*THE HON’BLE MR. JUSTICE N.V. RAMANA AND THE HON’BLE MR. JUSTICE K.S. APPA RAO +Civil Miscellaneous Appeal No.980 of 2010 % 10-03-2011 Between: # M/s. Jyothi Turbopower Services Pvt. Ltd. A company registered under the Companies Act, 1956, And having its Registered Office at 4-124/1, Manjeera Road, Chandanagar, Hyderabad, Rep. by its General Manager Mr. Biswajit Nath, S/o. J. Nath, Aged 45 years, General manager (Business Development) of the petitioner company, R/o. Hyderabad. …Appellant And $1. M/s. Shenzhen Shandong Nuclear Power Construction Company Ltd., Registered Office at Jain Bhawan, Near Gangothri Industries, near Kids Care School, New Shantinagar, Raipur, Chattisgarh State, Rep. by its Deputy Project Manager, Mr. Liu Yan Zheng 2. Syndicate Bank, Having its Branch at N.S. Road, situated near Mozamjahi Market, Hyderabad, rep. by its Branch Manager. …Respondents !Counsel for the Appellant: MR. N. SUBBA RAO, ^ Counsel for the Respondent No.1: MR. THOOM SRINIVAS ^ Counsel for the Respondent No.2: <Gist: >Head Note: ?Cases referred: 1. 2005 (6) ALT 642 (D.B.) 2. (1999) 2 SCC 479 3. (2002) 4 SCC 105 4. 2008 (3) ALT 440 5. 2010 (1) ALT 435 (DB) 6. AIR 1999 Delhi 11 THE HONOURABLE SRI JUSTICE N.V. RAMANA AND THE HONOURABLE SRI JUSTICE K.S. APPA RAO Civil Miscellaneous Appeal No.980 of 2010 JUDGMENT: (Per Hon’ble Sri Justice N.V. Ramana) This civil miscellaneous appeal is directed against the order dated 18.11.2010 passed in O.P. No. 1911 of 2010 by the learned II Additional Chief Judge, City Civil Court, Hyderabad, dismissing the petition filed by the appellant herein, under Section 9 of the Arbitration and Conciliation Act, 1996, seeking to restrain the first respondent from invoking the bank guarantee vide BG 44/2009 issued by respondent No.2 on behalf of the appellant, pending resolution of dispute through arbitration. The appellant company claims that it is engaged in the business of providing services to power plants for erection, commissioning of STG sets up to 660 MW and GTS sets up to Fr 9 capacities, maintenance and other allied activities. While so, they claim to have entered into agreement dated 20.12.2008 with the first respondent company namely M/s. Shenzhen Shandong Nuclear Power Construction Company Limited, Raipur, Chattisgarh, for erection of 1#, 2#, 3#, 4#, 5# STG and auxiliary equipment and pipes dated 20.12.2008. Pursuant to the agreement, and as required by the terms and conditions thereof, the appellant furnished a bank guarantee towards advance payment vide BG No. 43/2009 dated 18.08.2009 for Rs. 62,39,595/- towards agreement for all five units and the said bank guarantee was valid till 14.01.2010. The appellant also furnished another bank guarantee for equal sum, vide BG. No. 44/2009 dated 18.08.2009, towards performance guarantee, and the same is valid up to 14.01.2011. The appellant states that the first respondent issued cheque for Rs. 10,78,006/- and another cheque for Rs. 56,48,315/- towards advance payment. Pursuant thereto, the appellant commenced the work and claims to have completed the total work in respect of two units, worth Rs. 2,95,10,496/-, out of which, an amount of Rs. 2,37,38,455/- was paid by the first respondent and thus there was a balance amount of Rs.68,51,891/- to be paid. While so, the appellant states that the first respondent, contrary to the terms and conditions of the agreement and original understanding between the parties, allotted only two units of work i.e. 1# and 2# as against the total five units of work under the agreement and withheld the work of the balance three units without any reason and issued a notice dated 29.08.2010 requesting the appellant to suspend the work. Thereupon, the appellant requested the first respondent to release ad hoc amount against its outstanding settlement for payment of wages to its workers, and the first respondent paid ad hoc amount of Rs.20,00,000/- against settlement Nos. 19 and 20, leaving an outstanding balance amount of Rs.40,51,891/-. The appellant, thereupon, suspended the work, as sought by the first respondent, due to which its equipment worth Rs. 49,00,000/- is lying at the construction site. The first respondent, having suspended the balance work without assigning any specific reasons, did not even clear the bills of the appellant in respect of two units of work already executed, and when the appellant requested to clear those dues, the first respondent started adopting coercive methods and forced the appellant to issue a letter admitting withholding of bank guarantee and because of pressure from labour for payment of wages and due to coercion of the first respondent, the appellant issued letter dated 01.09.2010, admitting withholding of bank