National Highways Authority Of India (Nhai) vs China Coal Construction Group Corpn. on 23/1/2006
JUDGMENT
Badar Durrez Ahmed, J
Page 0492
1. This order shall dispose of IA Nos.6880/2005, 6881/2005 and OMP
351/2004. The said OMP has been filed by the petitioner--National
Highways Authority of India (hereinafter referred to as 'NHAI') under
section 9 of the Arbitration and Conciliation Act, 1996 praying for an
order of interim injunction restraining the respondent China Coal
Construction Group Corporation (hereinafter referred to as 'China
Coal') from interfering in the utilisation by the petitioner of the
equipment, temporary works and material lying on the site. It is also
prayed by NHAI that in the event China Coal contests the grant of the
aforesaid interim injunction and prays for Page 0493maintenance of
status quo, the said China Coal be ordered to bear all the costs for
watch and ward, protection of the properties on the site, loss and
damage that may occur by way of pilferage, theft and the like during
the operation of the order of status quo if passed by this court. IA
No.6880/2005 is an application filed on behalf of SREI International
Finance Limited (hereinafter referred to as 'the Intervenor') under
Order 1 Rule 10 read with Section 151 of the Code of Civil Procedure,
1908 (hereinafter referred to as the 'CPC') for being imp leaded as a
party respondent in the said OMP. IA No.6881/2005 is another
application moved on behalf of the Intervenor under Section 151 of the
CPC seeking clarification of the order dated 25.01.2005 passed by this
court in the said OMP.
Questions
2. The learned counsel for China Coal has raised a preliminary
objection to the maintainability and continuance of the present
petition (i.e., OMP No.351/2004) under Section 9 inasmuch as an
application under Section 17 is pending before the Arbitral Tribunal.
Therefore, the questions which arise for consideration in this petition
and the two applications are as under:-
1) Whether an application under Section 9 of the Arbitration and
Conciliation Act, 1996 would be maintainable during the pendency of
an application under Section 17 of the said Act before an Arbitral
Tribunal seized of the disputes between the same parties ?
2) If the answer to the first question is in the affirmative (i.e.,
the Section 9 application is maintainable), is NHAI entitled to the
reliefs and orders claimed in the OMP ?
3) Whether the Intervenor can be imp leaded as a party in the
petition (OMP 351/2004) ?
4) Whether the Intervenor is entitled to seek clarification of the
order dated 25.01.2005 passed by this court ?
FACTS:
3. Before I consider these questions, a brief resume of the factual
position is necessary. On 28.03.2002, a contract was entered into by
and between NHAI and China Coal for four laning and strengthening of
the existing two lane Section between Km 250.500 and Km 307.500 NH-2
subject to the terms and conditions contained in the contract. Clause
67 of the contract dated 28.03.2002 provides for referring all disputes
and difference between the parties arising out of the said contract to
arbitration in accordance with the procedure prescribed therein. Both,
NHAI and China Coal invoked clause 63.1 of the contract and purported
to terminate the contract by their letters dated 09.06.2004.
Thereafter, China Coal filed a suit being CS (OS) 679/2004 against NHAI
for permanent injunction restraining NHAI from encashment of the bank
guarantee furnished by China Coal in terms of the contract. The suit
came up for the first time before this court on 14.06.2004. NHAI
entered appearance as caveator and in the Order 39 Rules 1 and 2
application moved on behalf of China Coal, a statement was made by the
learned counsel for NHAI (caveator / defendant No.1) to the following
effect:-
Learned counsel for the caveator/defendant No.1 states that matter
be heard next week and defendant No.1 shall not enforce bank
guarantee till Page 0494then. Defendant No.2 is also directed not to
make payment under the Bank guarantee.
On 28.06.2004, this court passed the following orders:-
The statement made by the counsel for the defendant No.1 and the
direction passed against the defendant No.2 shall continue till the
next date of hearing. It may be noted that none has entered
appearance for defendant No.2 despite service.
Till the next date of hearing, the machinery shall not be removed
from the site by any of the parties.
4. On 16.07.2004, in view of the said arbitration clause contained in
the contract between NHAI and China Coal, NHAI nominated its
Arbitrator. On 07.10.2004, NHAI filed the present OMP under Section 9
of the Arbitration and Conciliation Act, 1996 (hereinafter referred to
as 'the said Act') seeking the reliefs mentioned above. In this
petition, it was specifically stated by and on behalf of NHAI that the
suit filed by China Coal [CS (OS) 679/2004] was not maintainable in
view of the provisions of Section 8 of the said Act. It was also
mentioned that the entire dispute would, therefore, be before the
Arbitral Tribunal and it is under these circumstances that the present
OMP was filed. It is the contention of NHAI that in view of clause 63.1
of the contract, upon termination of the contract, the employer (NHAI)
is entitled to keep and utilize the equipment, temporary works and the
material of the contractor (China Coal) for completion of the works.
