Gujarat High Court
Oil And Natural Gas Corporation Ltd vs M/S Deep Industries Ltd on 25 July, 2018
Bench: M.R. Shah, A.Y. Kogje
C/SCA/9305/2018 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 9305 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE M.R. SHAH Sd/
and
HONOURABLE MR.JUSTICE A.Y. KOGJE Sd/
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1 Whether Reporters of Local Papers may be allowed to see No
the judgment ?
2 To be referred to the Reporter or not ? No
3 Whether their Lordships wish to see the fair copy of the No
judgment ?
4 Whether this case involves a substantial question of law as No
to the interpretation of the Constitution of India or any
order made thereunder ?
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OIL AND NATURAL GAS CORPORATION LTD
Versus
M/S DEEP INDUSTRIES LTD
=========================================
====Appearance:
MR KAMAL TRIVEDI, SENIOR ADVOCATE with MR KUNAN B NAIK(3210), MR VIVAN SHAH,
MR UTSAV PARIKH, MS MONISHA CHAHAL, ADVOCATES for the PETITIONER(s) No. 1,2
MR SN SOPARKAR, SENIOR ADVOCATE with MR VIMAL PATEL MR
HARSHRAJSINH S VAGHELA(8752) ADVOCATES for the RESPONDENT(s)
No. 1
=============================================
CORAM: HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE A.Y. KOGJE
Date : 25/07/2018
CAV JUDGMENT
(PER : HONOURABLE MR.JUSTICE M.R. SHAH) RULE. Shri Harshrajsinh Vaghela, learned Advocate waives service of notice of Rule on behalf of the respondent.
Page 1 of 42 C/SCA/9305/2018 CAV JUDGMENT[1.0] By way of this petition under Article 226/227 of the Constitution of India, the petitioner - Oil and Natural Gas Corporation (hereinafter referred to as "Corporation") has prayed for an appropriate writ, direction and order to quash and set aside the impugned order dated 31.05.2018 passed by the learned Commercial Court, City Civil Court, Ahmedabad in Civil Misc. Application No.37/2018 as well as the impugned order dated 09.05.2018 passed by the learned Arbitral Tribunal below application Exh.17 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "Arbitration Act").
[2.0] The facts leading to the present Special Civil Application in nut shell and the chronology of events and dates are as under:
[2.1] That the respondent, being successful bidder of the Tender Inquiry No.D16BC16023 was awarded the contract on 10.02.2017 for hiring the services for one Mobile Air Compressor on the offered period of 5 years at Ahmedabad Asset of the petitioner Corporation and according to him the contract was executed between the petitioner Corporation and the respondent on 07.04.2017. That the contract agreement provided the termination clause viz. Clause No.18 which read as under:
"18. TERMINATION 18.1 Termination on expiry of the CONTRACT This Agreement shall be deemed to have been automatically terminated on the expiry of the CONTRACT period unless the ONGC has exercised its option to extend this CONTRACT in accordance with the provisions, if any, of this CONTRACT.
18.2 Termination on account of force majeure Either party shall have the right to terminate this CONTRACT on account of Force Majeure, as set forth in clause 23.Page 2 of 42 C/SCA/9305/2018 CAV JUDGMENT
18.3 Termination on account of insolvency In the event the CONTRACTOR or its collaborator at any time during the term of this Agreement becomes insolvent or makes a voluntary assignment of its assets for the benefit of creditors or is adjudged bankrupt, then the ONGC shall, by a notice in Writing have the right to terminate the CONTRACT and all the CONTRACTOR's rights and privileges hereunder, shall stand terminated forthwith.
18.4 Termination for unsatisfactory performance If the ONGC considers that the performance of the CONTRACTOR is unsatisfactory or, not upto the expected standard, the ONGC shall notify the CONTRACTOR in writing and specify in detail the cause of such dissatisfaction. The ONGC shall have the option to terminate this Agreement by giving 30 days notice in writing to the CONTRACTOR, if, CONTRACTOR In view of the above, present Second Appeal fails and the same deserves to be dismissed and is, accordingly, dismissed. No costs. to comply with the requisitions contained in the said written notice issued by the ONGC.
18.5 Termination for delay in mobilisation Successful bidder shall be required to mobilise complete equipment alongwith crew (only manpower / crew in case of Operation and Maintenance Contracts) for commencement of services at the specified site & completion thereof within a maximum number of 180 days from the date of NOA. If the CONTRACTOR (successful bidder) fails to mobilise as above, ONGC shall have, without prejudice to any other clause of the CONTRACT, the right to terminate the contract.
18.6 Consequences of termination In all cases of termination herein set forth, the obligation of the ONGC to pay shall be limited to the period upto the date of termination. Notwithstanding the termination of this Agreement, the parties shall continue to be bound by the provision of this Agreement that reasonably require some action or forbearance after such termination.Page 3 of 42 C/SCA/9305/2018 CAV JUDGMENT
In case of termination of Contract herein set forth, except under 18.1 and 18.2, and / or annulment of the contract due to nonsubmission of Performance Security (as per clause 36 of Annexure1), following actions shall be taken against the Contractor.
i. ONGC shall conduct an inquiry against the Contractor and consequent to the conclusion of the inquiry, if it is found that the fault is on the part of the Contractor, then they shall be put on holiday (i.e. neither any tender enquiry will be issued to such a Contractor by ONGC against any type of tender nor their offer will be considered by ONGC against any ongoing tender(s) where contract between ONGC and that particular Contractor (as a bidder) has not been concluded) for a period of two years from the date the order for putting the Contractor on holiday is issued. However, the action taken by ONGC for putting that Contractor on holiday shall not have any effect on other ongoing contract(s), if any, with that Contractor which shall continue till expiry of their term(s).
ii. Pending completion of the enquiry process for putting the Contractor on holiday, ONGC shall neither issue any tender enquiry to the defaulting Contractor nor shall consider their offer in any ongoing tender."
[2.2] That as per Clause 2 of the Notification of award / contract agreement the respondent was required to supply the new Mobile Air Compressor and as per Clause 3, the respondent Corporation was supposed to mobilize compressor, manpower etc. within 180 days from the date of issue of the NOA and the said mobilization was supposed to be offered by 19.08.2017. That vide communication dated 09.08.2017, the respondent Company sought extension of mobilization period upto 23.08.2017 and the same was extended upto 23.08.2017, subject to certain conditions. It appears that the respondent Company addressed one another letter to the Corporation for extension of mobilization to 07.09.2017 which also came to be granted vide its letter dated Page 4 of 42 C/SCA/9305/2018 CAV JUDGMENT 01.09.2017. That vide communication dated 31.08.2017 the respondent Company addressed a letter to the Corporation supplying information regarding readiness of Mobile Air Compressor for deployment. It is the case on behalf of the petitioner Corporation that the Corporation appointed a Committee for inspection of hard Mobile Air Compressor as provided in the contract Agreement on 05.09.2017. According to the petitioner, the said Committee for inspection, inspected the Mobile Air Compressor offered by the respondent Company and prepared its report on 07.09.2017, whereby it was found that the Mobile Air Compressor offered by the respondent Company is not new one, as claimed by the respondent Company. Therefore, according to the petitioner Corporation, the Mobile Air Compressor offered by the respondent Company was not as per the bid submitted by the respondent Company and as per the contract entered into by it. Therefore, the petitioner Corporation addressed a communication dated 12.09.2017 to the respondent Company, sending therewith a detailed report of the Committee for inspection inter alia indicating that the equipments in question were damaged, old and in poor condition. That the respondent Company addressed a communication dated 19.09.2017 to the Corporation, indicating Corporation that they are sending the equipment to the manufacturers at Sonepat to resolve the issues and has also requested the Corporation to sent its representatives to inspect the MAC at Sonepat. According to the petitioner Corporation, the respondent Company offered reinspection after removing the MAC. That the Corporation addressed a communication dated 25.09.2017 to the respondent Company stating that the inspection carried out on 06.09.2017 is final and no reinspection is required. That in view of the failure on the part of the respondent Company to mobilise and deploy the required equipments even during the extended mobilization period, vide communication dated 11.10.2017, the Corporation terminated the Page 5 of 42 C/SCA/9305/2018 CAV JUDGMENT contract by taking into consideration contained in Clause 18.5. According to the petitioner Corporation the contract was terminated taking into consideration Clause 19(b) of the General Contract Conditions of the contract agreement also. That on 12.10.2017, the Corporation suspended the respondent Company's Vendor Code, pending completion of the inquiry for blacklisting. That vide communication dated 13.10.2017 the respondent Company wrote a letter to the Corporation requesting inter alia to release the respondent Company's Vendor Code was that it can participate in various forthcoming (new) tender activities. That on 18.10.2017 the Corporation issued the showcause notice to the respondent Company, to showcause as to why the Corporation should not take action for stopping / banning business dealings with the respondent Company i.e. permanently blacklisting the respondent Company for the period of 2 years.
