THE HON’BLE SRI JUSTICE V.V.S. RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA CIVIL MISCELLANEOUS APPEAL No.1174 of 2009 01.12.2009 Between: M/s.Sai Rayalaseema Paper Mills Limited … Appellant AND M/s.BILT Graphic Products Limited And others … Respondents THE HON’BLE SRI JUSTICE V.V.S. RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA CIVIL MISCELLANEOUS APPEAL No.1174 of 2009 JUDGMENT: (Per Hon’ble Sri Justice V.V.S.Rao) This appeal under Section 37 of Arbitration and Conciliation Act, 1996 (the Act, for brevity), is by unsuccessful petitioner, which is an incorporated company. Their petition being O.P.No.2283 of 2009 under Section 9 of the Act to restrain the first respondent from encashing the Letter of Credit (LC) lying with second respondent having been dismissed by the Court of III Additional Chief Judge, City Civil Court, Hyderabad, they are in appeal before this Court. Though the interlocutory applications are listed, the matter is heard finally and is being disposed of by this order. The petitioner is manufacturer of paper. In 1989 it became sick and was referred to Board for Industrial and Financial Reconstruction (BIFR). The company was revived pursuant to the scheme sanctioned by BIFR. The company procures pulp from other companies like first respondent. In one such purchase transaction, petitioner and first respondent entered into an agreement on 15.4.2009 under which first respondent agreed to supply 30,000 Metric Tons (MT) of pulp for six months subject to a minimum of 5,000 MT per month. Under the agreement, petitioner agreed to make payment against the pulp lifted by way of irrevocable LC. In furtherance thereof petitioner opened six LCs. Out of these LC Nos.21, 25, 37, 38 and 44 were encashed by first respondent towards consideration for supply and delivery of pulp during the period from 10.6.2009 to 13.7.2009. Thereafter petitioner opened LC No.46 on 03.7.2009 towards payment of cost of 500 MT lifted on 29.6.2009 and LC No.51 was opened on 24.7.2009 to cover the payment of cost of 500 MT lifted on 11.7.2009. As per the agreement referred to hereinabove, first respondent supplied only such quantity for payment of which an irrevocable LC was opened by petitioner with second respondent. After first respondent supplied 500 MT in the last week of July 2009, petitioner addressed a letter to Assistant General Manager of second respondent alleging that first respondent violated terms of the agreement and stopped supplies, that though initial supplies are upto the mark, supplies made in July are not matching specifications and that the petitioner suffered loss of production. Therefore petitioner requested second respondent not to debit the bills to their account without their consent. In the mean while, by letter dated 04.8.2009 first respondent terminated the agreement. Immediately thereafter petitioner filed receive and transmit miscellaneous petition before this Court during October and obtained order of injunction restraining the first respondent from encashing LC. Subsequently the matter was transmitted and registered as O.P.No.2153 of 2009. Even before the same was registered, petitioner again filed O.P.No.2283 of 2009 under Section 9 of the Act for injunction restraining first respondent from encashing LC amounting to Rs.1,71,89,486.60 lying with second respondent. Petitioner also alleged that they are invoking arbitration clause in the agreement. The O.P. was opposed by the first respondent denying all the allegations made by petitioner. They contended that the encashment of irrevocable LC cannot be restrained, that LC covers pulp already supplied and used by petitioner, that petitioner never raised any objection with regard to quality and non-compliance with specifications and that respondent would be put to loss on account of dishonouring LC as pulp was already supplied. The Court below considered the matter in the light of Exs.A1 to A26 marked for petitioner and Exs.B1 to B3 marked for first respondent. Having noticed that petitioner furnished irrevocable LC and cannot be restrained from encashing the same towards cost of pulp already supplied and used by petitioner, dismissed the petition. Learned Counsel for appellant and learned Counsel for first respondent made submissions. The attention of this Court is also invited to various decisions of Supreme Court wherein it is laid down that unless fraud and misrepresentation are alleged and demonstrated, order of injunction restraining the encashment of bank guarantee or LC cannot be issued. It is axiomatic that unless fraud and misrepresentation is used, encashment of Bank guarantee cannot be injuncted. Therefore, it is necessary to refer to the decisions. We may however refer to M/s.Arvind Constructions Co. Pvt. Ltd v M/s. Kalinga Mining Corpn[1]. In the above decision, Supreme Court laid down that provisions of Specific Relief Act, 1963, cannot be kept out while considering interlocutory applications filed under Section 9 of the Act. The relevant observations are as follows. The argument that the power under Section 9 of the Act is