Andhra Pradesh High Court - Amravati
Andhra Pradesh Power Generation ... vs Navayuga Engineering Company Ltd., on 31 October, 2019
Author: M.Ganga Rao
Bench: M.Ganga Rao
THE HON'BLE SRI JUSTICE M.SEETHARAMA MURTI
And
THE HON'BLE SRI JUSTICE M. GANGA RAO
Civil Miscellaneous Appeal no.342 of 2019
JUDGMENT:
This civil miscellaneous appeal by the unsuccessful 1st respondent is directed against the ex parte ad interim injunction order, dated 13.08.2019, granted by the learned XIV Additional District Judge cum Additional Family Judge, Vijayawada, in IA.no.373 of 2019 in AOP no.212 of 2019.
We have heard the submissions of the learned Advocate General appearing for the appellant - 1st respondent and of Sri Subba Rao Ginjupalli, learned senior counsel appearing for the 1st respondent - petitioner. The other respondents are the Banks, from which the petitioner provided the bank guarantees. The said banks are stated to be not necessary parties. We have perused the material record.
The parties in this CMA shall hereinafter be referred to as arraigned in the AOP for convenience and clarity.
From the pleadings on record, written and oral submissions made on either side, the following facts are discernible.
The 1st respondent intended to set up a 12x80 MW Polavaram Hydro Electric Project at Anguluru village at about 35 Kms from Rajahmundry and 42 Kms upstream of the Dowlaiswaram Barrage in Andhra Pradesh for the purpose of generating and selling electrical energy. The petitioner entered into the contract, dated 20.12.2017, (subject contract) with the 1st respondent. The petitioner shall be responsible for the design, engineering, manufacturing, testing at manufacturer's works before dispatch, supply, transportation, 2 MSRMJ&MGR,J CMA_342_2109 storage at site, insurance, erection, testing and commissioning of 12x80 MW Hydro Power generation stations consisting of 12 units vertical full Kaplan type turbine generator units each with a site rated guaranteed capacity of 80 MW including all associated, auxiliary and ancillary equipment, 400 KV GIS and power evacuation structures including all civil works of power house, pressure tunnels, approach channel, intake pool, intake structure, T.R.P, T.R.C etc., and hydro-mechanical works (gates, hoists and trash rack etc) of Polavaram Hydro Electric Project on EPC (turnkey) basis [hereinafter referred to as 'project']. The total value of the contract is a sum of Rs.3220.28 Crores as specified in Article 4 of the contract. The contract works were to be completed as per Clause 8.2 of the conditions of contract. After execution of the contract, 10% of the contract price (with applicable taxes & duties) was provided/advanced, on 06.01.2018, as interest bearing advance payment for mobilization against the bank guarantee. From the date of such payment, the zero date commenced. The time of completion of project is to be calculated from the date of handing over of the work front or six months after zero date, whichever is earlier. Two milestone advance payments as per clause 6(V) of the contract, viz., Rs.193.21 Crores and Rs.123.28 Crores respectively on completion of basic designs and completion of model test were also made to the petitioner (contractor) against bank guarantees. Before handing over of the site to the petitioner, certain excavation work has to be carried out. Be that as it may. 1st respondent submitted a proposal, on 25.10.2018, for shifting of power house structure by 30 M downstream. The petitioner sought extensions of time. Petitioner also sent a letter, dated 08.03.2019, to the Chief Engineer as regards cost analysis of the power house shifting proposal. Shifting designs submitted by the petitioner were approved in April, 2019, according to the petitioner. Work site was not handed over due to non 3 MSRMJ&MGR,J CMA_342_2109 completion of excavation work to be done under a separate contract. Petitioner addressed certain letters, dated 25.01.2018, 28.02.2018, 13.07.2018, 26.10.2018, 29.11.2018 & 24.12.2018, as delay in works completion is inevitable. Since the petitioner is entrusted with the project under the subject contract and the excavation work was not included in the subject contract, the excavation work was also later awarded to the petitioner on nomination basis as per the supplemental agreement, dated 28.05.2018. The said supplemental agreement is for the following work: - "Investigation, survey, preparation of designs & drawings and L.P Schedules etc., (Balance) and (1) construction of Earth Dam Gaps, I & III, Earth cum Rock Fill Dam for Gap-II, Spill Channel, Approach Channel and Piolot channel (2) Construction of Spillway with crest level +25.72 m and its ancillary works and (3) Excavation of foundations of 960 MW Hydro Electric Power House, Approach channel, Intake structure, Tail race pool, Tail race