GOKULDAS Vs. UNION OF INDIA

JUDGEMENT

(1.) A point of some importance in the law of arbitration arises for consideration in this Civil Revision. The point is : Whether a court exercising powers under Section 20 of the Arbitration Act, 1940 has power to issue an injunction by virtue of the powers it has under Section 41 of the Act and if so, what are the conditions to be satisfied? The petitioner is a railway contractor. According to the petitioner, the 2nd respondent, the Chief Engineer, Southern Railway unilaterally terminated two of his contracts on the ground that he did not execute the work properly and for alleged amounts due as compensation for breach of contract as per the agreement, payments due to him, under other contracts he is executing, are going to be appropriated. The petitioner's case is that the contracts could not be completed because of the defaults caused and the breach of contract committed by the Railway and not due to his fault. The petitioner filed an application under Section 20 of the Arbitration Act, 1940 for filing the arbitration agreement in court. Along with the application the petitioner also moved a petition for temporary injunction restraining the respondents from appropriating the amounts due to the petitioner under other contracts he was executing towards the compensation claimed in the contracts terminated.

(2.) THE trial court dismissed the petition for injunction, in the order it is stated: "THE petition is filed under Section 41 Schedule II, Rule 4 of the Arbitration Act. It is clearly laid down by the Supreme Court in the decision reported in AIR 1978 Ker 223 (Baby Pauj v. Hindustan paper Corporation Ltd.) that Section 41 of the Arbitration Act cannot he invoked pending reference. Admittedly no reference is made in the suit for arbitration. Thus, the petitioner is not entitled to get any temporary injunction pending reference..... .Thus the question to be considered is as to whether the petitioner is entitled to get a temporary injunction under Order 39, Rule 1 of C. P. C. Admittedly the petitioner is the defaulter and hence he is not entitled to get any reliefs except by arbitration. Thus, the 'petitioner has failed to show a prima facie case to get a temporary injunction as prayed lor. Further, the respondents are only appropriating 15% of the amounts due 'to the 'petitioner under other works. This will not cause any inconvenience to the petitioner in any manner. Thus the petitioner has failed to show that any irreparable injury will be caused to him. Further even if it is found after an arbitration that the petitioner is entitled to get amounts from the respondents he can get damages from them. Thus there is no necessity for granting a temporary injunction as prayed for. THE balance of convenience is also in favour of the respondents and I do not find any necessity to grant a temporary injunction as prayed for."

(3.) IN Ranjit Chandra v. Union of INdia (AIR 1963 Cal 594) it has been held: "It is true that if the party proceeds under Chapter II of the Arbitration Act, there may be a time lag between the dispute and the arbitration proceeding. But the parties may well proceed under Section 20 of Chapter III of the Arbitration Act and such an application can be filed forthwith. Once an application is filed under Section 20, there is a proceeding -- a pending suit and an application for interim relief can be asked for in that proceeding." (para 9) IN Nagarchand Goenka v. Surendra Nath (AIR 1946 Pat 70) along with the application under Section 20 of the Act an application for the appointment of a receiver was also moved. The Sub-Court appointed a receiver. That was challenged before the High Court. But the High Court sustained the order holding that the Court has power to appoint a receiver when an application, under Section 20 (1) has been, made. But the power for the appointment was traced to Section 41 (to of the Act. For the reasoas stated in the para above, with respect, I disagree with the conclusion that the power is under Section 41 (b). IN Union of INdia v. I. C. Corporation, Amritsar (AIR 1977 Delhi 991 also the Court traced the power to grant an interim order in proceedings under Section 20 of the Act to Section 41 (b). According to me such a construction will also do violence to the clear words used in Section 41 (a). IN Deepak Nitrite v. G.S. Fertilizers (1977-18 Guj LR 660) also it has been held that the power the Court has to issue an interim injunction pending a proceeding under Section 20 is under Section 41 (by IN Baby Paul v. Hindustan Paper Corporation (AIR 1978 Ker 223) the question that came up for consideration was whether before the reference of a dispute for arbitration and even before any dispute arises. Section 41 (b) of the Act can be invoked by a party to an arbitration agreement. The learned Judge held that there is no merit in the contention that from the stage of the arbitration agreement 'arbitration proceedings' commence and that Section 41 (b) can be invoked from that stage. IN this case, the application for injunction was filed under Section 41 of the Act read with Schedule II Rule 4 and Order XXXIX Rule 1 of the C. P. C. So the decision in Baby Paul's case (AIR 1978 Ker 223) is distinguishable on the facts. IN Dandakaranya Project v. P. C. Corporation (AIR 1975 Madh Pra 1521 a Division Bench of the Madhya Pradesh High Court held that all matters covered by the finality clause in clause 13-A of the contract involved in that case were outside the arbitral ion clause, clause 14 and therefore could not be referred to arbitration. IN the above case, clause 13-A of the contact provided that in the event of a dispute in regard to matters mentioned in that clause the decision of the Superintending Engineer shall be final and clause 14 of the arbitration clause began with the words 'except where otherwise provided in the contract.' IN the above case, the following passage from Halsbury's Laws of England. 4th Edition Vol. 4, para 1215, page 619 has been extracted : -