[2.3] Feeling aggrieved and dissatisfied with the action of the Corporation to block Vendor Code allotted to the petitioner as well as the showcause notice dated 18.10.2017 seeking to blacklist the petitioner for the period of 2 years, the respondent Company preferred Special Civil Application No.19289/2017 before this Court for the following reliefs.
"(A) To quash and set aside the action of ONGC to block Vendor Code allotted to the petitioner, (AA) To set aside the Show Cause Notice dated 18.10.2017, seeking to blacklist the petitioner for the period of two years (added pursuant to amendment), (B) To quash and set aside Clause 18.6(ii) of the Contract, (C) Pending the hearing and final disposal of the petition,
(i) To direct ONGC to unblock Vendor Code Page 6 of 42 C/SCA/9305/2018 CAV JUDGMENT allotted to the petitioner,
(ii) To direct ONGC to allow the petitioner to participate in various tenders of ONGC.
(CC) Pending hearing and final disposal of the present petition, Your Lordships may be pleased to stay the Show Cause Notice dated 18.10.2017 at ANNEXURES."
That the Division Bench of this Court issued the notice to the petitioner Corporation. That on 02.11.2017 the respondent Company issued a notice invoking the arbitration to the Corporation stating, inter alia, that the Corporation has illegally terminated the contract and that the respondent Company has mobilized the required equipments on 31.08.2017, which is lying ideal and therefore, the dispute has arisen between the parties which is required to be referred to arbitration under Clause 27 of the Contract Agreement.
[2.4] That the petitioner Corporation addressed a reminder letter to the respondent Company on 02.11.2017 seeking its reply to the showcause notice dated 18.10.2017.
[2.5] At this stage it is required to be noted that the aforesaid Special Civil Application as such was preferred initially seeking the relief to quash and set aside the action of the petitioner Corporation to block Vendor Code allotted to the petitioner and thereafter the showcause notice dated 18.10.2017 was issued and therefore, on 06.11.2017 the respondent Company preferred a Draft Amendment in the aforesaid Special Civil Application No.19289/2017 challenging the showcause notice dated 18.10.2017.
[2.6] That on 07.11.2017 the respondent Company addressed a letter to the petitioner Corporation with reference to the showcause notice dated Page 7 of 42 C/SCA/9305/2018 CAV JUDGMENT 18.10.2017.
[2.7] That thereafter the petitioner Corporation issued another show cause notice dated 25.11.2017 to the respondent Company seeking its explanation which according to the petitioner Corporation was in lieu of the showcause notice dated 18.10.2017.
[2.8] It is the case on behalf of the petitioner that the respondent Company addressed a letter dated 01.12.2017 to the petitioner Corporation refusing to disclose the location of the MAC. That thereafter the petitioner Corporation addressed a letter dated 13.12.2017 to the respondent Company forwarding the names of the learned Arbitrator to be appointed for the adjudication of the dispute for claim of Rs.2,19,96,769/. At this stage it is required to be noted that at the relevant time the dispute was with respect to termination of contract.
[2.9] That the petitioner Corporation thereafter addressed one another showcause notice on 20.12.2017 to the respondent Company with reference to the earlier notices dated 18.10.2017 and 25.11.2017. According to the petitioner Corporation, by the said notice dated 20.10.2017, the petitioner Corporation has expressly sought explanation from the respondent Company as to why it should not stop / ban business dealings with the respondent Company for foisting old and refurbished MAC upon the petitioner Corporation which is only available under Integrated Materials Management Manual.
[2.10] That thereafter vide communication dated 21.12.2017, the respondent company gave its consensus for appointment of the learned sole Arbitrator.
Page 8 of 42 C/SCA/9305/2018 CAV JUDGMENT[2.11] That thereafter the respondent Company submitted its reply to the showcause notice on 29.12.2017. That thereafter the respondent Company withdrew the aforesaid Special Civil Application No.19289/2017 on 02.02.2018 with a view to remove the learned Arbitrator for interim measures under Section 17 of the Arbitration Act.
[2.12] That on 02.02.2018 the respondent Company filed its Statement of Claim before the learned sole Arbitrator. That in the Statement of Claim the respondent claimed added final relief against notice dated 18.10.2017 (it is the case on behalf of the petitioner that though the said showcause notice dated 18.10.2017 was the subject matter before this Court in Special Civil Application No.19289/2017, which came to be withdrawn only with a view to move the learned Arbitrator for interim measures under Section 17 of the Arbitration Act and though no liberty was reserved raising the dispute against the show cause notice dated 18.10.2017, the respondent - claimant added the final relief against the notice dated 18.10.2017).
[2.13] That on 10.02.2018, the respondent Company filed an application under Section 17 of the Arbitration Act, inter alia, seeking direction to the Corporation to unblock the Vendor Code No.V814297 allotted to it for participating in various tender activities. That on 12.02.2018, the Corporation filed its objection to the said application by stating inter alia that the application of the respondent Company is not incidental as the blacklisting proceedings (putting the respondent Company in holidays) are not arising under the arbitration proceedings invoked by the respondent Company, wherein it had challenged the termination of the contract only. That on 12.02.2018 the Corporation filed an application under Section 16 of the Arbitration Act challenging the jurisdiction of the learned Arbitral Tribunal with respect to the show Page 9 of 42 C/SCA/9305/2018 CAV JUDGMENT cause notice dated 18.10.2017 for blacklisting / putting the respondent Company in holiday.
[2.14] It appears that thereafter on 15.02.2018 the Corporation passed an order deciding to stop any further business dealings with the respondent Company (i.e. to put on holiday). That thereafter on 19.02.2018 the respondent Company - original claimant filed an amendment application for amending the Statement of Claim and also its interim measure application filed under Section 17 of the Arbitration Act. That on 10.03.2018, the learned Arbitrator passed an order allowing the amendment sought by the respondent Company - original claimant. That on 12.02.2018, the respondent Company - original claimant filed an amended Section 17 application, inter alia, seeking stay of the final order of blacklisting / putting on holiday the respondent Company dated 15.02.2018 of the Corporation. That by order dated 09.05.2018 the learned Arbitral Tribunal rejected section 16 application. On the very day and on the basis of the findings recorded while passing the order under Section 16 application, the learned Arbitral Tribunal allowed section 17 application and stayed the order dated 15.02.2018 as well as the order of suspension of business dealings dated 12.10.2017.
[2.15] Feeling aggrieved and dissatisfied with the order passed by the learned Arbitral Tribunal in Section 17 application, the Corporation preferred an appeal under Section 37 of the Arbitration Act before the learned Commercial Court, Ahmedabad. That by impugned judgment and order the learned Commercial Court, at Ahmedabad has dismissed the said appeal of the Corporation which is the subject matter of present petition before this Court.
[3.0] Shri Kamal Trivedi, learned Senior Advocate has appeared on Page 10 of 42 C/SCA/9305/2018 CAV JUDGMENT behalf of the petitioner Corporation and Shri S.N. Soparkar, learned Senior Advocate has appeared on behalf of the respondent Company - original claimant.
[4.0] Shri Trivedi, learned Counsel appearing on behalf of the petitioner has vehemently submitted that order passed by the learned Arbitral Tribunal under Section 17 of the Arbitration Act confirmed by the learned Commercial Court is wholly without jurisdiction as well as beyond the scope and ambit of section 17 of the Arbitration Act.