Since something turns upon this clause, it would be pertinent to set
out the same:-
Remedies
Default of
Contractor
63.01
If the Contractor is deemed by law unable to pay his debts as they fall
due, or enters into voluntary or involuntary bankruptcy, liquidation or
dissolution (other than a voluntary liquidation for the purposes of
amalgamation or reconstruction), or becomes insolvent, or makes an
arrangement with, or assignment in favor of, his creditors, or agrees
to carry out the Contract under a committee of inspection of his
creditors, or if a receiver, administrator, trustee or liquidator is
appointed over any substantial part of his assets, or if, under any law
or regulation relating to reorganization, arrangement or readjustment
of debts, proceedings are commenced against the Contractor or
resolutions passed in connection with dissolution or liquidation or if
any steps are taken to enforce any security interest over a substantial
part of the assets of the Contractor, or if any act is done or event
occurs with respect to the Contractor or his assets which, under any
applicable law has a substantially similar effect to any of the
foregoing acts or events, or if the Contractor has contravened
Sub-Clause 3.1, or has an execution levied on his goods, or if the
Engineer certifies to the Employer, with a copy to the Contractor,
that, in his opinion; the Contractor:
(a) has repudiated the Contract,
(b) without reasonable excuse has failed
(i) to commence the Works in accordance with Sub-Clause 41.1, or
(ii) to proceed with the Works, or any Section thereof, within 28
days after receiving notice pursuant to Sub-Clause 46.1,
Page 0495
(c) has failed to comply with a notice issued pursuant to Sub-Clause
37.4 or an instruction issued pursuant to Sub-Clause 39.1 within 28
days after having received it,
(d) despite previous warning from the Engineer, in writing, is
otherwise persistently or flagrantly neglecting to comply with any
of his obligations under the Contract, or
(e) has contravened Sub-Clause 4.1,
then the Employer may, after giving 14 days' notice to the Contractor,
terminate the contract or a part thereof without thereby releasing the
Contractor from any of his obligations or liabilities under the
Contract, or affecting the rights and powers conferred on the Employer
or the Engineer by the Contract, and recover the possession and enter
upon the Site and the Works and may himself complete the Works or may
employ any other contractor to complete the Works. The Employer or such
other contractor may use for such completion so much of the
Contractor's Equipment, Temporary Works and materials which have been
deemed to be reserved exclusively for the execution of the works, under
the provisions of the contract, as he or they may think proper, and the
Employer may, at any time, sell any of the said Contractor's Equipment,
Temporary Works, and unused Plants and materials and apply the proceeds
of sale in or towards the satisfaction of any sums dues or which may
become due to him from the Contractor under the Contract.
5. The expression "contractors equipment" appearing in the aforesaid
clause 63.1 has been defined in clause 1.1 (v) as under:-
(v) "Contractor's Equipment" means all appliances and things of
whatsoever nature (other than Temporary Works) required for the
execution and completion of the Works and the remedying of any
defects therein, but does not include Plant, materials or other
things intended to form or forming part of the Permanent Works.
A plain reading of the said definition would show that the same is
couched in very wide terms and does not at all speak of ownership of
the equipment. This definition would be relevant to deal with the
submissions raised by the Intervenor which I shall deal with in a short
while.
6. Thereafter, the Arbitral Tribunal which had been constituted, held
its first sitting on 01.11.2004. A Section 17 application had been
filed by the claimant (China Coal) and notice on the said application
was issued by the Arbitral Tribunal. Thereafter, Chinas Coal filed an
application being IA No.532/2005 in its suit [CS (OS) 679/2004)] under
Order 23 Rule 1 seeking unconditional withdrawal of the suit. The said
application came up for disposal on 24.01.2005 when the following order
was passed by a learned Single Judge of this court:-
This is an application under Order 23 Rule 1 read with Section 151
CPC made on behalf of the plaintiff seeking unconditional withdrawal
of the suit.
Mr.Sandeep Sethi, learned senior counsel appearing for the
defendants has opposed the application primarily on the ground that
the plaintiff has enjoyed an interim relief for a period of about
six months against the Page 0496enforcement of bank guarantees
furnished by the plaintiff under the orders of this Court and,
therefore, unless the plaintiff relegates the defendants to their
original position or the plaintiff is called upon to pay or deposit
the amount in question, the plaintiff should not be allowed to
withdraw the present suit even unconditionally. In support of his
submissions, he sought support from two decisions of the Supreme
Court; one reported as State of Orissa Vs. Bhagaban Barik,
; and the other in the case of Executive Officer,
Arthanareswarar Temple R.Sathyamoorthy and others,
.
