FA/2925/2007 1 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD FIRST APPEAL No. 2925 of 2007 With CIVIL APPLICATION No.8194 of 2007 in FIRST APPEAL No. 2925 of 2007 For Approval and Signature: HONOURABLE MR.JUSTICE K.M.MEHTA ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? YES 2 To be referred to the Reporter or not ? YES 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5 Whether it is to be circulated to the civil judge ? NO ========================================================= SUZLON ENERGY LTD. - Appellant(s) Versus VISHAL PLASTOMER PVT. LTD. - Defendant(s) ========================================================= Appearance : MR PM THAKKAR, SR.COUNSEL with MR NAVIN PAHWA with MR KT DAVE FOR Appellant(s) : 1, MR MIHIR THAKORE, SR.COUNSEL WITH MR UNMESH D SHUKLA with MR AJ YAGNIK for Defendant(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE K.M.MEHTA Date : 25/09/2007 FA/2925/2007 2 JUDGMENT CAV JUDGMENT 1. M/s.Suzlon Energy Limited, appellant- original respondent, has filed this appeal under Section 37 of the Arbitration and Conciliation Act, 1996, challenging the judgment and order dated 4.5.2007 passed by the learned City Civil Judge, Court No.12, Ahmedabad – below Notice of Motion in Civil Misc.Application NO.376 of 2007 i.e. application filed under Section 9 of the Arbitration Act. By the impugned order the learned Judge granted interim relief in terms of para 16(D) of the Notice of Motion and meanwhile the applicant shall produce the unconditional bank guarantee of Rs.5 lacs within four weeks from the date of the order. 1.1 The appeal is admitted and with consent of parties this appeal is taken up for final disposal. 2. The facts giving rise to this appeal are FA/2925/2007 3 JUDGMENT as under:- 2.1 Vishal Plastomer Pvt. Ltd., respondent in the present matter and original petitioner (hereinafter to be referred to as “petitioner”) is a Private Limited Company incorporated and registered under the Companies Act, 1956 having its registered office at Ahmedabad. The petitioner is one of the Group Companies of “Vishal Group”. The petitioner as part of the diversification strategy, decided to foray into power generation and decided to put up Wind Power Plants. In this connection, the petitioner came in contact with the M/s.Suzlon Energy Limited respondent in the trial court and appellant herein. 2.2 The appellant M/s.Suzlon Energy Ltd., original respondent (hereinafter referred to as “respondent”) is a Public Limited Company FA/2925/2007 4 JUDGMENT incorporated and registered under the Companies Act, 1956 having its registered office at Ahmedabad. It is an Indian Multinational Company engaged in the business of designing, engineering, procurement, supply, commissioning, maintenance and services of Wind Turbine Generators. 2.3 It appears that pursuant to the discussions and negotiations, the petitioner and the respondent agreed on the terms and conditions of the Purchase Order dated 24th May, 2003, to be made by the petitioner on the respondent. On issuance of the Purchase Order by petitioner, the respondent accepted the same by applying its seal and making of the signature of the Chairman and Managing Director of the respondent. The said Purchase Order clause 14 is an arbitration clause which reads as follows: FA/2925/2007 5 JUDGMENT “If at any time any question, any dispute and/or differences whatsoever shall arise between the parties to this contract due to any special conditions of this contract or in connection with this contract, and failing amicable settlement the same shall be referred to an arbitrator under the Indian Arbitration and Reconciliation Act, 1998 or any statutory modifications for the time being in force and such arbitration shall take place at Ahmedabad.” 2.4 From the record it appears that the very terms and conditions of the purchase order set out the mutual rights and obligations of the petitioner and respondent. In other words the purchase order itself is a document of contract between the petitioner and the respondent. FA/2925/2007 6 JUDGMENT 2.5 The very purchase order entrusted the work of supply, erection and commissioning, maintenance of one Wind Turbine Generators (WTG) of S66/1250 KW) at Village Pohra, District Jaisalmer, Rajasthan Rs.4,20,00000/- (Rupees Four Crore Twenty Lacs only) and to Suzlon Infrastructure Private Limited, for the services of erection, installation of one WTG at Rs.65,00,000/- (Rupees Sixty Five Lacs only). From the record it appears that the said site selection for commissioning of the WTG at a particular place