Case: THE STATE OF GUJARAT THROUGH CHIEF SECRETARY Vs. AMBER BUILDERS

2. At the outset, it may be noted that the Gujarat Act was enacted with a view to compulsorily refer all disputes arising out of ?works contract? entered into by the State Government or the Public Sector Undertakings with any other person for those works defined as ?works contract? in terms of Section 2 (k) of the Gujarat Act. As far as this case is concerned, it is not disputed that the contract entered into between the appellant State and the respondent-contractor was a ?works contract?. The contract order pertaining to the parties dated 31.07.2007 contained an arbitration clause, relevant portion of which reads as follows:¬?Clause : 30(1) Disputes to be referred to Tribunal : The dispute relating to this contract, so far as they relate to of the following matters, whether such disputes arise during the progress of the work of or after the completin or abandoned thereof, shall be referred to the Arbitration Tribunal, Gujarat State…?3. It is not disputed that the Gujarat Act is applicable in the present cases. We are mainly concerned with Clause 43.A of the contract entered into between the parties, which reads as follows:¬?43.A Any sum of money due and payable to the Contractor (including the security deposit returnable to the contractor) executing any Government work or work of any District Panchayat wholly financed as grant¬in¬aid under this contract shall be appropriate by any District Panchayat/Government and shall be set off against any claim of the Government/District Panchayat of Gujarat state by the District Panchayat of Gujarat State/Government for the payment of a sum of money arising out or under any other contract made by the contractor with the Government/District Panchayat of Gujarat State for the work wholly financed as grant¬in¬aid by Government of Gujarat State. When no such amount for purpose of the recovery from the contractor against any claim of the Government/District Panchayat of Gujarat state is available, such a recovery shall be made from the contractor as arrears of land revenue.?4. In this judgment, we are only referring to the facts of Civil Appeal No.8307 of 2019 @ SLP(C) No.36095 of 2016. The respondent-contractor was awarded a contract for strengthening a section of National Highway under work order dated 31.07.2007. According to the contractor, he completed the work on 30.04.2008 and final bill was paid to the contractor. The road was damaged and, according to the contractor, this had occurred due to heavy rains. The State called upon the contractor to repair the damaged portion and, according to the contractor, this repair was completed after the rains stopped5. The case of the contractor is that in terms of the contract, the contractor was only liable to remove defects for a period of 3 years which period ended on 30.04.2011. On 10.09.2012, the contractor wrote a letter to the State to release the security amount. This amount was accordingly released vide letter dated 10.09.2012. The State issued letter dated 11.11.2014 calling upon the contractor to pay a sum of Rs.1,09,00,092/¬. This claim was based on the premise that the contractor had not carried out the road repair work in accordance with the contract. The appellant State threatened to withhold the payments from the security deposits and bills of other pending works. This notice was challenged by filing a writ petition in the High Court of Gujarat on the ground that the State was not competent to withhold the amount payable to the contractor under other contracts or recover the amount from payments made under other contracts until the liability of the contractor was determined and quantified by a Court or forum of competent jurisdiction. The stand of the State was that since the work of the contractor was defective, the State had got the work done from another person at the risk of the contractor. In case, the contractor has any dispute, he can approach the Court and reliance was placed on Clause 43.A of the agreement quoted above6. The High Court relied upon the judgment of this Court in State of Karnataka vs. Shree Rameshwara Rice Mills, Thirthahalli(1987) 2 SCC 160     and the consistent view of the Gujarat High Court in various judgments referred to in the impugned judgment and held that without quantification or crystallization of the amount sought to be recovered, the employer or the contractor cannot unilaterally recover the said amounts from the ongoing contract work of the same contractor in connection with another contract. It was further directed that the State could not recover the amounts sought to be recovered from the payments due and payable to the contractor in other contracts. Liberty was, however, given to the State to seek recovery through other means as may be permissible under law. Accordingly vide judgment dated 18.02.2016 the petition was allowed and the communication dated 11.11.2014 was set aside.

