequate quantity of
Clinker will not be available for Bokaro Plant and it may have
to be shut down due to non-availability of raw-material. If there
was substance in the grievance made by the claimant then the
tribunal may have taken serious cognizance of the respondent's
failure to supply Clinker in accordance with the Clinker Sale
Agreement. However, the fact of the matter is that after
cessation of supply of Clinker from 'Dalla Plant' which was
sold by the respondent to Ultra Tech Cement, the claimant has
been procuring Clinker from other sources. This eventuality
was contemplated at the time of execution of the Amended and
Restated Long Term Clinker Sale Agreement executed between
BOJCL and the respondent. Clause 4.2.2 of the agreement
provided that if respondent is not able to supply annual agreed
quantity in accordance with the agreed schedule for reasons
other than force-majeure, BOJCL shall be free to procure
Clinker from other sources. This is precisely what the claimant
has done in 2017 and 2018. The respondent has given a list of
31 plants situated in Madhya Pradesh, Jharkhand,
Chhattisgarh, West Bengal and Orissa which are
manufacturing Clinker. The claimant's own plants are also
manufacturing Clinker and the claimant has been getting
supply from alternative sources. This is evident from reports
dated 17.03.2017 and 29.03.2017 of cement business of Dalmia
Bharat prepared Axis Security Limited and Aditya Birla Money
Limited (these reports have been placed on record by the
respondent in Volume RD-1). Thus, there is no escape from the
ARB.A. (COMM) 5/2019 Page 10 of 36
conclusion that the claimant will not suffer irreparable injury if
a mandatory injunction in terms of the prayer made by it is not
granted."
19. The arguments on behalf of the appellant before this Court can be
broadly paraphrased as under:
(i) The Tribunal applied the wrong legal test and invoked legal principles
which were inapplicable to the facts and relief sought. A perusal of the
prayer would show that the appellant had sought prohibitory injunction
restraining the respondent from supplying the Clinker to any third party or to
itself without fulfilling its obligations under the agreements qua the
appellant. The Tribunal however applied the legal test of mandatory
injunction and came to an erroneous conclusion that the appellant had not
made out a prima facie case of the degree which warrants issue of a
mandatory injunction. Attention of the Court is drawn to the prayer sought
in the application under Section 17 of the Act.
(ii) Prima facie interpretation of the various Clauses of the agreement is
perverse. The intent of the parties while entering into the Agreements was
clearly that the appellant would procure all its Clinker requirement from the
respondent and that is the reason why the initial term of the contract was 30
years and there was no right of termination in favour of the respondent.
Under Clause 4.2.1 the respondent was under an obligation to supply Clinker
to the appellant and the only exception to this obligation was as specified in
Clauses 4.2.2 and 7.2.1(b). Only in the event, the respondent failed to
supply the agreed quantity to the appellant, could the appellant procure
Clinker from other sources and only when the appellant failed to off-take the
agreed quantity the respondent could supply to any third party. The
respondent‟s obligation towards the appellant were only subject to any "pre-
ARB.A. (COMM) 5/2019 Page 11 of 36
existing commitments" and Clause 7.2.1(b) clearly prohibited supply of
Clinker to a third party without first fulfilling the obligations towards the
appellant. The Tribunal has thus gone wrong in its observation that the
obligation to supply Clinker was not absolute, though the observation is
prima facie. It has also wrongly interpreted Clause 7.2.1(b) by holding that
the prohibition was only to supply Clinker to third parties and not to the
respondent itself.
(iii) Correspondences exchanged between the parties would indicate that
the respondent completely understood that it had a commitment and an
obligation to supply Clinker to the appellant. This is clear from the several
e-mails sent by the respondent as well as from the minutes of the meeting
held on 09.01.2018 wherein the respondent assured the appellant of a
continuous supply.
(iv) In terms of Section 42 of the Specific Relief Act, 1963 (hereinafter
referred to as „SRA‟) a negative covenant may be express or implied and can
be enforced. A reading of the Clauses of the agreement makes it evident that
the respondent was indeed prohibited from supplying Clinker even to itself
and any other interpretation would defeat the express provisions. The intent
behind the express negative covenant contained in Clause 7.2.1(b) was that
except for the pre-existing commitments, the respondent would be obliged to
supply Clinker to the appellant and this intent cannot be defeated or
circumvented by supplying to itself.
(v) The Tribunal has wrongly relied on Clause 4.2.2 of the agreement to
dilute the binding and absolute obligation of the respondent under the
agreement. Clause 4.2.2 entitled the appellant to procure Clinker from
elsewhere, in the event of respondent‟s failure to supply the agreed quantity.
This was nothing more than an enabling Clause meant to benefit the
ARB.A. (COMM) 5/2019 Page 12 of 36
appellant in case of default by the respondent, since continuous supply of
Clinker was crucial for the viability of the cement plant.
(vi) The Tribunal further erred in placing reliance on Clause 7.4.1 which
was a Clause of liquidated damages to hold that the obligation was not
absolute. This prima facie finding is in the teeth of settled position of law
that if a contract provides for enforcement through specific performance,
mere inclusion of a Liquidated Damages Clause will not preclude grant of
specific performance. This is clear from a reading of Section 23 of the SRA.
In fact Clause 11.4 of the agreement grants power to order specific
performance.
(vii) The Tribunal has completely erred in holding that the balance of
convenience was not in favour of the appellant on the ground that the
appellant could procure Clinker from elsewhere in the market. This course
of action was certainly open to the respondent as well. Importantly, the
Tribunal had itself come to a prima facie finding that the appellant was not at
fault and in fact the respondent had wrongfully terminated the contract.