On the other hand, Mr.Tikku, learned senior counsel appearing for
the plaintiff submits that there is no question of any conditions
being imposed on the plaintiff while permitting him to withdraw the
present suit because the plaintiff is not seeking any protection
from this Court and wants to approach the Arbitral Tribunal already
set up to decide the disputes/differences between the parties.
This Court has considered the matter. There is no denial of the
position that to begin with on statement made / undertaking given by
the defendants that they will not enforce/ encash the bank
guarantees in question and later under the orders of the Court made
from time to time, the plaintiff has enjoyed a temporary relief
against the enforcement/encashment of the bank guarantees furnished
by them, but one aspect is clear that at the time of filing of the
present suit there was no Arbitral Tribunal in position, which has
now been set up and is very much seized of the entire
disputes/differences between the parties. Besides the defendants are
contesting the suit of the plaintiff, inter alia, on the grounds of
its maintainability as also on several other counts.
Having regard to the scheme and object of the Arbitration and
Conciliation Act, 1996, it cannot be denied that once the parties
have decided to resolve their disputes/differences through the
mechanism of arbitration for all intent and purposes, it is that
forum alone which must be invoked for settlement of the
disputes/differences between the parties.
Keeping in view these essential elements and the fact that the
plaintiff is not seeking any interim protection from this Court and
wants to withdraw the suit unconditionally, this Court is of the
view that there cannot possibly be any objection to the withdrawal
of the suit. Consequently, the application is allowed and the
plaintiff's suit is hereby dismissed as withdrawn. All pending
applications shall also stand disposed of accordingly.
A plain reading of the above order discloses that the court had
recognised the fact that once the parties had decided to resolve their
disputes or differences through the mechanism of Arbitration, for all
intents and purposes, it was that forum alone which must be invoked for
settlement of the disputes / differences and in this view of the
matter, the court permitted China Coal to withdraw the suit
unconditionally. All pending Page 0497applications were also disposed
of meaning thereby that the earlier orders passed in the said suit CS
(OS) 679/2004 also stood vacated.
7. On the same day, i.e., 24.01.2005, in the 4th meeting held before
the Arbitral Tribunal, inter alia, the following order was passed:-
4.1 At the outset, the Claimants filed an affidavit dated 24.01.2005
to the effect that the Hon'ble Delhi High Court vide its order dated
24.01.2005 has allowed the I.A. No.532 of 2005 in Civil Suit bearing
No. CS (OS) 679 of 2004 thereby dismissing the said civil suit, as
withdrawn forthwith. They have pleaded before the AT that the
protection earlier given by Delhi High Court should be granted in
the same manner by the AT also. This prayer has been opposed by the
Respondents.
4.2 The AT has carefully considered the matter and it passes the
following orders:-
(a) The Respondents will not encash the Bank Guarantee till the
Application under Section 17 is heared by the AT in detail and
decided on merits. At the same time, the Claimants will undertake to
keep alive the Bank Guarantees during the pendency of the dispute.
(b) The Claimants will not remove any machinery from the site during
the pendency of the dispute. This order shall not, however, in any
manner effect the orders in respect of the said machinery by the
Hon'ble Kolkata High Court.
The Arbitral Tribunal has by the said order dated 24.01.2005 in effect
granted the very interim orders which were granted by this court in the
suit which stood withdrawn. NHAI was directed not to encash the bank
guarantee till the application under Section 17 of the said Act was
heard by the Arbitral Tribunal. China Coal was required to undertake to
keep the bank guarantee alive during the pendency of the dispute and
China Coal was also directed not to remove any machinery from the site
during the pendency of the dispute. However, the Arbitral Tribunal also
directed that this order "shall not, however, in any manner affect the
orders in respect of the said machinery by the Hon'ble Kolkata High
Court". The reference to the orders of the High Court of Calcutta
passed in respect of the said machinery lying at the site is what is
causing concern to the petitioner (NHAI). NHAI is not a party to the
proceedings which are pending before the Calcutta High Court. Those
proceedings are between China Coal on the one hand and, the Intervenor,
on the other. The background of that dispute is that China Coal and the
Intervenor purportedly entered into six Hire-Purchase and two Loan
Agreements whereby several equipments claimed to be owned by the
Intervenor were taken on Hire-Purchase by China Coal. It is alleged by
the Intervenor that China Coal failed to keep up with the installments
of monthly hire charges and committed defaults. The agreements between
China Coal and the Intervenor apparently contained arbitration clauses.
