IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 08-12-2009 CORAM: THE HONOURABLE MR. JUSTICE V. RAMASUBRAMANIAN Application No.4782 of 2009 and Application No.4835 of 2009 & Application No.6316 of 2009 and Application No.6317 of 2009 A.No.4782 of 2009: MADURA COATS Pvt. Ltd., Represented by its Vice President-Excise Legal, Mr.Sandeep Sharadchandra Thakur, New Jail Road, Madurai-625 001. .. Applicant vs. 1.M/s.ARKAY Energy (Rameswaram) Ltd., New No.20(Old No.129) Chamiers Road, Nandanam, Chennai-600 035. .. Respondent 2.PTC India Ltd., Represented by its Chairman, 2nd Floor, NBCC Tower, 15, Bikaji Cama Place, New Delhi 110 066. .. Garnishee A.No.4835 of 2009: M/s.Sundaram Fasteners Ltd., Represented by its President Finance & Secretary, Registered Office at No.98-A, VII Floor, Dr.Radhakrishnan Salai, Mylapore, Chennai-600 004. .. Applicant vs. 1.M/s.ARKAY Energy (Rameswaram) Ltd., Represented by its Managing Director, New No.20(Old No.129) Chamiers Road, Nandanam, Chennai-600 035. .. Respondent 2.PTC India Ltd., (formerly Power Trading Corporation of India Ltd) Represented by its Chairman, 2nd Floor, NBCC Tower, 15, Bikaji Cama Place, New Delhi 110 066. .. Garnishee A.Nos.6316 and 6317 of 2009 Axis Bank Ltd., Represented by its Vice President, Mr.Ramasubramanian, Chennai-2. .. Applicant in both applications vs. MADURA COATS Pvt. Ltd., Represented by its Vice President-Excise Legal, Mr.Sandeep Sharadchandra Thakur, New Jail Road, Madurai-625 001. .. Respondent in A.4782/2009 M/s.Sundaram Fasteners Ltd., Represented by its President Finance & Secretary, Registered Office at No.98-A, VII Floor, Dr.Radhakrishnan Salai, Mylapore, Chennai-600 004. .. Respondent in A.4835/2009 M/s.ARKAY Energy (Rameswaram) Ltd., Represented by its Managing Director, New No.20(Old No.129) Chamiers Road, Nandanam, Chennai-600 035. .. Respondent in both applications PTC India Ltd., (formerly Power Trading Corporation of India Ltd) Represented by its Chairman, 2nd Floor, NBCC Tower, 15, Bikaji Cama Place, New Delhi 110 066. .. Garnishee in both applications COMMON ORDER Applications A.Nos.4782 and 4835 of 2009 are for the grant of prohibitory orders, to restrain the second respondent-Garnishee from making payment of the amounts due from them to the first respondent. The other 2 applications A.Nos.6316 and 6317 of 2009 are by the Axis Bank to implead them as parties to the Garnishee applications. 2. Though the Garnishee applications are by different companies, the relief sought for by them, is against the very same respondents, on identical causes of action. The grounds on which relief is sought by the applicants and the grounds on which the applications are contested by the respondents, are common. Therefore the applications are taken up together and disposed of by this common order. 3. I have heard Mr.P.R.Raman, learned counsel for the applicant in A.No.4782 of 2009, Mr.M.S.Krishnan, learned Senior Counsel for the applicant in A.No.4835 of 2009, Mr.N.C.Ramesh, learned counsel for the first respondent in both the applications and Mr.M.Ravindran, learned Additional Solicitor General for the second respondent in both the applications. I have also heard Mr.V.T.Gopalan, learned Senior Counsel for Axis Bank which has come up with the impleading applications. 4. The applicants in both the garnishee applications are industries engaged in manufacturing activities, requiring enormous amount of power supply. Since the Tamil Nadu Electricity Board is unable to ensure uninterrupted supply of power, to the extent required by industrial consumers, Gas based power plants came to be set up in the State. The first respondent is a company which set up one such plant in Rameswaram, as a "Captive Power Plant". 5. Several consumers like the applicants herein became shareholders in the first respondent- company, by investing in the equity share capital of the first respondent, in consideration of the first respondent agreeing to supply a fixed quantity of power at a price mutually agreed. While the applicant in A.No.4782 of 2009 agreed to invest Rs.50 lakhs in the equity share capital of the first respondent company and entered into (i) a Memorandum of Understanding (ii) a Power Supply Agreement (known in short as PSA) and (iii) an Agreement for investment, on 24.1.2005, the applicant in A.No.4835 of 2009 agreed to invest Rs.60 lakhs in the equity share capital of the first respondent and entered into (i)a Memorandum of Understanding (ii) a Power Supply Agreement (known in short as PSA) and (iii) an Agreement for investment, on 9.3.2005. 6. Subsequently, supplementary agreements were entered into on 28.10.2005 and 9.1.2006 respectively by the applicants in A.Nos.4782 and 4835 of 2009, in pursuance of which, the applicant in A.No.4782 of 2009 actually invested a sum of Rs.227.5 lakhs, while the applicant in the other application invested Rs.105 lakhs in the share capital of the first respondent. Thereafter, the power plant of the first respondent was commissioned in March 2006. 