(viii) The Tribunal has erred in holding that even if the appellant suffers an
irreparable loss due to refusal to grant mandatory injunction, it could claim
damages and can be adequately compensated in terms of money. It is
submitted that Section 14 of the SRA prior to amendment contained Clause
(a) which reads as under:-
"14 The following contracts cannot be specifically enforced,
namely:-
"(a) contract for non-performance of which compensation in
money is an adequate relief"
However, an amendment was carried out and the said Clause (a) has
been deleted by Specific Relief (Amendment) Act, 2018 (hereinafter referred
to as „Amendment Act, 2018‟). Thus, even though a party can be adequately
ARB.A. (COMM) 5/2019 Page 13 of 36
compensated by damages in terms of money this alone cannot be a ground to
refuse grant of mandatory injunction.
20. The contentions and arguments of the respondent can be summed up
as under:
(i) The agreement between the parties no longer subsists as the
Agreement has been terminated on 30.06.2018. There is no challenge to the
termination before the Tribunal or in the present appeal. Since there is no
contractual relationship existing between the parties, the interim relief sought
does not even survive for consideration. The application under Section 17
was filed with the prayers for restraining the respondent from supplying
Clinker to any third party or for its own operations. The agreement was
terminated on 30.06.2018. On 03.07.2018 an application was filed by the
appellant for restraining the respondent from transferring, selling, alienating
interest in the Clinker manufacturing plant to third party, but even at this
stage no prayer was made seeking to challenge the termination. Attention of
the Court is drawn to the observations of the Tribunal in para 12 of the
impugned order where the Tribunal has observed that it is at the stage of
final adjudication only that the Tribunal will examine whether in the absence
of specific challenge to termination, the appellant can seek a declaration of
the invalidity of the termination.
(ii) It is not open to the appellant to question the sale of the Dalla plant to
UltraTech. Respondent had sold ten cement plants on account of its
financial crises and pursuant to the orders of the Apex Court the ICICI Bank
had auctioned the plant for sale. The appellant had obviously accepted the
sale of the plant inasmuch as it had participated in the auction process and
had bid for the plant. It is another matter that the appellant was not a
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successful bidder and the plant was sold to UltraTech. However, two things
fall out from this viz: obligation under the Clinker Agreement was to supply
from the Dalla Plant and since the same was sold, the obligation no longer
subsisted and secondly, the appellant has lost its right to question the sale by
participating in it and at this stage cannot question the sale of the plant. The
respondent was compelled to terminate the agreement dated 26.11.2014 on
account of severe financial crises and legal proceedings. Respondent was
compelled to sell its Clinker manufacturing plant, including the Dalla Plant
which had a manufacturing capacity of 1.5 million tonnes. Efforts were
made by the respondent through the sale of its assets to meet its huge
liabilities towards the Banks and financial Institutions. Rewa Plant is the
only captive source of Clinker left for the respondent‟s own cement
production. This situation was at complete variance with the conditions
prevailing when the agreement was entered into with the appellant. The
commercial basis of the agreement had completely eroded and this pushed
the respondent to terminate the contract.
(iii) The Tribunal has rightly interpreted Clause 7.2.1(b) of the agreement
which is unambiguous in terms. In absence of any ambiguity, ordinary
meanings of the words used in the provision must be given effect to. The
agreement is a commercial contract entered into between two sophisticated
parties and it has to be presumed that the intention of the parties is accurately
recorded in the express words of the agreement. There are no express words
in the said Clause which bar the respondent from captive consumption of
Clinker and therefore it has to be presumed that the intent of the parties was
not to create any such impediment for the respondent to use Clinker for its
own cement plant. The said Clause expressly prohibits sale of Clinker to
third parties only and that too subject to pre-existing commitments. The
ARB.A. (COMM) 5/2019 Page 15 of 36
word "third party" clearly denotes parties other than the appellant and the
respondent and the express words of the provision cannot be stretched
beyond this. Black‟s Law dictionary defines third party as "one not a party
to an agreement or to a transaction, but who may have rights therein". Thus,
the interpretation sought to be given by the appellant would be re-writing the
contract which is not permissible. Clause 16.1 specifically records that the
understanding between the parties is contained entirely in the agreement
itself without regard to any other material. Once the agreement is a
commercial contract between parties with equal bargaining strength having
detailed covenants presumably drafted under legal advice, it is not open for
the Court or a Tribunal to go beyond the express words of the agreement.
Reliance is placed on State Bank of India Vs. Mula Sahakari Sakhar
Karkhana Ltd (2006) 6 SCC 293 for the proposition that a commercial
contract must be construed as per the express terms thereof. Reliance is also
placed on Usha International (India) Vs. Omicron Electronics GMBH 114
(2004) DLT 740 where the Court while dealing with a similar exclusivity
term held that a restriction against third party cannot disentitle the principal
itself.
(iv) Grant of interlocutory injunction is a discretionary remedy. The
Tribunal has exercised its discretion to deny the appellant an injunction
based on cogent reasons. The Supreme Court in Wander Limtied Vs. Antox
India Pvt Ltd. (1990) (Supp.) SCC 727 has circumscribed the grounds of
appeal only to arbitrariness, capress or perversity. A plausible view taken by
the Tribunal cannot be interfered in a judicial review in an appeal. In any
case, the grant of mandatory injunction sought by the appellant at this stage
would amount to grant of final relief of the specific performance claim. The
Apex Court in Anand Prakash Aggarwala Vs. Tarkeshwar Prasad (2001) 5
ARB.A. (COMM) 5/2019 Page 16 of 36
SCC 568 has held that the Court shall resist from holding a mini trial at an
interlocutory stage. At the stage of prima facie determination, the Court
would only interpret an unambiguous term by its express words. The
principle objective of interlocutory injunction is to preserve status quo and
cannot be granted to perpetuate a new status quo. This is so held by the
Apex Court in Dorab Cawasji Warden Vs. Coomi Sorab Warden & Ors.
