Case: Union Of India Vs. Raman Iron Foundry

2. The respondent tendered for supply of certain quantity of foam compound to the appellant and its tender was accepted by the appellant by Acceptance of Tender dated 16th July, 1968. The Acceptance of Tender was subject to the General Condition of Contract contained in the Standard Form of Contract No. D.G.S. and D. 68. The only clauses of the General Conditions of Contract which are material for our purpose are clauses 18 and 24 and they read asRecovery of Sums due:Whenever any claim for the payment of a sum of money arises out of or under the contract against the contractor, the purchaser shall be entitled to recover such sum by appropriating in whole or in part, the security, if any, deposited by the contractor, and for the purpose aforesaid, shall be entitled to sell and/or, realise securities forming the whole or part of any such security deposit. In the event of the security being insufficient, the balance and if no security has been taken from the contractor, the entire sum recoverable shall be recovered by appropriating any sum then due or which at any time thereafter may become due to the contractor under the contract or any other contract with the purchaser or the Government or any person, contracting through the Secretary, if such sum even be not sufficient to cover the full amount recoverable, the contractor shall on demand pay to the purchaser the balance remaining due...................................................................Arbitration :In the event of any question, dispute or difference arising under these conditions or any special conditions of contract, or in connection with this contract, (except as to any matters the decision of which is specially provided for by these or the special conditions) the same shall be referred to the sole arbitration of an Officer in the Ministry of Law, appointed to be the arbitrator by the Director General of Supplies and Disposals. It will be no objection that the arbitrator is a Government servant, that he had to deal with the matters to which the contract relates or that in the course of his duties as a Government servant he has expressed views on all or any of the matters in dispute or difference. The award of the arbitrator shall be final and binding on the parties to this contract......................................................................Work under the contract shall, if reasonable possible, continue during the arbitration proceeding and no payment due to or payable by the purchaser shall be withheld on account of suchperformance of this contract ran into difficulties and a dispute arose between the parties giving rise to claims by either party against the other. The respondent contended that the appellant had committed a breach of the contract and was, therefore, liable to pay to the respondent a sun of Rs. 2,35,800/-by way of damages suffered by the respondent by reason of the breach of the contract. The appellant, on the other hand, said that it was the respondent who had committed the breach of the contract and was liable to pay to the appellant by way of damages a sum of Rs. 2,28,900/- under C1. 14 of the General Conditions of Contract. The Assistant Director of Supplies by his letter dated 30th March, 1971, called upon the respondent to make payment of the amount of Rs. 2,28,900/- and intimated that if the respondent failed to do so on or before 30th April, 1971, the Pay and Accounts Officer, New Delhi / Madras would be authorised to recover the same from the pending bills of the respondent in respect of other contracts. This dispute between the parties being a dispute arising out of the contract, was liable to be settled by arbitration under clause 24 of the General Conditions of Contract and the respondent, therefore, filed an application in the Delhi High Court under Section 20 of the Indian Arbitration Act for filing the Arbitration Agreement contained in that clause. The respondent also at the same time made an application to the Delhi High Court for an interim injunction restraining the appellant from recovering the amount of damages claimed by it from the pending bills of the respondent. This application was, however, rejected by the Delhi High Court on the ground that it was not shown that there were any pending bills of the respondent at that time out of which the threatened recovery could be made by the appellant. The application under Section 20 of the Indian Arbitration Act was thereafter heard by the Delhi High Court and by an order dated 5th May,1972, the Delhi High Court allowed that application and ordered the arbitration agreement contained in cl. 24 to be filed and made an order of reference to arbitration in accordance with the arbitration agreement. The claim of the respondent against the appellant for Rs. 2,35,800/- and the counterclaim of the appellant against the respondent or Rs. 2,28,900/- thus became the subject-matter of reference to arbitration. During the pendency of the arbitration some amounts became due and payable by the appellant to the respondent in respect of other contracts entered into between the parties. In view of the letter dated 30th March, 1971 the respondent apprehended that the appellant would appropriate these amounts towards recovery of the amounts of damages claimed by it even though the claim for damages was disputed by the respondent and was pending adjudication before the arbitrator. The respondent, therefore, made Interim Application No. 119 of 1972 to the Delhi High Court on 17th January, 1972 under Section 41 read with the Second Schedule to the Indian Arbitration Act, 1940 praying that the status quo should be maintained and the appellant should be restrained from recovering its claim for damages from the amounts due and payable by the