7. Under the Power Supply Agreements, the first respondent was to supply 65 million KWH per year on firm commitment and 15 million KWH on non-firm commitment basis, to the applicant in A.No.4782 of 2009 and 30 million KWH per year on firm commitment and 10 million KWH on non- firm commitment basis, to the applicant in A.No.4835 of 2009. But unfortunately the first respondent did not make supply of power to the extent committed by them even on firm basis, in the year 2006-2007, 2007-2008 and 2008-2009. 8. To add to the woes of the applicants, Tamil Nadu Electricity Board also imposed a 40% cut on energy supply, apart from imposing a ban on usage of power during peak hours. On 5.11.2008, the first respondent sent letters to the applicants, informing them that the Wheeling Agreement entered into by them with the Tamil Nadu Electricity Board had become inoperative and ineffective. The first respondent also moved the Tamil Nadu Electricity Regulatory Commission, seeking a direction to the Tamil Nadu Electricity Board to vary the terms of the Wheeling Agreement, so that they could trade 40 MW out of the production of 65 MW to consumers outside the State. An order was passed by the Commission in DRP No.19 of 2008 and I.A.No.7 of 2008 dated 20.11.2008 and the same came to be challenged by the Electricity Board in a writ petition before this Court. But it appears that the Electricity Board agreed to pay to the first respondent Rs.6.70 p. per unit for 40 MW. 9. The first respondent issued a communication dated 7.3.2009, taking a curious stand that since the captive consumers were not able to consume the supply made during peak hour, they had decided to sell power to consumers outside the State. The first respondent also made an offer to buy back the shares of the applicants as an alternative. There were clear indications that the first respondent would lose the status of a captive power plant and would sell power in the open market, without supplying to the captive consumers. 10. Since the intention of the first respondent not to supply power to the applicants, but to sell the power in the open market at a higher rate became quite clear, the applicant in A.No.4782 of 2009 filed applications in O.A.Nos.356 and 357 of 2009. Similar applications were filed by a few other captive consumers in O.A.Nos.324 and 325 of 2009, O.A.Nos.526 and 527 of 2009, O.A.Nos.551 and 552 of 2009 and O.A.Nos.573 and 574 of 2009 under Section 9 of the Arbitration and Conciliation Act, 1996. The prayers in these applications were generally for (i) restraining the first respondent from supplying power to anyone without making a supply to the applicants and (ii) restraining the first respondent from stopping the supply. 11. In all the applications, interim orders of injunction were granted and were subsequently made absolute. These orders have also been confirmed by the Division Bench in O.S.A. Nos.363 of 2009 batch of cases by order dated 16.11.2009. As a matter of fact, during the pendency of the appeals, the first respondent did not have the benefit of interim suspension of the order of injunction granted by the learned Judge in the original applications. However, the first respondent has not complied with the interim orders of injunction till date. 12. Some of the captive consumers, apart from obtaining interim orders of injunction, also filed separate applications in A.Nos.3893 of 2009, 3434 of 2009, 3562 of 2009 and 3561 of 2009, seeking prohibitory orders against the garnishee viz., the Tamil Nadu Electricity Board, restraining them from making payments of their dues to the first respondent. In those applications, interim prohibitory orders were originally granted. A similar application for a prohibitory order was filed in A.No.3924 of 2009 by the applicant in A.No. 4782 of 2009. In that application also, a pro-order was granted against the Tamil Nadu Electricity Board. But after service of notice, the Tamil Nadu Electricity Board reported to this Court that no money is payable by them to the first respondent. Therefore, the garnishee applications of other captive consumers were dismissed on the short ground that Tamilnadu Electricity Board did not owe any money to the first respondent herein. However, upon enquiry, it was found out that the first respondent was routing its supply through the second respondent herein and hence it was the second respondent who was liable to make payments to the first respondent. 