IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 13.12.2011 CORAM : THE HONOURABLE Mrs.JUSTICE R.BANUMATHI and THE HONOURABLE Ms.JUSTICE R.MALA O.S.A.NO.393 of 2011 C.S.S. Corp Private Limited having its registered Office at CSS World Square, No.21, Sir Thyagaraya Road, T.Nagar, Chennai-600 017 ... Appellant Vs. Space Matrix Design Consultants Private Limited, having its registered office at No.1, St. Mark's Road, Bangalore – 560 001 and Branch Office at Plot No.D, Third Floor, Chaitanya Centre 12/21 and 12/22 Kadar Nawaz Khan Road, Chennai-600 006. ... Respondent Prayer: Original Side Appeal is filed under Order XXXVI, Rule 1 of Original Side Rules read with Clause 15 of the Letters Parent against the Order dated 19.9.2011 made in Application No.2661 of 2011 on the file of this Court. A.No.2661/2011: Application filed under Section 9[b] of the Arbitration and Conciliation Act, 1996, to direct the respondent to deposit a sum of Rs.4,56,22,368/-. For Appellant : Mr.P.S.Raman Senior Counsel for Ms.Hema Srinivasan For Respondent : Mr.Vijay Narayan Senior Counsel for M/s.Poovayya & Co https://hcservices.ecourts.gov.in/hcservices/ JUDGMENT R.BANUMATHI,J This appeal arises out of the order in A.No.2661 of 2011 [19.09.2011] directing the Appellant to furnish security for a sum of Rs.4,56,22,368/-. 2. Respondent is a Private Limited Company engaged in the business of providing interior design, project management and architectural consultancy services to its customers in India. Respondent had agreed to undertake interior works for Appellant as a contractor for the premises on the ground floor, 9th and 10th floors located at AMBIT IT PARK, Ambattur, Chennai. In this connection, Respondent had executed an agreement with the Appellant on 03.03.2010 detailing the terms of engagement, including the conditions for payment of the consideration. The project involved Interior Fit- outs, Finishes, MEP, Network and Allied Civil Works of the Project Site. Agreement dated 03.03.2010 states that it is a "Design and Build". Case of Respondent is that it was a "lump sum" agreement for consideration of Rs.13,10,97,371/-. Further case of Respondent is that the total agreed value for the services rendered under the said agreement is Rs.13,98,82,821/-. Out of the said amount, an amount of Rs.4,56,22,368/- is outstanding in respect of the work done by the Respondent. Inspite of several reminders, Appellant had deliberately neglected and pay the payments to the Respondent. Alleging that Appellant is enjoying the fruits of the labour done by the Respondent and that Appellant has been unjustly denying the payment and further alleging that the balance of convenience is infavour of the Respondent, Respondent has filed application [A.No.2661 of 2011] under Section 9 of Arbitration and Conciliation Act to direct the Appellant to deposit a sum of Rs.4,56,22,368/-, failing which to furnish security for the said amount to the satisfaction of the Court. 3. Appellant who was Respondent in Section 9 application has filed the counter contending that the contract price agreed by the Appellant was based on "rate per sq. ft." which includes the entire scope of work as detailed in Clause 4.1 of the agreement. It was never the intention of parties that the consideration of the project was on the basis of "lump sum" contract. In Clause 29 of Part-II – Special Conditions of the Contract, it was clearly stated that payment to the Respondent should be approved by Quantity Surveyor – M/s.DAVIS LANGDON & SEAH CONSULTING INDIA PVT. LTD.,Chennai [DLS] and while so, the Respondent's claim of Rs.13,98,82,821/- is totally misconceived. Case of Appellant is that the contract is not a https://hcservices.ecourts.gov.in/hcservices/ "lump sum" contract, but subject to variations, changes to the specifications and payments itself are subject to the Quantity Surveyor – DLS' approving the actual work executed by the Respondent. Appellant has further averred that as per Clause 18.1 of the agreement, the disputes between the parties touching the contract/agreement, interpretation or rights, duties or liabilities under the contract ought to have first been attempted to be reconciled and only after 30 days from the commencement of such informal negotiations, the parties can proceed to arbitration. In this case, neither any dispute has yet arisen between the parties nor is there any necessity for securing the amounts under the dispute that have to be properly claimed. Hence, Appellant prayed for dismissal of the application [A.No.2661 of 2011] filed under Section 9 of Arbitration and Conciliation Act. 4. Upon consideration of the contentions of both sides, learned Judge held that Respondent has made out a prima facie case and the balance of convenience is infavour of the Respondent and Respondent is entitled to get the interim protection. Learned Judge allowed the application [A.No.2661 of 2011] filed under Section 9 of the Act directing the Appellant to furnish security for Rs.4,56,22,368/-, failing which ordered attachment. Being aggrieved by the direction to furnish security, Appellant has preferred this appeal. 