Madras High Court
K.K.Muralidharan vs V.G.Sureshkumar on 22 April, 2013
Author: Vinod K.Sharma
Bench: Vinod K.Sharma
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 22/04/2013 CORAM THE HON'BLE MR.JUSTICE VINOD K.SHARMA OA.198 of 2011 M.RAJKUMAR VS SOUTHERN RAILWAY FOR PETITIONER : K.K.MURALIDHARAN FOR RESPONDENT : V.G.SURESHKUMAR ORDER:
VINOD K. SHARMA,J., This application under Section 9 of the Arbitration and Conciliation Act, 1996, has been filed for grant of ad-interm injunction, restraining the respondents from effecting any recovery on / from bills of the applicant by applying vitiation clause under Contract No.13/CN/2011 dated 02.02.2011, pending adjudication of the dispute / issue of applicability of vitiation clause in the arbitration.
2. In support of the prayer made, affidavit filed by the applicant reads as under
I, Rajkumar, son of K.R.Muthusamy, aged about 35 years and having office at No.2, L.I.C.Colony, R.M.Colony Road, Nehruji Nagar, Dindugul-624 001, Tamilnadu now temporarily come down to Chennai do hereby solemnly affirm and sincerely state of follows:
1.I am the Applicant and as I am well acquainted with the facts of the case.
2.I respectfully submit that tenders were called for, for the work of Gauge Conversion between POLLACHI-PODANUR Section: Proposed construction of Major Bridge Nos.246, 260, 266 & 273 and other related works between POLLACHI & PODANUR Section. The Applicant had quoted for the above work and as the rates were lowest and viable, the work was awarded to the Applicant for a value Rs.10,24,33,668/- and a Letter of Acceptance was issued on 15.09.2010 by the respondents. The contract Agreement No.13/CN/2011 was entered into on 02.02.2011 between both the parties.
3.I respectfully submit that there are 5 annexures to this project, Annexure-A caters scheduled items for which the rate accepted was plus 16% over Southern Railway schedule of rates covered by BSR 2008 as applicable to zone-A of Palghat division. Annexure-B caters for Bored Piles 1000 mm Dia and other related works for foundation. Annexure-C caters for Non-Scheduled items and mainly the work was for construction of PSC Girders and launching etc., Annexure-D caters for Non-Scheduled items and mainly the work was for supply of reinforcement Steel and Cement and Annexure-E caters for list of Plants. As per the Letter of Acceptance Annexure-A is for Rs.2,76,50,607/-, Annexure-B is for Rs.10,66,861/-, Annexure-C is for Rs.2,97,76,200/-, Annexure-D is for Rs.4,39,40,000/-.
4.I respectfully submit that the time limit stipulated for the said contract was ten months, i.e. up to 14.07.2011. It is stipulated in the contract that the contractor should submit a program of work in suitable proforma within ten days of receipt of the LOA, in consultation with the 3rd Respondent/Executive Engineer-in-charge. In accordance with directives as per Item No.5 of LOA and in commensurate with the magnitude and nature of work, special reference to the time factor, the arrangements to start the work was made/required men, machineries were mobilized investing a huge outlay by the Applicant. The unprecedented rains caused by South-East monsoon followed by North-East monsoon and also heavy rains caused by JAL cyclone defeated the program of work.
5.I submit that the Applicant has mobilized all the men and machinery for the project at site and has commenced work. The Applicant reliably given to understand that the Respondent's initiating steps to recover amounts from the on-account bill of the Applicant, which is due now by applying vitiation clause arbitrarily and without any prior notice to the Applicant.
6.I respectfully submit the relevant clauses of the contract dated 2.2.2011 between the parties are extracted as follows:
CLAUSE-43 VARIATION IN QUANTITIES:
43.1.The Drawings referred to in the list of plans, if any, are intended only to give a rough and general idea of the location and rough details of work to be done. No claim whatsoever will be admissible in respect of any alternation/addition/deletion/change in the type of works.