(1990) 2 SCC 117.
(v) It is undisputed that the respondent was using Clinker for its own
captive consumption and that the appellant was procuring Clinker from its
own Clinker manufacturing plants as well as third parties. Since this was the
situation when the appellant sought mandatory injunction the Tribunal has
rightly not varied the status quo. The Apex Court in Wander Limited
(supra) has held that it would be a relevant consideration if the defendant is
already undertaking the acts sought to be injuncted.
(vi) The Tribunal has rightly found that no irretrievable injury shall be
caused to the appellant by denying injunction. This is because the appellant
is procuring Clinker from its own Clinker manufacturing plants. Damages
thus would be an adequate compensation for the loss, if any, caused to the
appellant. The Tribunal has rightly found that even the balance of
convenience is not in favour of the appellant for the reason that the harm
caused to the respondent, if the injunction is granted, will ruin the business
of the respondent and this would be irretrievable injustice, if the respondent
succeeds in the arbitration proceedings.
(vii) The appellant is not entitled to specific performance under the SRA.
The present arbitration commenced on 04.07.2018. The Amendment Act,
2018 came into force on 01.10.2018 and cannot have a retrospective
application. Parliament has not expressed any intention to apply the
ARB.A. (COMM) 5/2019 Page 17 of 36
Amendment Act retrospectively. The Apex Court in Union of India Vs.
Indusind Bank Ltd. & Anr. (2016) 9 SCC 720, has restricted the scope of
retrospective application of laws in case of remedial statutes. Amending
laws that remedy lacuna in existing laws shall be prospective and the
Statement of Objects and Reasons of the Amendment Act becomes relevant
for this purpose.
Since Section 14 as unamended stipulated that if damages could be awarded
specific performance is not the remedy, the appellant cannot seek specific
performance of the agreement. In light of the fact that appellant has been
procuring Clinker from its own manufacturing plant and from third parties,
damages is the adequate compensation. At the highest, the appellant can
claim difference between the price payable to the respondent under the
agreement and the price so paid for procurement through third parties.
Clause 4.2 of the agreement, in any case, permitted the appellant to procure
Clinker through third party.
(viii) The appellant has wrongly relied on Section 42 of the SRA seeking
specific performance of Clause 7.2.1(b). The Apex Court in Gujrat Bottling
Co. Ltd. Vs Coca Cola Co. (1995) 5 SCC 545 decided the enforcement of a
similar term and held that Section 42 does not envisage grant of mandatory
injunction in every case of a negative covenant. In a given case the Court
can refuse to grant injunction which adversely effects the party against
whom the injunction is sought.
(ix) Lastly, it is submitted that Clinker is only an item of ordinary
commerce and is available through various sources in the market. The
appellant itself is a leading manufacturer of Clinker and has been unable to
show any irreparable harm caused to it by captive consumption by the
respondent. The appellant has not discharged its burden of showing that it
ARB.A. (COMM) 5/2019 Page 18 of 36
was precluded from acquiring Clinker from the market and the balance
sheets in fact show that it was procuring Clinker for the Bokaro cement
plant.
21. Countering the submission made by the respondent, the argument of
the appellant in rejoinder can be summarized as under:
(i) The Tribunal has erred in holding that the threshold for grant of
injunction was not met. The provisions of the agreement when read together
clearly indicate that there was an absolute obligation on the part of the
respondent to supply Clinkers to the appellant and a contrary interpretation
of the terms of the contract can only be termed as perverse and therefore
following the judgment of the Apex Court in Wander Limited (supra), the
appeal lies.
(ii) The main plank of the impugned order is the finding that the appellant
could have taken Clinkers from third parties, but this foundation misses the
point that the appellant was entitled to procure Clinkers from third parties
only when the respondent defaulted. There were mutual obligations of the
parties under the agreement and till such time that the respondent supplied
the Clinkers the appellant was not entitled to approach third parties.
(iii) Under Clause 11.4 of the Clinker Sale Agreement the parties had by
an agreement vested the arbitrators with the power to order specific
performance of the agreement. The said Clause reads as under:
"The arbitration award shall be final. The Arbitrators shall
have the power to order specific performance of this
Agreement."
(iv) In view of the said specific Clause in the agreement it is neither open
for the respondent to argue nor for the Arbitral Tribunal to hold that damage
is an adequate remedy in lieu of enforcement of the contract through specific
ARB.A. (COMM) 5/2019 Page 19 of 36
performance. The finding of the Tribunal is even otherwise erroneous
inasmuch as the respondent has been held to be in breach and there is a
prima facie finding of the Tribunal that the termination was unlawful. It is
an undisputed position between the parties that the appellant was not in
breach of the contract and yet the appellant is suffering immense monetary
loss due to non-supply of Clinker. The balance of convenience definitely is
thus in favour of the appellant. The argument of the respondent that the
appellant had lost its right to question the sale of Dalla Plant is fallacious.