5. Mr.P.S.Raman, learned Senior Counsel for Appellant has contended that Respondent has not made out any case that there was an apprehension or danger that the amount could not be recovered by them from the Appellant warranting grant of such an order to furnish security. It was further submitted that the learned Judge did not keep in view that Appellant was a reputed concern having financial stability as per their balance sheet. Placing reliance upon MANU/TN/2871/2011 [A-1 SOLUTIONS CHENNAI REP. BY ITS CHIEF EXECUTIVE OFFICER UJWAL RAO V. CASCADE BILLING CENTER INCORPORATED REP. BY ITS PRESIDENT DEV ANDERSON], it was contended that in the absence of any pleadings that the attitude of the Appellant is only to obstruct or delay the recovery of money or that the party is about to dispose of the whole or any part of the property, no relief can be claimed. Reliance was also placed upon AIR 2007 SC 2563 [ADHUNIK STEELS LIMITED V. ORISSA MANGANESE AND MINERALS PVT. LTD.]. 6. Countering the arguments and placing reliance upon AIR 2004 BOMBAY 136 [NATIONAL SHIPPING COMPANY OF SAUDI ARABIA V. SENTRANS INDUSTRIES LIMITED], Mr.Vijay Narayan, learned Senior Counsel for Respondent has contended that the provision under Order 38, Rule 5 CPC cannot read into the provision of Section 9 of the Arbitration and Conciliation Act and one need not be bound by the requisites under Order 38, Rule 5 CPC. Learned Senior Counsel would further submit that the power under Section 9 of Arbitration and Conciliation Act is much wider than Order 38, Rule 5 of CPC and that https://hcservices.ecourts.gov.in/hcservices/ the interim measure of protection under Section 9(ii)(b) of Arbitration and Conciliation Act stands on different footing. Placing reliance upon the decision of the Division Bench of Madras High Court in O.S.A.No.91 of 2002 [02.04.2002] (Ganesh Benzoplast Ltd., Mumbai, Ramkant S.Pilani and Shankarmal G. Pillai v. Sundaram Finance Ltd., Chennai and Oil and Natural Gas Corporation Ltd., Mumbai), learned Senior Counsel further contended that no particular format is required under Order 38, Rule 5 CPC and Section 9 of Arbitration and Conciliation Act does not specifically require any averment in any particular form and taking note of the non-payment of the amount of Rs.4,56,22,368/-, learned Judge has rightly directed the Appellant to furnish security for Rs.4,56,22,368/-. 7. Re:contention – "lump sum" contract: Drawing our attention to the Letter of Intent [LOI] dated 12.01.2010, learned Senior Counsel for Respondent contended that Respondent agreed to carry out the Interior Fit-outs, Finishes in the project site at AMBIT IT PARK for a "lump sum" amount of Rs.15,38,18,118/- and thereafter, Respondent offered discount on the agreed sum by the agreement dated 03.03.2010 in which the Respondent undertook to complete the project for a "lump sum" amount of Rs.13,10,97,371/-. To contend that it was a "lump sum" contract, learned Senior Counsel for Respondent has drawn our attention to Clause 4.1 and Clause 4.2 of the agreement which reads as follows:- "4.1 Both the party hereby agrees that the scope of works defined under this "Design & Build – Lumpsum" Contract shall be executed at Rs.13,10,97,371/- (Rupees Thirteen Crores Ten lacks Ninety Seven Thousand Three Hundred seventy one only). ..... 4.2 The Contract Price defined in Paragraph 4.1 above shall remain firm through the entire duration of the contract. No escalation is admissible under any circumstances provided there is no change in design/specifications. It was further submitted that the agreement is clear that the consideration payable is "lump sum" consideration and the agreement nowhere states that the consideration for the project shall be calculated on the basis of "rate per sq. ft." and the intention of the parties was that payment to be made to the Respondent was "lump sum" amount for the project. 