channel etc., of Polavaram Irrigation Project on EPC Turn Key including O &M - Part of balance works deleted from Original E.P.C agency and entrusted to M/s Navayuga Engineering Company Limited including O & M for 5 years including defect liability period." Thus, the petitioner was required to execute the works under both the contracts namely the first work of excavation under the supplemental agreement enabling the handing/taking over of the site for the execution of the next work under the subject contract. Be that as it may. The Chief Engineer addressed a letter, dated 29.07.2019, to the petitioner stating inter alia as follows: - 'The part of the above subject work, that is, part of balance work in spillway and spill channel etcetera was entrusted to the petitioner for Rs.1244.35 Crores with a period of 18 months from the date of concluding agreement vide the letter in first reference, dated 27.02.2018 (i.e., upto 26.08.2019). Further, additional work, that is part of balance work in spillway and spill channel, power house 4 MSRMJ&MGR,J CMA_342_2109 foundations etcetera was entrusted for Rs.918.76 Crores with a period upto 26.08.2019 vide letter in second reference, dated 28.05.2018. In addition to the above, the balance work of main dam package i.e., Coffer dams, ECRF Dam Gap I, approach channel etcetera were entrusted for Rs.751.55 Crores with an agreement period of 18 months i.e., upto 10.07.2020 vide letter in reference 3rd, dated 11.01.2019. During the meetings conducted by the expert committee, it was opined that the entrustment of part of works deleted from the original EPC agency under clause 60C of PS to APSS to the petitioner on nomination basis by converting EPC contract to LS contract is not appropriate. The committee opined against issue of relaxing the agreement clauses for procurement of diesel through special revolving fund and procurement of steel and cement through direct payments by the department to the suppliers. In view of the above opinion to pre close and terminate the above nominated LS contract agreement for convenience as per clause 89.3 of GCC of agreement and entrust the balance works to the new agency by calling fresh tenders by ensuring transparency in tendering system.' In the said letter, it is proposed to pre close and terminate the above LS contract agreement with the petitioner and the petitioner's consent was sought for pre closure of the same on mutual consent basis. The petitioner addressed a letter, dated 03.08.2019, to the Chief Engineer expressing willingness to amicably foreclose the contract under the convenience clause subject to fulfillment of certain requirements and paved way. Eventually, the said agreement related to excavation work was pre closed by mutual consent. Later, the excavation work under the supplemental agreement, which was foreclosed, was not entrusted to a new agency. Therefore, the excavation work that is to be done has come to a standstill. Therefore, there is no prospect of handing over of the site to the petitioner for execution of the work under the subject contract. Admittedly, as the site was 5 MSRMJ&MGR,J CMA_342_2109 not handed over, the petitioner has not commenced the work at the site though the subject contract was entered into on 20.12.2017 and admittedly, huge mobilization advance and two time line advances were made and received respectively on 06.01.2018, 31.03.2018 and 28.06.2018 against bank guarantees furnished by the petitioner. While so, the 2nd respondent addressed a letter, dated 19.07.2019, to the petitioner notifying that all works and activities of the project without any exception under the subject contract shall be stopped with immediate effect until further orders. Hence, apprehending that the 1strespondent may encash the bank guarantees furnished by the petitioner, the petitioner filed the instant AOP under Section 9 of the Arbitration and Conciliation Act, 1996 ['the Act', for short] pursuant to the arbitration agreement between the parties to the subject contract. The petitioner also filed the subject IA.no.373 of 2019 in the said OP.The said learned Judge of the Court below granted an ex parte ad interim injunction order restraining the 1st respondent from invoking the bank guarantees and also restraining the banks from allowing the encashment of bank guarantees. Aggrieved of the said order, the 1st respondent filed the present CMA.
It is not out of place to note that the Chief Engineer, by a letter, dated 14.08.2019, terminated the subject contract with immediate effect pursuant to clause 13.1 of the Contract. Aggrieved thereof, the petitioner filed a writ petition in WP.no.11164 of 2019 before this Court and the said writ petition is pending.
In this backdrop, the contentions of the petitioner, which are necessary for consideration, are as under.