It is alleged by the Intervenor that on 24.06.2004, notices were issued
by the Intervenor to China Coal terminating the agreements and calling
upon China Coal to make payment of all the dues as also to surrender /
deliver possession of all the equipments. On 25.06.2004, Page 0498the
Intervenor purportedly invoked the arbitration clauses and filed its
claim before the Arbitral Tribunal. The Intervenor also moved different
petitions under Section 9 of the said Act (AP 191 to AP 198/2004)
before the High Court at Calcutta seeking, inter alia, various interim
orders, such as appointment of Receiver to take over possession of the
equipment forming subject matter of the Hire-Purchase Agreements. By an
order dated 30.06.2004, the High Court of Calcutta was pleased to
appoint Receivers to take possession of the equipments and by an order
dated 14.07.2004, the said Receivers were granted liberty to appoint an
agent for the purposes of execution of the said order dated 30.06.2004.
By an order dated 25.08.2004, the High Court at Calcutta, inter alia,
passed the following order:-
I, accordingly, direct that the receivers appointed in the above
matters through their common agent should take actual physical
possession of the equipments which are the subject matter of the
above applications forthwith.
However, the Receivers could not take possession of the equipments at
the site, various contempt proceedings were initiated before the
Calcutta High Court with which were are not concerned. It must be
remembered that in China Coal's suit [CS(OS) 679/2004] before this
court in the order dated 14.06.2004 it was recorded that NHAI's counsel
had stated that the matter be heard next week and till then NHAI would
not enforce the bank guarantee. On 28.06.2004 when this court heard the
matter, this court continued the operation of the statements made by
NHAI counsel qua non-encashment of the bank guarantee. This court, by
the order dated 28.06.2004 also directed that "the machinery shall not
be removed from the site by any of the parties." It is clear that the
order passed by the High Court at Calcutta on 30.06.2004 whereby
receivers were appointed was subsequent to the orders passed by this
court. When the matter was heard by that court, the counsel for China
Coal ought to have pointed this court.
8. I now come to the orders passed in the present petition (OMP
351/2004). On 25.01.2005, while issuing notice on the petition (the
said OMP), this court directed as under:-
In the meanwhile, the respondents shall not remove the machinery and
equipment lying at the site till the next date of hearing.
The Intervenor is claiming to be added as a party respondent in the
present petition because, according to it, the orders passed in this
petition would vitally affect its rights. It is also seeking
clarification of the above order dated 21.05.2005 to the extent that
the said order be made applicable only to the equipments of which China
Coal is a owner. The position that emerges from this resume of facts is
that some of the equipments employed by China Coal at the site pursuant
to the contract between China Coal and NHAI were apparently taken on
Hire-Purchase from the Intervenor under separate agreements. Under the
contract between the NHAI and China Coal and in particular in terms of
clause 63.1 thereof, NHAI claims a lien on the equipments. On the other
hand, by virtue of Hire-Purchase Agreements entered into between the
Intervenor and China Coal, the Intervenor claims possession of the very
same equipments. The former dispute is pending arbitration Page
0499between NHAI and China Coal and in respect of which the present OMP
under Section 9 of the Act has been filed. The latter dispute is
pending arbitration between China Coal and the Intervenor in respect of
which Section 9 applications are pending before the High Court at
Calcutta. While the Intervenor is not privy to the arrangement and
contractual relationship between NHAI and China Coal, similarly, NHAI
is not privy to the relationship between China Coal and the Intervenor.
It is the interlinking of these two contracts which is the cause of
dispute in the present proceedings.
Question No.1:
Whether an application under Section 9 of the Arbitration and
Conciliation Act, 1996 would be maintainable during the pendency of an
application under Section 17 of the said Act before an Arbitral
Tribunal seized of the disputes between the same parties ?
9. Mr Amit Chadha, the learned senior counsel appearing on behalf of
China Coal, submitted that the present application under Section 9 is
not maintainable when the application under Section 17 is being pursued
before the Arbitral Tribunal. He further submitted that once an
arbitration proceeding has commenced, then courts should not interfere
with those proceedings. And, if an order passed under Section 17 by an
Arbitral Tribunal is not to the liking of a party to the proceedings,
the same can be appealed against under Section 37(2)(b). In the context
of the present case, Mr Chadha submitted that the Arbitral Tribunal has
passed an order on 24.01.2005 while considering the application under
Section 17 moved by China Coal. This order is an appealable order under
Section 37(2)(b) but the petitioner has not chosen to file any appeal.