[4.1] It is submitted by Shri Trivedi, learned Counsel appearing on behalf of the petitioner that infact the respondent Company invoked the arbitration under the contract only in respect of the termination of the contract as per Clause 27.1 of the Contract Agreement. It is submitted that therefore the dispute which was referred to the sole Arbitrator was with respect to the termination order only. It is submitted that even at the time when the notice invoking the arbitration was issued and served as per Clause 27.1 of the contract, even there was no order dated 15.02.2018 putting the respondent Company on holidays.
[4.2] It is submitted that Clause 27.1 of the Contract expressly provides for reference of specific disputes at the time of invocation of arbitration and not there after. It is submitted that therefore, the learned Tribunal does not have jurisdiction to decide any dispute which has not specifically been referred to it. It is submitted that therefore the learned Arbitrator cannot by traveling beyond the reference, entertain any additional claims or counter claims which are not part of the disputes specifically referred to arbitration. It is submitted that in view of the negative covenant contained in Clause 27.1 of the Contract, providing for reference of only the specified points of dispute in the notice Page 11 of 42 C/SCA/9305/2018 CAV JUDGMENT invoking arbitration and not thereafter it was impermissible for the respondent Company to seek to add any new point of dispute with regard to putting it on holidays, after having issued notice dated 02.11.2017. It is submitted that therefore all the orders passed by the learned Tribunal in connection with the banning proceedings are beyond the scope of reference and without jurisdiction.
[4.3] It is further submitted by Shri Trivedi, learned Counsel appearing on behalf of the petitioner that even Notice dated 02.11.2017 was issued after receipt of the showcause notice dated 18.10.2017 and the said does not refer to or even whisper about the latter. It is submitted that not only the notice dated 02.11.2017 but the subsequent letters dated 07.11.2017 and 29.12.2017 also clearly stated that the respondent Company has invoked arbitration only in respect of termination of the contract and so far as the dispute with regard to holidaying the same, had been agitated before the High Court. It is submitted that it is a settled principle of law that special Tribunals like Arbitral Tribunals get jurisdiction to proceed with the case only from the reference made to them. It is submitted that thus, it is not permissible for such Tribunals/authorities to travel beyond the terms of reference and powers cannot be exercised by the Tribunal so as to enlarge materially the scope of the reference itself. It is submitted that the learned Arbitral Tribunal cannot widen jurisdiction by deciding a question not referred to it by the parties or cannot assume jurisdiction over a question which has not been referred to it. In support of his above submissions, Shri Trivedi, learned Counsel appearing on behalf of the petitioner has heavily relied upon the following decisions.
1. State of U.P. vs. Ram Nath International Construction (P) Ltd.
AIR 1996 SC 782 - rel. para 10 Page 12 of 42 C/SCA/9305/2018 CAV JUDGMENT
2. Rohtash vs. State of Haryana 2012 (12) SCC 589
3. Sheodutt vs. Pandit Vishnudutta AIR 1955 Nag. 116 [4.4] It is further submitted by Shri Trivedi, learned Counsel appearing on behalf of the petitioner that even considering the Order XXIII Rule 1(3) & 1(4) of Code of Civil Procedure, 1908, the respondent Company having unconditionally withdrawn the writ petition without leave of the Court to institute fresh claim in respect of the show cause proceedings for putting the respondent Company on holiday, the respondent Company is precluded from making claim before the Arbitral tribunal on the same subject matter. It is submitted that the record reveals that the respondent Company has challenged the show cause proceedings and more particularly showcause notice dated 18.10.2017 before this Court by filing the writ petition being Special Civil Application No.19289/2017 with a prayer to set aside showcause notice dated 18.10.2017 and has pursued the remedy before the High Court only. It is submitted that the said petition was fully and finally heard by the High Court and was pending for the judgment when the respondent company sought to withdraw the said petition. It is further submitted that order dated 02.02.2018 passed by the High Court has reproduced the liberty sought for by the respondent Company while withdrawing the writ petition, which reads that 'the petition may be permitted to be withdrawn with a view to take out appropriate application before the Ld. Arbitrator for interim measures'. It is submitted that thus, no liberty was sought to add final claim before the learned Arbitrator. It is submitted that it is curious to note that on the very day i.e. 02.02.2018 the respondent Company has submitted its Statement of Claim with a final prayer to set aside showcause notice dated 18.10.2018. It is further submitted that Page 13 of 42 C/SCA/9305/2018 CAV JUDGMENT unconditionally withdrawing the writ petition before the High Court amounts to abandonment of claim and the respondent Company thus has been precluded from instituting any fresh proceedings in respect of showcause proceedings and showcause notice dated 18.10.2017.
[4.5] It is further submitted by Shri Trivedi, learned Counsel appearing on behalf of the petitioner that the principle underlining provisions of Order XXIII Rule 1(3) & 1(4) of the Code of Civil Procedure, 1908 is considered as a principle of public policy to preclude the petitioner from reagitating the same cause of action and relief. It is submitted that thus unless the Court grants express permission to institute a fresh claim on the same subject matter it is not permissible for a litigant to reopen and reagitate the concluded and unconditionally withdrawn claim and relief. In support of his above his submission, Shri Trivedi, learned Counsel appearing on behalf of the petitioner has relied on the following decisions.
1. 1999 (1) SCC 81 - rel. paras 11 to 15 Upadhyay & Co. vs. State of U.P. and others
2. 2018 (11) SCC 104 - rel. paras 13 and 14 H.N. Jagannath and Others vs. State of Karnataka and Ors.
3. 2012 (2) CHN 452 - rel. paras 11 and 12 S.S.K. Construction vs. Rupa Ghosh [4.6] It is further submitted that even the final order dated 15.02.2018 is a new and fresh cause of action and therefore also, with respect to the order putting the respondent Company on holidays which is a new and fresh cause of action, the learned Arbitral Tribunal ought not to have assumed the jurisdiction with respect to such new and fresh cause of action. It is submitted that order dated 15.02.2018 was not even born either on the date when the notice invoking arbitration was issued or on the date of filing of Statement of Claim. It is submitted that thus, it could Page 14 of 42 C/SCA/9305/2018 CAV JUDGMENT not be assailed without first raising the dispute in accordance with Clause 27 of the contract. It is submitted that the order finally deciding the issue of holiday is a new and fresh cause of action involving completely different and distinct scope of dispute, which has been passed under the Integrated Materials Management Manual.
[4.7] It is further submitted that the order of holiday has been passed after affording an opportunity of hearing to the respondent company pursuant to three showcause notices dated 18.10.2017, 25.11.2017 & 20.12.2017, which called upon the respondent Company to answer the allegation of foisting old MAC unit based on the false invoices. It is submitted that thus, order dated 15.02.2018 has been passed in exercise of administrative/executive power of the petitioner Corporation and not only under Clause 18.6 of the contract. It is submitted that power under Clause 18.6 of the contract is restricted and could only be exercised in cases of delayed mobilization, unsatisfactory performance or insolvency, whereas powers under the Manual are larger. It is submitted that effect of holidaying under the contract is also restricted to the entity of the contractor, whereas under the Manual the petitioner corporation has larger power to put on holiday all other sister concerns. It is submitted that thus, power to put on holiday sister concerns without privity of contract itself shows that such power is not contractual but an inherent administrative/executive power. In support of his above submissions, Shri Trivedi, learned Counsel appearing on behalf of the petitioner has heavily relied upon the decision of the Hon'ble Supreme Court in the case of Kulja Industries Limited vs. Chief General Manager, Western Telecom Project Bharat Sanchar Nigam Limited and Ors. reported in (2014) 14 SCC 731 as well as the decision of the Delhi High Court in the case of Surinder Pal Singh vs. HPCL & Anr. reported in 2006 (92) DRJ 537.
Page 15 of 42 C/SCA/9305/2018 CAV JUDGMENT[4.8] Shri Trivedi, learned Counsel appearing on behalf of the petitioner has further submitted that even otherwise the relief which is granted by the learned Arbitrator in an application under Section 17 of the Arbitration Act is not sustainable under the law.