guarantee, and on such issuance of letter, the first respondent released an amount of Rs. 20,00,000/- as ad hoc payment. The first respondent, thus, having induced the appellant to issue bank guarantee for five units of work, did not allot the remaining three units of work and pay the amounts for two units of work already executed, and thereby played fraud upon the appellant. The appellant, thus, contending that it is contemplating to invoke the arbitration clause and in the meanwhile as the first respondent is trying to invoke the bank guarantee, filed the present petition, under Section 9 of the Arbitration and Conciliation Act, 1996 (for short ‘the Act’), for grant of an order restraining the first respondent from invoking the bank guarantee vide BG 44/2009 issued by the second respondent-bank on behalf of the appellant. The first respondent resisted the petition, by filing counter, denying the allegations made by the appellant and inter alia contending that as per Article 10 of the agreement, the State of Orissa is designated as the place of arbitration and hence the Court below has no jurisdiction to entertain the present petition. It is further contended that if the Court below entertains the present petition, in view of the provisions of Section 42 of the Act, it alone has to adjudicate all subsequent arbitral proceedings and the Courts at Orissa, which have original jurisdiction as per the agreement, will lose the jurisdiction. The appellant miserably failed to honour the terms and conditions of the agreement and could not complete the work as per the schedule agreed to between the parties, and that there was shortage of construction machinery and tools and employees to meet the requirements of construction and thus the fist respondent provided all possible help/assistance to the appellant in completion of the project and incurred cost of Rs.18,09,888/-. There were lots of defects in the work executed and completed by the appellant and therefore the first respondent had to spend a lot of money to rectify the same. Since the appellant committed default in payment of wages, the workers and labourers went on strike and thereupon, at the request of the appellant, the first respondent made ad hoc payment, though the payments that were already made have far exceeded the value of the wok completed by the appellant and the work completed by the appellant has not been accepted by the first respondent yet, and that the appellant in their letter categorically stated that the first respondent can recover the ad hoc amount from the performance bank guarantee. While so, the bank guarantee issued by the appellant towards advance payment had expired on 14.01.2010 and in spite of the first respondent requesting for extension of the bank guarantee, the appellant failed to extend the same. The appellant unilaterally calculated the amount of Rs. 2,95,10,496/- which was never approved by the first respondent and inflated the amount in invoice Nos. 19 to 22. As the appellant miserably failed to finish the work of first two units, which was entrusted to them, the first respondent withheld the work of three other units. It is further stated that the first respondent released an advance of 10% of the total agreement price and thereafter the petitioner submitted a bank guarantee to the same amount and thus there was no fraud played by the first respondent upon the appellant and in fact the appellant has to pay Rs. 68,85,567/- to the first respondent on account of excess payments made by it, which the first respondent is entitled to recover. It is further contended that since unconditional bank guarantees were furnished by the appellant in course of commercial dealings, the first respondent is entitled to invoke the bank guarantee to recover the dues from the appellant and that the beneficiary is entitled to realize the bank guarantee in terms thereof, irrespective of any pending dispute. It is thus contended that there is n o prima facie case and balance of convenience in favour of the appellant. The Court below, having considered the respective stand of the parties, held that it has no territorial jurisdiction to entertain the present petition under Section 9 of the Act and that there is no prima facie case in favour of the appellant and the appellant is, therefore, not entitled for injunction restraining the first respondent from invoking the bank guarantee, and accordingly dismissed the petition filed by the appellant. Aggrieved by the dismissal, the appellant filed the present civil miscellaneous appeal. Learned counsel for the appellant mainly contended that the Court below has failed to appreciate the scope of its jurisdiction in entertaining the application filed under Section 9 of the Act. He submitted that even a fraction of cause of auction is enough and sufficient to decide the territorial jurisdiction of a Court for entertaining the petition under the provisions of the Act, and that the seat of arbitration is not an essential condition, and that the totality of circumstances have to be looked into, to decide where the question of cause of action has arisen, as held by the Division Bench of this Court in INCOMM Tele Ltd. v. Bharat Sanchar Nigam Ltd.