13. Therefore, the applicants herein have come up with the present applications, seeking a prohibitory order against the second respondent herein. The basis of the claim of the applicants is that on account of the failure of the first respondent to supply power, as per the Power Supply Agreements, the power drawn by them from Tamil Nadu Electricity Board increased, resulting in additional payment as well as imposition of penalty by the Electricity Board. Therefore, the applicants contend that they have a claim for liquidated as well as unliquidated damages against the first respondent. The claim is to be adjudicated in arbitration, since the Power Supply Agreement contains an Arbitration Clause. Pending arbitration, the claim of the applicants is to be safeguarded. Hence, the present applications. 14. In A.No.4782 of 2009, the applicant has claimed that there was a short supply of power to the tune of 54.16 lakhs units per month from March 2006. Since the rate at which the first respondent was to supply power to the applicant, under the Power Supply Agreement is Re.0.44 p., less than the rate payable to the Tamil Nadu Electricity Board per unit, the applicant has calculated liquidated damages to the tune of Rs.4.19 crores, on this count. Similarly, the applicant has also worked out the additional cost in the form of penalty as Rs.9.94 crores, at the rate of Rs.8.81 per unit for the non- supply against the committed quantity of 23.731 lakhs units per month. The applicant has worked out similar additional cost at Rs.12.54 crores for another period of 6 months, anticipating the arbitration proceedings to continue during the said period. Thus, the applicant in A.No.4782 of 2009 has quantified their monetary claim at Rs.26.67 crores and has sought a prohibitory order on the ground that the net assets of the first respondent would be far less than the claims that the first respondent may face in the arbitration, both from the applicant and from the other captive consumers. 15. Similarly, the applicant in A.No.4835 of 2009 has quantified their claim at Rs.183.37 lakhs, on the ground that they have suffered losses on account of non supply of power as agreed to by the first respondent. In the typed set of papers filed along with the application, the applicant has provided a detailed working sheet of the losses that they have suffered under several heads. Therefore, in order to protect their interest in the arbitration proceedings, they also seek prohibitory orders against the second respondent. 16. In the counter affidavits filed, the first respondent has raised the following contentions:- (i) No notice of any default nor any demand for payment of any money has so far been served by the applicants. Therefore, no prohibitory order can be sought under Section 9 of the Arbitration and Conciliation Act, 1996, since making a demand is a sine qua non for referring a dispute to arbitration. (ii) The first respondent has lost the status of a captive power plant and consequently the Power Supply Agreements entered into with the parties, had worked themselves out. Therefore, the applicants are not entitled to the supply of power as per the Power Supply Agreements and hence no monetary claim can be made. (iii) The essential requirements for the grant of prohibitory order are not satisfied. In A.No.4782 of 2009, the applicant had admitted that the first respondent is earning several crores of rupees by sale of power and that the net worth of the company is about Rs.205 crores as on 31.3.2009. In the other application, the applicant had made a bald averment that the first respondent is frittering away the income earned, without disclosing the source of such information. Therefore, on the basis of these averments, no interim prohibitory order could be granted. (iv) Since, according to the applicant, a reference to arbitration has been made, the applicants should seek remedy only before the Arbitral Tribunal under Section 17 of the Act. 17. In the light of the rival contentions, the question that arises for consideration is as to whether the applicants have made out a case for the grant of prohibitory orders. 18. There can be no doubt or dispute that to be entitled to a prohibitory order as prayed for, the applicants have to show (i) the existence of a prima facie case in their favour and (ii) that the first respondent is about to dispose of or remove the whole or any part of their property, with intent to obstruct or delay the execution of any decree that may be passed against them. Though a prohibitory order is also known in common parlance, to be an injunction issued by the Court, it is not one which is covered by Order XXXIX, Rule 1 or 2, CPC. It is in the nature of an attachment under Order XXXVIII, Rule 5, CPC, if it is before judgment and an attachment under Order XXI, Rules 46A to 46E of the Code, if it is in execution of a decree. This distinction was indicated by the Supreme Court in a recent decision in Food Corporation of India vs. Sukh Deo Prasad {2009 (5) SCC 665}. Therefore, let me see if the