independent of the Specific Relief Act or that the restrictions placed by the Specific Relief Act cannot control the exercise of power under Section 9 of the Act cannot prima facie be accepted. The reliance placed on Firm Ashok Traders & Anr. Vs. Gurumukh Das Saluja & Ors., [(2004) 3 SCC 155] in that behalf does not also help much, since this Court in that case did not answer that question finally but prima facie felt that the objection based on Section 69(3) of the Partnership Act may not stand in the way of a party to an arbitration agreement moving the court under Section 9 of the Act. The power under Section 9 is conferred on the District Court. No special procedure is prescribed by the Act in that behalf. It is also clarified that the Court entertaining an application under Section 9 of the Act shall have the same power for making orders as it has for the purpose and in relation to any proceedings before it. Prima facie, it appears that the general rules that governed the Court while considering the grant of an interim injunction at the threshold are attracted even while dealing with an application under Section 9 of the Act. There is also the principle that when a power is conferred under a special statute and it is conferred on an ordinary court of the land, without laying down any special condition for exercise of that power, the general rules of procedure of that court would apply. The Act does not prima facie purport to keep out the provisions of the Specific Relief Act from consideration. No doubt, a view that exercise of power under Section 9 of the Act is not controlled by the Specific Relief Act has been taken by the Madhya Pradesh High Court. The power under Section 9 of the Act is not controlled by Order XVIII Rule 5 of the Code of Civil Procedure is a view taken by the High Court of Bombay. But, how far the said decisions are correct, requires to be considered in an appropriate case. In view of the above, the Court while considering application under Section 9 of the Act especially applications seeking interim injunction under Section 9(d) of the Act cannot ignore Section 37(1) of Specific Relief Act read with Order XXXIX of Code of Civil Procedure, 1908 (CPC). Be it noted, as per Section 37(1) of Specific Relief Act, the provisions of CPC govern grant of temporary injunction. It is now well settled that a person seeking ad interim injunction under Order XXXIX Rules 1 and 2 of CPC has to necessarily plead and prove prima facie case, balance of convenience and hardship. Whether the appellant has made out prima facie case. The attention of this Court has been invited to delivery challan under which paper grade pulp was supplied by the first respondent to petitioner. The officer/employee on behalf of petitioner put a stamp on the delivery challan confirming that the goods are in order and condition. The said challan is dated 11.7.2009. From this, it becomes clear that petitioner accepted the pulp stock without raising any objection and it is only a month thereafter on 21.8.2009 addressed second respondent raising certain objections with regard to quality of the pulp and breach of promise by first respondent. The fact that the petitioner opened as many as six LCs and allowed first respondent to encash four LCs itself would show that as an afterthought petitioner raised objections. Of course, dispute raised by petitioner, is admittedly arbitrable, and he has to await adjudication by arbitrator. For the purpose of Section 9 of the Act, however, it cannot be said that petitioner has proved prima facie case at least with regard to two LCs to an amount of Rs.1,71,89,486.60. When the first respondent already supplied pulp and it has been used by petitioner, balance of convenience is against grant of injunction. It is well settled that it is only in extraordinary circumstances where the fraud and misrepresentation are alleged and proved, Civil Court can restrain the Bank from honouring its commitment to the beneficiary of LC. In this case, no such allegation is made and indeed there is no denial that when the petitioner filed O.P.No.2153 of 2009, no such plea was taken. After withdrawing the said O.P., again petitioner filed O.P.No.2283 of 2009 without laying any foundation with regard to allegations of fraud. Even on equities, petitioner must fail because if pulp supplied by first respondent was found to be contrary to the specifications and is not in accordance with required quality, nothing prevented petitioner for returning the same. They did not do so. They used the pulp and thereafter raised objection. In such circumstances, when first respondent in whose favour LC was opened supplied pulp, it would not be proper to injunct them from encashing LC. We are convinced that the impugned order does not warrant any interference, as the same does not suffer from any error. In the result, for the above reasons, the appeal must fail and is accordingly dismissed, without any order as to costs. _______________ (V.V.S.RAO,J) ______________________ (B.N.RAO NALLA,J) December , 2009 YS [1] (2007) 6 SCC 798: AIR 2007 SC 2144