[1]. The learned counsel for the appellant submitted that the registered office of the appellant company is situated at Hyderabad, they submitted the tender documents under Ex. A11 from Hyderabad, agreement works are being monitored from Hyderabad and the bank guarantees have been drawn at the banks at Hyderabad, and that being so, part of cause of action can be said to have arisen within the jurisdiction of the Court below, enabling it to entertain the application under Section 9 of the Act, but the Court below without considering those aspects, committed an error in dismissing the application holding that the Court has no jurisdiction. Relying upon the judgment of Supreme Court in Sundaram Finance Ltd v. NEPC India Ltd.[2], he contended that the Court can pass interim orders before the commencement of arbitral proceedings, in order to protect the interests of the parties. He further contended that unless the agreement between the parties specifically excludes Section 9 of the Act, the parties may seek relief under Section 9 of the Act in any appropriate Court and that an application for interim measure can be made to the Courts in India, whether or not the arbitration takes place in India, before or during arbitral proceedings, as held by the Supreme Court in Bhatia International v. Bulk Trading S.A.[3]. Since in the instant case, the agreement between the parties did not exclude the provisions of Section 9 of the Act, the appellant has got every right to seek an interim measure under Section 9 of the Court, and the Court below has very much got jurisdiction to entertain the petition filed by the appellant. He further contended that the trial Court erred in placing reliance upon the decision in Paramita Constructions Pvt. Limited v. UE Development India (P) Ltd.[4], the facts of which are different from that of the present case. In the said case the petition was filed for appointment of arbitrator under Section 11 of the Act and the parties therein agreed to the place of arbitration at Bangalore, in such situation, the question that arose for consideration was with regard to the jurisdiction of this Court in entertaining the said application under Section 11 (6) of the Act, whereas the present application is moved seeking an interim measure under Section 9 of the Act. He further submitted that the judgment of a Division Bench of this Court in Salarjung Museum, Hyderabad vs. Design Team Consultants Pvt. Ltd.[5], on which the Court below placed reliance to hold that the Court has no jurisdiction to entertain Section 9 application, is not applicable to the facts of the present case, as it is a case where the petition was filed seeking to set aside the award passed by the Arbitrator, but not for an interim measure. On merits of the case, the learned counsel for the appellant submitted that the appellant has furnished two bank guarantees towards advance amount and performance guarantee, in respect of five units of work awarded, but after execution of two units of work, the first respondent requested the appellant to suspend the remaining work of three units, and thus acted in breach of terms of agreement and it even did not finalize the bills pertaining to the works already executed, and thereby it has played fraud upon them, but the Court below did not consider the same, and by refusing to entertain the application, refused to grant the relief sought by the appellant, restraining the first respondent from invoking the bank guarantee of the appellant. He, therefore, prayed to set aside the order under appeal. On the other hand, learned counsel for the first respondent supported the order under appeal and contended that in terms of Article 10 of the agreement entered into by the parties, the State of Orissa is designated as place of arbitration and as the parties have voluntarily agreed the place of arbitration as State of Orissa, the Courts in Andhra Pradesh, much less the Court below, have no jurisdiction, to entertain the present petition, and the theory of cause of action does not come into picture and the provisions of Code of Civil Procedure cannot be looked into in this regard. He further submitted that the Court below, relying upon the decisions in