applicants have satisfied these criteria. PRIMA FACIE CASE: 19. The following are the admitted facts:- (a) That the first respondent entered into 3 agreements, one in the form of Memorandum of Understanding, another in the form of a Power Supply Agreement and a third in the form of an Agreement for investment, all on 24-1-2005, with the applicant in A.No.4782 of 2009; (b) That the first respondent entered into a similar Memorandum of Understanding, Power Supply Agreement and Agreement for investment on 9.3.2005 with the applicant in A.No.4835 of 2009; (c) That a Supplementary Agreement dated 28.10.2005 was entered into with the applicant in A.No.4782 of 2009 and a Deed of Modification dated 9.1.2006 was entered into with the applicant in A.No.4835 of 2009; (d) That in terms of all the aforesaid Agreements, both the applicants have made investments in the form of share capital in the first respondent-Company, to the tune of Rs.227.50 lakhs and Rs.105 lakhs respectively; (e) That there is an obligation for the first respondent to supply power to the applicants to the extent of 65 MW and 30 MW respectively, on firm commitment basis and 15 MW and 10 MW on non-firm commitment basis; (f) That the first respondent has not been complying with their obligations under the Power Supply Agreements for the past more than 6 months; (g) That the failure of the first respondent to honour their commitments under the Power Supply Agreements, is despite interim orders of injunction granted in previous applications under Section 9 of the Arbitration and Conciliation Act, 1996, originally granted by a learned Judge and now confirmed on appeal by the Division Bench in a batch of Original Side Appeals; (h) That the Power Supply Agreements provide for compensation, in the event of default committed by the first respondent in supplying the agreed quantity of power; (i) That since the rate fixed under the Power Supply Agreements, is 12.5% less than the energy charges normally levied by the Electricity Board, the non-supply of power as agreed, by the first respondent, would unquestionably result in at least a loss to that extent; and (j) That the non-supply of the agreed quantity of power by the first respondent, would force the applicants to make alternative arrangements and would result in the Electricity Board levying penalty. 20. All the above admitted facts make it clear (i) that there were Agreements (ii) that there was a clear breach of the Agreements by the first respondent (iii) that the breach continues despite interim orders of injunction passed in previous applications (iv) that the breach resulted in monetary loss and (v) that therefore, the applicants have a valid claim for monetary compensation against the first respondent. I do not think that anything more is required for this Court to satisfy itself that there is a prima facie case in favour of the applicants. 21. The only explanation offered by the first respondent for the breach committed by them, is that they have lost the status of a "Captive Power Plant", since the shareholding of the captive consumers fell below 26% . But this appears to be only an apology of an explanation. There is no indication either in the Power Supply Agreements or in the statutory provisions, to the effect that the first respondent would be absolved of its liability to supply power, as per the terms of the Agreements, if it loses the status of a Captive Power Plant. Moreover, it appears that the first respondent has voluntarily brought upon itself, this loss of status, even if there is such loss of status, with the oblique motive of profiteering by selling the same power to others at more than twice the rate at which they agreed to sell it to the applicants. Therefore, the explanation, nay, excuse, now offered by the first respondent for committing a breach of the Agreements, can hardly be accepted. 22. Let me first see whether the explanation of the first respondent can be accepted in the light of the terms and conditions of the Agreements. Clause II.2 of the Power Supply Agreement dated 24.1.2005 between the applicant in A.No.4782 of 2009 and the first respondent, lists out the obligations and undertakings of the first respondent under the Agreement. Similarly, Clause 2.2 in the Power Supply Agreement dated 9.3.2005 entered into between the applicant in A.No.4835 of 2009 and the first respondent, contains the obligations of the first respondent. One of the obligations listed therein, is to supply the contracted quantum of energy during the currency of the Agreement at the inter connection point. Under Clause No.II.2.8 of the Agreement dated 24.1.2005 and under Clause 2.2.18 of the Agreement dated 9.3.2005, the first respondent is not required to deliver power only during a scheduled outage or an unscheduled outage of the facility. Under Clause II.2.15 