43.2.The quantities of various item given in the Schedules for the works to be executed are only approximate and are for the guidance of the contractor. As far as possible, they have been assessed correctly but are likely to vary during the execution of the work. The contractor's attention is drawn to clause 42 of the General Conditions of Contract dealing with variation in quantities.
43.3.In the event of any reduction in the quantities to be executed for any reason whatsoever, the contractor shall not be entitled for any compensation but shall be paid only for the actual quantity of work done, at the agreemental rates.
43.4.When the gross value of the work to be executed is likely to increase in excess of 25% of the original value of the agreement, the contractor should notify the Engineer-in-charge at least 30 before such necessity arises.
43.5.Individual Non-Schedule items in contracts shall be operated with variation of plus or minus 25% and payment would be made as per the agreement rate.
43.6.In case, increase in quantity of an individual non-schedule item by more than 25% of the agreement quantity is considered as unavoidable, the same can be got executed by floating a fresh tender. If floating a fresh tender is considered not practicable by Railways, negotiations will be held with the contractor for arriving at reasonable rates for additional quantities in excess of 125% of agreement quantity.
43.7.The limit for varying quantities for minor value items will be 100% (as against 25% prescribed for other items). A minor value items for this purpose is defined as an item whose original agreement value is less than 1% of the total original agreement value.
43.8.No such quantity variation limit will apply for foundation items.
43.9.As far as Schedule of Rates items are concerned, the limit of 25% would apply to the value of Schedule of Rates schedule as a whole and not on individual SOR items. However, in case of NS items, the limit of 25% would apply on the individual items.
44.0. Vitiation Clause 44.1. In the event of vitiation occurring due to increase or decrease in quantities among the first, second and third lowest valid tenderers, the vitiation shall be to contractor's account. The total value of the work done shall be calculated at the rate offered by those tenderers and the amount payable shall be limited to the lowest aggregate value as worked out.
44.2 Vitiation as above shall be worked out as a whole for Agreement including all variations in quantities.
7. I respectfully submit that the Clause 42 of the General Conditions of Contract as applicable to the present contract provides as follows:
42.1. The Engineer on behalf of the Railway shall be entitled by order in writing to enlarge or extend, diminish or reduce the works or make any alterations in their design, character, position, site, quantities, dimensions or in the method of their execution or in the combination and use of materials for the execution thereof or to order any additional work to be done or any works not to be done and the Contractor will not be entitled to any compensation for any increase/reduction in the quantities of work but will be paid only for the actual amount of work done and for approved materials supplied against a specific order.
42.2.ii)In case of earthwork, the variation limit of 25% shall apply to the gross quantity of earth work and variation in the quantities of individual classifications of soil shall not be subject to this limit.
42.2.iii)(iii) In case of foundation work, no variation limit shall apply and the work shall be carried out by the contractor on agreed rates irrespective of any variation.
8. I respectfully submit that Clause-16.0 of the Special Conditions of Contract reads as follows:
STUDY OF DRAWINGS AND LOCAL CONDITIONS 16.1.The drawings for the works can be seen in the office of the Chief Administrative Officer, construction, Southern Railway, Chennai-8 and in the office of field Dy.Chief Engineer's office. It should be noted that these drawings are meant for general guidance only and the Railway may suitably modify them during the execution of work according to the circumstances without making the Railways liable for any claims on account of such changes.
16.2.If there is any variation between the description in the tender and the detailed plans, the Engineer-in-Charge will operate the correct description and his decision is final and binding on the tenderer/Contractor.
9. I respectfully submit that the contract condition stipulated that the drawings referred to in the list of plans were intended only to give a rough and general idea of the work to be done and further No claim whatsoever would be admissible in respect of any alteration/addition/deletion/change in the type of works. The conditions in the contract further stipulated that the quantities of various items given in the schedule for the works to be executed were only approximate and were for the guidance of the contractor. In the event of any reduction in the quantities to be executed for any reason whatsoever, the contractor was not entitled for any compensation but shall be paid only for the actual quantity of work done, at the agreement rates.
