Andhra HC (Pre-Telangana)
C. Raghava Reddy vs Superintending Engineer, Nizamabad ... on 20 February, 1987
Equivalent citations: AIR1988AP53, AIR 1988 ANDHRA PRADESH 53
JUDGMENT Jeevan Reddy, J.
1. The Civil Miscellaneous Appeal is preferred against an interlocutory order passed by the learned Subordiante Judge, Medak. in a suit filed under S. 20 of the Arbitration Act. The appellant entered into a contract with the respondents (representing the Government) or construction of Masonry Blocks of Spill-aay at left flank of Signoor Project. The work was to be completed within 18 months, i.e., by 23-5-1985. It was not so completed. At he appellant's request time was extended on more than one occasion. Meanwhile. disputes rose between the parties with respect to certain other matters as a result of which the appellant stopped the work with effect from 4-1-1986. The respondents thereupon stopped ill further payments as contending that the agreement as extended expired on 30-6- 1985. The appellant then raised a dispute claiming a sum of Rs.33 lakhs from the Despondent. The respondents not only disputed the appellants claim but in turn claimed an amount of Rs.21,58,000/- from the appellant representing the loss suffered by the Government on account of the appellant's abandoning the work. which they were obliged to get completed through .another contractor. The 1st respondent, i.e., the Superintending Engineer, I.D. Irrigation Circle - 3. Nizamabad, thereupon addressed letters to all other Circles in the State 10 withhold payments due to the appellant upto Rs.21,58,000/- The letter reads as follows:-
BY REGD. POST ACK. DUE:
GOVERNMENT OF ANDHRA PRADESH No.,- - - - - - Dated -- - - - - - -
From:
Sri D. Muthyalu, B.Sc., B.E., MIE, Executive Engineer, I.D..
Singur Project Darn Dvn. No. 2, P.O. Singur, Medak District PIN 502 293.
To, The Executive Engineer, I.D., Sir, Sub: Singur Project - Construction of Blocks 7 to 14 up to EL + 504.00 closing of work of Sri C. Raghava Reddy, Contractor under Clause 61 of APSS - Recovery of amounts due to the department - Reg.
Sri C. Raghava Reddy, contractor was entrusted with the work of construction of spillway blocks from 7 to 14 up to EL + 504.00. The contractor was not able to do the work in spite of extensions and he deserted the work from 4-1-86. As such the contract was closed under clause '61' of APS5 on l6-l- 86. The extra cost involved in carrying out the balance work deserted by the contractor comes to about Rs.21,89.300/-. Hence 1 request you to kindly send the amounts that are payable to Sri C. Raghava Reddy from your works to this Division, in favour, of Executive Engineer. Dam Division No. 2. Singur Project by way of cheque or crossed demand draft at an early date.
Yours faithfully, Executive Engineer. I. D..
Singur Project Dam Divn. No. 2, P.O. Singur, Medak District.
Copy submitted to the Chief Engineer. Major, for favour of information.
Copy submitted to the Superintending Engineer, I.D. Irrigation Circle No. 3. Nizamabad for favour of information.
Executive Engineer, I.D. Singur Project Dam Divn. No. 2, P.O. Singur, Medak District...."
2. Alleging that the arbitration clause contained in the agreement between the pardes was vague and unworkable, and raising several other contentions, which it is not necessary to mention here, the appellant filed the petition under S. 20 of the Arbitration Act numbered as O.S. 3/1986) for appointment of a sole arbitrator to decide the disputes arising out of the agreement between the parties. In the suit the appellant filed I.A. No. 106/86 under 0. XXXIX, R. 2, C.P.C. read with S. 41 and Cl. (4) of, the Second Schedule to the Arbitration Act, for grant of the temporary injunction restraining the Respondents from stopping payment of the contract bills, or any other amounts payable to the appellant in respect of the contracts lone by him at Singoor Project, or at other places (i.e. under other contracts) pending disposal of the arbitration proceedings. This vas opposed by the respondents. After fearing the parties, and following the decision of the Supreme Court in Union of India v. Raman Iron Foundry, , the learned Subordinate Judge made the following order: -
"Having regard to the circumstances of this case. I feel that it would be just and- proper to direct both the parties to maintain status quo ante. Neither the petitioner shall claim or withdraw the amounts from the other pending bills to the extent of Rs.12,58,300/-, nor the respondents shall recover the said amount and appropriate the same towards the excess cost said to have been incurred by them till the matter is decided by the arbitrators."
Contending that the said order virtually amounts to dismissal of his petition for injunction. the appellant has preferred this appeal.