When the agreement was entered into between the parties, the sale of the
plant was not envisaged. In fact, right upto April, 2018 the respondent had
repeatedly assured the appellant that they would fulfil their obligation and
supply the Clinkers. Reliance is placed on the judgment of the Apex Court
in the case of Kamal Kant Jain Vs. Surinder Singh (Dead) through LR's
2017 SCC OnLine SC 1340 for the proposition that even though the contract
may have a Clause of Liquidated Damages but if it expressly provides for
enforcement through specific performance, the contract can be enforced.
(v) It is wrong for the respondent to contend that Clause 7.2.1(b)
permitted the respondent to use Clinker for captive consumption. The
agreement between the parties had two Clauses 7.1 and 7.2, both Clauses are
mirror images of each other and while 7.1 is qua the appellant ‟s obligation
7.2 refers to the obligation of the respondent. 7.2.1(b) clearly stipulates the
obligation of the respondent to supply Clinker to the appellant. Clause (b)
has to be read along with and in the context of other Clauses. This Clause
clearly mandates that the respondent would continue supply to the appellant
after it has fulfilled its pre-existing commitments and thus even self
consumption is a breach of the Clause.
ARB.A. (COMM) 5/2019 Page 20 of 36
(vi) The deletion of Clause (a) under Section 14 of the SRA by virtue of
the Amendment Act, 2018 would apply retrospectively. Specific Relief is in
essence a part of law in procedure and not substantive law. It provides a
remedy rather than creating rights or obligations. Remedial statutes are to be
applied retrospectively and not prospectively. Reliance is placed on the
judgments in the case of Hazara Singh Vs. Custodian of Evacuee Property,
Pepsu, Patiala, AIR 1960 P&H 133; Moulvi Ali Hossan Mian & Ors. Vs.
Rajkumar Haldar & Ors. AIR 1943 Cal 417 (FB) and Radheyshyam
Kamila Vs. Smt. Kiran Bala Dasi & Ors. AIR 1971 Cal 341.
Ordinarily, an Amendment which substitutes the original provision is
retrospective in its operation, unless expressly so stated or found from the
Legislative intent. Sections 3 and 5 of the Amendment Act, 2018 which
amended Sections 10 and 14 actually substitute them. Thus, they would
have a retrospective operation. The appellant relies on Gottumukkala
Venkata Krishamraju Vs. Union of Inida 2018 SCC OnLine SC 1386 for
this proposition.
Amendment to Section 14 of SRA would apply to pending
proceedings where a decree is yet to be passed as held in Church of North
India Vs. Ashoke Biswas 2019 SCC OnLine Cal 3842.
(vii) The judgments relied upon by the respondents are distinguishable and
will not apply to the present case. The judgment of Yogesh Radhakrishnan
Vs. Media Networks & Distribution (India) Ltd. and Ors. 201 (2013) DLT
773 no doubt holds that express terms of the contract have to be followed,
but this judgment is not in the context of Section 42 of the SRA. Section 42
itself provides for enforcement of a negative covenant, express or implied
and thus the judgment will have no application. For the same reason the
judgment in the case of State Bank of India (supra) would not apply.
ARB.A. (COMM) 5/2019 Page 21 of 36
Zenit Mataplast Private Limited Vs. State of Maharashtra and Ors. (2009)
10 SCC 388 is a case where the Court held that a mini trial should not be
conducted at interlocutory stage. The appellant herein is not seeking a mini
trial but an interim prohibitory injunction.
Orissa Manganese and Minerals Limited Vs. Synergy Ispat Private
Limited (2014) 16 SCC 654 is a decision which is based on the peculiar facts
of its case and lays down that legal principles do not have a precedential
value. The fact situation of this case and the legal principles being urged are
completely different from the ones in the said case. Learned Single Judge
had refused interlocutory injunction. Division Bench had reversed the order
and restrained the respondent to sell the iron ores to any third party without
first offering to the appellant. In the SLP filed by the party aggrieved, the
Apex Court had noted the stand of the appellant therein that it had already
set up a plant where the entire quantity was being consumed in house and
nothing was being sold to the third party. In the light of this, binding the
appellant to its undertaking, the SLP was disposed of but no law has been
laid down.
Case of Indusind Bank Ltd. (supra) deals with amendment of Section
28 of the Indian Contract Act, 1872, which is a substantive provision of law
and not a procedural law.
The case of Wander Ltd. (supra) lays down the grounds for
interference in an appeal and all of the said grounds are applicable to the
present case.
22. I have heard the learned senior counsels for the parties and examined
their rival submissions.
23. The present appeal has been filed seeking setting aside of the
impugned order dated 04.11.2018 passed by the Tribunal on an application
ARB.A. (COMM) 5/2019 Page 22 of 36
by the appellant under Section 17 of the Act. A prayer is also sought to
restrain the respondent from supplying any Clinker to a third party from any
of its plants, including the Rewa Plant, before supplying the agreed quantity
to the appellant, as also a restraint order to the respondent from using Clinker
manufactured or procured by the respondent, for its own operations before
supplying the agreed quantity to the appellant.
24. It is an undisputed fact that the agreement between the parties stands
terminated on 30.06.2018 and no longer subsists. It is equally undisputed
that till the date of passing of the impugned order, there was no challenge to
the termination order before the Tribunal. Thus, when the impugned order
was passed, the parties were no longer in a contractual relationship. Mr.
Sethi, senior counsel for the respondent is right that the appellant could not
have sought a relief of restraining the respondent from using Clinker for
captive consumption, under Section 17 of the Act. No order of interlocutory
injunction, prohibitory or mandatory can be passed by this Court once the
contract stands terminated. On this ground alone even the argument of the
appellant that the contract is enforceable under the SRA, assuming it is in
law, cannot be accepted.