10. As per Note (ii) of Letter of Acceptance, stipulated as follows:
(ii) Vitiation and Variation if any will apply as per Clause 44 & 43 of special condition of contract respectively. Vitiation will be calculated comparing the rates of eligible L2 and L3 i.e., M/s.RSV-RAILONE(JV) and M/s.V.K.Engineering Constructions (JV). Vitiation will be worked out and deducted from each and every part bill.
11. I respectfully submit that it is reliably understood that the L2 and L3 i.e., M/s.RSV-RAILONE(JV) and M/s.V.K.Engineering Constructions (JV) said to be eligible and valid tenderers by the administration had withdrawn their offers much before the issue of LOA. When the said L2 and L3 declined to extended the validity of their offer as requested by the administration, the question of eligible and valid tenderers did not arise. As long as the offers of the tenderers who had participated in the tender were not alive at the time of issue of LOA, they were not at all eligible and valid tenders and therefore they were only L2 and L3 at the time of opening but before examining the eligibility criteria. Further bringing their firms in the LOA itself was against the contract conditions. When the tenderers had withdrawn their offer, the offers of those tenderers annulled as on the date of such withdrawal.
12. I respectfully submit that even assuming that they were valid tenderers, the rates and conditions offered by the other two lowest tenderers should have been made part of the LOA and Agreement and thus should be made known to the lowest tenderer/Petitioner.
13. I respectfully submit that from the careful reading of the above clauses of the conditions in the LOA. Agreement and General Conditions of Contract, they are contradicting each other. The Respondents were not clear to indicate their intention in clear and definite terms to the tenderers. The Respondents were not clear and sure as to the constitution of vitiation in the contract. The contents in the above clauses of variation, vitiation and in other terms of contract were totally contradicting each other and did not produce clear cut meaning of the terms, resulting in confusion.
14. I respectfully submit that the contract was to be executed by the Petitioner as per the instructions, directions, desires and requirement of the Respondent and therefore, even assuming if vitiation occurred due to variation in quantities, the question, which arise for consideration is, in such case who is responsible for such variation.
15. I respectfully submit that the contract conditions also indicated that the Engineer on behalf of the Railway was entitled by order in writing to enlarge or extend, diminish or reduce or make any alterations in their design, character, position, site, quantities, dimensions or in the method of the execution or to order to any additional work to be done or any works not to be done and for the above acts of the administration, the contractor would not be entitled to any compensation.
16. I respectfully submit that it is also pertinent to be noted that in case of foundation work, no variation limit should apply and the work should be carried out by the contractor on agreed rates irrespective of any variation. In the contrary the vitiation clause in the contract indicated that the total value of the work done shall be calculated at the rate offered by the those tenderers and the amount payable shall be limited to the lowest aggregate value as worked out and vitiation as above shall be worked as a whole for agreement including all variation in quantities.
17. I respectfully submit that in contract management, the common understanding and generally accepted frame work is that the rates agreed to between the contractor and the Respondents will be binding till the completion of the contract. The Rules in this regard envisage negotiation to arrive at revised rates for application of the extra work, in case the extra component of work, not governed by the contractual obligation, in case to be executed by the same agency. Though, there was no clear definition is available as to what is meant by vitiation in contract management, one could infer that if due to change in the quantities against various items during execution, if in the final reckoning, the contractor does not turn out to be the most economical for the Railways when the vitiation of the contract is said to have occurred.
18. I respectfully submit that the application of vitiation clause to on account bill payments presupposes that the final picture would be such that the contractor would not be the lowest and therefore, the award of contract itself stood vitiated. Therefore the Applicant is advised to submit that once a contract is concluded, the rates agreed to between the contractor and the Respondents should govern the payment. Invoking the rates quoted by others, to calculate sum payable is against the general understanding of contract law.
19. I respectfully submit that in clause 3(i) under General Conditions of Contract, it is stipulated that the contract shall be governed by the law for the time being in force in the Republic of India. Therefore, I am advised to submit that the vitiation clause in the Agreement is itself arbitrary and against the specific provisions of the Contract Act.
