Maharashtra State Electricity ... vs Datar Switchgear Ltd.
2002 Latest Caselaw 1060 Bom

JUDGMENT

D.Y. Chandrachud, J.

1. Admit. Respondents waive service. By consent taken up for hearing and final disposal.

2. The question which this Court is called upon to decide in these proceedings is whether an Arbitral Tribunal constituted under the Arbitration and Conciliation Act, 1996 is empowered by the provisions of the Act to suspend the hearing of the arbitral proceedings and, in the alternate, whether the Court exercising jurisdiction under section 9 can issue a direction to that effect. Shorn at this stage of all the details to which it would nevertheless become necessary to advert during the course of the judgment, the Arbitral Tribunal by an interim direction, directed the petitioner ("MSEB") to deposit certain amounts which were permitted to be withdrawn by the respondent ("DSL") against Bank Guarantees. The Bank which had issued the Bank Guarantees extended the guarantees from time to time but then declined to renew them any further. The Guarantees were not invoked by the MSEB before expiry, as a result of a clause in the guarantees which made invocation conditional upon permission being granted by the Arbitral Tribunal to MSEB. DSL has, in the meantime, been declared a sick industrial undertaking under the Sick Industrial Companies (Special Provisions) Act, 1985 and pleads that it is unable financially to secure any alternative Bank Guarantee at this stage. On an application moved by MSEB, the Arbitral Tribunal has ordered DSL to bring back the moneys which were withdrawn and to this order, DSL has submitted itself. The Arbitral Tribunal has declined to accede to the prayer of MSEB that the arbitral proceedings be suspended in their entirety (including the hearing of the counter claim of MSEB) until the moneys are brought back. That decision is challenged by MSEB. Of the three arbitrators constituting the Arbitral Tribunal, Mr. Justice V.D. Tulzapurkar has expressed the view that he was doubtful as to whether the Tribunal had the power to suspend the proceedings, but, that in any case, no case for suspension has been made out since the conduct of DSL was neither deliberate, nor contumacious. The second learned arbitrator Mr. Justice M.L. Pendse has held that there was no power in the Arbitral Tribunal to suspend its proceedings and to grant a stay as prayed but, that in any event, in view of the fact that the arbitral proceedings have proceeded to a considerable extent and evidence has been substantially recorded, it would not be appropriate for the Tribunal to accede to the prayer. A dissenting view has, however, been expressed by Mr. Justice S.C. Pratap, who has held that there is a power in the Arbitral Tribunal to grant a stay of proceedings and a sufficient ground has been made out before the Tribunal to do so in the facts of the present case, since the conduct of DSL is contumacious. The dissenting member of the Tribunal has, however, directed that the hearing of the counter claim preferred by MSEB must proceed though, as already noted earlier, the prayer of MSEB was that the entire proceedings including hearing of the counter claim ought to be stayed. The Arbitral Tribunal has thus by a majority declined to stay the proceedings before it.

3. In these proceedings, MSEB has moved the Court both in the exercise of its appellate jurisdiction under section 37 of the Act, treating the order passed by the Arbitral Tribunal as one under section 17 declining to grant an interim measure of protection and in the alternative under section 9, contending that even if the appeal is held not to be maintainable, this Court has the power and jurisdiction to suspend the arbitral proceedings as prayed. The issues which, therefore, arise before the Court, relate to (i) whether the Arbitral Tribunal has the power to stay or suspend its proceedings under the Act; (ii) whether the Court has the power to do so in a proceeding under section 9; and (iii) whether a case for the exercise of power in the present case has been made out.

THE FACTS :

4. On 27th March, 1997, MSEB awarded a contract to DSL for the manufacture, installation and maintenance of 47,987 low tension load management system objects. The work order placed by MSEB involved an operating lease by DSL to MSEB, the period of lease being 10 years. MSEB was to provide the locations for installation of the equipment and the payment mechanism involved the establishment of a revolving letter of credit as a result of which the lease rent due to DSL would be paid each calendar quarter. MSEB was to maintain a Fault Report Register and its circle offices were to issue performance certificates based on which the payment of the lease rent in favour of DSL would be certified. Canara Bank, the LC opening Bank, was to thereafter make payment to DSL.

5. Disputes have arisen between the parties and at this stage, it would only be material to note that the case of DSL is that MSEB failed to furnish the locations where the systems were to be installed; that MSEB altered the sequence prescribed in the work order for installation and that DSL was prevented from carrying out the contractual work. On the other hand, according to MSEB, there was a failure on the part of DSL to comply with its contractual obligations; the print outs which were stated to be generated by the systems which were allegedly installed were in fact not genuine and authentic and that there has been a failure on the part of DSL to perform its contractual obligation of installing and maintaining the systems.