appellant to the respondent in respect of the pending bills. Now it appears that this Interim Application No. 119 of 1972 was made in the Original Application under Section 20 of the Indian Arbitration Act, 1940 and the appellant, therefore, raised a technical objection that the Original Application under S. 20 having been disposed of, Interim Application No. 119 of 1972, as filed, could not be maintained. The respondent, in view of this technical objection raised on behalf of the appellant, filed another Interim Application No. 746 of 1972 as an independent application under Section 41 read with the Second Schedule to the Indian Arbitration Act, 1940 on 18th May, 1972 praying for the same interim relief as was claimed in the earlier Interim Application No. 119 of 1972. Both these interim applications were resisted by the appellant relying on clause 18 of the General Conditions of Contract but Mr. Justice Avadh Bihari of the Delhi High Court, who heard these interim applications, took the view that clause 18 did not authorise the appellant to appropriate the amounts of any pending bills of the respondent towards satisfaction of its claim for damages against the respondent, unless such claim for damages was either admitted by the respondent or adjudicated upon by arbitration or suit in Civil Court. The learned Judge accordingly by an order dated 15th November, 1972, allowed both the interim application and issued an interim injunction restraining the appellant "from effecting recovery of the amounts claimed to be due from the other pending bills" of the respondent. The appellant thereupon, with certificates obtained from the Delhi High Court, preferred Civil Appeals Nos. 1224 and 1225 of 1973 in this Court. One appeal was directed against the impugned order in so far it related to Interim Application No. 119 of 1972 and the other in so far as it related to Interim Application No. 846 of 1972. The appellant also preferred Civil Appeal No. 1330 of 1973 against a similar order passed by the learned Judge in Interim Application No. 854 of 1972 in the otherfacts giving rise to these appeals follow a common pattern and it would, therefore, be sufficient if we set out the facts relating to Civil Appeals Nos. 1224 and 1225 of 1973. They bring out clearly the point which arises for consideration in all the three appeals.

Court's reasoning:
The Court obviously could not, therefore, make an interim order which, though ostensibly in form an order of interim injunction, in substance amounted to a direction to the appellant to pay the amounts due to the respondent under other contracts. Such an interim order would clearly not be for the purpose of or in relation to the arbitration proceedings as required by Sec. 41(b). But here the order of interim injunction made by the learned Judge does not, expressly or by necessary implication, carry any direction to the appellant to pay the amounts due to the respondent under other contracts. It is not only in form but also in substance a negative injunction. It has no positive content. What it does is merely to injunct the appellant from recovering, suo motu, the damages claimed by it from out of other amounts due to the respondent. It does not direct that the appellant shall pay such amounts to the respondent. The appellant can still refuse to pay such amounts if it thinks it has a valid defence and if the appellant does so, the only remedy open to the respondent would be to take measures in an appropriate forum for recovery of such amounts where it would be decided whether the appellant is liable to pay such amounts to the respondent or not. No breach of the order of interim injunction as such would be involved in non-payment of such amounts by the appellant to the respondent. The only thing which the appellant is interdicted from doing is to make recovery of its claim for damages by appropriating such amounts in satisfaction of the claim. That is clearly within the power of the Court under Section 41(b) because the claim for damages forms the subject-matter of the arbitration proceedings and the Court can always say that until such claim, is adjudicated upon, the appellant shall be restrained from recovering it by appropriating other amounts due to the respondent. The order of interim injunction made by the learned Judge cannot, therefore, be said to be outside the scope of his power under Section 41(b) read with the Secondis only when a claim for damages is adjudicated upon by a Civil Court or an arbitrator and the breach of the contract is established and the amount of damages ascertained and decreed that a debt due and payable comes into existence; till then it is nothing more than a mere right to sue for damages and it does not fall within the words of cl. 18. Moreover, Cl. 18 merely provides a mode of recovery and it can have no application where a claim, even though it be for a sum due and payable, is disputed by the contractor and has to be established in a court of law or by arbitration. Clause 18 applies only where a claim is either admitted, or in case of dispute, substantiated by resort to the judicial process. Therefore, when the purchaser has a claim for damages which is disputed by the contractor, the purchaser is not entitled under Clause 18 to recover the amount of its claim for damages by appropriating other sums due to the contractor until the claim for damages is adjudicated upon and culminates in a decree. The appellant in the present case had consequently no right under Clause 18 to appropriate sums due to the respondent under other contracts in satisfaction of its claim for damages against the respondent, when the claim for damages was pending adjudication before the arbitrator and the learned Judge was right in restraining the appellant from doing so by issuing an interim