20. I am advised to submit that in an identical arbitration proceedings, the issue/dispute with regard to the applicability of vitiation clause in Respondents' contract was specifically referred to the Railway Arbitral Tribunal and the tribunal had in their award clearly held that Once a contract is concluded, the rates agreed to between the contractor and the Railway Administration should govern the payment. Invoking the rates quoted by others, to calculate sum payable, seem to go against the general understanding of contract law.
The further appeals filed by the Respondents before the single Judge and the Division Bench of this Hon'ble Court were also dismissed, upholding the finding of the tribunal on the non-applicability of the vitiation clause to the Respondents' contracts. Therefore, the issue of application of vitiation clause for recovery of amounts in the contracts of the Respondents is now settled/covered by the Judgment of the Division Bench of this Hon'ble Court and the Hon'ble Division Bench of this Hon'ble Court have clearly upheld that the vitiation clause cannot be applied for recovery in the contracts of the Respondents. The award, order in OP No.469 of 2002 and 315 of 2006 and the Judgment in OSA Nos.463 & 464 of 2009 in the above said case are produced before this Hon'ble Court.
21. I respectfully submit that in these circumstances, the Applicant has been orally informed by the Respondents that from the next on account bill of the Petitioner, which is due to be finalized this week, the recovery is going to be effected by applying the vitiation clause by the Respondents and therefore I addressed the 3rd Respondent, who is the authority effecting recovery of amount under the vitiation clause, on 16.2.2011, elucidating clearly how the Respondents cannot resort to effecting such recovery of amounts from the on account bills of the Applicant. The Applicant is in the process of invoking the arbitration clause in the GCC applicable to the parties to the present contract for adjudication of dispute/issue between the Applicant and the Respondent on applicability of vitiation clause and the validity/legality of recovery of amounts under the said clause in the present contract through arbitration. The Respondents are taking steps to recover amounts from next CC/on account bills, which is due now of the Applicant by applying vitiation clause under the contract. Inspite of due receipt my representation dated 16.02.2011, if the Respondents are allowed to resort to the arbitrarily recover amounts from the on account bills of the Application by applying vitiation clause, the Applicant will be put to serious monitory loss and hardship. The Applicant is therefore advised to file the present application for an order of injunction restraining the Respondents from effecting any recovery from on account bills of the Applicant by applying vitiation clause under Contract No.13/CN/2011 dated 02.02.2011 pending adjudication of the dispute/issue of applicability of vitiation clause in the arbitration. The Applicant has proved prima facie case for grant of such injunction order and balance of convenience in its favour. The Applicant is advised to submit that this Hon'ble Court has wide powers/discretion to grant interim order under Section 9(ii)(e) of the Arbitration and Conciliation Act. If the Respondents are allowed to recover amounts on, CC/on account bills of the Applicant by applying vitiation clause pending adjudication of the applicability of the same in the arbitration proceeding, the Applicant will be put to serious and irreparable loss and hardship and no prejudice would be caused to the Respondents in allowing the present application.
22. The cause of action for the present application arose at Chennai, where the Respondents have their office, LOA was issued by the Respondent, contract agreement was entered into between the parties, work has been executed and payments were made to the Applicant by the Respondents, all within the jurisdiction of this Hon'ble Court and therefore this Hon'ble Court has ample jurisdiction to hear and decide the present application. And on 15.9.2010, when LOA was issued by the Respondent, on 02.02.2011, when the contract agreement No.13/CN/2011 dated 02.02.2011 was entered into between the parties, on 16.2.2011, when the Applicant addressed to the Respondents, on 17.2.2011, when the same was received by the 3rd Respondent and subsequently.
3. The reading of the affidavit itself shows, that the applicant has chosen to approach this Court even before any action was taken on notice issued to the applicant for recovery of amount.
4. The counter has been filed on behalf of the respondents, which reads as under:
1.I am working as the Deputy Chief Engineer/Construction, Southern Railway, Podanur and I know the facts of the case. I am filing this counter affidavit for and on behalf of the Respondents herein.