It is submitted by Shri Trivedi, learned Counsel appearing on behalf of the petitioner that the learned Arbitral Tribunal has granted the relief by way of interim measures in an application under Section 17 of the Arbitration Act which as such is a final relief that may be granted. It is submitted that the interim injunction / interim relief is always in aid and as an auxillary to the final relief that may be granted. It is submitted that the respondent Company neither could have prayed for nor the Ld. Tribunal could have granted the interim relief granting temporary injunction against order dated 15.02.2018 based on new and fresh cause of action inasmuch as, the final relief to set aside the action is itself not available to the respondent Company to pray for in the arbitral proceedings. It is submitted that the respondent Company, since could not pray for setting aside/quashing of the proceedings for putting the respondent company on holiday or order dated 15.02.2018, it was not entitled to grant of any interim relief in terms thereof. It is further submitted that if the final relief cannot be granted in terms as prayed for, temporary relief in same terms could not be granted because right to obtain an interlocutory injunction is not a cause of action and it cannot stand on its own. It is submitted that the injunction sought in the action must be part of the substantive relief to which the plaintiffs' cause of action entitles him. It is submitted that the learned Tribunal has granted the interim relief staying the holiday awarded to the respondent Company without jurisdiction to grant final relief in terms thereof. In support of his above submissions, Shri Trivedi, learned Counsel appearing on behalf of the petitioner has heavily relied upon the decision of the Hon'ble Supreme Court in the case of Cotton Page 16 of 42 C/SCA/9305/2018 CAV JUDGMENT Corporation of India Limited vs. United Industrial Bank Limited and Others reported in AIR 1983 SC 1272 as well as in the case of Adhunik Steels Ltd. vs. Orissa Manganese and Minerals Pvt. Ltd. reported in AIR 2007 SC 2563.
[4.9] It is further submitted by Shri Trivedi, learned Counsel appearing on behalf of the petitioner that the respondent Company could not have prayed for the relief which is beyond the subject matter of the reference and, the jurisdiction of the learned Tribunal could not extend beyond the said subject matter. It is submitted that after amendment of Section 17 it stands in pari materia as section 9 of the Arbitration Act. It is submitted that the Hon'ble Apex Court while interpreting the provisions of Section 9 has held that the said provisions would be restricted to the preservation of the subject matter of arbitration and it would not be correct to say that the power under section 9 of the Arbitration Act is totally independent of the well known principles governing the grant of an interim injunction. It is submitted that thus, even under section 17, the learned Tribunal could not have transgressed its jurisdiction and granted relief which otherwise is beyond the subject matter of the arbitral proceedings when such powers are not exercised by the Courts to grant interim relief beyond the subject matter of the proceedings before it. It is submitted that the learned Tribunal therefore could not have granted interim injunction compelling the petitioner Corporation to enter into the contract with the respondent Company. In support of his above submissions, Shri Trivedi, learned Counsel appearing on behalf of the petitioner has heavily relied upon the decision of the Hon'ble Supreme Court in the case of Adhunik Steels Ltd. (Supra) as well as in the case of MD, Army Welfare Housing Organisation vs. Sumangal Services (P) Ltd. reported in (2004)9 SCC 619 as well as the decision of the Calcutta High Court in the case of West Bengal Surface Page 17 of 42 C/SCA/9305/2018 CAV JUDGMENT Transport Corporation Ltd. vs. Howrah East West Mini Bus Association reported in AIR 2011 Calcutta 50.
[4.10] It is further submitted by Shri Trivedi, learned Counsel appearing on behalf of the petitioner that as such there is no bar to blacklisting proceedings during the pendency of the Arbitral proceedings. It is submitted that as such there are divergent views on whether during the pendency of the arbitral proceedings, blacklisting proceedings can be initiated or not? It is submitted that, that apart, in the present case the subsequent order putting the respondent Company on holidays cannot be said to be consequential to the order of termination of the contract and it was altogether an independent cause of action under the Integrated Material Management Manual and not at all connected with the termination order. It is submitted that if the Corporation would have invoked the powers under Clause 18 in that case the order of blacklisting / putting on holidays would be restricted to the Company only and not against the Directors etc. [4.11] It is further submitted by Shri Trivedi, learned Counsel appearing on behalf of the petitioner that as can be seen from various showcause notices issued from time to time the showcause notice was not based on the termination of the contract, but was issued on the allegation of cheating and not supplying the fresh machinery etc., which cannot be the subject matter of the proceedings under Clause 18 of the contract. It is submitted that therefore the learned Arbitral Tribunal ought not to have stayed the order dated 15.02.2018 in exercise of powers under Section 17 of the Arbitration Act.
[4.12] It is further submitted by Shri Trivedi, learned Counsel appearing on behalf of the petitioner that even the learned Commercial Page 18 of 42 C/SCA/9305/2018 CAV JUDGMENT Court in the impugned order has also specifically noted that there were divergent views of the different High Courts on whether during the pendency of the arbitral proceedings there can be blacklisting proceedings or not?
[4.13] It is further submitted by Shri Trivedi, learned Counsel appearing on behalf of the petitioner that in the facts and circumstances of the case on hand, the views expressed by the Delhi High Court, Punjab & Haryana High Court and Jharkhand High Court in cases of IOCL v. SPS Engineering, Prakash Atlanta JV v. NHAI, NBCC v. NDMC, Mahavir Transmission v. Punjab State Transmission Corp. Ltd. and Nagarjuna v. State of Jharkhand shall not be applicable. It is submitted that in the aforesaid cases there was identity in the arbitral proceedings as well as blacklisting proceedings. It is submitted that in those cases the orders have been passed either without issuance of hte notice or without assigning the proper reasons at the fag end of the arbitral proceedings. It is submitted that thus the aforesaid High Courts have expressed that such hasty decisions ought not to have been taken by the Authorities.
[4.14] It is further submitted by Shri Trivedi, learned Counsel appearing on behalf of the petitioner that on the other hand, various High Courts have expressed the view that mere initiation of arbitral proceedings would not act as an embargo or absolute prohibition to proceed further with the blacklisting proceedings less it would result into a situation where no authority would be in a position to conduct black listing proceedings inasmuch as the Arbitral Proceedings would be used as a tool to thwart blacklisting proceedings. It is submitted that in the present case infact showcause notice 18.10.2017 has preceded invocation of arbitral proceedings despite which the respondent Company has chosen not to include dispute with regard to showcause Page 19 of 42 C/SCA/9305/2018 CAV JUDGMENT notice in its reference to arbitration. It is submitted that the learned Commercial Court in its order dated 31.05.2018 has also found that, initiation of arbitration proceedings would not prohibit conduct of blacklisting proceedings as a matter of rule in all cases. In support of his above submissions, Shri Trivedi, learned Counsel appearing on behalf of the petitioner has relied on the following decisions.
1. Haldia Bulk Terminals Private Limited vs. Board of Trustees for the Port of Kolkata 2012 SCC Online Cal 12921 - rel. pages 5 and 6
2. Prabhatam Advertisement Pvt. Ltd. vs. Municipal Corporation of Delhi (South Zone) New Delhi 2015 SCC Online Del. 14501 - rel. pages 4 and 5
3. M/s. Svogl Oil Gas & Energy Ltd. vs. Indian Oil Corporation Ltd.
2016 SCC Online Del 3296 - rel. para 16
4. Sarku Engineering Services SDN BHD vs. Union of India, Through the Secretary, Ministry of Petroleum & Natural Gas, Shastri Bhavan, New Delhi 2016 SCC Online Bom 5233 - rel. paras 26 & 27 [4.15] It is further submitted by Shri Trivedi, learned Counsel appearing on behalf of the petitioner that even otherwise the order passed by the learned Tribunal under Section 17 of the Arbitration Act failed to satisfy the requirement of prima facie case, balance of convenience and irretrievable injury / irreparable loss. It is submitted that the learned Tribunal as well the learned Commercial Court has committed patent error on the face of the record in holding that proceedings of putting the respondent Company on holiday is a consequence of termination and thus the respondent Company would not be in a position to recover the damages caused to it even if it succeeds in its challenge to the holiday proceedings. It is submitted that firstly, holiday proceedings are not the consequence of termination of Page 20 of 42 C/SCA/9305/2018 CAV JUDGMENT contract inasmuch as for an example if the respondent Company would have brought genuinely new MAC unit during the extended period after supplying old refurbished MAC unit at the first instance, the petitioner Corporation could still initiate holiday proceedings but it would not result into termination of contract as the mobilization stands completed upon bringing the genuinely new MAC unit. It is submitted that similarly, in a given case where due to bonafide reasons if the contractor is unable to mobilize the MAC unit within the agreed time, contract stands terminated but the petitioner Corporation may not initiate holiday proceedings. It is submitted that thus, it cannot be concluded that holiday is a consequential action to termination.