The arbitration clause contained in Article 10 of the contract and clause 17.2 of conditions of the contract provide for resolution of all disputes and differences arising under or in connection with the contract by reference of the 6 MSRMJ&MGR,J CMA_342_2109 parties to the arbitration and the seat is at Vijayawada. The bank guarantees from eight banks numbering 12, as detailed in the AOP, were provided by the petitioner in compliance of the contractual provisions. The bank guarantees covered by exhibits B to M are conditional bank guarantees. They make an explicit reference to the underlying contract and permit an invocation only in case of failure of the petitioner to adhere to the terms and conditions of the contract. There is no contractual default by the petitioner. The 1st respondent will be committing an illegal breach of the contract by issuing the memo, dated 01.07.2019, and in wrongfully stopping all the works and activities of the project without any reason whatsoever and without there being any breach on the part of the petitioner. The 1st respondent resorted to drastic step of stopping all the activities and works of the project without assigning any reasons and by abusing its executive power. The petitioner reasonably apprehends that there is every likelihood of termination of contract and invocation of bank guarantees furnished by the petitioner. Hence, the AOP and the interlocutory application are filed.
The Court below after hearing the learned counsel for the petitioner granted an ex parte ad interim injunction restraining the respondents from encashing the bank guarantees till the filing of the counter by the respondents and ordered urgent notice and posted the matter to 03.09.2019.
As already noted, aggrieved of the said order, the 1st respondent filed the present CMA.
The case of the 1st respondent is this:
The application filed by the petitioner before the Court below does not meet the requirements with regard to maintainability of the interlocutory application under the rules of arbitration framed by the High Court and also the 7 MSRMJ&MGR,J CMA_342_2109 law declared by the Supreme Court. The order of the Court below is contrary to the terms of the contract relating to furnishing and encashment of the bank guarantees. The Court below failed to appreciate that the petitioner furnished bank guarantees against the amounts tendered by the 1st respondent towards mobilization advance, two milestone advances and other monies contracted under the primary contract (subject contract) and that public monies were involved in the subject matter. The conclusion of the Court below in the impugned ex parte order that bank guarantees cannot be invoked at this stage is palpably perverse and is one arrived at on perverse appreciation of facts and law. The terms of bank guarantee were incorrectly projected by the petitioner to secure the impugned order. The petitioner did not approach the Court with clean hands. The Court below failed to see that public interest and public money are involved and, therefore, it ought to have issued urgent notice more particularly when the AOP was filed on 25.07.2019 and was taken up for hearing on 13.08.2019, which would indicate that no urgency warranted granting of an ex parte injunction without notice. The Court below ought to have seen that the subject matter in regard to invocation of bank guarantees is separate and is governed by a separate contract and neither the terms of the primary contract nor the terms of the bank guarantee impinge on either parties rights to regulate their conduct vis-à-vis the bank guarantees. The Court below is primarily concerned with the terms of bank guarantee and not with any contentious contractual rights between the parties arising from the primary contract. The Court below ought to have seen that the pleas of the petitioner are self serving and the allegations of breach of the contract on the part of the 1st respondent have no bearing on the right of the 1st respondent to operate the agreements of bank guarantees. The petitioner chose not to file the entire correspondence between the parties touching upon the contract and selectively 8 MSRMJ&MGR,J CMA_342_2109 relied upon part of the correspondence. The said conduct disables the petitioner to secure the discretionary relief under Section 9 of the Act. The Court below has not considered any part of the agreement relating to bank guarantee or its clauses. It shows the perverse approach of the Court below. Having regard to the totality of the facts & circumstances, the Court below ought to have seen that it is the petitioner who continues to unjustly enrich itself on the public monies advanced to it though there is no progress in the project. The Court below ought to have seen that the bank guarantee is independent and distinct from contractual rights emanating from the primary contract and the Court below erred in not adverting to the distinction between the two contracts while granting the ex parte injunction. The order under appeal is bad in law and contrary to mandatory provisions of Rule 3 of Order XXXIX CPC. The petitioner did not plead as to their intention for invocation of arbitration proceedings, which is a sine qua non for maintenance of AOP under Section 9 of the Act. The provisions of Order XXXIX Rule 3 CPC have been judicially held to be applicable to proceedings under Section 9 of the Act. The Court below erred in not complying with the mandate of Rule 3 of Order XXXIX CPC. The Court below erred in not appreciating that there is no justification in the relief prayed for and that the petitioner failed to plead and demonstrate the facts warranting granting of an ad interim measure. The right of the 1st respondent to invoke the bank guarantees is enshrined in the agreement between the parties and there is no plea of egregious fraud in the bank guarantees or in the underlying contract. The interim measure restraining the appellant from invoking the bank guarantees was not justified in fact or law.