Village Pohra, District Jaisalmer in the State of Rajasthan was done by the experts of respondent and the land for the site was given on long term lease to petitioner by respondent. The land required for the project was given on sub- lease by Suzlon Developers Private Limited an associate concern of the respondent having the very land on lease with the prior permission FA/2925/2007 7 JUDGMENT of the Department of Revenue, State of Rajasthan, who has actually leased the land to the sister concern of the respondent. Thereafter the work of development of land and site, foundation and civil work, erection and commissioning of WTG and electrical, substation and/or pooling charges to be paid to Rajasthan Vidyut Prasaran Nigam Limited (RVPNL) and/or Rajasthan Renewable Energy Corporation Limited (RRECL) and all other site related works and expenses was entrusted by the petitioner under the instructions of respondent to respondent's group company – Suzlon Developers Private Limited. 2.6 The Purchase Order agreement provided for, inter alia, the scope of supply, terms of payment, time for completion, power curve performance, annual net metered energy Generation Guarantee, machine availability guarantee and other terms and conditions. FA/2925/2007 8 JUDGMENT 2.7 It is the case of the applicant that clause 5 of the said purchase order provides terms of payment. Clause 8 provides warranty. Clause 12 provides performance and availability guarantee which includes generation guarantee, machine availability and reactive power consumption. Clause 14 provides arbitration. Clause 15 provides jurisdiction. Clause 18 provides operations and maintenance service. 2.8 As per the contract, the petitioner has paid to the respondent an amount of Rs.3,37,00,000/- (Rupees Three Crores Thirty Seven Lacs only) being the suppliers credit/security deposit was retained by the petitioner as per the contractual term to be paid over a period of three years out of the generation of net metered energy receipts. The amount has since been adjusted by the petitioner against the amounts due on account of short generation of net metered energy. The amount adjusted is in proportion to the shortfall in generation of electricity as per the mutually accepted calculation stipulated in the contract as well. For example in the first year the shortfall in generation was FA/2925/2007 9 JUDGMENT 10,41,364 units and the revenue loss calculated at Rs.3.32/- per unit aggregated to Rs.34,57,328/-. The unit rate of Rs.3.32 was the then purchase rate at which RRVPNL paid the petitioner for the supply of energy. 2.9 The shortfall in generation of net metered energy for the three completed years since commissioning on 30th September, 2003, is summarized as below: 1 2 3 4 5 Year Guaranteed Net Metered Generation for 1 WTGs Actual Net Metered Generation for 1 WTGs Shortfall in Generation Units (2-3) Short fall Amount receivable on account of Shortfall 2003- 2004 25,00,000 14,58,636 10,41,364 34,57,328 2004- 2005 25,00,000 16,38,836 8,61,164 29,10,734 2005- 2006 25,00,000 17,85,992 7,14,008 24,63,327 Total 75,00,000 48,83,464 26,16,536 88,31,390 2.10 It was further submitted that average life the wind turbines are 25 years and the guaranteed life of the wind turbines by the wind turbine supplier is 20 years. The power purchase agreement with the RRVPNL is also for FA/2925/2007 10 JUDGMENT a period of 20 years. Taking average generation achieved over last three years, the future yearly annual shortfall is expected to be around 8,72,178 units for the 1 no WTG wind farm i.e. the annual short fall in terms of monetary value could be at Rs.34,19,000/- (Rupees Thirty Four Lacs Nineteen Thousand only) per year. 2.11 It appears that the shortfall of generation of electricity is due to various reasons. However, the respondent had from time to time assured to the petitioner that the shortages would soon cease and the wind farm would generate net metered energy as per the unconditional guarantee given in the purchase order. Thereafter various meetings took place between the parties somewhere in June 2005. Thereafter the petitioner also addressed a letter dated 14th October, 2006, requesting the respondent to convene a meeting FA/2925/2007 11 JUDGMENT to resolve the long pending issue of shortfall in generation of the wind farm. The petitioner also sent a reminder on 24th October, 2006, to the respondent calling for a meeting and also demanded the net payment owned by the respondent after adjusting the suppliers credit/security deposit against the shortfall in generation for the three years. Thereafter meeting took place between the petitioner and the respondent in the month of November 2006 for resolving the manner in which the shortfall in generation suffered by the petitioner would be resolved as well as the remedial provision for the expected future shortfall in generation for the next 17 years. 