8. Per contra, contention of Appellant is that from the time of issuance of LOI [12.01.2010], parties had specifically agreed that the contract was on the basis of "rate per sq. ft.". It was submitted that Clause 4.1 of the agreement stipulates only "the rate per sq. ft." Reliance was placed upon the expression in Clause 4.1. The "rate per sq. ft." shall include Design for the entire scope of work. Reliance was placed upon Clause 8.1 of the agreement which reads as under:- "Clause 8.1 – "The quantities in the bill of quantities https://hcservices.ecourts.gov.in/hcservices/ (BOQ) are indicative and may vary based on the site conditions. These bill of quantities shall not form part of the contract. However, the certification for payments shall be made based on the agreed rate per sq. ft. basis and as per the agreed milestone achievements by the contractor." It was submitted that the contract is only on the basis of "cost/rate per sq. ft." and is not at all a "lump-sum" contract. It is not denied that the final payments ought to be made on completion of the total work and submission of necessary documents or that Clause 10 provides for variations of items. In this regard, learned Senior Counsel for Appellant has drawn our attention to the COST SUMMARY enclosed along with the agreement [03.03.2010] to contend that the carpet area that was being considered for the project was 1,36,002 sq. ft. whereas the actual carpet area in which the work was executed was only 1,05,495 sq. ft. It was further submitted that in view of the specific contractual provisions and specifications by the Quantity Surveyor, Respondent cannot contend that the contract was entered into on a "lump sum" basis. 9. Even though arguments were advanced on the question whether the contract was "lump sum" contract or "rate per sq. ft.", the question whether it was "lump sum" contract or "item rate" could be gone into only by the Arbitrator. It is pertinent to note that arbitration notice was issued on 19.07.2011 and the Arbitrator came to be nominated on 01.08.2011. 10. The short point falling for consideration is whether the Respondent has made out a prima facie case for the grant of interim direction to the Appellant to furnish security for a sum of Rs.4,56,22,368/-. 11. Placing reliance upon ADHUNIK STEELS case, learned Senior Counsel for Appellant contended that the Supreme Court held that "provision of Code of Civil Procedure cannot be kept outside while considering the question whether on the facts of the case any order by way of interim protection should be granted under Section 9 of Arbitration and Conciliation Act". Assailing the impugned order, learned Senior Counsel for Appellant would contend that the learned Judge failed to note that Respondent has not made out any case nor was there any specific averment that there was an apprehension or danger that the amount could not be recovered by the Respondent from the Appellant. It was further argued that in the absence of pleadings that the attitude of the Appellant is only to obstruct or delay the recovery of money or that the Appellant is about to dispose of the whole or any part of the property, no relief can be granted. 12. Learned Senior Counsel for Respondent has contended that provision of Order 38, Rule 5 CPC cannot be read into Section 9 of https://hcservices.ecourts.gov.in/hcservices/ Arbitration and Conciliation Act nor can power of the Court in passing an order of interim measure under Section 9(ii)(b) be made subject to the stringent provision of Order 38, Rule 5 CPC. It was further argued that power under Section 9 of Arbitration and Conciliation Act is wide and it cannot be restricted to the power conferred on the Court under Civil Procedure Code. 13. Section 9 of Arbitration and Conciliation Act enables the parties to approach the Court for certain interim measure of protection in respect of the enumerated remedies available thereon. Section 9 of the Act contemplates interim measure to protect and secure the amount in dispute in arbitration. But that does not mean that even without any pleadings in respect of the fact that the asset of the Appellant will be lost, the Respondent is entitled to file application under Section 9 of Arbitration and Conciliation Act. In fact, in granting injunction or passing any order under Section 9, three golden principles under law have to be taken note of by the Courts viz., (i) prima facie case; (ii) balance of convenience and (iii) irreparable loss and injury. 14. Placing reliance upon NATIONAL SHIPPING COMPANY case, learned Senior Counsel for Respondent contended that the legislature does not seem to intend to read the provisions of Order 38, Rule 5 CPC into the power under Section 9 of Arbitration and Conciliation Act and the power under Section 9 of the Act is very wide. Learned Senior Counsel would further contend that power of the Court in passing an order of interim measure under Section 9(ii)(b) cannot be made subject to the stringent provision of Order 38, Rule 5 CPC. 15. Referring to BHATIA INTERNATIONAL V. BULK TRADING S.A. [(2002) 4 SCC 105] and observing that there was no specific exclusion of Code of Civil Procedure in the Act of 1996, in AIR 2004 BOMBAY 136 [NATIONAL SHIPPING COMPANY OF SAUDI ARABIA V. SENTRANS INDUSTRIES LIMITED] , the Division Bench of Bombay High Court held as under:- "10. Section 9 in the Act of 1996 is a substantive provision which empowers the Court to pass an interim order before