We have given earnest consideration to the facts and submissions. In view of the contentions, it is necessary to note the operative portion of the impugned order passed by the Court below, which reads as under: 9
MSRMJ&MGR,J CMA_342_2109 "Hence, an ad-interim injunction is granted restraining the 1st respondent to invoke the bank guarantee in between respondents 2 to 9 with R.1 and also restraining the respondents 2 to 9 from allowing the encashment of aforesaid bank guarantee by R1 till filing of the counter by respondents. Meanwhile, issue urgent notice to respondents." The first contention of the petitioner is that the appeal is not maintainable against the ex parte ad interim injunction in view of the fact that the 1st respondent has the remedy of filing counter or a vacate petition before the Court below. In support of the said proposition, reliance is placed on the following decisions: (i) I. Sudershan Rao and others v. Evershine Builders Pvt.Ltd., and another [(2012) 5 ALD 715 (DB)]; and (ii) Innovative Pharma Surgicals v. Pigeon Medical Devices Pvt.Ltd., & Ors [(2004) 2 APLJ 371 (DB)].
From a reading of the two decisions relied upon by learned counsel for the petitioner, it is clear from the ratios that though an appeal is maintainable, such an appeal should be filed only in extraordinary circumstances under which the party is able to explain as to why he prefers an appeal in the High Court instead of choosing to file a petition to vacate the ad interim injunction. Even in case of appeal against an ad interim injunction the appellate Court will not be bound to apply its mind to all the contentions, which the original Court is bound to consider on the case shown by the party affected by ad interim order.
Per contra, learned Advocate General contended that the mandatory provisions of Order XXXIX Rule 3 CPC have not been complied with though they are equally applicable to an application filed under the Act in view of the decision in Anjaiah Chary v. T. Satyanarayana and others [2014 (3) ALD 107 DB] wherein it was held as follows:
'Thus, from a reading of the aforesaid judgment of the Hon'ble Supreme Court, it is clear that ordinarily the interim relief should not be granted without serving any notice on other side, but in exceptional circumstances if the interim relief is required to be granted without serving any notice, the aforesaid requirement is a must. The legislature thought it fit that the 10 MSRMJ&MGR,J CMA_342_2109 Court must be satisfied with exigency of the facts for grant of an ex parte interim order, and such satisfaction must be recorded to inform any one including adversary as to why ex parte ad interim relief is granted. In our view, in judicial field exercise of arbitrary action cannot at all be tolerated. If any authority does not act in terms of provisions of law then such act and omission yield a situation of arbitrariness. We, therefore, set aside the judgment and order of the learned single Judge. We request His Lordship to consider the prayer for interim relief afresh, after hearing the parties in this case, at an early date..' He also relied upon the decision in Arvind Constructions Company Pvt.Ltd., v. Kalinga Mining Corporation and others [2007(6) SCC 798] in support of the said proposition. He also placed reliance on the decision in Valluru Hemalatha v. Settipalli Panduranga Rao [2001(2) ALD 270 (DB)] in support of the proposition that the Court granting ad interim ex parte injunction is required to give reasons for dispensing with issuance of notice to the defendant before granting such an order and that in the case on hand, the Court below failed to record any such reasons and that, therefore, the impugned order is one passed in violation of Order XXXIX Rule 3 CPC. He would also contend that while granting ex parte ad interim injunction the trial Court failed to follow mandate in Order XXXIX Rules 3(a) & (b), which mandate that the Court shall direct the applicant to deliver to the opposite party or to send to him by registered post immediately after the order granting the injunction has been made, a copy of the affidavit filed in support of the application, copy of the petition in AOP and copies of documents on which the applicant relies upon and to file, on the day on which such injunction is granted or on the day immediately following that day, an affidavit stating that the copies aforesaid have been so delivered or sent. On the basis of the above contentions, he contended that the appeal is maintainable.