of one Agreement and Clause 2.2.15 of the other Agreement, the first respondent had undertaken to pay liquidated damages to the applicants, to the extent of the loss of energy cost reduction, if there was any shut down or repair of the power plant, which could not be rectified in a period of 30 days. Clause III.1.5 of the Agreement dated 24.1.2005 reads as follows:- "III.1.5 In case ARKAY is unable to supply electrical energy to the extent of contracted demand under firm basis, the CAPTIVE CONSUMER may request ARKAY to still effect the supply by suitably amending the delivery schedule. On the other hand, if ARKAY is still unable to meet its delivery commitment, then ARKAY shall continue to allow the CAPTIVE CONSUMER to avail the agreed DISCOUNT, viz., 12.5% of the TNEB Energy charges, as provided for in Article III.1.2 of this agreement for such quantity of electrical energy not supplied by ARKAY as against the contracted demand/revised schedule under firm basis during a contract year. The claim, if in order and payable, shall be settled by ARKAY within 30 days of receipt of the claim from the CAPTIVE CONSUMER." A similar provision is found in Clause 3.1.5 of the Agreement dated 9.3.2005, which reads as follows:- "3.1.5 In case of default by ARKAY in supplying power under Contracted Demand under firm basis, ARKAY shall pay the DISCOUNT per unit to the CAPTIVE CONSUMER for such quantity of power not supplied by ARKAY as against the Contracted Demand under firm basis during a Contract Year." 23. Article 6 of one Agreement and Article VI of the other Agreement, contain Clauses relating to "Termination". These Clauses provide both for automatic termination and also for termination at the instance of one of the parties. Clauses VI.1.3 and VI.5 of the Agreement dated 24.1.2005 contemplate automatic termination (i) if the Wheeling Agreement with the Tamil Nadu Electricity Board is terminated, for reasons other than the failure or default on the part of the first respondent or (ii) if the delivery of electrical energy is stopped for a continuous period of 90 days by the first respondent or if the consumption of power is stopped by the applicant for a period of 90 days. Similarly, Clause 6.6 of the Agreement dated 9.3.2005 provide for automatic termination if there was non-delivery of power for 180 days or non-consumption of power for 90 days. 24. There are Clauses for termination of the Agreements by act of parties. The first respondent has a right to serve a notice of default on the applicants, for termination of the Agreements, under Clauses VI.2.1 and 6.2.1 of the respective Agreements. Since the wordings of these Clauses are almost similar, it is enough if one is extracted. "ARKAY shall have a right to serve a notice of default on THE CAPTIVE CONSUMER if: (a) THE CAPTIVE CONSUMER consistently defaults in payment of any admitted dues to ARKAY beyond 14 days (7 days in the other Agreement) from the due date of payment, provided ARKAY has complied with its obligations under this Agreement and has first made demand pursuant to the provisions of this agreement. (b) THE CAPTIVE CONSUMER commits a material breach of provisions of this Agreement and does not remedy the breach within 30 days from the date of receipt of request from ARKAY for such remedy or such extended time as may be mutually agreed upon." 25. The term of the Power Supply Agreements was fixed as 6 years under Clause VI.1.1 and 6.1.1 of the respective Agreements. The parties are also given the option under Clauses VI.3 and 6.3 of the respective Agreements, to terminate the Agreements, before the expiry of the term, on any grounds other than those mentioned in the Agreements. But if such a termination is effected by one of the parties, certain consequences are stipulated under the very same Clauses. Therefore, they are extracted as follows:- "VI.3 of the Agreement dated 24.1.2005: The parties to this agreement can also terminate this agreement before the end of the term of this agreement on any other grounds by giving adequate notice of such termination as provided for in this agreement. In the event of such termination, the CAPTIVE CONSUMER shall be at liberty to sell the equity shares, if any, held by it in ARKAY in its entirety to the party identified by ARKAY as the next Consumer who will replace the CAPTIVE CONSUMER at a price to be determined and mutually agreed to between such parties, but not less than the par value of the said shares. In case ARKAY could not identify the next Consumer within the period of 180 days from the date of termination, it shall make immediate alternate arrangements (including purchase of the said equity shares by other promoting companies and/or directors and/or employees of ARKAY at a price to be determined and mutually agreed to between parties, but, not less than the par value