3. When the appeal came up for admission, we pointed out to the learned counsel for the appellant that the decision of the Supreme Court in Raman Iron Foundry's case (supra), upon which the teamed counsel was seeking to place substantial reliance has since been partly overruled by the Supreme Court in H. M. K. Ansari and Company v. Union of India, . Inasmuch as this question was said to be arising in a large number of suits and proceedings now pending in the Courts below, we were inclined to heard and dispose of the matter finally at the admission stage itself. Accordingly, we gave notice to the Government Pleader. We have heard both the parties.
4. The agreement between the parties is in the Standard Form prescribed by the Government of Andhra Pradesh, according to which the Andhra Pradesh Standard Specifications form part of the said agreement. Clause 61 of the A. P. Standard Specifications provides that if the contractor neglects or fails to proceed with due diligence in performance of his part of the, contract, in accordance with scheduled rate of progress or commits any other default, the Executive Engineer shall have power to give notice in writing to him requiring that the work be proceeded with in accordance with the terms of the contract. In case the contractor does not comply with such notice to the satisfaction of the Executive Engineer, it is open to the Government to enter upon and take possession of the work and site, and of all material and plant thereof, and use the same to the extent necessary for completing the work. It is open to the Government in such a case to have the work completed either by themselves, or through any other contractor. Upon completion of the work the Executive Engineer shall certify the amount of expenses incurred by the Government as a result of the default of the contractor, and such amount is recoverable from the contractor. In other words. the contractor is made liable to pay the said amount to Government. Clause 71 provides for recovery of money from the contractor in certain case. It reads:
"In every case in which provision. is made for recovery of money from the contractor, the Government shall be entitled to retain or deduct the amount thereof from any moneys that may be due or may become due to the contractor under these presents and/or under any other contract or contracts, or any other amount whatsoever."
Clause 73 provides for arbitration.
5. Section 41of the Arbitration Act deals with the procedure and powers of the Court under the Act. It reads: -
"4 1. Procedure and powers of Court:
Subject to the provisions of this Act and of rules made there under-
The provisions of the Code of Civil Procedure. 1908 shall apply to all proceedings before the Court, and to all appeals under this Act, and the Court shall have, for the purpose of, and in relation to, arbitration proceeding the same power of making orders in respect of any of the matters set out in the Second Schedule as it has for the purpose and in elation to any proceedings before the court:
Provided that nothing in Cl. (b) shall be taken to prejudice any power which may be vested in an arbitrator or umpire for making orders with respect to any of such matters."
6. The Second Schedule to the Arbitration Act provides. inter alia, for grant of "interim injunction" and "appointment of Receiver". But, this power can be exended only for the purpose of, and in relation to arbitration proceedings" before the Court and it is these words which have given rise to conflict of opinion even in the Supreme Court the main question which falls for our consideration is: what is the principle of, and also underlying the decision of the Supreme Court in Raman Iron Foundry's case, and in' what manner, and to what extent it has been overruled in Ansari and Company's case? . For his purpose it is necessary to examine both the decisions closely. Both of them arose from the Delhi High Court. They arose from interlocutory proceedings in petitions filed under Ss. 20 and 33 of the Arbitration Act Respectively. (S. 33 provides that if any party to an arbitration agreement desires to challenge the existence or validity of an arbitration agreement, or an award, or to Save the effect of either of them determined he can apply to the Court. and the Court shall decide the said question on affidavits).