[4.16] It is further submitted by Shri Trivedi, learned Counsel appearing on behalf of the petitioner that apart from this, the learned Tribunal as well as the learned Commercial Court has committed gross errors in holding that since the invoices reflect the year of manufacture as 2017 it is established that the MAC unit is new. It is submitted that the learned Tribunal as well as the learned Commercial Court has committed errors on the face of the record in ignoring the inspection report dated 07.09.2017 of the petitioner Corporation which clearly held that the MAC unit is an old and repainted one although its relevant documents say that it is new. It is submitted that the certificates and the inspection reports submitted by the respondent Company have opined only on the basis of the documents without verification of the physical condition of the MAC unit. It is submitted that it is the precise case of the petitioner Corporation that the respondent Company has submitted false documents to show that MAC unit is new when the physical condition upon physical site inspection revealed that it is old.
[4.17] It is further submitted by Shri Trivedi, learned Counsel Page 21 of 42 C/SCA/9305/2018 CAV JUDGMENT appearing on behalf of the petitioner that the learned Tribunal and the learned Commercial Court have erred in holding that the respondent Company is likely to suffer irretrievable damage as it is likely to lose business opportunities during the period of holiday. It is submitted that such conclusions and findings are perverse inasmuch as such loss of business opportunities are clearly determinable in terms of money and could be compensated by awarding damages as against which it would create irreversible situation for the petitioner corporation if the respondent company is allowed to do business with the petitioner corporation inasmuch as once the contract is performed it cannot be reversed such irreversible situation would compel the petitioner corporation to enter into business with a person which is found to be unsuitable by the petitioner corporation. In support of his above submissions, Shri Trivedi, learned Counsel appearing on behalf of the petitioner has relied on the decision of the Divisoin Bench of this Court in the case of Krishak Bharati Cooperative Limited vs. S.R. Travels and Anr. reported in 2018 SCC Online Guj. 805 (Paras 8 and 13).
[4.18] It is further submitted by Shri Trivedi, learned Counsel appearing on behalf of the petitioner that in the facts and circumstances of the case and even considering the provisions of the Commercial Courts Act, nonchallenge to the order passed by the learned Arbitral Tribunal in Section 16 application shall not come in the way of the petitioner. It is submitted that still it will be open for the petitioner to contend that the learned Arbitral Tribunal has no jurisdiction to entertain and/or consider the dispute with respect to the blacklisting to the extent while considering prima facie case. It is submitted that considering the provisions of the Commercial Courts Act more particularly section 8 of the Arbitration Act, the appeal at this stage challenging the order passed in Section 16 application shall not be Page 22 of 42 C/SCA/9305/2018 CAV JUDGMENT maintainable and even the dispute with respect to jurisdiction can be agitated only in an appeal challenging the final award. It is submitted by Shri Trivedi, learned Counsel appearing on behalf of the petitioners that even in the impugned order the learned Commercial Court has also observed that at this state challenge to the order passed in Section 16 application shall not be maintainable.
Making above submissions it is requested to allow the present petition.
[5.0] Present petition is vehemently opposed by Shri Soparkar, learned Counsel appearing on behalf of the respondent.
[5.1] It is vehemently submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that the learned Arbitrator has jurisdiction to grant the reliefs as granted by the impugned order on an application under Section 17 of the Arbitration Act which is rightly confirmed by the learned Commercial Court by the impugned order.
[5.2] It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that the learned Arbitrator has by an order dated 09.05.2018 on an application under Section 16 of the Arbitration Act filed by the Corporation has ruled that the learned Arbitrator has jurisdiction to agitate the dispute raised in the amended statement of claim filed by the respondent. It is submitted that the order passed by the learned Arbitrator ruling the jurisdiction under Section 16 of the Arbitration Act is not appealable under Section 37 of the Arbitration Act. It is submitted that in the event the learned Arbitrator opines that he has jurisdiction in the matter, he may proceed therewith, which order can be challenged alongwith the award in terms of section 34 of the Arbitration Act.
Page 23 of 42 C/SCA/9305/2018 CAV JUDGMENTIn support of his above submissions, Shri Soparkar, learned Counsel appearing on behalf of the respondent has heavily relied upon the decision of the Hon'ble Supreme Court in the case of Pandey & Co. Builders (P) Ltd. vs. State of Bihar & Anr. reported in (2007)1 SCC 467 (Paras 15 and 16). It is submitted that therefore, in view of the settled position of law, the Corporation which cannot challenge the order dated 09.05.2018 under Section 16 of the Arbitration Act on the question of jurisdiction of learned Arbitrator, cannot indirectly challenge the said question in the present petition by challenging the order dated 09.05.2018 passed by the learned Arbitrator under Section 17 of the Arbitration Act. It is submitted that therefore, the order dated 09.05.2018 under Section 16(5) of the Arbitration Act is final at this stage and cannot be challenged. It is submitted that even otherwise as such the said order is not challenged by the Corporation. It is submitted that therefore what is not permitted directly cannot be done indirectly.
[5.3] It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that barring excepted items agreed between the parties, the learned Arbitrator has full power to adjudicate and decide the dispute arising out of the contract dated 07.04.2017. It is submitted that in the present case the dispute raised in the arbitration proceedings are such items which are not excepted in the contract and therefore, are not barred.
[5.4] It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that even otherwise the notice dated 02.11.2017 invoking the arbitration clause by respondent is wide enough to cover the disputes which are raised in the amended statement of claim. It is submitted that from the chronology of events it can be seen that the Corporation terminated the contract by letter dated 11.10.2017 Page 24 of 42 C/SCA/9305/2018 CAV JUDGMENT under Clause 18.5 of the contract and blocked the Vendor Code on 12.10.2017 under Clause 18.6(ii) without any order passed for blocking the Vendor Code. It is submitted that subsequently the Corporation gave showcause notice dated 18.10.2017 to the respondent as to why the Corporation should not take action against the respondent as per the terms and conditions of the contract to stop / ban business dealings with the respondent. It is submitted that the respondent invoked the arbitration clause 27.1 and gave a notice dated 02.11.2017 raising dispute in respect of terminating the contract and the action / intention of the Corporation to put the respondent on holiday with malafide intention. It is submitted that paras 12, 13, 14, 21 and 22 of the notice dated 02.11.2017 are wide enough to cover the dispute of termination and the action / intention to put the respondent on holiday by the Corporation. It is submitted that even in reply dated 07.11.2017 by the respondent to the showcause notice dated 18.10.2017 it was pointed out that the respondent has invoked the arbitration clause and request was made not to proceed with show cause notice. It is submitted that subsequently the reply dated 01.12.2017 was given by the respondent pointing out that the respondent has already invoked the arbitration proceedings. It is submitted that the learned Arbitrator was appointed on 21.12.2017. The respondent again gave a reply dated 21.12.2017 pointing out that the consent for appointing Arbitrator has been given by letter dated 21.12.2017 and therefore, the Corporation may not proceed further in the matter. It is submitted that infact, the learned Arbitrator gave a notice dated 25.01.2018 informing the parties that the meeting will be held on 06.02.2018. The statement of claim challenging the termination letter dated 11.10.2017 and showcause notice dated 18.10.2017 alongwith an application under Section 17 of the Arbitration Act was filed before the learned Arbitrator. It is submitted that during the pendency of the hearing to section 17 application, which was going Page 25 of 42 C/SCA/9305/2018 CAV JUDGMENT on, the Corporation passed office order dated 15.02.2018 putting the respondent on holiday. It is submitted that the dispute regarding the action / intention of the Corporation to put the respondent on holiday was already raised in the notice dated 02.11.2017 by the respondent. It is submitted that considering the said facts the learned Arbitrator by an order dated 10.03.2018 granted amendment to challenge the office order dated 15.02.2018 and also permitted amendment in application under Section 16 seeking stay of the office order dated 15.02.2018. It is submitted that therefore, the said dispute which is raised falls within clause 27 of the contract and the learned Arbitrator has jurisdiction to decide the said dispute as the notice dated 02.11.2017 is wide enough to cover the disputes which are raised in the amended statement of claim.