Furthermore, it was submitted by him that the present OMP was filed
prior to the passing of the order dated 24.01.2005. He drew my
attention to paragraph 13 of the OMP wherein it was stated that the
civil suit No.679/2004, having regard to the provisions of Section 8 of
the said Act, was not likely to be listed and the matters were to be
referred to the Arbitral Tribunal for adjudication and, therefore,
there was a fear that the order dated 28.06.2004 passed in that suit
would stand automatically vacated and China Coal may succeed in taking
over the possession of the property during the vacuum that may be
caused by the vacation of the said order. In this context, Mr Chadha
submitted that the OMP was filed for interim directions to take care of
the period of vacuum, i.e., the period between which the suit No. CS
(OS) 679/2004 would be disposed of and interim orders were passed by
the Arbitral Tribunal. He submitted that now that the period of vacuum
is over inasmuch as the suit was withdrawn unconditionally on
24.01.2005 and on the same day the Arbitral Tribunal passed the interim
orders indicated above, the very basis for filing the present petition
has gone.
10. On the other hand, Mr Sandeep Sethi, the learned senior counsel
appearing on behalf of the petitioner NHAI, submitted with reference to
the Supreme Court decision in the case of MD Army Welfare Housing
Organisation v. Sumangal Services (P) Ltd. that
orders passed under Page 0500Section 17 of the said Act by an Arbitral
Tribunal are virtually 'toothless' inasmuch as the same are incapable
of being enforced. In particular, he referred to paragraph 58 of the
said decision which reads as under:-
58. A bare perusal of the aforementioned provisions would clearly
show that even under Section 17 of the 1996 Act the power of the
arbitrator is a limited one. He cannot issue any direction which
would go beyond the reference or the arbitration agreement.
Furthermore, an award of the arbitrator under the 1996 Act is not
required to be made a rule of court; the same is enforceable on its
own force. Even under Section 17 of the 1996 Act, an interim order
must relate to the protection of the subject-matter of dispute and
the order may be addressed only to a party to the arbitration. It
cannot be addressed to other parties. Even under Section 17 of the
1996 Act, no power is conferred upon the Arbitral Tribunal to
enforce its order nor does it provide for judicial enforcement
thereof. The said interim order of the learned arbitrator,
therefore, being coram non judice was wholly without jurisdiction
and, thus, was a nullity. [See Kiran Singh v. Chaman Paswan,
Kaushalya Devi v. K.L. Bansal, Union of India v. Tarachand Gupta and
Bros. (SCC at p. 496), Sushil Kumar Mehta v. Gobind Ram Bohra and
Kanak v. U.P. Avas Evam Vikas Parishad.
11. He referred to the decision of the Supreme Court in the case of
Sundaram Finance Ltd v. NEPC India Ltd. to indicate
that because orders under Section 17 passed by an Arbitral Tribunal
cannot be enforced, the legislature provided specific powers to the
Court under Section 9 to pass such orders. In the said decision, the
Supreme Court observed as under:-
11. The reading of Section 21 clearly shows that the arbitral
proceedings commence on the date on which a request for a dispute to
be referred to arbitration arbitration is received by the
respondent. It is in this context that we have to examine and
interpret the expression "before or during arbitral proceedings"
occurring in Section 9 of the 1996 Act. We may here observe that
though Section 17 gives the Arbitral Tribunal the power to pass
orders, the same cannot be enforced as orders of a court. It is for
this reason that Section 9 admittedly gives the court power to pass
interim orders during the arbitration proceedings.
13. Under the 1996 Act, the court can pass interim orders under
Section 9. Arbitral proceedings, as we have seen, commence only when
the request to refer the dispute is received by the respondent as
per Section 21 of the Act. The material words occurring in Section 9
are "before or during the arbitral proceedings". This clearly
contemplates two stages when the court can pass interim orders,
i.e., during the arbitral proceedings or before the arbitral
proceedings. There is no reason as to why Section 9 of the 1996 Act
should not be literally construed. Meaning has to be given to the
word "before" occurring in the said section. The only interpretation
that can be given is that the court can pass interim orders before
the commencement of arbitral proceedings. Any other interpretation,
like the one given by the Page 0501High Court, will have the effect
of rendering the word "before" in Section 9 as redundant. This is
clearly not permissible. Not only does the language warrants such an
interpretation but it was necessary to have such a provision in the
interest of justice. But for such a provision, no party would have a
right to apply for interim measure before notice under Section 21 is
received by the respondent. It is not unknown when it becomes
difficult to serve the respondents. It was, therefore, necessary
that provision was made in the Act which could enable a party to get
interim relief urgently in order to protect its interest. Reading
the section as a whole it appears to us that the court has
jurisdiction to entertain an application under Section 9 either
before arbitral proceedings or during arbitral proceedings or after
the making of the arbitral award but before it is enforced in
accordance with Section 36 of the Act.