2.At the outset I deny all the allegations and averments set out in the affidavit excepting those that are specifically admitted hereunder and put the Applicant to strict proof of each and every allegation not so admitted. I state that the present application filed praying for an order of injunction restraining the railways from effecting any recovery on/from bills of the Applicant by applying vitiation clause under Contract No.13/CN/2011, dated 2.2.2011 pending adjudication of the dispute/issue of applicability of vitiation clause in arbitration is not legally maintainable. I state that in effect the prayer of the Applicant is against the very terms of the contract and the applicant seeks for a relief that the Respondents must not invoke a clause in the contract to which the Applicant is a party. Having signed the contract willingly and with open eyes, it is not now open to the Applicant to contend that the said clause is unenforceable and should not be operated against the Applicant.
3.I further state that though recovery of the sums cannot be effected, in terms of clause-52 and 52A of the General Conditions of Contract which forms part of the agreement between the parties, it is always open to the administration to withhold the sums due to the Applicant under the subject contract or any other contract in the railways pending adjudication in arbitration.
4.With regard to the averments set out in para-2 of the affidavit, I state that on the basis of the rate quoted by the Applicant for the work of 'Gauge conversion between POLLACHI-PODANUR-Proposed construction of Major Bridge No.246, 260, 266 & 273 and other related works in between POY-PTY Section' has been awarded to the applicant under Letter of Acceptance dated 15.9.2010 bearing No.W.496/DPC/48/CN/7384 and the agreement has been executed between the Applicant and the Chief Engineer/Construction, North, Chennai Egmore.
5.With regard to the averments set out in para-3 of the affidavit, I state that there are five annexure.
Annexure 'A' - Rs.2,76,50,607/-
Annexure 'B' - Rs. 10,66,861/-
Annexure 'C' - Rs.2,97,76,200/-
Annexure 'D' - Rs.4,39,40,000/-
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Total - Rs.10,24,33,668/-
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6.With regard to the averments set out in para-4 of the affidavit, I state that the date of issue of the letter of acceptance was 15.9.2010 and the programme chart was submitted by the applicant was 21.10.2010.
7.With regard to the averments set out in para-5 of the affidavit, I state that the applicant has accepted the agreement conditions and signed the agreement.
8.With regard to the averments set out in para-6 of the affidavit, I state that clause No.43 & 44 are applicable to variation and vitiation which arise during the execution of the work.
9.With regard to the averments set out in para-7 of the affidavit, I state that the clause-42 of General Conditions of Contract provides for variation in quantities in contract.
10.With regard to the averments set out in para-9 of the affidavit, I state that payment will be made to the applicant as per the agreed terms and conditions of the contract which are provided in the agreement which is accepted by the applicant.
11.With regard to the averments set out in para-10 of the affidavit, I state that as per Note (ii) of Letter of Acceptance, Vitiation and variation, if any, will apply as per Clause-44 & 43 of Special Conditions of Contract respectively. Vitiation will be calculated comparing the rates of eligible L2 and L3 that is M/s.RSV RAILONE (JV) and M/s.V.K.Engineering Construction (JV). Vitiation will be worked out and deducted from each and every part bill. These conditions were accepted by the applicant while accepting the Letter of Acceptance. Objections were raised by the applicant for the first time only on 16.2.2011.
12.With regard to the averments set out in para-11 of the affidavit, I state that notwithstanding that the L2 and L3 tenderers have not extended the validity of their offers, their offer were the validly received 2nd and 3rd lowest offers and therefore in the event of vitiation occurring due to increase/decrease in quantities among the first, second and third due to increase/decrease in quantities among the first, second and third lowest tenderers, the vitiation shall be to the applicant's account as per vitiation clause 44.0 of additional instructions & special conditions of contract.
13.With regard to the averments set out in para-12 of the affidavit, I state that the other two tenders were valid tenders and not the lowest tenderers as compared to the applicant's rate, overall. Hence, the letter of acceptance was issued to the applicant and for vitiation the two valid tenderers names had been mentioned for arriving at the quantum of vitiation, etc.