[5.5] It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that Clause 18.5 provides for termination of the contract if the contractor fails to mobilize the complete equipment along with crew. It is submitted that Clause 18.6 provides for 'consequences of termination' of putting the respondent on holiday for period of two years from the dated of the order and pending completion of enquiry process for putting the respondent on holiday, the Corporation shall neither issue any tender enquiry nor shall consider any offer in the ongoing tender to the contractor.
[5.6] It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that in the present case the Corporation has terminated the contract by a letter dated 11.10.2017 under Clause 18.5 on the ground that respondent failed to mobilize the equipment and reserved the right to take further consequential action as provided in the contract. It is submitted that the Corporation did not accept which was ready for deployment by the respondent in view of the Page 26 of 42 C/SCA/9305/2018 CAV JUDGMENT alleged report dated 07.09.2017 which is based on visual inspection and without opportunity to the respondent to rectify / repair the defect which otherwise is provided under 3.12.2(G) of inspection. It is submitted that in any case the respondent had deployed the new MAC. It is submitted that the Corporation then gave a showcause notice dated 18.10.2017 to the respondent as to why the Corporation should not take action to put the respondent on holiday as per terms and conditions of the contract and also referred to the alleged report dated 07.09.2017 in the said showcause notice. It is submitted that the reminder dated 25.11.2017 also reminds of the fact that the consequential action is taken under Clause 18.6 of the contract. It is submitted that even the notice dated 20.12.2017 by the Corporation in reference to the earlier notice dated 18.10.2017 calls upon the respondent to give reply on merits otherwise it will proceed ex parte and quoted the observations of the alleged report dated 07.09.2017 which was already referred to in the showcause notice dated 18.10.2017. It is submitted that thereafter the respondent is put on holiday as per Clause 18.6 of the terms of the contract by an office order dated 15.02.2018. It is submitted that hence, the action / intention of the Corporation to put the respondent on holiday is a consequence of termination under Clause 18.6 of the contract read with Clause 18.5 of the contract. Therefore, when the termination of the contract is to be adjudicated and decided by the learned Arbitrator in that case the learned Arbitrator also has power to adjudicate and decide the consequential action of putting the respondent on holiday taken pursuant to termination of the contract.
In support of his above submissions, Shri Soparkar, learned Counsel has heavily relied upon the decision of the Hon'ble Supreme Court in the case of Rashtriya Ispat Nigam Ltd. & Anr. vs. Verma Transport Co. reported in (2006)7 SCC 275 (Paras 7, 21 to 23 & 43). It is submitted that in the aforesaid decision it is held that the cause of Page 27 of 42 C/SCA/9305/2018 CAV JUDGMENT action arose in terms of the contract in respect of illegal termination of the contract and blacklisting of the firm and it cannot be said to be two different causes of action.
[5.7] It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that if the termination letter dated 11.10.2017 is set aside then the office order dated 15.02.2018 putting the respondent on holiday would not survive inasmuch as the office order dated 15.02.2018 is a consequence of the termination letter dated 11.10.2017. It is submitted further that the allegations made and the grounds on the basis of which the Corporation has terminated the contract by termination letter dated 11.10.2017 are identical and similar to put the respondent on holiday by an office order dated 15.02.2018. It is submitted that therefore, if the respondent is directed to raise a separate dispute as alleged by the Corporation under Clause 27.1 of the contract for a separate arbitration then in that case there would be two separate arbitration for same cause of action based on identical allegations and similar grounds which would lead to two conflicting awards in two separate arbitration proceedings. It is further submitted that no prejudice will be caused to the Corporation if the dispute raised in the amended statement of claim is adjudicated and decided by the learned Arbitrator. It is submitted that therefore, if the argument of the Corporation is accepted then it would lead to multiplicity of proceedings / litigation / arbitration which should be curbed in the interest of substantial justice.
[5.8] It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that the bifurcation of proceedings in two parts i.e. one for adjudication of the termination of contract and another for putting the respondent on holiday to be Page 28 of 42 C/SCA/9305/2018 CAV JUDGMENT decided in two separate proceedings would inevitably delay the proceedings. It is submitted that the whole purpose of speedy disposal of dispute and cost of litigation would be frustrated by such procedure. It is submitted that it would also increase the cost of litigation and harassment to the parties and on occasions there is possibility of conflicting judgment and orders in two separate proceedings.
[5.9] It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that the Corporation had filed petition under Article 227 of the Constitution of India challenging the order dated 31.05.2018 passed by the Commercial Court, Ahmedabad confirming the order dated 09.05.2018 passed by the learned Arbitrator under Section 17 of the Arbitration Act. It is submitted that it is settled position of law that such powers be exercised sparingly and in the rarest of the rare case which is not one in the present case. It is submitted that therefore this Court may not exercise the power as the impugned orders does not suffer from patent perversity nor there has been a gross and manifest failure of justice nor there is violation of basic principles of natural justice.
In support of his above submissions, Shri Soparkar, learned Counsel appearing on behalf of the respondent has heavily relied upon the decision of the Hon'ble Supreme Court in the case of Shalini Shyam Shetty & Anr. vs. Rajendra Shankar Patel reported in (2010)8 SCC 329 (Paras 47 to 49) as well as the recent decision dated 07.05.2018 of the Division Bench of this Court rendered in Special Civil Application No.737/2018.
[5.10] It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that the order dated 09.05.2018 is passed by the learned Arbitrator under Section 17 of the Arbitration Page 29 of 42 C/SCA/9305/2018 CAV JUDGMENT Act against which appeal under Section 37(2)(b) of the Arbitration Act is preferred before the Commercial Court on which the order dated 31.05.2018 is passed by the Commercial Court confirming the order dated 09.05.2018 passed by the learned Arbitrator under Section 17. It is submitted that the scope of interference by a Commercial Court in an interim direction given by the learned Arbitrator is very limited more so because the learned Arbitrator has taken fair, reasonable and equitable view.
In support of his above submissions, Shri Soparkar, learned Counsel appearing on behalf of the respondent has heavily relied upon the decisions in the case of Subhash Chander Chachra & Anr. vs. Ashwini Kumar Chachra & Ors. reported in 2007 (95) DRK 55 as well as in the case of Bakshi Speedways vs. Hindustan Petroleum Corporation reported in 2009 SCC Online Del 2476 (Para 4).
[5.11] It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that there are multiple / various judgments which support the view taken by the Arbitrator that since the validity and legality of the termination is yet to be adjudicated till then the order putting the respondent on blacklisting should be stayed subject to outcome of the final award as the award of the blacklisting would depend upon the termination.
In support of his above submission, Shri Soparkar, learned Counsel has relied upon the decisions in the case of (1) National Building Construction Corporation Ltd. vs. New Delhi Municipal Council & Anr. [138 (2007) DLT 414 (Para 25)]; (2) Indian Oil Corporation Ltd. vs. SPS Engineering Ltd. [128 (2006) DLT 417 (Para 16)]; (3) Prakash Atlanta JV & Ors. vs. National Highway Authority of India & Ors. [169 (2010) DLT 664 (Paras 37 & 38)]; (4) M/s. Mahavir Transmission Udyog Pvt. Ltd. vs. Punjab State Page 30 of 42 C/SCA/9305/2018 CAV JUDGMENT Transmission Corporation Ltd. & Ors. [AIR 2014 P&H 21 (Paras 9, 11, 12 & 13)]; (5) Nagarjuna Construction Co. Ltd. vs. State of Jharkhand & Ors. [MANU/JH/1211/2011 (Paras 19, 23, 24, 26 &
28)] and (6) Gujarat High Court - Centre for Development Communication vs. Ahmedabad Municipal Corporation [2017(0) AIJELHC 237439 (Paras 3, 8.1, 8.2 & 8.3)].
[5.12] It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that as per the settled proposition of law if the view taken by the learned Arbitrator is a plausible view, then the same shall not be interfered by the Court in a case where two inferences are reasonably possible.