25. The fulcrum of the arguments between the parties was the
interpretation of Clause 7.2.1(b) of the agreement. The said Clause reads as
under :-
"7.2.1 Delivery of Clinker
(a) xxx
(b) Subject to the pre-existing commitment of JAL and limited at
all times to the quantity contracted hereunder, JAL shall not
supply Clinker to any third party(ies) until JAL has fulfilled
its obligation of supply to Clinker to BOJCL a per the
Agreed Schedule, If BOJCL fails to off-take the Clinker as
per the Agreed Schedule then, notwithstanding any other
rights available to JAL under this Agreement or any other
ARB.A. (COMM) 5/2019 Page 23 of 36
agreement between the Parties, JAL may supply that Clinker
to any third party(ies)."
26. The argument of the appellant is that the said Clause is a negative
covenant which prohibits the respondent from selling Clinker to any third
party which includes captive consumption, without first fulfilling its
unequivocal commitment to supply the Clinker to the appellant. The only
exception to the same was pre-existing commitments of the respondent
which did not exist in the present case. The respondent, on the other hand,
argues that the Clause was carefully drafted between the parties and there is
no specific or express prohibition against the use of Clinker for its captive
consumption. In fact, it is the interpretation of this Clause on which
elaborate arguments were addressed before this Court. The relevant part of
the impugned order dealing with this contention has been extracted in the
earlier part of the judgment.
27. The Tribunal in para 14 of the impugned order has delved into the
issue and has given a prima facie finding that the respondent was not duty
bound to supply the agreed quantity of Clinker to the Claimant (appellant
herein) as per the agreed Schedule without any default in that regard. The
Tribunal visited Clause 7.2.1(b) as well as the other related Clauses of the
Agreement. Analyzing the Clauses, it came to a prima facie conclusion that
the Clinker Sale Agreement does give an impression that the respondent had
undertaken to supply Clinker to the appellant as per the agreed schedule, but
the obligation was not absolute. The supply was subject to provisions of
Clause 4.2.1 of the Agreement as well as pre-existing commitments of the
respondent. Clause 4.2.2 stipulated that if the respondent was unable to
supply the annual agreed quantity of Clinker to the appellant, for reasons
other than force majeure, then the appellant was free to procure Clinker from
ARB.A. (COMM) 5/2019 Page 24 of 36
other sources. In the opinion of the Tribunal, the provisions of Clause 7.4
and its sub-Clauses contemplating imposition of Liquidated Damages and
penalty are indicative of the fact that the obligation of the respondent to
supply Clinker to the appellant for the entire term of the agreement was not
absolute.
28. Interpretation of the Clauses of the Contract is in the domain of an
Arbitral Tribunal. This has been so held in the case of Associate Builders
Vs. Delhi Development Authority (2015) 3 SCC 49. Relevant para of the
said judgment reads as under :-
"42.3. (c) Equally, the third subhead of patent illegality is
really a contravention of Section 28(3) of the Arbitration Act,
which reads as under:
"28.Rules applicable to substance of dispute.--(1)-
(2)***
(3) In all cases, the Arbitral Tribunal shall decide in
accordance with the terms of the contract and shall take
into account the usages of the trade applicable to the
transaction."
This last contravention must be understood with a caveat. An
Arbitral Tribunal must decide in accordance with the terms of
the contract, but if an arbitrator construes a term of the
contract in a reasonable manner, it will not mean that the
award can be set aside on this ground. Construction of the
terms of a contract is primarily for an arbitrator to decide
unless the arbitrator construes the contract in such a way that it
could be said to be something that no fair-minded or
reasonable person could do."
29. In the case of Ssangyong Engineering and Construction Company
Ltd. Vs. National Highways Authority of India (2019) SCC OnLine SC 677
the Supreme Court has reiterated the said position and also noted the change
made in Section 28(3) of the Act by the Arbitration and Conciliation
(Amendment) Act, 2015.
ARB.A. (COMM) 5/2019 Page 25 of 36
30. In the present case, Tribunal has interpreted the various Clauses of the
agreements between the parties and has come to a finding that the obligation
of the respondent to supply Clinker to the applicant was not absolute under
the provisions of the Contract. On one hand it was open to the respondent to
use Clinker for captive consumption and on the other hand the appellant was
at liberty to procure the same from other sources, including its own Clinker
manufacturing plant.
31. Though, in view of the fact that the contract stands terminated, this
argument is irrelevant at this stage, but even otherwise it is not open to this
Court under Section 37 of the Act to give an interpretation to the Clauses of
the Contract, unless the Arbitrator construes the contract in such a manner
that no fair minded or reasonable person would give such an interpretation.
The said law would apply with a greater vigour at the stage when this Court
is dealing with an appeal under Section 37 of the Act, examining an interim
order passed by the Tribunal under Section 17 of the Act. As the impugned
order itself indicates, the findings are only prima facie in nature subject to
the final adjudication on the issue. Findings cannot be termed as so
unreasonable that no prudent person would have arrived at. Moreover, since
the proceedings are still pending, this Court is refraining from giving any
finding one way or the other, lest it may influence the ultimate decision of
the Tribunal or prejudice either of the parties.