12. Mr Sethi also referred to the decision of a Single Judge of this
court in CREF Finance Ltd. v. Puri Construction Ltd and Ors. 2000 (55)
DRJ 730 in support of his submissions. He referred to the decision of
the Supreme Court in the case of Firm Ashok Traders and Another v.
Gurumukh Das Saluja and Others: and in particular
paragraph 18 thereof which reads as under:-
18. Under the A&C Act, 1996, unlike the predecessor Act of 1940, the
Arbitral Tribunal is empowered by Section 17 of the Act to make
orders amounting to interim measures. The need for Section 9, in
spite of Section 17 having been enacted, is that Section 17 would
operate only during the existence of the Arbitral Tribunal and its
being functional. During that period, the power conferred on the
Arbitral Tribunal under Section 17 and the power conferred on the
court under Section 9 may overlap to some extent but so far as the
period pre- and post- the arbitral proceedings is concerned, the
party requiring an interim measure of protection shall have to
approach only the court. The party having succeeded in securing an
interim measure of protection before arbitral proceedings cannot
afford to sit and sleep over the relief, conveniently forgetting the
"proximately contemplate" or "manifestly intended" arbitral
proceedings itself. If arbitral proceedings are not commenced within
a reasonable time of an order under Section 9, the relationship
between the order under Section 9 and the arbitral proceedings would
stand snapped and the relief allowed to the party shall cease to be
an order made "before" i.e. In contemplation of arbitral
proceedings. The court, approached by a party with an application
under Section 9, is justified in asking the party and being told how
and when the party approaching the court proposes to commence the
arbitral proceedings. Rather, the scheme in which Section 9 is
placed obligates the court to do so. The court may also while
passing an order under Section 9 put the party on terms and may
recall the order if the party commits breach of the terms.
Page 0502
In sum and substance, the submission of Mr Sethi was that Section 9
permitted any party to an Arbitration Agreement to approach the Court
for appropriate orders as provided therein. The Court could be
approached in three distinct periods, i.e., pre-arbitration, during
arbitration and post-arbitration but before the award is enforced in
accordance with Section 36 of the Act. He submitted that the powers
under Section 9 given to the court were wide and were to be the same as
the court had for the purpose of and in relation to any proceedings
before it.
13. On the other hand, Section 17 provided for interim measures to be
ordered by the Arbitral Tribunal. Under Section 17, the Arbitral
Tribunal can only order a party to take an interim measure of
protection and to provide appropriate security in connection with such
measure. There are various limiting factors. Therefore, Mr Sethi
submitted that although there may be some degree of overlap between the
provisions of Section 17 and 9, there is no bar to an order being made
under Section 9 by a court of competent jurisdiction during the
pendency of arbitration proceedings before an Arbitral Tribunal. To
counteract these submissions, Mr Chahda submitted that the order passed
by the Arbitral Tribunal and particularly the order passed on
24.01.2005 is not "toothless" as suggested by the learned counsel for
NHAI. He submitted that if China Coal violated that order, it stood to
loose much more. The bank guarantees would then immediately become
encashable. He submitted that while the bank guarantees were
approximately for an amount of Rs.51 crores, the equipments that were
lying at site were worth only about Rs.8 crores. He further submitted
that he was willing to give an undertaking to abide by the Arbitral
Tribunal's orders in order to allay any fears that the petitioner
(NHAI) may have with regard to enforceability of the order dated
24.01.2005 passed by the Arbitral Tribunal. He also referred to a
decision of a Constitution Bench of the Supreme Court in the case of
S.B.P. & Co. v. Patel Engineering Ltd. And Another: 2005 (3) Arb. I.R.
285 (SC) and in particular he referred to paragraph 46 of the majority
opinion which was a summation of the court's conclusions. In that case,
the Supreme Court was considering the nature of the function of the
Chief Justice or his designate under Section 11 of the said Act.
Essentially, the court concluded that the power exercised by the Chief
Justice of the High Court or the Chief Justice of India under Section
11(6) of the said Act was not an administrative power, but, a judicial
power. While considering this aspect of the matter, the court made
certain observations with regard to Section 9 and 17 of the said Act
and the same would be worth reproducing:-
4. ...Section 9 deals with the power of the Court to pass interim
orders and the power to give interim protection in appropriate
cases. It gives a right to a party, before or during arbitral
proceedings or at any time after the making of the arbitral award
but before its enforcement in terms of Section 36 of the Act, to
apply to a Court for any one of the orders specified therein...