Paramita Constructions case (4 supra) and Salarjung Museum, Hyderabad case (5 supra), considered the aspects of place of arbitration and its jurisdiction to entertain the present petition and rightly held that it has no jurisdiction to entertain the present petition. He further contended that the judgment of a Division Bench of this Court in INCOMM Tele Ltd. (1 supra), relied on by the learned counsel for the appellant in support of his contention that seat of arbitration is not an essential condition to decide the territorial jurisdiction of Court, has been superceded by the judgment that was subsequently passed by another Division Bench of this Court in Salarjung Museam case (5 supra), and therefore no credence can be given to the same and that the other decision in Bhatia International case (3 supra), relied on by the appellant, is also not applicable to the facts of the present case, as it is a case pertaining to international arbitration, which falls under Part II of the Act, whereas the arbitration in the present case falls under Part I of the Act. He further contended that a plain reading of Section 2(1)(e) of the Act would make it clear that the Court which will have jurisdiction to try a petition under the Act, is the Court which has the jurisdiction to decide the question forming the subject-matter of arbitration, if the same had been the subject-matter of a suit, and it is only the Courts at Orissa which will have the jurisdiction to decide the question forming the subject-matter of arbitration in the present case and it alone can grant any interim directions. Further, under Section 42 of the Act, any application made under Part I will give jurisdiction only to that Court and to no other Court for any subsequent applications arising out of the agreement, and in view of the same, if an application under Section 9 of the Act is entertained and adjudicated by the Court below, all subsequent arbitral proceedings have to be made in that Court and the jurisdiction of the Court at Orissa, which is having the original jurisdiction, as agreed to by the parties, will be ousted, which is contrary to Article 10 of the Agreement, whereat the parties have designated the State of Orissa as place of arbitration, and thus the Court mentioned in Section 9 can only be the Court which has been defined in Section 2(1)(e) of the Act. In support this contention, he relied upon the decision of High Court of Delhi in D.L.F. Industries Ltd. Vs. Standard Chartered Bank[6]. Denying the allegation of fraud on the part of the first respondent, the learned counsel for the fist respondent contended that the appellant did not approach the Court with clean hands and it is the appellant, who neglected the works and requested the respondent to pay the amounts on ad hoc basis, and that already one of the bank guarantees furnished by the appellant expired and thus it has no bona fides in seeking injunction restraining the respondent from invoking the bank guarantee, and the Court below has rightly held that the appellant has no prima facie case to grant the relief. He, thus, prayed for dismissal of the present appeal. Heard the learned counsel for the appellant and the learned counsel for the first respondent and perused the order under appeal and other material made available on record. There is no dispute that the appellant and the first respondent entered into an agreement, as per which the appellant has to execute five units of works as entrusted by the first respondent in terms of the said agreement. It is also not in dispute that, under the said agreement, the parties in Article 10 have designated the State of Orissa as the place of arbitration, for settlement of any disputes and differences arising out of the agreement. The said Article 10 reads as follows: The parties hereto shall endeavour to settle all disputes and differences relating to and/or arising out of the contract amicably. In the event of the parties fail to resolve any dispute amicably the same shall be referred to arbitration in accordance with the Arbitration and Conciliation Act, 1996, as is prevalent in India. Each party shall be entitled to nominate an Arbitrator and the two Arbitrators so nominated shall jointly nominate a third Arbitrator. The Arbitrators shall give a reasoned award. The place of arbitration shall be in the State of Orissa and the language of the arbitration shall be English. The parties agree that any arbitration award shall be final and binding upon the parties. The parties hereto agree that the contractor shall be obliged to carry out its obligations under the contract even in the event of a dispute is referred to arbitration. It is further clarified that the employer shall be