14.With regard to the averments set out in para-13 of the affidavit, I state that as per the conditions of the contract and the General Conditions of Contract, vitiation has to be recovered in accordance with the progress of the execution of the work.
15.With regard to the averments set out in para-14 of the affidavit, I state that as per the conditions of the letter of acceptance, vitiation will be worked out as per the execution of the quantities and will be recovered from each and every part bill.
16.With regard to the averments set out in para-15 of the affidavit, I state that the same are as per the Special conditions of the contract.
17.With regard to the averments set out in para-16 of the affidavit, I state that the same has also been provided in the agreement.
18.With regard to the averments set out in para-17 of the affidavit, I state that this condition is also available in the agreement under clauses 44.1 and 44.2.
19.With regard to the averments set out in para-18 of the affidavit, I state that there is no violation in recovering the vitiation amount. The same will be done as per the General Conditions of the Contract.
20.With regard to the averments set out in para-19 of the affidavit, I state that the proposed vitiation is as per conditions of the contract and hence, there is no arbitrariness.
21.With regard to the averments set out in para-20 of the affidavit, I state that the vitiation clause is incorporated and as per the General Conditions of Contract.
22.In view of all the above, the present application may please be dismissed with costs.
5. Learned counsel for the applicant vehemently contended, that vitiation clause on which reliance was placed by the respondents to make recoveries is not a valid clause, therefore, is not capable of being enforced against the applicant. In support of this contention, learned counsel for the applicant has placed reliance on the award passed by the Arbitral Tribunal in the case of M/s.Best Cast Construction (P) Ltd., Anna Nagar, Chennai vs. The Union of India, dated 21.01.2005.
6. The reliance placed on this award is totally misconceived. It is not open to a party to place reliance on the award passed by the Arbitral Tribunal in the High Court, as it is not precedent. Even otherwise, the finding of the arbitral tribunal was by way of interim award, where in was held as under:
"In the wake of the above, the rates offered by the other two lowest tenderers should have been made part of the agreement. But this was not done by Respondent. However, the respondent have applied this clause to on account bills. So much so, an amount of about Rs.30.98 lakhs was recovered out of the dues towards the value of work done, amounting to about Rs.150 lakhs. The sums recovered sofar, works out to 20.61% of the value of the work done, calculated at the rates accepted between the claimant and the respondent. An amount of Rs.10 lakhs out of the above recoveries has been refunded, in compliance with the High Court's order.
Until the work is completed and the final picture emerges, it would not be possible to know if 'vitiation' has occurred at all. Applying the vitiation clause to stage payments presupposees that the final picture would be such that the contractor would not be the lowest and hence, the award of contract to him, stood 'vitiated'. 'Vitiation' aspect, that could possibly occur during the execution of the contract, is required to be taken care of before award of the contract. Once a contract is concluded, the rates agreed to between the contractor and the Railway Administration should govern the payment. Invoking the rates quoted by others, to calculate sum payable, seem to go against the general understanding of contract law.
Notwithstanding the above, the arbitral tribunal find that in this case there have been some changes during execution of the contract. Due to decrease in depth of piles, the number of piles got increased; the provision of a continuous girder originally planned, was changed to, two simply supported girders during execution; non-operation of certain items such as provision of MS liners and extension of the currency of the contract, beyond the original period by already over by a year or so, on grounds-not attributable to the contractor-has also taken place. In other words, the conditions intended initially for governing the execution of the contract have undergone a change. Therefore, the payment conditions envisaged originally, even if held to be otherwise logical and sound, appear no longer valid for application.
Taking the totality of the circumstances obtaining in this case, the Tribunal make this interim award that, the recoveries made towards 'vitiation from the contractor for the work done so far, be refunded without interest for the period withheld and further payments be regulated as per the rates agreed to between the contractor and the Railway administration, without invoking the 'vitiation' clause.
7. The reading of the Award does not show, that the vitiation clause was held to be bad, but by way of interim award, it is held, that it was not rightly applied.
8. The contention of the learned counsel for the applicant, that because this award has been upheld by the Hon'ble Single Judge and the appeal was dismissed by the Division Bench, would constitute a bar to apply vitiation clause cannot be accepted, as this Hon'ble Court merely upheld the award and did not hold, that vitiation clause was bad in law.