6. On 5th May, 1999, DSL moved this Court in a petition under section 11(6) of the Act. A reference to arbitration was made in terms whereof Mr. Justice M.L. Pendse, former Chief Justice of the Karnataka High Court and Mr. R.B. Joshi, a retired Engineer were nominated as arbitrators. Mr. Justice V.D. Tulzapurkar, a former Judge of the Supreme Court, was nominated as the Presiding Arbitrator. DSL filed its statement of claim before the Arbitral Tribunal on 17th May, 1999 and the total amount claimed in the arbitral proceedings is Rs. 1053.06 crores. The claim in arbitration includes the following :

"Right to claim agglomerated Rs. 439,81,62,990/-

Lease Rent.

Right to claim fair price for Rs. 313,32,62,000/-

Contract Objects Loss of installation cost for Rs. 3,60,14,755/-

17294 Nos. of Contract Objects already installed and commissioned.

Right to claim compensation Rs. 226,27,79,338/-

for loss of depreciation.

Right to claim damages. Rs. 47,99,83,259/-

Right to claim compensation Rs. 21,99,26,000/-

for loss of Business Profit.

Right to claim cost towards Rs. 5,50,00,000/-

legal proceedings
TOTAL.     Rs. 1053,06,78,342/-" 

 

7. On 15th June, 1999, DSL made an application before the Arbitral Tribunal for an interim Award urging that 17,294 contractual objects had been installed by it and were in the possession, use and enjoyment of MSEB. According to DSL, it was entitled to the payment of quarterly lease rent of approximately Rs. 4.63 crores for the quarters ending on 30th June, 1999 and 30th September, 1999 and that the said rent ought to be paid by MSEB to DSL. On this application for interim relief, the Arbitral Tribunal passed an order on 26th July, 1999 by which MSEB was directed to pay DSL a sum of Rs. 4.50 crores for the quarter ending 30th June, 1999 and a sum of Rs. 4.64 crores for the quarter ending 30th September, 1999. The payment of Rs. 4.50 crores was subject to DSL furnishing a Bank Guarantee in that amount. The Bank Guarantee was to ensure until the Arbitral Tribunal made a determination under Clause (g) of the order and for 15 days thereafter. The Bank Guarantee was to stand discharged to the extent of the amount to which DSL was found to be entitled under Clause (g). The order of the Arbitral Tribunal provided that the payment of the amount of Rs. 4.64 crores would be subject to (i) DSL furnishing 6000 print outs in respect of the installed instruments each before 31st October, 1999, 30th November, 1999 and 31st December, 1999 failing which DSL would be bound to refund the aforesaid amount of Rs. 4.64 crores; (ii) DSL furnishing a Bank Guarantee in the aforesaid amount which would enure till a determination was made by the Arbitral Tribunal in terms of Clause (g) of the order; and (iii) DSL commencing and continuing maintenance during the arbitral proceedings. Clause (g) of the order of the Arbitral Tribunal was as follows:

"(g) In the event of any dispute between the parties with regard to payment only on account of any fault for the quarters ending 30th June, 1999 and 30th September, 1999 the same to be decided by the Hon'ble Arbitral Tribunal and the decision shall be accepted by both the parties as final. The dispute for the quarter ending 30th June, 1999 to be decided by the end of August, 1999. The dispute for the quarter ending 30th September, 1999 to be decided by 31st December, 1999."

The order of the Arbitral Tribunal, therefore contemplated that the Bank Guarantees of Rs. 4.50 crores and Rs. 4.64 crores would continue until a determination was made by the Tribunal as envisaged in Clause (g) of the order. Apart from the aforesaid, the order of the Tribunal required DSL to rectify the faults, if any, as stated in the Fault Register and recorded the agreement of DSL for commencing the installation of a new system in the Nasik Zone from 15th October, 1999.

8. On 14th August, 1999, the earlier order was modified by the Arbitral Tribunal whereby the payment of Rs. 4.50 crores which was to be made by MSEB to DSL was reduced to Rs. 4.08 crores in view of certain proceedings pending before the Madras High Court. On 26th August, 1999, a Bank Guarantee was furnished by the IDBI Bank for and at the instance of DSL and in pursuance of the order of the Arbitral Tribunal. The Bank Guarantee recorded that the Arbitral Tribunal had required by its order dated 26th July, 1999, as modified, that DSL furnish a Bank Guarantee in the amount of Rs. 4.08 crores. A copy of the order was annexed to the Bank Guarantee and in terms thereof, the issuing Bank agreed to pay MSEB ("always subject to specific order of the said Arbitral Tribunal, besides interim orders dated 26-7-99 and 14-8-99") a sum not exceeding Rs. 4.08 crores. Among the conditions prescribed in the Bank Guarantee was the following :

"3) It is a superseding condition of the Bank Guarantee that the Maharashtra State Electricity Board will have to furnish to IDBI Bank a clear, separate order, determining the value of encashment(s) from the said Arbitration Tribunal of date/prior to date of demand under this Bank Guarantee."

Another guarantee was subsequently issued by the IDBI Bank Ltd. for an amount of Rs. 4,63,98,780/-. (The amount covered by this Bank Guarantee is for brevity referred to in various parts of this judgment as Rs. 4.64 crores).