entitled to retain any sum or portion of contract price which has become due and payable for any unfinished works or any subject matter under arbitration. While so, it seems, there arose some disputes between the parties in the execution of agreement between them and the appellant, contending that they intend to invoke arbitration clause under the agreement for resolution of the disputes between them, and apprehending that the first respondent may invoke the bank guarantee, approached the Court below i.e. the II Additional Chief Judge’s Court, City Civil Court, Hyderabad, for an interim measure under Section 9 of the Act i.e. to restrain the first respondent from invoking the bank guarantee executed by them, pending initiation and resolution of dispute through arbitration. The Court below, having considered the stand of the parties and having referred to various case law and precedents, held that as the parties themselves have chosen the State of Orissa as the place of arbitration, under the agreement, it has no territorial jurisdiction to entertain the application under Section 9 of the Act. Having held so, the Court below has also gone into the merits of the case and held that the appellant failed to establish prima facie case in its favour for grant of interim measure as sought for, and accordingly dismissed the petition of the appellant. Having regard to the contentions of the respective counsel, the points that arise for consideration in the present appeal are: 1) Whether the Court below has jurisdiction to entertain the present application filed by the appellant under Section 9 of the Act, for an interim measure, when the parties have designated the State of Orissa, as the place of arbitration? 2) Whether the Court below is justified in going into the merits of the matter and giving a finding that there is no prima facie case in favour the appellant, having held that it has no jurisdiction to entertain the present petition? In Re Point No.1: The learned counsel for the appellant submits that even a fraction of cause of action is enough and sufficient to decide the territorial jurisdiction of a Court for entertaining the petition under Section 9 of the Act. According to him, the registered office of the appellant company is situated at Hyderabad, the tender documents under Ex.A11 have been submitted from Hyderabad, agreement works are being monitored from Hyderabad and the bank guarantees have been drawn at the banks at Hyderabad, and thus cause of action having arisen within the jurisdiction of the Court below, in view of the provisions of Section 20 C.P.C., the Court below had the jurisdiction to entertain application under Section 9 of the Act. In support of this contention, he relied upon the decision of a Division Bench of this Court in INCOMM Tele Ltd. v. Bharat Sanchar Nigam Ltd (1 supra). On the other hand, the contention of respondent is that in view of the specific clause in Article 10 in the agreement that the seat of Arbitration is at Orissa, and the parties having agreed to that effect, the Courts at Hyderabad have no jurisdiction to entertain the application under Section 9 of the Act. He further contended that in view of Section 42 of the Act, if application under Section 9 is entertained by the Court below, then all subsequent applications, arising out of the present agreement, shall be made in that Court only. He further submitted that the Court mentioned in Section 9 can only be the Court as defined in Section 2(1)(e) of the Act. Since the parties agreed the place of arbitration as State of Orissa, having regard to the provisions of Section 2(1)(e) read with Section 42 of the Act, the Courts in the State of Andhra Pradesh have no jurisdiction to entertain application under Section 9 of the Act. In case, it is held that the civil Court at Hyderabad has jurisdiction, then the same would run contrary to the terms of agreement entered into by the parties and frustrate the very agreement itself. To consider the rival contentions, it would be appropriate, if a reference is made to the provisions of Section 9 of the Act, so as to consider the scope and power of the Court to entertain an application filed thereunder. Section 9, which deals with interim measures, reads as follows: Interim measures, etc. by Court: - A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a Court – (i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or (ii) for an interim measure of protection in respect of any of the following matters, namely – (a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement; (b) securing the amount in dispute in the arbitration; (c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorizing for any of the aforesaid purposes