32. The other factor that weighs with this Court in not interfering with the
impugned order is that for grant of interlocutory injunctions, a party has to
make out a strong prima facie case in its favour. The Tribunal has after a
prima facie analysis of the Clauses of the Contract and the submissions of
the parties come to a conclusion that the appellant was not able to make out a
prima facie case of the degree which warranted issue of a mandatory
ARB.A. (COMM) 5/2019 Page 26 of 36
injunction, to restrain the respondents from using Clinker for its own plants.
Once in the opinion of the Tribunal, the threshold for grant of interlocutory
injunction was not achieved and it decided to decline the grant of injunction,
which decision is also within the domain of the Arbitral Tribunal, it calls for
no interference by this Court.
33. In so far as the argument of the appellant before the Tribunal that if
adequate quantity of Clinker will not be available for Bokaro Plant, it may
have to shut down, the Tribunal has observed that after cessation of supply
of Clinker from Dalla Plant, the appellant has been procuring Clinker from
other sources. The Tribunal also relies on Clause 4.2.2 of the Agreement
and holds that this eventuality was contemplated at the time of execution of
the „Amended and Restated Long Term Clinker Sale Agreement‟. The
observation is that in fact in the years 2017 and 2018, appellant did procure
from other sources and in fact respondent had given a list of other 31 plants
which are manufacturing Clinker. In fact, the Tribunal also notes that the
appellant‟s own plant is manufacturing Clinker. Prima facie, the reasoning
is justified.
34. The issue of grant of interim measures by the Court under Section 9 of
the Act came up for consideration before the Supreme Court in the case of
Adhunik Steels Ltd. (supra). In fact it needs to be mentioned that the facts
of the said case are very close to the facts of the present case. The only
difference that needs to be mentioned is that the order impugned therein was
passed by the High Court under Section 9 of the Act, whereas in the present
case the order has been passed under Section 17 of the Act. It is no longer
res integra that the powers of a Tribunal under Section 17 of the Act, post
Amendment, are akin to the powers of a Court under Section 9 of the Act. In
the said case, the respondent had a mining lease from the Government of
ARB.A. (COMM) 5/2019 Page 27 of 36
Orissa and it entered into an agreement with Adhunik Steels for raising the
Manganese ore on its behalf. The term of the Agreement was 10 years. The
case of Adhunik Steels was that it had mobilized huge resources and
incurred expenditure and the issue of notice to terminate the agreement was
not justified. Adhunik Steels moved the District Court under Section 9 of
the Act restraining OMM from terminating the contract and dispossession.
The District Court allowed the application and restrained OMM from giving
effect to the letter of termination and dispossessing till the final Award by
the Tribunal. Aggrieved by this, OMM filed an appeal before the Orissa
High Court. The High Court upheld the contention of OMM that the loss
sustained by Adhunik Steels could be calculated in terms of money and in
the light of Section 14(3)(c) of the SRA an injunction could not be granted.
The order of the District Court was set aside. This order of the High Court
was challenged by Adhunik Steels before the Supreme Court.
35. The Supreme Court relying on various judgments on the issue of
interlocutory injunction as well as the provisions of the SRA held that
injunction is a form of specific relief. In relation to a breach of contract, the
proper remedy against the defendant who is in breach of his obligation, is
either damages or specific relief. Analyzing Sections 36, 39, 40, 41 and 42
of the SRA, the Court held that power to grant injunctions by way of specific
relief is covered by the SRA. Reference was made to the judgment of the
Madhya Pradesh High Court in Nepa Ltd. Ltd. Vs. Manoj Kumar Agarwal
AIR 1999 MP 57, wherein it was held that grant of interim injunction has
necessarily to be based on the principles governing a grant emanating out of
the relevant provisions of the SRA. Finally, it was held as under :
21. It is true that the intention behind Section 9 of the Act is the
issuance of an order for preservation of the subject-matter of
an arbitration agreement. According to learned counsel for
ARB.A. (COMM) 5/2019 Page 28 of 36
Adhunik Steels, the subject-matter of the arbitration agreement
in the case on hand, is the mining and lifting of ore by it from
the mines leased to OMM Private Limited for a period of 10
years and its attempted abrupt termination by OMM Private
Limited and the dispute before the arbitrator would be the
effect of the agreement and the right of OMM Private Limited
to terminate it prematurely in the circumstances of the case. So
viewed, it was open to the court to pass an order by way of an
interim measure of protection that the existing arrangement
under the contract should be continued pending the resolution
of the dispute by the arbitrator. May be, there is some force in
this submission made on behalf of Adhunik Steels. But, at the
same time, whether an interim measure permitting Adhunik
Steels to carry on the mining operations, an extraordinary
measure in itself in the face of the attempted termination of the
contract by OMM Private Limited or the termination of the
contract by OMM Private Limited, could be granted or not,
would again lead the court to a consideration of the classical
rules for the grant of such an interim measure. Whether an
interim mandatory injunction could be granted directing the
continuance of the working of the contract, had to be
considered in the light of the well-settled principles in that
behalf. Similarly, whether the attempted termination could be
restrained leaving the consequences thereof vague would also
be a question that might have to be considered in the context of
well-settled principles for the grant of an injunction. Therefore,
on the whole, we feel that it would not be correct to say that the
power under Section 9 of the Act is totally independent of the
well-known principles governing the grant of an interim
injunction that generally govern the courts in this connection.
So viewed, we have necessarily to see whether the High Court
was justified in refusing the interim injunction on the facts and
in the circumstances of the case.
xxxx xxxx xxxx
23. The question here is whether in the circumstances, an order
of injunction could be granted restraining OMM Private
Limited from interfering with Adhunik Steels' working of the
contract which OMM Private Limited has sought to terminate.
