UNION OF INDIA UOI Vs. MEENA STEELS LIMITED

JUDGEMENT

(1.) THESE connected appeals arise against the orders passed by the II Civil Judge, Kanpur, dt. Jan. 24, 1984 and Feb. 4, 1984, in Original Suit No. 775 of 1983.

(2.) THE respondent No. 1 is a registered Company engaged in the manufacture of mild steel ingots at Unnao. On Dec. 15, 1982, there was an agreement in writing entered into between the respondent and the appellants for the purchase of iron scrap required as raw- material to manufacture the ingots. THE agreement is signed by the Controller of Stores, N. E. Railway, Gorakhpur, for and on behalf of the President of India. In terms of the agreement the respondent was to take delivery of the goods from the appellants on being intimated of the same and upon failure to take delivery the contract was liable to be cancelled and the security forfeited. On Dec. 11, 1982, the respondent 2 (Grindlays Bank) furnished guarantee for a sum of Rs. 2,45,680/- on behalf of the respondent 1. THE validity period of the agreement is Dec. 15, 1982 to Dec. 14, 1983. THE Controller of Stores, N. E. Railway, Gorakhpur, wrote to the respondent 2 on Dec. 8, 1983, intimating that the respondent 1 having failed to perform their part under the agreement, the same had been cancelled and asked for the guarantee amount to be encashed in favour of the appellants. THE respondent 1 thereupon instituted the suit giving rise to these appeals in the Court of II Civil Judge, Kanpur, on Dec. 12, 1983, claiming permanent injunction to restrain the appellants from seeking encashment of the bank guarantee. An application was made for the appellants before the trial Court for stay of the proceedings in the suit under Section 34 of the Arbitration Act. THE application was opposed by the respondent 1 and it was rejected on Jan. 24, 1984, with the observation that the agreement having been cancelled by the appellants, they could not seek reference to arbitration. THE respondent 1 had also filed an application for grant of temporary injunction, which was opposed by the appellants, but under the order dt. Feb. 4, 1984, the trial Court has issued temporary injunction restraining the appellants from encashing the bank guarantee.

(3.) LEARNED counsel for the appellants submitted that the arbitration agreement is not wiped off due to unilateral cancellation of the agreement. It is argued that notwithstanding the demand made by the Controller of Stores, N. E. Railway upon the respondent 2 dt. Dec. 8, 198.1, to encash in their favour the bank guarantee, the dispute raised by the respondent 1 may still form the subject-matter of reference to arbitration. We find sufficient merit in this contention.