9. Learned counsel for the applicant vehemently contended, that there is admission by the respondents in para-12 of the counter, that L2 & L3 tenderers did not extend the validity of their offers, therefore, it is not open to the applicant to apply vitiation clause based on the tenders of L2 and L3, as it cannot be said, that these are valid tenders for want of extension.
10. It was the contention of learned counsel for the applicant, that the averments made in para-12 of the counter, that rates submitted by L2 and L3 would be applied in the event of vitiation proved, that the applicant has prima facie case. This contention of the learned counsel for the applicant is totally misconceived. The stand of the respondents in para-12 of the counter is, that though the validity of tenders was not extended, but the tenders were validly received and their validity is not in doubt, at the time the tender was awarded to the applicant.
11. Learned counsel for the respondents therefore was right in contending, that it is not open to the applicant to challenge the proposed action of the respondents in invoking vitiation clause, on the ground of want of extension of tenders. It may also be noticed here, that it is not disputed, that vitiation clause is a part of contract entered into between the parties. The Arbitrators, being creation of agreement,are bound by the terms of agreement, therefore, in exercise powers under Section 9, no injunction, which violates the contract between the parties, can be ordered, as the jurisdiction under Section 9 is only to pass interim orders subject to the final orders to be passed in arbitration.
12. The contention of the learned counsel for the applicant, that the respondents applied the vitiation clause, in violation of the contract, therefore, the applicant is entitled to injunction, is again misconceived. No presumption can be drawn, that the authority will go against the law rather the presumption is that the authority would act in accordance with law, unless proved otherwise.
13. The cause of action, if any, can arise to the applicant only after action is taken to enforce the vitiation clause and not prior thereof. The application on the face of it is misconceived.
14. The learned counsel for the applicant placed reliance the orders of this Court in M/s.Eagle-Omega and KR & Co.(JV) vs. The General Manager, Southern Railway, Chennai and another (O.A.No.149 of 2011),decided on 01.02.2012, wherein this Court was pleased to order, that the respondents will be at liberty to recover 50% of the amounts from next on-account bill of the applicant by applying vitiation clause, subject to passing of award by the Arbitrator. This judgment cannot be said to be precedent to hold, that the applicant is entitled to injunction, as the reading of this order shows, that vitiation clause was upheld, therefore, this judgment goes against the contention of the learned counsel for the applicant, that vitiation clause is not a valid clause or enforceable in law.
15. The Hon'ble Supreme Court in the case of H.M.Kamaluddin Ansari and Co. vs. Union of India and others, (1983) 4 SCC 417, was pleased to lay down as under:
Held:
(1) The court has power under Section 41(b) read with Second Schedule to the Arbitration Act to issue interim injunction only for the purpose of and in relation to arbitration proceedings. So where the appellant had moved an application under Section 33 denying the applicability of the arbitration clause to him, he cannot take advantage of Section 41(b).
The appellant cannot, for getting an injunction under Order 39, CPC, rely on clause (a) of Section 41. That clause makes only the procedural rules of the Code of Civil Procedure applicable to the proceedings in court under the Arbitration Act, and does not authorise the court to pass an order of injunction. That power is conferred by clause (b) of Section 41, and therefore, for an injunction under Order 39, CPC the conditions of clause (b) of Section 41 must be satisfied.
The earlier decision of the Supreme Court in Raman Iron Foundry case s right insofar as it held that the court cannot pass an interim injunction against the purchaser restraining it from withholding payments under the other contracts since they were not the subject-matter of the arbitration proceedings before the Court. Such an injunction would amount to a direction to the purchaser to pay the amounts due to the supplier under the other contracts.
But the court went wrong in that case in upholding the interim injunction on the ground that it was a negative injunction which only prevented the Union of India from recovering suo motu the damages claimed by it from the pending bills of the respondent and did not amount to a direction to pay the other amounts to the supplier, and that the Union of India could refuse to pay such amounts if it thinks it has a valid defence and if it chooses to do so there would be no breach of the injunction order. This is incongruous with the earlier proposition of law. It is a contradiction in terms to say that a party is injuncted from withholding the amount and yet it can withhold as of right. It would be an ineffective injunction order.