Whatever might be its reasons for termination, it is clear that a
notice had been issued by the OMM Private Limited
terminating the arrangement entered into between itself and
ARB.A. (COMM) 5/2019 Page 29 of 36
Adhunik Steels. In terms of Order 39 Rule 2 of the Code of Civil
Procedure, an interim injunction could be granted restraining
the breach of a contract and to that extent Adhunik Steels may
claim that it has a prima facie case for restraining OMM
Private Limited from breaching the contract and from
preventing it from carrying on its work in terms of the contract.
It is in that context that the High Court has held that this was
not a case where the damages that may be suffered by Adhunik
Steels by the alleged breach of contract by OMM Private
Limited could not be quantified at a future point of time in
terms of money. There is only a mention of the minimum
quantity of ore that Adhunik Steels is to lift and there is also
uncertainty about the other minerals that may be available for
being lifted on the mining operations being carried on. These
are imponderables to some extent but at the same time it cannot
be said that at the end of it, it will not be possible to assess the
compensation that might be payable to Adhunik Steels in case
the claim of Adhunik Steels is upheld by the arbitrator while
passing the award.
24. But, in that context, we cannot brush aside the contention of
the learned counsel for Adhunik Steels that if OMM Private
Limited is permitted to enter into other agreements with others
for the same purpose, it would be unjust when the stand of
OMM Private Limited is that it was cancelling the agreement
mainly because it was hit by Rule 37 of the Mineral Concession
Rules, 1960. Going by the stand adopted by OMM Private
Limited, it is clear that OMM Private Limited cannot enter into
a similar transaction with any other entity since that would also
entail the apprehended violation of Rule 37 of the Mineral
Concession Rules, 1960, as put forward by it. It therefore
appears to be just and proper to direct OMM Private Limited
not to enter into a contract for mining and lifting of minerals
with any other entity until the conclusion of the arbitral
proceedings.
25. At the same time, we see no justification in preventing
OMM Private Limited from carrying on the mining operations
by itself. It has got a mining lease and subject to any award that
may be passed by the arbitrator on the effect of the contract it
ARB.A. (COMM) 5/2019 Page 30 of 36
had entered into with Adhunik Steels, it has the right to mine
and lift the minerals therefrom. The carrying on of that activity
by OMM Private Limited cannot prejudice Adhunik Steels,
since ultimately Adhunik Steels, if it succeeds, would be entitled
to get, if not the main relief, compensation for the termination
of the contract on the principles well settled in that behalf.
Therefore, it is not possible to accede to the contention of
learned counsel for Adhunik Steels that in any event OMM
Private Limited must be restrained from carrying on any
mining operation in the mines concerned pending the arbitral
proceedings."
36. The Supreme Court clearly held that there was no justification in
preventing OMM from carrying out the mining operation itself, subject to
any Award that may be passed by the Arbitrator on the effect of the Contract
it had entered into. It was also held that the carrying on the said activity by
OMM cannot prejudice Adhunik Steels since ultimately if it succeeds it
would be entitled to get compensation for the termination of the contract.
Thus, no restraint order could be passed against OMM. The appeal was
dismissed leaving the questions on merits open to the Arbitral Tribunal.
37. It is a settled law that grant of interlocutory injunctions is a
discretionary remedy. The interlocutory injunctions are granted to preserve
the property or the rights of the parties during the pendency of a lis and till
its final adjudication. As held by the Supreme Court in Anand Prakash
Aggarwala (Supra) the Courts should desist from holding a mini-trial at the
interlocutory stage, the objective of the injunctions being to preserve a status
quo, as rightly pointed out by the respondent, and not to create or perpetuate
a new status quo. In the case of Wander Ltd. (supra), the Supreme Court
held that if the defendant is already undertaking the acts sought to be
injuncted, this would be a relevant consideration while considering an
application for injunction.
ARB.A. (COMM) 5/2019 Page 31 of 36
38. Applying the law laid down by the various Courts, this Court is of the
opinion that if the injunction sought by the appellant is granted, it would
amount to creating and perpetuating a status quo which does not exist at
present and virtually reviving a terminated contract. It is also of significance
that the prime basis of the appellant in seeking the interlocutory injunction is
interpretation of contractual terms between the parties and alleged wrongful
termination of the contract. Both these issues are in the domain of the
Arbitral Tribunal and can only be decided after evidence is led and the
matter is taken up for final adjudication. At this stage, if the injunction
sought for is granted, it would amount to a relief of specific performance
against the respondent which cannot be granted by this Court. The appellant
contends that it is only seeking a relief of prohibitory injunction by way of
restraining the respondent from using Clinker for captive consumption, but
in the opinion of this Court the relief, if given would indirectly amount to
directing the respondent to supply Clinker to the appellant. It has been
clearly held by the Supreme Court in the case of U.P. Cooperative
Federation Ltd. v. Singh Consultants & Engineers (P) Ltd., (1988) 1 SCR
1124 that one cannot be permitted do something indirectly what one cannot
do directly.
39. In view of the above, the contention of the learned senior counsel for
the appellant that the Tribunal erred in understanding that the appellant had
sought mandatory injunction while in fact what was sought was a prohibitory
injunction becomes irrelevant. To put it differently, the mandatory injunction
would be to direct the respondent to supply Clinker to the appellant to the
exclusion of third parties and for his own captive consumption. The
prohibitory injunction sought would restrain the respondent from use of
Clinker for his cement plant. Taken from any angle, the net effect of the
ARB.A. (COMM) 5/2019 Page 32 of 36
prohibitory injunction would only be that the respondent would be
compelled to supply Clinker to the appellant and therefore, the Tribunal in
my opinion, has correctly perceived the relief sought.