or during Arbitral proceedings or any time after the making of the Arbitral Award but before it is executed under Section 36. Since we are concerned with Section 9 (ii)(b), it may be noticed that it provides for an interim measure of protection for securing the amount in dispute in the Arbitration. Sort of clarification it also provides that the Court shall have the same power for making orders as it has for the purpose of and in relation to any proceeding before it. Such provision as enacted in Section 9 is a provision that enables a party to apply for interim protection if action of the other party to the agreement providing for Arbitration is either in breach of the terms of the agreement or is unequitable, unfair on in breach of natural justice. The order under Section 9(ii)(b) is in https://hcservices.ecourts.gov.in/hcservices/ the nature of interim protection order. In a special provisions of the nature like Section 9(ii)(b), we are afraid, exercise of power cannot be restricted by importing the provisions of order 38, Rule 5 of the Civil Procedure Code as it is. It is true and as has been held by the Supreme Court in ITI Ltd, 2002 (5) SCC 510, that for want of specific exclusion of the Code of Civil Procedure in the Act of 1996, it cannot be inferred that the Code was not applicable but that would not mean that provisions of Code have to be read into as it is when the Court exercises its powers as prescribed in the Act of 1996. The procedural aspects provided in the Code about which the Act of 1996 is silent, needless to say, when the Court exercises its substantive power under the Act of 1996 shall be applicable but the guiding factor for exercise of power by the Court under Section 9(ii)(b) has to be whether such order deserves to be passed for justice to the cause. The provisions of Order 38, Rule 5, CPC cannot be read into the said provision as it is nor can power of the Court in passing an order of interim measure under Section 9(ii)(b) be made subject to the stringent provision of order 38, Rule 5. The power of the Court in passing the protection order to secure the amount in dispute in the Arbitration before or during Arbitral proceedings or at any time of making of the Arbitral amount but before or during Arbitral proceedings or at any time of making of the Arbitral amount but before it is enforced cannot be restricted by importing the provisions set out in Order 38 of C.P.C. but has to be exercised ex debito justitiae and in the interest of justice. The Court while considering the application for interim protection under Section 9(ii)(b) is granted is guided by equitable consideration ad each case has to be considered in the light of its facts and circumstances. The interim protection order contemplated under Section 9 (ii)(b) is granted by the Court to protect the interest of the party seeking such order until the rights are finally adjudicated by the Arbitral Tribunal and to ensure that the Award passed by Arbitral Tribunal is capable of enforcement. Though the power given to the Court under Section 9(ii)(b) is very wide and is not in any way controlled by the provisions of the Code but such exercise of power, obviously, has to be guided by the paramount consideration that the party having a claim adjudicated in its favour ultimately by the Arbitrator is in a position to get the fruits of such adjudication and in executing the Award. While dealing with the application for direction to the other party to deposit the security of the amount in dispute in the Arbitration, the Court also has to keep in mind the drastic nature of such order and unless a clear case not only on the merits of the claim is made out but https://hcservices.ecourts.gov.in/hcservices/ also the aspect that denial of such order would result in grave injustice to the party seeking such protection order in as much as in the absence of such order, the applicant party succeeding before the Arbitral Tribunal may not be able to execute the Award. The obstructive conduct of the opposite party may be one of the relevant considerations for the Court to consider the application under Section 9 (ii)(b). The party seeking protection order under Section 9(ii)(b) ordinarily must place some material before the Court, besides the merits of the claim that order under Section 9(ii)(b) is eminently needed to be passed as there is likelihood or an attempt to defeat the Award, though as indicated above, the provisions of Order 38, Rule 5 CPC are not required to be satisfied. The statutory discretion given to the Court under Section 9(ii)(b) must be exercised judicially in accordance with established legal principles and having regard only to relevant considerations. In our view, this is the proper approach for consideration of the application for interim relief under Section 9(ii)(b) and