Union of Indoa v. Raman Iron Foundtry, (1974) 2 SCC 231: AIR 1974 SC 1265: (1974) 3 SCR 557, overruled on this point.
There was therefore no error in the order passed by the High Court refusing to pass an injunction order against the Union of India restraining it from withholding payment under the other bills of the appellants since that would have virtually amounted to a direction to pay the amounts to them.
As regards interpretation of Clause 18 of the Standard Contract, the change in its opening words is significant. Also the heading to the clause cannot control the plain and unambiguous meaning of the words used in Clause 18.
So construed Clause 18 unequivocally contemplates a claim for payment and it is open to the Union of India to appropriate any amount due to the contractor under other pending bills. It is not necessary, that there should be a sum of money due and payable by the contractor to the purchaser, but it was enough if there was a mere claim on the part of the purchaser for payment of a sum of money by the contractor irrespective of the fact whether such sum of money was presently due and payable or not. Hence Clause 18 would include a claim for damages which is disputed by the contractor. It gives ample power to the Union of India to recover the amount claimed by appropriating any sum then due or which at any time thereafter may become due to the contractor under other contracts.
Union of India v. Air Foam Industries (P) Ltd., AIR 1973 Del 253: 1973 Rajdhani LR 116, overruled on this point.
Hence though the Union of India can certainly be injuncted from recovering or appropriating the amounts under the other bills of the contractor to the damages claimed, it cannot be injuncted from withholding such amounts under other bills.
Mohan Meakin Breweries Ltd. v. Union of India, AIR 1975 Del 248, approved.
Union of India v. Raman Iron Foundry, (1974) 2 SCC 231: AIR 1974 SC 1265: (1974) 3 SCR 557 and Marwar Tent Factory v. Union of India. AIR 1975 Del 27: 1974 Rajdhani LR 218, referred to The Union of India has conceded to the grant of an injunction restraining it from recovering or appropriating the amount lying with it in respect of other claims of the contractor towards its claim for damages."
16. Again the Hon'ble Supreme Court in the case of Sant Ram & Co. vs. State of Rajasthan and others, (1997) 1 SCC 147, has laid down, that the Court cannot grant any interim injunction, which in fact amounts to grant of relief sought in the arbitration itself.
17. Even as per the showing of applicant, reference sought is that no recovery can be made by applying vitiation clause, which is the final relief. Therefore, no relief can be granted by way of interim measure as claimed by the applicant, in view of the settled law.
18. From the above, it is clear, that the applicant has approached this Court even before cause of action arose. Prima facie it is not open to the applicant to challenge the vitiation clause, as it is a part of contract, and will be binding on the Arbitrator. Once the Arbitral Tribunal, which is creation of agreement cannot go contrary to the terms of the contract, the relief as claimed cannot be granted to declare the vitiation to be bad in exercise of jurisdiction under Section 9.
19. The Arbitral Tribunal would be entitled to consider the action taken by the respondents in applying the faults in vitiation clause, which is yet to be done. It is, therefore, not understood how the application for interim injunction is competent at this stage.
20. The recovery of money otherwise also cannot be said to be irreparable injury, which can entitle the applicant to main the application for injunction, pending arbitration proceedings, as the pre-requisite to grant injunction in exercise of power under Section 9 of the Arbitration and Conciliation Act is,
i)prima facie case;
ii)balance of convenience; and
iii)irreparable loss and injury.
VINOD K. SHARMA,J., ar
21. In this case, neither the applicant has been able to show prima facie case, nor injury can be said to be irreparable, which could entitle the applicant to injunction pending arbitration proceedings.
22. Consequently, finding no merit in this application, it is ordered to be dismissed. No costs.
22.04.2013 Index: Yes Internet: Yes ar Pre-Delivery Order in
O.A.No.198 of 2011