injunction. These were broadly the contentions of the parties under this head of challenge and the question is which of these rival contentions is correct.6. It is true that the words "any claim for the payment of a sum of money" occurring in the opening part of Clause 18 are words of great amplitude, wide enough to cover even a claim for damages, but it is a well settled rule of interpretation applicable alike to instruments as to statutes that the meaning of ordinary words is to be found not so much in strict etymological propriety of language nor even in popular use as in the subject or occasion on which they are used and the object which is intended to be attained. The context and collocation of a particular expression may show that it was not intended to be used in the sense which it ordinarily bears. Language is at best an imperfect medium of expression and a variety of meanings may often lie in a word or expression. The exact colour and shape of the meaning of any word or expression should both be ascertained by reading it in isolation, but it should be read structurally and in its context, for its meaning may vary with its contextual setting.We must, therefore, read the words any claim for the payment of a sum of money occurring in the opening part of Clause 18 not in isolation but in the context of the whole clause, for the intention of the parties is to be gathered not from one part of the clause or the other but from the clause taken as a whole. It is in the light of this principle of interpretation that we must determine whether the words any claim for the payment of a sum of money refer only to a claim for a sum due and payable which is admitted or in case of dispute, established in a court of law or by arbitration or they also include a claim for damages which is disputed by the contractor.7. The first thing that strikes one on looking at clause 18 is its heading which reads: "Recovery of Sums Due". It is true that a heading cannot control the interpretation of a clause if its meaning is otherwise plain and unambiguous, but it can certainly be referred to as indicating the general drift of the clause and affording a key to a better understanding of its meaning. The heading of Clause 18 clearly suggests that this clause is intended to deal with the subject of recovery of sums due. Now a sum would be due to the purchaser when there is an existing obligation to pay it in praesenti. It would be profitable in this connection to refer to the concept of a debt, for a sum due is the same thing as a debt due.Having discussed the proper interpretation of clause 18, we may now turn to consider what is the real nature of the claim for recovery of which he appellant is seeking to appropriate the sums due to the respondent under other contracts. The claim is admittedly one for damages for breach of the contract between the parties. Now, it is true that the damages which are claimed are liquidated damages under clause 14, but so far as the law in India is concerned, there is no qualitative difference in the nature of the claim whether it be for liquidated damages or for unliquidated damages Section 74 of the Indian Contract Act eliminates the somewhat elaborate refinements made under the English common law in distinguishing between stipulations providing for payment of liquidated damages and stipulations in the nature of penalty. Under the common law a genuine preestimate of damages by mutual agreement is regarded as a stipulation naming liquidated damages and binding between the parties; a stipulation in a contact in terrorem if a penalty and the Court refuses to enforce it, awarding to the aggrieved party only reasonable compensation. The Indian Legislature has sought to cut across the web of rules and presumptions under he English common law, by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of breach, and stipulations by way of penalty, and according to this principle, even if there is a stipulation by way of liquidated damages, a party complaining of breach of contract can recover only reasonable compensation for the injury sustained by him, the stipulated amount being merely the outside limit. It, therefore makes no difference in the present case that the claim of the appellant is for liquidated damages. It stands on the same footing as a claim for unliquidated damages. Now the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority. When there is a breach of contract, the party who commits the breach does not eo instanti incur any pecuniary obligation, nor does the party complaining of the breach become party. The only right which the party aggrieved by the breach of the contract has is the right to sue forstatement in our view represents the correct legal position and has our full concurrence. A claim for damages for breach of contract is, therefore, not a claim for a sum presently due and payable and the purchaser is not entitled, in exercise of the right conferred upon it under clause 18, to recover the amount of such claim by appropriating other sums due to the contractor. On this view, it is not necessary for us to consider the other contention raised on behalf of the respondent, namely, that on a proper construction of clause 18, the purchaser is entitled to exercise the right conferred under that clause only where the claim for payment of a sum of money is either admitted by the contractor, or in case of dispute, adjudicated upon by a Court or other adjudicatory authority. We must, therefore, hold that the appellant had no right or authority under Clause 18 to appropriate the amounts of other pending bill of the respondent in or towards satisfaction of its claim for damages against the respondent and the learned Judge was justified in issuing an interim injunction restraining the appellant from doing so.