2.12 On 19th December, 2006, the petitioner informed the respondent of having appointed M/s.Septett Advisory Services Pvt. Limited as its consultant who would be acting on its behalf and under its advice to negotiate with FA/2925/2007 12 JUDGMENT the respondent the settlement process. The petitioner addressed a letter dated 29th December, 2006, to the respondent in connection with the settlement of shortfall during the period of October 2003, September 2006 for 1.25 MW Wind Farm Project at Village Pohra in Jaisalmer District of Rajasthan. 2.13 The petitioner had also again addressed another letter dated 26th December, 2006, and reiterated the said request. The respondent addressed a letter dated 25th January, 2007, pointing out that a meeting was held on 29.12.2006. It was pointed out by the respondent that no generation is on account of the Wind Regime prevailing at the site. The respondent requested to settle the long pending outstanding dues as also the payment of security deposit at the earliest. Thereafter present petitioner addressed a letter dated 27th January, 2007, in connection FA/2925/2007 13 JUDGMENT with the shortfall in generation of 1.25 MW wind farm at Village Pohra, District Jaisalmer, Rajasthan and refuting the claim of the respondent with respect to generation of power. A request was made to arrange a meeting with the CMD of the respondent to take a final view in the matter. 2.14 On 9th February, 2007, meeting took place between the parties. On 12th February, 2007, the petitioner addressed a letter to the respondent recording that a meeting was held with the CMD on 9.2.2007. However, it appears that no headway was made and the payments remained outstanding. On 16th April, 2007, the respondent addressed a letter to the petitioner pointing out that the amounts have remained outstanding despite various meetings and reminders. It was also pointed out that the petitioner has shown no inclination to clear the outstanding amount. The respondent FA/2925/2007 14 JUDGMENT therefore called upon the petitioner to pay the outstanding amount failing which it was stated that the respondent will be constrained to take legal action as well as to discontinue the maintenance services. The said letter is produced at page 133 of the paper book. 3. In view of the aforesaid circumstances, the petitioner M/s.Vishal Plastomer Pvt.Ltd. filed an application under Sec.9 of the Arbitration Act against M/s.Suzlon Energy Ltd., the appellant herein in this behalf. In the said application, various facts have been set out which I have considered earlier in this behalf. In para 14 of the application, it has been mentioned that the petitioner is legally entitled to recover certain amount from the respondent, however, the details with regard as to how it is to be recovered have not been given. Further, it has been mentioned that the balance of convenience is in favour FA/2925/2007 15 JUDGMENT of the petitioner. How the balance of convenience lies in favour of the petitioner has not been mentioned. Ultimately, in para 16, various reliefs have been made. 3.1 In the said application he has claimed for various reliefs but the reliefs which we are concerned is para 16(d) which reads as follows: 3.1A “Pending commencement and conclusion of the arbitral proceedings and till the enforcement of the award resulting therefrom, the Court be pleased to grant an interim injunction restraining the respondent from discontinuing the operation and maintenance services to wind turbine generators erected at Village Pohra, District Jaisalmer Rajasthan by acting upon or implementing their FA/2925/2007 16 JUDGMENT letter dated 16th April, 2007, or even otherwise and be further pleased to pass an interim mandatory order directing the respondent to continue to provide operation and maintenance services to the aforesaid wind turbine generators at no extra costs.” 3.2 The learned Judge by his ex-parte ad- interim order dated 4.5.2007 on page 2 was pleased to observe as under: 3.2A “The LA for the applicant has also submitted that there is a short fall of the electric generators. The original petitioner is not required to pay any services and maintenance charges as per clause at 18, but, however, to prove its bonafide, he would produce unconditional bank FA/2925/2007 17 JUDGMENT guarantee of Rs.25 lacs as per the terms of the contract, and under the circumstances, the injunction is required to be granted. 