[5.13] It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that from the separate chronology of events even by the respondent it can be seen that the respondent has purchased brand new Prime Mover Diesel Engine of the Make: Kirloskar, Truck Chassis of Ashok Leyland and Air Compressor of M/s. Positive Gas & Air Equipments for which the purchase has been paid by the respondent to the respective supplier. It is submitted that the invoice raised and the payments made by NEFT are on record. It is submitted that the air compressor is to be aligned with the Diesel Engine with gear box for smooth running and to be mounted on the Truck Chassis. It is submitted that therefore, it was to be assembled. It is submitted that on completion of assembly, it is painted where alignment is carried out and the equipments are fixed. It is submitted that it is the normal procedure which is followed in such type of assembly. It is submitted that even three independent inspection reports provided by the respondent provide that the said Air Compressor is new. It is further submitted that the Corporation did not permit the respondent to rectify / repair the Page 31 of 42 C/SCA/9305/2018 CAV JUDGMENT defect as pointed out in the alleged report dated 07.09.2017 though it is required to be permitted under Clause 3.12.2(G). It is submitted that in short the Corporation was determined to terminate the contract and initiate consequence action to put respondent on holiday. It is submitted that despite various representations and offer by the respondent to physically check the MAC part by part at the cost of the respondent to show that it is a new one, the Corporation refused to do it.
[5.14] It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that it is pertinent to note that the maximum "punishment" that the respondent might have to suffer, if termination is found to be valid is to be put on holiday is two years. It is submitted that the learned Arbitrator has yet to adjudicate whether termination is valid. It is submitted that pending this adjudication if the Corporation is permitted to put the respondent on holiday even without any adjudication as to the default the respondent starts suffering the punishment. It is submitted that if the later on the learned Arbitrator holds that the termination was illegal / unjustified, the loss that respondent would suffer for being put on holiday during interregnum period cannot be compensated. It is submitted that apart from extreme difficulty, almost impossibility, to prove damages, the second litigation would involve time, money and energy on both sides. It is submitted that as against that if pending arbitration the suspension order is stayed the petitioner will not suffer at all because as directed by the learned Arbitrator, in case if the respondent loses in arbitration proceedings, it can always be put on holiday for remaining period of two years. It is submitted that this clearly shows that the balance of convenience is in favour of the respondent.
[5.15] It is further submitted by Shri Soparkar, learned Counsel Page 32 of 42 C/SCA/9305/2018 CAV JUDGMENT appearing on behalf of the respondent that the respondent has major business with the Corporation since 1994 and has successfully completed 134 contracts and approximately 44 are running as on March, 2018. It is submitted that if the respondent is put on holiday for two years and the said punishment is implemented then the respondent would not be able to participate in tender inquiries. It is submitted that on the other hand if the respondent succeeds in arbitration and the termination is set aside then the order putting the respondent on holiday would not survive but by then the respondent would have suffered the punishment of holiday for two years. It is submitted that loss to goodwill and reputation of the respondent cannot be compensated in terms of money. It is further submitted that the financial loss cannot be compensated in terms of money as it would be difficult to come to conclusion that in those two years the respondent would have participated in all the tender inquiries and that the tender would have been awarded to the respondent and the profit arising out of such contract could be crystallized. It is submitted that infact in a decision reported in 2018 SCC Online Guj 805, this Court did not grant claim towards loss of business caused due to blacklisting as such business loss was not proved. It is therefore submitted that even for the respondent it would not be possible to prove business loss for putting the respondent on holiday by the Corporation.
It is further submitted that on the other hand, no loss would be caused to the Corporation if the Office Order is stayed on a condition that it would be revived for the remaining period out of total two years of holiday in case the respondent does not succeed in the arbitration. It is further submitted that Clause 18.6 stipulates that in case of termination, the obligation of the Corporation to pay shall be limited to the period up to the date of termination. It is submitted that Clause 35.0 of the contract provides that the respondent shall not be liable whether in contract, tort or otherwise or any consequential loss or damage, loss Page 33 of 42 C/SCA/9305/2018 CAV JUDGMENT of use, loss of production or loss of profits or interest cost to the Corporation.
[5.16] It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that infact the respondent is put on holiday w.e.f. 11.10.2017 by an Office Order dated 15.02.2018. It is submitted that despite the Office Order dated 15.02.2018 is stayed by the learned Tribunal and confirmed by the Commercial Court which has not stayed the said order, the Corporation on its own have not unblocked the Vendor Code and has still disallowed the respondent from participating in tender inquiries. It is submitted that the respondent is therefore out of business from 11.10.2017 i.e. for a period of almost 9 months out of the total period of two years.
[5.17] Now, so far as the submission on behalf of the Corporation that the proceedings are barred under Order 23 Rule 1 of the Code of Civil Procedure, 1908, in view of the withdrawal of the petition by the respondent is concerned, it is submitted by Shri Soparkar, learned Counsel for the respondent that the petition was filed challenging the action of blocking the Vendor Code pending the enquiry to put the respondent on holiday was challenged and the showcause notice dated 18.10.2017. It is submitted that the said petition was withdrawn by an order dated 02.02.2018 with permission of the High Court to initiate proceedings for interim measures before the learned Arbitrator who was by then appointed and had fixed the meeting on 06.02.2018. It is submitted that the liberty was also reserved. It is submitted that the permission was granted by the High Court and therefore, the proceedings cannot be barred under Order 23 Rule 1 of the CPC. It is further submitted that the Office Order dated 15.02.2018 was not the subject matter of the petition and therefore also, the provisions of Order Page 34 of 42 C/SCA/9305/2018 CAV JUDGMENT 23 Rule 1 of the CPC would not be attracted. It is therefore submitted that the proceedings are maintainable before the learned Arbitrator.
[5.18] It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that the Integrated Materials Manual (IMM) is not a part of the contract and hence the said Manual is not binding upon the respondent. It is submitted that in fact, the show cause notice dated 18.10.2017 nowhere refers that the proceedings under the said manual is initiated and the said showcause notice dated 18.10.2017 only refers to action under Clause 18.6 of the contract. It is submitted that hence, the said contention of the Corporation that the action under manual is an afterthought as it was never taken under Manual under showcause notice dated 18.10.2017. It is submitted that hence, the action is not independent and distinct of the contract.
[5.19] It is further submitted by Shri Soparkar, learned Counsel appearing on behalf of the respondent that the argument of the Corporation that the relief granted to the respondent is "Final Relief"
and cannot be granted at an interim stage is also incorrect. It is submitted that in case if it is held that the respondent was at fault, the order of suspension can be revived. It is submitted that for the present, however, the issue is pending in arbitration the relief that can be granted to the respondent. It is submitted that this is only an interim protection under Section 17 of the Arbitration Act. It is submitted that the learned Arbitrator would not be and is not been called upon to decide the order of suspension as an independent dispute. It is submitted that the learned Arbitrator is required to decide the validity of termination and pending that adjudication whether such a suspension is called for.
Making above submissions and relying upon above decisions, it is requested to dismiss the present petition.Page 35 of 42 C/SCA/9305/2018 CAV JUDGMENT
[6.0] Heard learned Counsel appearing on behalf of the respective parties at length.
What is challenged in the present petition is the impugned order passed by the learned Commercial Court confirming the order passed by the learned Arbitral Tribunal under Section 17 of the Arbitration Act and by way of interim measure the learned Arbitrator has directed to stay further implementation and operation of the order passed by the petitioner putting the respondent Contractor on holiday.