7. In Raman Iron Foundry's case(supra), the facts are the following: A contract was entered into between Raman Iron Foundry and the Government for supply of certain quantity of Foam compound. The acceptance of tender was subject to the general conditions of the contract contained in the Standard Form of Contract No. DGS and D.68. Clause 18 provided that "whenever any claim for the payment of a sum of money arises, out of or under the contract, against the contractor, the purchaser shall be entitled to recover such sum by appropriating in whole or in part the security, if any, deposited by the contractor ............ In the event of the security being insufficient, the balance and if no security has been taken from the contractor, the entire sum recoverable shall be recovered by appropriating any sum then due or which at any time thereafter may become due to the contractor under the contract, or any other contract with the purchaser, or the Government or any person contracting through the Secretary............. Clause 24 provided for arbitration. The performance of the said contract ran into difficulties giving rise to disputes between the parties. The supplier (Raman Iron Foundry) contended that the purchaser (Government) has committed the breach and was, therefore, liable to pay a sum of Rs.2,35,800/- by way of damages, while according to the Government the supplier was in default and was therefore liable to pay a sum of Rs.2,28,900/- to the Government under Cl. 14 of the agreement. The Government, accordingly, called upon the supplier to pay the said sum. At this stage, the supplier applied to the Delhi High Court for appointment of an arbitrator under S. 20 of the Act. In that application he applied for an interim injunction restraining the Government from recovering the amount of damages claimed by it from the pending bills of the supplier. A learned single Judge of the Delhi High Court allowed the interlocutory application and granted an interim injunction restraining the Government "from effecting recovery of the amounts chimed to be due from other pending bills of the supplier". The matter was then carried to the Supreme Court 'by the Union of India. Two contentions were urged before the Supreme Court on behalf of the Union of India, viz., (i) the order of the Delhi High Court in effect and in substance amounts to an order directing the Government to pay the amounts of the pending bills of the supplier in respect of other contracts-, but inasmuch as the question of payment of amounts of such pending bills relating to other contracts was not the subject- matter of dispute pending before the arbitrator, the High Court had no power to grant such an injunction., and (ii) to enable the Government to exercise its power under Cl. 18 of the agreement, it is not necessary that the amount claimed by it should either be admitted, or should have been adjudicated upon by a competent Court or the authority., it is enough that the Government claims that amount., once the Government claims certain amount from the contractor, it is entitled to invoke the power under Cl. 18, and to appropriate the amounts due to the, supplier either under the said contract or under any other contract. The Supreme Court dealt with both the contentions separately. On the first contention, the Supreme Court agreed that the power of the Court to grant an interim injunction under S. 41(b) read with the Second Schedule to the Act can be exercised only "for the purpose of, and in relation to arbitration proceedings". It agreed that since the amounts payable to the supplier under other contracts were not the subject-matter of arbitration proceedings, the Court could not obviously make an interim order which in substance, amounted to a direction to the Government to pay the amounts due under such other contracts to the supplier. But. the Court was of the opinion that the order of interim injunction passed by the Delhi High Court in that case did not amount to a direction to pay the amounts due to the supplier under other contracts - neither in form, nor in substance. It was observed that the order of the High Court merely prevented the Government from recovering suo motu the damages claimed by it from out of the other amounts duct of the supplier and that it does not direct the Government to pay such amounts to the supplier. It was observed that the Government can still refuse to pay such amounts, if it thinks that it has a valid defence. and that if the Government d~ so, the only remedy open to the supplier would be to take measures in appropriate forum for recovery of such amount, where it will be decided whether the Government is liable to pay such amount to the supplier or not. By not paying the amounts due under other contracts, the Government. it was observed, would no,, he committing any breach of the interim injunction issued by the Delhi High Court. The order only prevented the Government from appropriating such amounts in satisfaction of its claim. On this reasoning it was held that the order issued is clearly within the power of the Court under the aforesaid provisions and cannot. therefore, be said to be incompetent or without jurisdiction. With respect to the second question, the Court opined that Cl. 18 applies only where the Government has a claim for a sum presently due and payable by the contractor". It then examined the question whether the claim for damages for breach of contract mad c by the Government in that case, and the amount claimed in that behalf. can be said to be a sum presently due and payable, and came to the conclusion that it cannot be so said. In this view of the matter, the Court was of the opinion that it is unnecessary to consider the other contentions raised by the supplier in that case. viz., whether on a proper construction of Cl.18. mere claim for payment of a sum of money is enough, or whether such claim should be one which is admitted by the contractor. or adjudicated upon by a Court or other adjudicating authority. On this reasoning it was held that having regard to the facts and circumstances of that case. the Government had no right or authority under Cl. 18 to appropriate the amounts payable to the supplier. under other pending bills, towards satisfaction of its claim for damages against the supplier.