6. ...Section 17 confers powers on the arbitral tribunal to make
interim orders....
12. ...It has to be noted that under Section 9 of the Act, the
District Court or the High Court exercising jurisdiction, has the
power to make interim orders prior to, during or even
post-arbitration....
Page 0503
18. ...Similarly, Section 9 enables a Court, obviously, as defined
in the Act, when approached by a party before the commencement of an
arbitral proceeding, to grant interim relief as contemplated by the
section. When a party seeks an interim relief asserting that there
was a dispute liable to be arbitrated upon in terms of the Act, and
the opposite party disputes the existence of an arbitration
agreement as defined in the Act or raises a plea that the dispute
involved was not covered by the arbitration clause, or that the
Court which was approached had no jurisdiction to pass any order in
terms of Section 9 of the Act, that Court has necessarily to decide
whether it has jurisdiction, whether there is an arbitration
agreement which is valid in law and whether the dispute sought to be
raised is covered by that agreement. There is no indication in the
Act that the powers of the Court are curtailed on these aspects. On
the other hand, Section 9 insists that once approached in that
behalf "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"....
The Supreme Court, inter alia, concluded that:-
(vi) Once the matter reaches the arbitral tribunal or the sole
arbitrator, the High Court would not interfere with orders passed by
the arbitrator or the arbitral tribunal during the course of the
arbitration proceedings and the parties could approach the Court
only in terms of Section 37 of the Act or in terms of Section 34 of
the Act.
Mr Chadha relied heavily on the above conclusion to submit that once
the Arbitral Tribunal is seized of the dispute and in particular for
considering an application under Section 17 of the Act for interim
measures, a petition under Section 9 would not be maintainable. I am
unable to agree with this submission of Mr Chadha. The aforesaid
conclusion has to be reconciled with the earlier observations noted
above in the said judgment itself which clearly show that the court
can pass interim orders during the pendency of arbitral proceedings.
The aforesaid conclusion does not impinge upon the powers of the
court under Section 9 of the said Act. In fact, it does not deal
with the question of interim measures at all. What the Supreme Court
has concluded is in essence what Section 5 of the Act itself
provides and that is that notwithstanding anything contained in any
other law for the time being in force in matters governed by Part-I
of the Act, no judicial authority shall interfere except where so
provided in the said Part-I. Section 9 falls within Part-I and,
therefore, falls within the exception carved out in Section 5 of the
said Act. Therefore, even during arbitral proceedings, interim
measures can be passed by a court provided the same fall within the
measures specified under Section 9(ii). In the present case, NHAI
claims a lien on the equipments brought by China Coal to the site
for the project. That forms the subject matter of the Arbitration
Agreement and, therefore, an application seeking interim measures of
protection pertaining to the preservation, interim custody or sale
of the said equipments would be covered under Section 9(ii)(a) of
the Act as also under Section 9(ii) (c), (d) and (e) of the said
Act.
14. Mr Chadha next contended that the observations contained in the
judgment of the Supreme Court in MD Army Welfare Housing Organisation
Page 0504(supra) and referred to above are obiter inasmuch as those
observations are with regard to the Indian Arbitration Act, 1940 and
not the present Act of 1996. He also submitted that, in any event, the
decision in the case of S.B.P. and Co v. Patel Engineering (supra)
holds the field. I am unable to agree with these submissions. Firstly,
the conclusion in S.B.P. and Co (supra) does not run counter to the
decision in the case of M.D. Army Welfare Housing Organisation (supra).
In my view, the powers under Section 9 available to the court and the
powers under Section 17 available to the Arbitral Tribunal to make
interim measures are independent. There may be some degree of overlap
between the two provisions but the powers under Section 9 are much
wider inasmuch as they extend to the period pre and post the award as
well as with regard to the subject matter and nature of the orders. The
pendency of an application under Section 17, therefore, does not denude
the court of its powers to make an order for interim measures under
Section 9 of the said Act. Obviously, the court being higher in the
hierarchy and being a judicial forum, would have primacy insofar as
overlapping orders are concerned. Another reason for this is that the
orders passed by an Arbitral Tribunal granting or refusing to grant an
interim measure under Section 17 are appealable under Section 37(2)(b)
of the said Act. So, any order that may be passed by an Arbitral
Tribunal is always subject to orders that may be passed by a Court in
an appeal preferred thereagainst.
15. In this view of the matter, the question has to be decided by
holding that the present application under Section 9 is maintainable.
15.1 Question No.2:
If the answer to the first question is in the affirmative (i.e., the
Section 9 application is maintainable), is NHAI entitled to the
reliefs and orders claimed in the OMP ?
