Case: Kamaluddin Ansari &amp; Co Vs. Union Of India

These two connected appeals by special leave are directed against the judgment and order of the Allahabad High Court and Delhi High Court dated 24th January, 1980 and 13th November, 1979 respectively. The first one arises out of proceedings under s 20 of the Arbitration Act while the other arise s out of proceedings under s. 33 of the Arbitrationappeals raise a common question regarding the interpretation of cl. 18 of the general conditions of contract contained in the standard from of contract entered into by the parties and the ambit and scope of s. 41 of the Arbitration Act. The facts giving rise to these appeals follow a common pattern and it would, therefore, be sufficient if we set out the facts relating to Civil Appeal No. 2863 of 1982 to bring out clearly the points which arise for consideration in theseappellant in this appeal is a registered firm and carries on the business of manufacturing and selling timber. The Directorate General of Supplies and Disposals (for short, DGS&) functions as a purchase organisation for the Government of India and makes purchases for various departments. In response to an invitation for tender by the DGS& for the supply of Bijasal logs first class the appellant firm made an offer to supply 1016 cubic metres at a flat rate of Rs. 669 per cubic metre. The DGS& accepted the tender on 24th of December, 1973. Pursuant to the acceptance of the tender a standard form of contract was drawn up containing various clauses. Two important clauses of that standard from of contract with which we are mainly concerned are cls; 18 and 24, whichRecovery 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 remaining4. Arbitration: In the event of any question, dispute or difference arising under these conditions or any special conditions of contract, or in connections 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 any officer in the Ministry of Law, appointed to be the arbitrator by the Director General of Sup plies 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 thisappellant, however, ailed to supply the goods. The contract was cancelled on 28th of August, 1974 at the risk and cost of the appellant. The DGS& claims to have made risk purchases incurring an extra cost of Rs. 92, 364. By notice dated 27th December, 1974 the DGS& called upon the appellants to pay that amount failing which alternating arrangements would be made to recover theappears that there were some other contracts between the appellant and the respondent whereunder the appellant has supplied goods and payments were due to it under pending bills.The appellant firm moved a petition under s 33 of the Arbitration Act before the court alleging that there was no concluded contract in existence between the parties containing any arbitration clause and prayed inter alia for determining the. existence, validity and effect of the alleged arbitration agreement. The stand of the Union of India on the other hand is that there was a concluded contract between the parties and the appellant firm was bound by the acceptance of the tender.As the Union of India threatened to withhold the amount of Rs. 92, 364 from the payments due under the pending bills of other contracts, the appellant firm sought for an injunction. Under s. 41 read with Second Schedule of the Arbitration Act, and o. 39, rr. 1 and 2 read with s. 151 of the Code of Civil Procedure, restraining the respondents from appropriating, withholding or recovering the amount claimed from its other bills in any manner whatsoever.As there was cleavage of opinion between the Judges of the same High Court on the question whether such an injunction as prayed for could be issued under s. 41 of the Arbitration Act, the learned Single Judge referred the matter to a larger Bench. The learned Single Judges own view was that such an injunction could be issued under s. 41. The Division Bench on reference, however, held that the Court could grant an injunction restraining the respondent from appropriating or recovering the amount of damages claimed from appellants other pending bills, but No order restraining the Union of India from withholding payments of the other pending bills could be issued under s. 41 of the Arbitration Act in as much as it would amount to a direction to pay the amount due Under other bills and such a prayer would virtually amount to seeking a relief for decreeing the claim of the appellant in Those contracts. The appellant has come up before this Court against t his order by special leave, as stated earlier.

Court's reasoning:
Having laid down the above dictum on the interpretation of s. 41 of the Arbitration Act this Court proceeded to analyse the impugned order of injunction in that case. In its opinion the order of injunction did not expressly or by necessary implication carry any direction t o the Union of India 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 the pending bills of the respondent. It does not direct that the appellant shall pay such amounts to the respondent. The appellant Union of India can still refuse to pay such amounts if it thinks it has a valid defence and if the appellant does so, the only remedy 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 t o the respondent or not. No breach of the order of interim injunction as such would be involved in nonpayment of such amounts by the respondent to the appellant. 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 s. 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 s. 41 (b) read with the Second Schedule.Following this judgment of the Supreme Court the Delhi High Court started modulating its injunctions accordingly and refused to include the word "withholding" in the order of injunction on the ground that the order in those terms really Would mean an order to make the payment which was specifically forbidden in terms of the above judgment of thisis 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 ii withheld there will be a defiance of the injunction order and that party could be hauled up for in fringing 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 part y 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 s. 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 case.This leads us to the question of interpretation of cl. 18 of the standard contract. Clause 18 has been quoted in extenso in the earlier part of theare clearly of the view that an injunction order restraining respondents from withholding the amount due under other pending bills to the contractor virtually amounts to a direction to pay t he amount to the contractor-appellant. Such an order was clearly beyond the purview of cl. (b) of s. 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 cl. 18 of the standard contract confers ample power upon the Union of India to withhold the amount and no injunction order could be p assed restraining the Union of India from withholding thefind no error in the impugned order passed by the Allahabad or the Delhi High Courts in the two cases.