3.2B Considering the facts of the present case, and considering the hardships which would affect to the citizen at large of Rajasthan State who are not made party before this Court, I am of the view that if the injunction is not granted at this stage, it would defeat the purpose of filing this application. Hence, I pass the following order:- 3.2C The interim relief in terms of para 16(D) of the NM application is hereby granted till 11.5.2007. Meanwhile, the applicant shall produce the unconditional bank guarantee of FA/2925/2007 18 JUDGMENT Rs.25 lacs within four weeks from the date of this order.” 4. Being aggrieved and dissatisfied with the said order the original respondent – appellant herein has filed this appeal before this Court. 4.1 It may be noted that in this case as there is delay in filing the appeal and therefore delay condonation application was filed being Civil Application No.8821 and 8822 of 2007 for condoning the delay of 19 days. In that matter the other side has filed caveat and after the copy was served on him, the other side filed affidavit-in-reply opposing the condonation of delay application dated 6th July, 2007, and this Court passed the order on 13th July, 2007, condoning the delay. FA/2925/2007 19 JUDGMENT 4.2 After the order passed on 13th July, 2007, the matter was heard for some time. However, before further hearing took place this Court was informed that petitioner being aggrieved and dissatisfied with the said order of 13th July, 2007, condoning the delay filed a Special Leave Petition before the Hon'ble Apex Court and the Hon'ble Apex Court originally passed the order on 25th July, 2007, that High Court may not proceed further with the hearing of the matter. However, it appears that thereafter ultimately matter reached hearing on 6.8.2007 before the Hon'ble Apex Court. Ultimately the Special Leave Petition filed by petitioner have been withdrawn by them and that is how the further hearing of the matter took place. 5. Shri P.M.Thakkar, learned Senior Counsel with Mr.Navin Pahwa and Mr.K.T.Dave, learned advocate appeared for the appellant FA/2925/2007 20 JUDGMENT M/s.Suzlon Energy Limited and Shri Mihir Thakore, learned Senior Counsel with Mr.Unmesh Shukla and Mr.A.J.Yagnik, learned advocates appeared for the respondent. 6. Submissions of Mr.P.M.Thakkar with Mr.Navin Pahwa & Mr.K.T.Dave on behalf of appellant – original respondent Suzlon India Ltd. 6.1 Before I consider the contention of submission of Mr.P.M.Thakkar, let me set out relevant statutory provisions in this behalf. 6.2 Sec.9 of the Arbitration Act which provides interim measures which reads as under: 6.2A “9. Interim measures, etc., by court.-- A party may, before or during arbitral proceedings or at any time after the making of the arbitral award FA/2925/2007 21 JUDGMENT 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 proceed- ings; 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 FA/2925/2007 22 JUDGMENT subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence; (d) interim injunction or the appointment of a receiver; (e) such other interim measure of protection as may appear to the court to be just and convenient, FA/2925/2007 23 JUDGMENT and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it.” 6.3 Order 39 Rule 3 of CPC which provides as under: “Rule 3. Before granting injunction, Court to direct notice to opposite party – The Court shall in all cases, except where it appears that the object of granting the injunction would be defeated by the delay, before granting an injunction, direct notice to the application for the same to be given to the opposite party: Provided that, where it is proposed to grant an injunction without giving notice of the FA/2925/2007 24 JUDGMENT application to the opposite party, the Court shall record the reasons for its opinion that the object of granting the injunction would be defeated by delay, and require the applicant - “ 6.4 Section 14(1), Sec.14(a) to (d) of Specific Relief Act, 1963 reads as under: “Sec.14 Contracts not specifically enforceable - (1) The following contracts cannot be specifically enforced, namely: (a) a contract for the non- performance of which compensation is an adequate relief; (b) a contract which runs into such minute or numerous details or which is so dependent on the personal qualifications or volition of the FA/2925/2007 25 JUDGMENT parties, or otherwise from its nature is such, that the court cannot enforce specific performance of its material terms; (c) a contract which is in its nature determinable; (d) a contract the performance of which involves the performance of a continuous duty which the court cannot supervise.” 