40. It is also important to refer to the observations of the Supreme Court
in the case of Orissa Manganese & Minerals Ltd. (Supra) where the
appellant had sought to enforce a Covenant of exclusive supply by an
injunction under Section 9 of the Act, preventing supply to third parties. The
defending party was only using the material for captive consumption. The
Court held that a direction to supply the material to the appellant would
amount to granting a final relief at an interlocutory stage. In the present case
also, the order impugned is only an interim order and a direction by this
Court prohibiting the respondent from captive consumption will amount to a
final adjudication in the matter which is impermissible in law.
41. The next contention of the appellant is that a Court under Section 9 of
the Act can enforce an implied negative covenant by giving prima facie
interpretation to the terms of the contract. Reliance is placed on Dirk India
Pvt Ltd. Vs. Mahagenco, 2007 SCC OnLine Bom 211 and Jairam Valjee
Vs. Indian Iron & Steel Co. Ltd. AIR 1940 Cal 466. In Dirk India Pvt Ltd
(Supra). In Dirk India (supra) the covenant was with respect to an
obligation of the respondent to sell the PFA to outsiders only, over and
above the contracted quantity. The Court held that an injunction could be
granted restraining the respondent from selling the PFA to an outsider, in
view of the implied negative covenant in the Agreement. In the present case,
the Tribunal in the impugned order, has prima facie, interpreted the covenant
in question and held that there is no express or implied prohibition in the
Clause against captive consumption of the Clinker by the respondent.
Taking support from the other Clauses of the Contract which enabled the
ARB.A. (COMM) 5/2019 Page 33 of 36
appellant from buying Clinker from other sources and the Clause of
liquidated damages, it has come to a prima facie finding that the liability of
the respondent to supply to the appellant was not absolute. This Court finds
no reason at this stage to give a different interpretation to the covenant and
upset the finding.
42. The argument of the appellant relying on Jairam Valjee (Supra) is
that an implied negative covenant can be enforced by a Court and the same is
not dependent on the negative or affirmative language in the Contract, in
matter of construction and substance, rather than form. The said judgment
would not enure to the advantage of the appellant, as it is no longer res
integra that construction of a covenant in a contract is the domain of the
Arbitrator. The appellant in the present case is calling upon this Court to
interpret Clause 7.2.1(b) and hold that it is a negative covenant in which it is
implied that the respondent would not use Clinker for captive consumption.
This in my opinion is not the domain of this Court and the interpretation is
left open to the Tribunal at the stage of final adjudication.
43. In the case of Coal India Limited vs. M/s. Vidharbha Industries
Power Limited & Ors. being LPA 169/2018, decided on 21.08.2019, a
Division Bench of this Court has held as under:-
"24. Having heard the parties and examined the position of
law, we agree with the contention of the appellants that the
learned Single Judge could not have passed an interim order
directing supply of coal to the petitioner therein, till the issues
raised by both sides, and some of which we will enumerate
hereinafter, are adjudicated upon and decided finally in the
writ petition. The direction to supply coal to the respondent in
our view amounts to allowing the writ petition finally. It is well
settled that an interim relief which amounts to granting final
relief cannot be granted by any court, as held by the Supreme
Court in Samir Narayan Bhojwani (supra)....
xxx xxx xxx
ARB.A. (COMM) 5/2019 Page 34 of 36
25.... However, it is equally well settled, as observed by us
above, that an interim relief cannot be such that it amounts to
granting final relief to a petitioner. In the present case, the
impugned orders have virtually allowed the writ petition,
without even adjudicating the rival contentions of the parties
and more particularly the issue, whether the respondent has
any right to demand that coal should be supplied to him in a
particular category, on the basis of a an LOA of 2008, whose
validity itself is questionable today. Thus, in our view, the
judgments relied upon by the learned senior counsel for the
respondent would be of no avail to the Respondent and the
impugned orders certainly call for an interference."
44. For all the aforesaid reasons, in the opinion of this Court, the relief
sought by the appellant to restrain the respondent, by way of a prohibitory
injunction, to use Clinker for its captive consumption, cannot be granted.
There is no infirmity in the impugned order passed by the learned Tribunal.
The findings are only prima facie and are subject to final adjudication by the
Tribunal.
45. All contentions of the appellant raised herein regarding interpretation
of the Clauses of the Agreement, including 7.2.1 (b); breach of Agreement;
reciprocal obligations under the Contract; enforcement of Contract under
Section 23 of SRA as well as the effect of amendment to Section 14 of SRA
are left open to be decided by the Arbitral Tribunal.
46. It is made clear that this Court has noted the contentions of the parties
at length only for the purpose of examining the order impugned in the
present petition, but this Court has expressed no opinion on the merits of the
case.
47. Respondent will, however, remain bound by its undertaking given
before the Tribunal as well as this Court that during the pendency of the
Arbitration Proceedings, it will not supply Clinker to any third party.
ARB.A. (COMM) 5/2019 Page 35 of 36
48. The Tribunal is free to decide the matter uninfluenced by any
observations made by this Court.
49. There is no merit in the appeal and the same is dismissed.
I.A. No. 4182/2019 (stay)
Present application is hereby dismissed in view of the order passed in
the appeal.
JYOTI SINGH, J.
th JANUARY 24 , 2020 rd/ ARB.A. (COMM) 5/2019 Page 36 of 36