[6.1] It is required to be noted that as such the respondent herein initiated the arbitration proceedings by invoking the arbitration clause - clause 27 contained in the contract challenging the termination of the contract and for ancillary reliefs. That the termination of the contract can be said to be under Clause 18.4 of the contract agreement. However, thereafter, the proceedings were going on to blacklist / put on holiday the respondent Contractor and number of notices were issued by which the respondent Contractor and thereafter its Directors etc. were called upon to showcause why they may not be put on holiday. Thereafter, after the contract was terminated and even the arbitration proceedings were initiated, the order came to be passed by the petitioner putting on holiday the respondent Contractor as well as its Directors etc. It is required to be noted that as such the respondent Contractor challenged the order putting them on holiday before this Court by way of Special Civil Application No.19289/2017, however, thereafter they withdrew the same with a liberty to submit an appropriate application for interim measure before the learned Arbitrator under Section 17 of the Arbitration Act. At this stage it is required to be noted that as such the petition was withdrawn with a liberty to initiate proceedings under Section 17 of the Arbitration Act. Despite the same while submitting the application under Section 17 for interim measure in which the Page 36 of 42 C/SCA/9305/2018 CAV JUDGMENT respondent Contractor prayed for stay of implementation and operation of the order putting them on holiday, simultaneously they submitted the application to amend the statement of claim challenging the order putting them on hold / blacklisting them which came to be allowed. The statement of claim was also permitted to be amended. The petitioner submitted the application under Section 16 of the Arbitration Act challenging the jurisdiction of the learned Arbitral Tribunal to consider the question with respect to the subsequent action of putting the Contractor and its Directors etc. on holiday. The learned Arbitrator decided and disposed of section 16 application by detailed order and held that it had jurisdiction to consider the issue / question with respect to putting the respondent Contractor and its Directors etc. on holiday. It is required to be noted that simultaneously on the very day the learned Arbitrator has passed the impugned order in an application under Section 17 of the Arbitration Act simply following the reasonings and the observations made while disposing of section 16 application. It is true that order passed under Section 16 of the Arbitration Act has not been challenged. However, at the same time, considering the provisions of the Arbitration Act as well as the Commercial Courts Act, the same cannot be challenged and even the order passed by the learned Arbitrator on jurisdiction can be challenged only in an appeal against the final award. Even that is so observed by the learned Commercial Court. Under the circumstances and even considering the fact that while deciding and disposing of section 17 application, the learned Arbitral Tribunal has solely considered the reasoning and finding recorded while deciding section 16 application, nonchallenge to the order passed in section 16 application shall not come in the way of the petitioner to the extent pointing out the balance of convenience.
[6.2] It is mainly contended on behalf of the respondent that as the Page 37 of 42 C/SCA/9305/2018 CAV JUDGMENT subsequent order of putting the Contractor and its Director etc. on holiday is a consequence of order of termination of contract and considering Clause 18 of the contract agreement, the same can be said to be a continuous cause of action and therefore, in arbitration proceedings challenging the termination of the contract, the same can be permitted to be agitated before the learned Arbitral Tribunal. It is also the case on behalf of the respondent Contractor that when the notice was issued invoking the arbitration clause challenging the termination of the contract, the notice was very wide including the question with respect to the blacklisting and therefore, the order of blacklisting and/or putting the respondent on holiday can be the subject matter of arbitration proceedings even without issuing any fresh notice.
[6.3] On the other hand, it is the specific case on behalf of the petitioner that the order putting the Contract and its Directors on holiday is not a consequence of the termination of the contract and it is altogether a different cause of action relying upon the General Manual and it has nothing to do with the termination of the contract. It is also the case on behalf of the petitioner that even at the time when the arbitration proceedings were initiated while issuing the notice invoking the arbitration clause and even when the arbitration proceedings commenced, no order blacklisting the respondent was passed and therefore, considering relevant clause more particularly considering Clause 27 without issuing any specific notice invoking the arbitration clause even with respect to the blacklisting the arbitration proceedings cannot be commenced and therefore, without following the procedure as required under Clause 27 the learned Arbitrator has no jurisdiction.
[6.4] Having heard learned Counsel appearing for respective parties at length and considering the material on record more particularly the Page 38 of 42 C/SCA/9305/2018 CAV JUDGMENT execution of notices, notice invoking arbitration clause, relevant clauses of the contract agreement more particularly Clause 18 and Clause 27 and the order terminating the contract and the subsequent order putting the respondent Contractor and its Directors on holiday and the stand taken by the respective parties, we are of the opinion that that the subsequent action / order putting the respondent Contractor and its Directors on holiday is not the consequence of the termination of the contract. It prima facie appears that the order putting the respondent Contractor and its Directors on holiday is not passed under Clause 18 of the contract agreement. The subsequent order / action is altogether a different cause of action and is passed under General Contract Manual and not under Clause 18. Under the circumstances, we are of the opinion that there are serious disputes with respect to even jurisdiction of the learned Arbitral Tribunal to entertain and consider the dispute with respect to putting the respondent Contractor and its Directors on holiday. At this stage it is required to be noted that the order blacklisting the respondent Contractor and its Directors cannot be said to be under Clause 18 as in Clause 18 there is no question of even putting the Directors of the respondent Contractor on holiday. The relevant Clause 18 is already reproduced herein above. Therefore, the decisions which are relied upon by the learned Counsel appearing on behalf of the respondent that in support of his submission that as the order blacklisting / putting on holiday the respondent Contractor can be said to be the consequence of the termination of the contract and therefore, the same shall be permissible in a arbitration proceedings challenging the termination of the contract are not applicable in the facts and circumstances of the case.
[6.5] It is required to be noted that even the day on which the arbitration clause was invoked and the notice was issued and even the Page 39 of 42 C/SCA/9305/2018 CAV JUDGMENT arbitration proceedings commenced in which the only dispute was with respect to termination of the contract, no cause of action with respect to blacklisting the respondent Contractor and/or putting them on holiday had arisen.
[6.6] It is also required to be noted that when the arbitration clause was invoked and the notice was issued invoking the arbitration clause the only dispute raised was with respect to the termination of the contract. Considering various notices and the notice invoking the arbitration clause, it cannot be said that the same was also with respect to the action putting the respondent Contractor and its Director on holiday. At that stage as observed herein above even the same was at the show cause notice stage. Blocking the Vendor Code has nothing to do with the subsequent order putting the respondent Contractor and its Directors on holiday.
[6.7] Under the circumstances and considering the aforesaid facts and circumstances there are very serious contentious issues with respect to the jurisdiction of the learned Arbitral Tribunal to consider and decide the dispute with respect to the order blacklisting the respondent Contractor and/or putting them on holiday. The same is required to be considered while considering the balance of convenience and prima facie case.
[6.8] Even otherwise on facts and considering serious allegations enumerated in the order blacklisting and/or putting on holiday the respondent Contractor and its Directors more particularly with respect to the fraud committed in supplying old machinery etc., we are of the opinion that both, the learned Arbitral Tribunal as well as learned Commercial Court have materially erred in holding the balance of Page 40 of 42 C/SCA/9305/2018 CAV JUDGMENT convenience and prima facie case in favour of the respondent Contractor.
[6.9] Even otherwise we are of the opinion that such an order of staying the order passed by the appropriate Authority putting the respondent Contractor and its Directors on holiday cannot be stayed by way of interim measure in an application under Section 17 of the Arbitration Act. Nobody can be compelled to enter into the contract. If at all any remedy is there, it is to claim damages afterwards but by way of such interim measure such an order keeping in abeyance the order passed by the appropriate Authority putting the Contractor on holiday and/or blacklisting them is not justified. Under the circumstances both, the learned Arbitral Tribunal as well as the learned Commercial Court have materially erred in holding the balance of convenience, prima facie case and irreparable loss in favour of the respondent. Therefore, in the facts and circumstances of the case the decisions relied upon by the learned Counsel appearing on behalf of the respondent shall not be applicable to the facts of the case on hand more particularly with respect to serious allegations of fraud, cheating etc. of supplying old machinery and treating and showing them as new machinery after painting the same.
[6.10] We do not further observe anything on merits as it may affect either parties in other proceedings may be proceedings pending before the learned Arbitral Tribunal. Suffice it to say that in the facts and circumstances of the case the learned Arbitral Tribunal was not justified in passing such an order of interim measure in exercise of powers under Section 17 of the Arbitration Act. The learned Commercial Court has materially erred in confirming the same.
[7.0] In view of the above and for the reasons stated above, present Special Civil Application succeeds. Impugned order dated 31.05.2018 Page 41 of 42 C/SCA/9305/2018 CAV JUDGMENT passed by the learned Commercial Court, City Civil Court, Ahmedabad in Civil Misc. Application No.37/2018 as well as the impugned order dated 09.05.2018 passed by the learned Arbitral Tribunal below application Exh.17 of the Arbitration and Conciliation Act, 1996 are hereby quashed and set aside. Rule is made absolute accordingly. No costs.
Sd/ (M.R. SHAH, J.) Sd/ (A.Y. KOGJE, J.) Ajay** Page 42 of 42