6.5 Sec.41(a) and Sec.41(e) of the Specific Relief Act which provides as under: “Sec.41 Injunction when refused – An injunction cannot be granted - (a) to restrain any person from prosecuting a judicial proceeding pending at the institution of the suit in which the injunction is sought, unless such restraint is FA/2925/2007 26 JUDGMENT necessary to prevent a multiplicity of proceedings; (b) xxx (c) xxx (d) xxx (e) to prevent the breach of a contract the performance of which would not be specifically enforced.” 6.6 It has been stated that the learned trial Judge by his impugned judgment and order granted ex-parte ad-interim mandatory order under Sec.9 of the Act directing the respondent to continue to provide operation and maintenance services to Wind Turbine Generators of the petitioner at no extra cost. The respondent further submitted that by the impugned order the learned trial Judge directed the orig.petitioner to furnish unconditional bank guarantee for the amount of Rs.5 lakhs within four weeks from the date FA/2925/2007 27 JUDGMENT of the order. The petitioner has not furnished the bank guarantee even upto this date though the trial Court granted extension to furnish the bank guarantee which period also expires on 22.6.2007. 6.7 The learned senior counsel further submitted that the learned trial Judge ought to have appreciated that in fact there exists no “arbitral dispute” between the parties considering the arbitration agreement signed and executed by the parties. In the circumstances, the learned trial Judge ought not to have permitted the petitioner to invoke Section 9 of the Arbitration Act in this behalf. It was further submitted that the interim measures under Sec.9 of the Act is discretionary and equitable relief and therefore the person who prays for interim measures must come with clean hands. The learned Senior Counsel submitted that FA/2925/2007 28 JUDGMENT admittedly the petitioner has not paid the amount of Rs.1,00,80,000/- towards the purchase price of Wind Turbine Generators. The petitioner has not paid the amount despite repeated requests and reminders and the present application filed under Section 9 of the Act is essentially as a counter blast to the said proceedings and is clearly an abuse of the process of law. 6.8 It was further submitted that when the trial Court passed the order under Section 9 of the Act and granted ex-parte ad-interim order on 4.5.2007, the said provisions i.e. Sec.9 of the Act is in consonance with Order 39 Rule 3 of the Code of Civil Procedure and therefore the impugned order made is in breach of the principles analogous to the provisions of Order 39 Rule 3 of the CPC as per the judgment of the Hon'ble Apex Court in the case of Arvind Constructions Private FA/2925/2007 29 JUDGMENT Limited vs. Kalinga Mining Corporation and another reported in 2007(7) Scale 567. In para 15 the Hon'ble Apex Court has observed as under: 6.8A “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 Sec.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 Sec.9 of the Act. There is also the principle that when FA/2925/2007 30 JUDGMENT a power 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 Sec.9 of the Act is not controlled by the Specific Relief Act has been taken by the Madhya Pradesh High Court. The power under Sec.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 these decisions are correct, requires to be considered in an appropriate case. Suffice it to say that on the basis of the submissions FA/2925/2007 31 JUDGMENT made in this case, we are not inclined to answer that question finally. But, we may indicate that we are prima facie inclined to the view that exercise of power under Sec.9 of the Act must be based on well recognized principles governing the grant of interim protection or the appointment of a receiver.” 6.9 Relying upon the aforesaid decision of the Hon'ble Apex Court, the learned trial Judge is obliged to consider the principles governing the grant of injunction under Order 39 Rule 3 of CPC for considering interim measures under Section 9 of the Act. All the principles governing grant of injunction including grant of ex-parte ad-interim injunction are required to be adhered to by the Court while considering Sec.9 application. The learned trial Judge ought to