8. Now coming to the decision in Ansari & Company's case (supra). that was a case where the contract between the Government and the Company was for supply of books. The agreement and the clauses thereof are identical with those in the Raman Iron Foundry's case (supra). On disputes arising between t he parties, the supplier made an application, under 5. 33 of the Arbitration Act; in that application he filed an interlocutory application for an injunction restraining the Union of India for appropriating, withholding, or recovering the amount claimed by it from other pending bills of the supplier in any manner whatsoever. The matter was beard by a Division Bench, which held that the Court had the power to grant an injunction restraining the Government from appropriating or recovering the amount of damages claimed by it from other pending bills. but that it had no power to restrain she Government from withholding the payments of other pending bills. The Court was of the opinion that the order of the latter kind would amount to a direction to pay the amounts due under other bills. which would virtually amount to granting relief in respect of the suppliers claim under those other contracts which are not the subject-matter of the proceedings before the Court. The matter was then carried to the Supreme Court. The Supreme Court first considered the precise scope and ambit of S. 41 of the Arbitration Act, read with the Second Schedule. It was firstly of the opinion that inasmuch as it was a proceeding under S. 33 of the Arbitration Act where the supplier took the stand that there was no concluded contract between the parties (which contract contained the arbitration clause), the order of injunction passed by the Delhi High Court could not be said to be one-'for the purpose of. and in relation to arbitration proceedings". It was observed that once the supplier says that there was no concluded contract between the parties containing an arbitration clause. he cannot at the same time apply for an injunction. since such an application for injunction cannot be said to be "for the purpose of, and in relation to arbitration proceedings". Apart from the above objection the Supreme Court was of the further opinion that inasmuch as the amounts due to the supplier under other pending bills were not the subject-matter of the proceedings before the Court, the -injunction restraining the Government from withholding the amounts due to the supplier under the pending bills in respect of other contracts cannot be said to be "for the purpose of, and in relation to arbitration proceedings" pending before the Court and. therefore the Court had no power to pass such an order. On this aspect, the Court examined the reasoning of the earlier decision on the first question. On this occasion, The Court was of the opinion that the interpretation placed by the Supreme Court on the order of injunction passed by the Delhi High Court was not acceptable. The distinction made between. an order directing the payment, and an order merely restraining the Government from recovering its claim by appropriating such amounts in satisfaction of its claim, was held to be a distinction without a difference. It was held that the order restraining the Government from withholding the amounts due to the supplier under pending bills in respect of other contracts would necessarily mean that those amounts should be paid, and cannot be withheld from the supplier. This is what the Court said: is true that the order of injunction in that case (Raman Iron Foundry's case) was in negative form. But if an order injuncted a party from withholding the amount due to the other side under pending bills in other contracts, the order necessarily means that the amount must be paid. If the amount is withheld there will be a defiance of the injunction order and that party could be hauled up for infringing the injunction order. It will be a contradiction in terms to say that a party is injuncted from withholding the amount and yet it can withhold the amount as of right. In any case, if the injunction order is one which a party was not bound to comply with, the Court would be loath and reluctant to pass such an ineffective injunction order. The Court never passes an order for the fun of passing it. It is passed only for the purpose of being carried out. Once this Court came to the conclusion that the Court has power under S. 41(b) read with Second Schedule to issue interim injunction but such interim injunction can only be for the purpose of and in relation to arbitration proceedings and further that the question whether any amounts were payable by the appellant (supplier) to the respondent (Government) under other contracts was not the subject-matter of that arbitration proceedings and, therefore- the Court obviously could not make any interim order which. though ostensibly in form at order of interim injunction. in substance amounted to a direction to the appellant t( pay the amounts due to the respondent unde other contracts. and such an order would clearly be not for the purpose of and in relating to the arbitration proceedings; the subsequent observation of the Court that the order of injunction being negative in form and substance, there was no direction to the respondent to pay the amount due to the appellant under pending bills of other contracts is manifestly inconsistent with the proposition of law. laid own by this Court in the same case .........."
9. The Court then took up the second question. viz.. interpretation of Cl. (18). and came to the conclusion that the said clause gives wide power to the Government to recover the amount claimed. by appropriating any sum then due. or which at any time thereafter may become due to the supplier under any other contract. if it has any claim against such supplier, or the contractor. as the case may be. It was of the opinion that it is not necessary that such claim should either be admitted by the contractor, or should have been adjudicated upon by a competent Court or authority. It was hold that it is enough if there was a claim on the part of the Government to invoke the said clause. In view of these findings it was held that no injunction order can be made restraining the Union of India from withholding the amounts due to the supplier under other contracts.
10. It would be evident from the Ansari & Company's case (supra) that the Court has no power. under the Arbitration Act. to grant an injunction restraining the Government from withholding the amounts due to the appellant herein. in respect of other contracts, for the reason that such an injunction cannot he said it be for the purpose of, and in relation to the proceedings before the Court. It is equally evident from the said decision that to enable the Government to invoke its power under Cl. 71 of A. P. Standard Specifications, it is not necessary that its claim should either be admitted by the contractor. or should hive been adjudicated upon by a competent Court or authority. The language of Cl. 71 read with Cl. 61 of A. P. Standard Specifications is, in effect, the same as that-of Cl. 18 considered by the Supreme Court in the above cases. We, therefore, find no substance in this appeal.
11. We may mention in this context that no appeal has been preferred by .he State against the order of the Court below. Therefore, it is not necessary for us to consider whether the order as granted is within the competence of the Court or not. It is sufficient to say that the appellant has no right to claim the injunction which he did.
12. Civil Miscellaneous Appeal, accordingly fails and is dismissed. in the circumstances, without costs.
11 Mr. V.R. Reddy lastly requested us to clarify that this order does not stand in the way of the Government in reconsidering the matter and reviewing the impugned proceedings. It is obvious that our order does not so preclude the Government, if it is so advised.
12. Appeal dismissed.