we hold that the provisions of Order 38, Rule 5 of the Civil Procedure Code cannot be read as it is and imported in Section 9 of the Act of 1996. We also hold without hesitation that the Court is competent to pass an appropriate protection order of interim measure as provided under Section 9(ii)(b) outside the provisions of Order 38, Rule 5, Code of Civil Procedure. Each case under Section 9 (ii)(b) of the Act of 1996 has to be considered in its own facts and circumstances and on the principles of equity, fair play and good conscience. The power of the Court under Section 9(ii)(b) cannot be restricted to the power conferred on the Court under Civil Procedure Code though analogous principles may be kept in mind." (underlining added) 16. In ADHUNIK STEELS LIMITED V. ORISSA MANGANESE AND MINERALS PVT. LTD. [AIR 2007 SC 2563] and ARAVIND CONSTRUCTION V. KALINGA MINERAL CORPORATION [(2007) 6 SCC 798], the Supreme Court drew the distinction between applicability of Code of Civil Procedure in the arbitration proceedings and in a Court proceedings relating to arbitration. In case of arbitration proceedings, application of Code of Civil Procedure is not mandated; but in Court proceedings, even though relate to arbitration, Code of Civil Procedure will be applicable, insofar as, it does not stand excluded. Observing that the conclusive words of Section 9 "....... and the Court shall have the same power for making orders as it has for the purpose and in relation to any proceedings before it" clearly suggest that the normal rules that govern the Court in the grant of interim orders is not sought to be jettisoned by the provision, in ADHUNIK STEELS LIMITED, the Supreme Court held as under:- "10. It is true that Section 9 of the Act speaks of https://hcservices.ecourts.gov.in/hcservices/ the court by way of an interim measure passing an order for protection for the preservation, interim custody or sale of any goods, which are the subject matter of the arbitration agreement and such interim measure of protection as may appear to the court to be just and convenient. The grant of an interim prohibitory injunction or an interim mandatory injunction are governed by well known rules and it is difficult to imagine that the legislature while enacting Section 9 of the Act intended to make a provision which was dehors the accepted principles that governed the grant of an interim injunction. Same is the position regarding the appointment of a receiver since the Section itself brings in, the concept of 'just and convenient' while speaking of passing any interim measure of protection. The concluding words of the Section, "and the court shall have the same power for making orders as it has for the purpose and in relation to any proceedings before it" also suggest that the normal rules that govern the court in the grant of interim orders is not sought to be jettisoned by the provision. Moreover, when a party is given a right to approach an ordinary court of the country without providing a special procedure or a special set of rules in that behalf, the ordinary rules followed by that court would govern the exercise of power conferred by the Act. On that basis also, it is not possible to keep out the concept of balance of convenience, prima facie case, irreparable injury and the concept of just and convenient while passing interim measures under Section 9 of the Act." [underlining added] 17. Relying upon the decision in ADHUNIK STEELS LIMITED, in MANU/TN/2871/2011 [A-1 BIZ SOLUTIONS CHEENAI REP. BY ITS CHIEF EXECUTIVE OFFICER UJWAL RAO V. CASCADE BILLING CENTER INCORPORATED REP. BY ITS PRESIDENT DEV ANDERSON], the Division Bench of this Court [one of us was a member – Justice R.Banumathi] held as under:- "9. ...... It is well settled law that security can be ordered only in cases where the other party is likely to abscond or there is positive evidence to show that the other party is taking steps to dispose of the property with an intention to deceive or defeat the decree or award to be passed by the Courts or Tribunal. In this case, the Respondent being a company, it is not possible for them to abscond so easily or they could dispose of their asset immediately. Therefore, the conclusion arrived at by the learned Judge that the present application has been filed by the Appellant only to pressurise the Respondent to settle the amount is well founded. It is needless to mention that filing of an application under Section 9 of the Act can be entertained https://hcservices.ecourts.gov.in/hcservices/ by this Court only in exceptional case and this is not a case where this Court find it fit and proper to entertain the application of the Appellant." ....... 11. Therefore, it is evident from the decision of the Honourable Supreme Court that wherever the powers of the Court are invoked with the