15.2 A plain reading of clause 63.1 of the contract between NHAI and
China Coal would show that if the said clause is to be attracted, then,
NHAI would be entitled to take possession of the equipments brought in
by China Coal and utilise the same for completing the works. Throughout
the proceedings, orders have been passed restraining NHAI from
encashing the bank guarantees on the condition that China Coal keeps
the bank guarantees alive and, at the same time, does not remove any
machinery / equipment from the site during the pendency of the suit.
Such orders, earlier passed by this court and subsequently by the
Arbitral Tribunal tend to maintain status quo between the parties and
to ensure that the machinery and equipment over which NHAI claims a
lien is not removed from its possession. It must be remembered that an
Arbitral Tribunal, acting under Section 17 can only order a party to
the arbitration to take any interim measure of protection in respect of
the subject matter of the dispute. The Arbitral Tribunal is seized with
the dispute between NHAI and China Coal. However, the orders passed by
the Calcutta High Court are in respect of a dispute between China Coal
and the Intervenor with which the present Arbitral Tribunal is not
concerned. Yet, in its order dated 24.01.2005, it has, inter alia,
ordered that:-
(a) The Respondents will not encash the Bank Guarantee till the
Application under Section 17 is heared by the AT in detail and
decided on merits. At Page 0505the same time, the Claimants will
undertake to keep alive the Bank Guarantees during the pendency of
the dispute.
(b) The Claimants will not remove any machinery from the site during
the pendency of the dispute. This order shall not, however, in any
manner effect the orders in respect of the said machinery by the
Hon'ble Kolkata High Court.
15.3 The last portion of the order is causing concern to NHAI inasmuch
as NHAI is not privy to the contractual arrangement between China Coal
and the Intervenor nor is NHAI a party to the proceedings before the
Calcutta High Court. It must also be remembered that this order has
been passed by the Arbitral Tribunal in the claim filed by China Coal
upon an application moved by China Coal under Section 17 of the Act for
interim measures. Essentially, China Coal seeks the restraint or
injunction against encashment of the bank guarantees by NHAI. Looking
at the totality of circumstances, it does appear to me that it would be
unfair to NHAI if on the one hand it is restrained from encashing the
bank guarantees and on the other the equipments / machinery over which
it has a lien is permitted to be removed from the site and / or from
its possession. Whatever may be the relationship between China Coal and
the Intervenor, it is of no concern to NHAI. All the equipments brought
in by China Coal for the project would fall under the definition
"contractor's equipment" which does not speak of ownership at all.
Therefore, insofar as the present contract between NHAI and China Coal
is concerned, the ownership of the equipment is of no consequence. The
equipment would all the same be known as "contractor's equipment"
whether it was, in fact, owned by China Coal or it was hired from
somebody else, including the Intervenor. It is for China Coal to sort
out its disputes with the Intervenor without disturbing the arrangement
with NHAI.
15.4 Accordingly, I feel that NHAI is entitled to orders under Section
9 of the said Act to the extent that during the pendency of the
arbitral proceedings if NHAI is restrained from encashing the bank
guarantees, then, China Coal shall keep the same alive and China Coal
will also not be permitted to remove any equipment / machinery from the
site.
15.5 Question Nos. 3 & 4.
3) Whether the Intervenor can be imp leaded as a party in the
petition (OMP 351/2004) and
4) Whether the Intervenor is entitled to seek clarification of the
order dated 25.01.2005 passed by this court ?
In view of the discussion with regard to questions 1 and 2 above, it
becomes clear that the Intervenor has no privity of contract with NHAI.
It is also clear that the Intervenor is not a party to the arbitration
proceedings. Section 9 of the Act is with reference to arbitral
proceedings just as the Intervenor cannot be a party in the arbitral
proceedings pending between NHAI and China Coal, it has no locus standi
in the present proceedings. The interim orders that may be passed under
Section 9 or Section 17 are with respect to the parties to the
arbitration and in connection with the subject matter thereof. As such,
the Intervenor's application under Order 1 Rule 10 cannot be allowed
and Page 0506nor can its application for modification of the order
dated 25.01.2005, which order, in any event, stands merged in the order
being passed herein.
15.6 Accordingly, IA Nos.6880/2005 and 6881/2005 are dismissed. OMP
351/2004 stands allowed to the extent that NHAI is restrained from
encashing the bank guarantees and China Coal shall keep the same alive
and China Coal will also not be permitted to remove any equipment /
machinery from the site. However, if China Coal wishes to remove the
machinery and equipment lying at the site, it would be only permitted
to do so on the lifting of the restraint / injunction on the petitioner
NHAI to encash the bank guarantees.