On a plain reading of the order impugned, it is plainly clear that the Court below, which proposed to grant an ex parte ad interim injunction 11 MSRMJ&MGR,J CMA_342_2109 without giving notice to the appellant herein failed to record reasons for its opinion that the object of granting the injunction would be defeated by delay in the event notice is ordered and further failed to give necessary directions to the petitioner for compliance of Rule 3(a)&(b) of Order XXXIX CPC referred to supra. The Court below also did not advert to in its order, which is impugned, the material documents and the contents thereof though the law requires the Court below so to do. The Court below having noted the fact that the temporary injunction is being sought not to invoke bank guarantees failed to examine and record an ex facie finding on the aspect as to the requirement of existence of exceptional circumstances, which are required to be satisfied before granting an ex parte order. Though, while granting the ex parte ad interim injunction the Court below recorded a finding to the effect that the whole purpose of petition as well as the terms of the contract would be of no use, yet that is not the criterion much less the sole criterion for granting an ex parte injunction order in respect of invocation of bank guarantees as in every application seeking an order not to invoke the bank guarantees, if no ex parte order is granted, there will be a likelihood of invocation of bank guarantees. Therefore, in all such cases including the case on hand, the Court below is required to examine the facts & circumstances peculiar to the case and record a finding as to whether the special requirements for granting an ex parte order of injunction from invoking the bank guarantee are ex facie established before granting an order. The Court below failed to do so while passing the impugnedex parte order.
Having regard to the facts & submissions and reasons aforesaid, this Court finds that the appeal is maintainable and that for the aforesaid reasons, the ad interim ex parte injunction, which was passed without following the mandate of law, is liable to be vacated. However, since this appeal is filed 12 MSRMJ&MGR,J CMA_342_2109 against an ex parte ad interim injunction order passed in an interlocutory application, this Court is of the view that the matter requires to be remitted to the Court below for disposal of the AOP filed under Section 9 of the Act itself on its merit as, as per settled law, no interlocutory application need be filed in a AOP filed under Section 9 of the Act seeking interim measures.
Before parting, it is pertinent to note that the learned Advocate General further contended as follows: - 'The matter involves a commercial dispute. Therefore, the AOP ought to have been filed in a commercial Court established in the District and not before the ordinary civil Court. Hence, the Court which entertained the AOP has no jurisdiction. The relief of injunction not to invoke bank guarantees can only be granted under exceptional circumstances namely
(a) fraud of egregious nature which vitiates the very basis of the contract, (b) demonstration of special equities; and (c) pleading and proof of irreparable loss of irretrievable nature as per settled law. The circumstances do not exist in the case on hand.'He also placed reliance on certain decisions on this aspect.
He further contended that the ex parte ad interim injunction should not have been passed when public interest and huge public money is involved and no urgency is demonstrated.
He finally contended that the bank guarantees are independent contracts, independent of the primary contract related to the project and that the bank guarantees contained a non obstante clause and, therefore, the petitioner is not entitled to the relief of injunction or interim measure.
While supporting the impugned order, learned senior counsel advanced reply arguments on the above aspects and contended that the petitioner is entitled to the relief of temporary injunction.
13
MSRMJ&MGR,J CMA_342_2109 As we are setting aside the impugned order for the reasons aforestated, and as we are remitting the matter for disposal of the AOP itself on its merit, there is no need to record any findings on the rival contentions as it is for the Court below to consider comprehensively all the contentions of both the sides and pass an order on merits of the matter, as per the procedure established by law.
In the result, the Civil Miscellaneous Appeal is allowed and the impugned order is set aside. However, the Court below is directed to dispose of the AOP itself on its merit in strict accordance with the procedure established by law, however, uninfluenced by the observations, if any, made in this order and as expeditiously as possible and preferably within two (2) weeks from the date of receipt of a copy of this order. Till such time, the parties shall maintain status quo obtaining as on this day.
No order as to costs.
Miscellaneous petitions pending, if any, shall stand closed.
_____________________ M.SEETHARAMA MURTI, J ________________ M. GANGA RAO, J 31.10.2019 Note:Issue CC by 02.11.2019 B/o Vjl THE HON'BLE SRI JUSTICE M.SEETHARAMA MURTI And THE HON'BLE SRI JUSTICE M. GANGA RAO 14 MSRMJ&MGR,J CMA_342_2109 Civil Miscellaneous Appeal no.342 of 2019 31.10.2019 Vjl