Court's reasoning:
18. We are clearly of the view that the appropriate remedy for the contractor was to approach the arbitral tribunal constituted under the Gujarat Act since that would have jurisdiction to decide whether the notice issued by the Government was a legal notice and whether the Government was, in fact, entitled to recover any amount from the contractor. It would also be within the jurisdiction of the Tribunal to decide whether the contractor has made out a prima facie case for grant of interim relief. We are purposely not going into the merits of the case because once we hold that the Tribunal has the jurisdiction to entertain and adjudicate upon the dispute it would not be proper for us to make any comments on the meritsThe judgment in Gangotri Enterprises (supra) is primarily based on the judgment of a two Judges? Bench of this Court in Union of India vs. Raman Iron Foundry(1974) 2 SCC 231  In this case, this Court held that the Government had no right to appropriate the amount claimed without getting it first adjudicated. The relevant portion of the judgment reads as follows:"6… 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 moto, 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 Second Schedulexxx xxx xxx?11…We must, therefore, hold that the appellant had no right or authority under Clause 18 to appropriate the amounts of other pending bills 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.?20. In our opinion, the judgment rendered in Gangotri Enterprises Limited (supra) is per incuriam because it relies upon Raman Iron Foundry (supra) which has been specifically overruled by three Judge Bench in the case of H.M. Kamaluddin Ansari (supra)21. On a conjoint reading and a careful analysis of the Acts together, we are of the view that insofar as the powers vested in the Arbitral Tribunal in terms of the Section 17 of the A&C Act are concerned, such powers can be exercised by the Tribunal constituted under the Gujarat Act because there is no inconsistency in these two Acts as far as the grant of interim relief is concerned. This power is already vested in the tribunal under the Gujarat Act and Section 17 of the A&C Act compliments these powers and therefore it cannot be said that the provisions of Section 17 of the A&C Act are inconsistent with the Gujarat ActSince this case been specifically relied upon we are duty bound to go in the correctness of the view laid down in Gangotri Enterprises (supra).The judgment in Gangotri Enterprises (supra) is primarily based on the judgment of a two Judges? Bench of this Court in Union of India vs. Raman Iron Foundry(1974) 2 SCC 231  In this case, this Court held that the Government had no right to appropriate the amount claimed without getting it first adjudicatedThe judgment in Raman Iron Foundry (supra), was specifically overruled on the issue in hand by a three Judge Bench of this Court in the case of H.M. Kamaluddin Ansari & Co. vs. Union of India (1983) 4 SCC 417 .   In this case there was a general condition which entitled the Government to recover the damages claimed by appropriating any sum which may become due to the contractor under other pending bills. In this case, this Court disagreed with the findings in the Raman Iron Foundry (supra) and held as follows:?21…With profound respect we find that the aforesaid observation is incongruous with the proposition of law laid down by this Court justbefore this observation. We find it difficult to agree with the observation of the Court that the impugned order in form and substance being the negative the respondent could refuse to pay such amounts if it thinks it has a valid defence, and if it chooses to do so there would be no breach of the injunction order22. It is true that the order of injunction in that case was in negative form. But if an order injuncted a party from withholding the amount due to the other side under pending bills in other contracts, the order necessarily means that the amount must be paid. If the amount is withheld there will be a defiance of the injunction order and that party could be hauled up for infringing the injunction order. It will be a contradiction in terms to say that a party is injuncted from withholding the amount and yet it can withhold the amount as of right. In any case if the injunction order is one which a party was not bound to comply with, the court would be loath and reluctant to pass such an ineffective injunction order. The court never passes an order for the fun of passing it. It is passed only for the purpose of being carried out. Once this Court came to the conclusion that the court has power under Section 41 (b) read with Second Schedule to issue interim injunction but such interim injunction can only be for the purpose of and in relation to arbitration proceedings and further that the question whether any amounts were payable by the appellant to the respondent under other contracts, was not the subject matter of the arbitration proceedings and, therefore, the court obviously could not make any interim order which, though ostensibly in form an order of interim injunction, in substance amount to a direction to the appellant to pay the amounts due to the respondent under other contracts, and such an order would clearly be not for the purpose of and in relation to the arbitration proceedings; the subsequent observation of the Court that the order of injunction being negative in form and substance, there was no direction to the respondent to pay the amount due to the appellant under pending bills of other contracts, is manifestly inconsistent with the proposition of law laid down by this Court in the same casexxx xxx xxx31. We are clearly of the view that an injunction order restraining the respondents from withholding the amount due under other pending bills to the contractor virtually amounts to a direction to pay the amount to the contractor-appellant. Such an order was clearly beyond the purview of clause (b) of Section 41 of the Arbitration Act. The Union of India has no objection to the grant of an injunction restraining it from recovering or appropriating the amount lying with it in respect of other claims of the contractor towards its claim for damages. But certainly Clause 18 of the standard contract confers ample power upon the Union of India to withhold the amount and no injunction order could be passed restraining the Union of India from withholding the amount.?20. In our opinion, the judgment rendered in Gangotri Enterprises Limited (supra) is per incuriam because it relies upon Raman Iron Foundry (supra) which has been specifically overruled by three Judge Bench in the case of H.M. Kamaluddin Ansari