9. On 3rd September, 1999 DSL applied for the discharge of the Bank Guarantee of Rs. 4.50 crores on the ground that it was entitled to the payment of an amount of Rs. 4.08 crores as of right and to a further payment of Rs. 42 lakhs. As already noted earlier, the Arbitral Tribunal had in its interim order dated 26th July, 1999 held that any dispute between the parties for the quarter ending 30th June, 1999 would be resolved by the end of August 1999. The Court is informed that a meeting of the Arbitral Tribunal was fixed for the making of a determination under Clause (g) in respect of the quarters ending June 1999 and September 1999 but the Arbitral Tribunal could not convene until December 1999 due to the ill health of one of the arbitrators. In the meantime on 20th September, 1999, MSEB filed an arbitration petition in this Court seeking enforcement of the Bank Guarantee issued by the IDBI Bank inter alia on the ground that the terms and conditions of the Guarantee were not in accordance with the interim order passed by the Arbitral Tribunal, DSL filed its reply to the arbitration petition and in para 10 made the following statement :

"10. I say that the respondents consider themselves bound to extend the Bank Guarantee till the reconvening of the Arbitral Tribunal for determination under Clause (g) of the order dated 26-7-1999 and 15 days thereafter. In the meanwhile, the Bank Guarantee as a matter of banking practice and banking requirements must have a subordinate date of validity. Hence the present subordinate date of validity is 5-12-1999."

The Arbitration petition came up for hearing on 6th October, 1999 when this Court noted that in view of the statement made in paragraph 10 of the reply, no further order was required to be passed in so far as the first guarantee was concerned. In so far as the second guarantee was concerned, this Court recorded the statement of Counsel appearing on behalf of DSL "that the same will be renewed/extended till the matter is decided under Clause (g) of the order dated 26th July, 1999". The arbitration petition was disposed of on 21st October, 1999 by consent of parties, by confirming the earlier order dated 6th October, 1999.

10. On 3rd December, 1999, MSEB filed an interim application before the Arbitral Tribunal in which it prayed that DSL be directed to refund the amount of Rs. 4.64 crores received by it pursuant to the interim order dated 26th July, 1999 and that MSEB be permitted to invoke the Bank Guarantee dated 26th August, 1999 in the amount of Rs. 4.08 crores. MSEB also sought the dismissal of the claim in the event that DSL failed to refund the amount of Rs. 4.64 crores. On this application, an order was passed by the Arbitral Tribunal on 11th December, 1999. The Arbitral Tribunal recorded in its order that the earlier direction under Clause (g) of the order dated 26th July, 1999 was issued as parties were attempting to reconcile the dispute by ascertaining what amounts were due and payable. Parties were, however, unable to arrive at any conclusion. While MSEB relied on the one hand on the Fault Register, on the other, on behalf of DSL it was submitted that MSEB had itself found that a sum of Rs. 3.75 crores was due and payable after reconciliation. This, the arbitrators noted, would have to be determined after evidence was adduced on behalf of the parties. The Arbitral Tribunal felt that at that stage it was appropriate to direct that the Bank Guarantee for Rs. 4.08 crores should be kept alive for a period of one month after the date of the Award and this suggestion was accepted by both the parties in terms whereof the following statement came to be recorded :

"Mr. Dada submitted that the Bank Guarantee will be required to be renewed from time to time as per the rules of the bank, and the instructions should be issued to IDBI Bank that the Bank Guarantee should be automatically renewed from time to time and should be payable in accordance with the directions given. The claimants should ensure that Bank Guarantee is kept available for period of one month from the date of declaration of Award."

The Tribunal recorded that an additional amount of Rs. 42 lakhs was also payable to DSL since the Madras High Court had lifted its prohibitory order. The Arbitral Tribunal directed that the aforesaid amount shall also be paid by MSEB subject to the furnishing of a Bank Guarantee by DSL in the like amount. The arbitrators permitted DSL to furnish a consolidated Bank Guarantee of Rs. 4.50 crores. On 14th December, 1999, the Arbitral Tribunal passed a further direction that DSL shall refund 50% of the amount of Rs. 4.63 crores to MSEB for the quarter ending September 1999. The Tribunal noted that the case of MSEB was that DSL failed to furnish the printouts required to be supplied by the order dated 26th July, 1999 whereas, on the other hand, the case of DSL was that the printouts could not be furnished because of the obstructive conduct of MSEB. The Arbitral Tribunal noted that the exercise of determining which of the aforesaid contentions was correct, ought not to be undertaken at the interim stage since that may possibly prejudice the case of the parties at the trial. An order directing DSL to return 50% of the amount of Rs. 4.63 crores to MSEB came to be passed on the suggestion of the Tribunal which was consented to by both the parties. This order of the Arbitral Tribunal was implemented, by DSL making payment to MSEB. The amount of the second Bank Guarantee correspondingly stood reduced to Rs. 2.74 crores.

11. On 7th February, 2000 MSEB filed its reply to the claim of DSL in which there is a counter claim of approximately Rs. 500 crores.

12. Evidence was recorded before the Arbitral Tribunal commencing from the month of February, 2000. The sole witness for DSL was examined on 29th February, 2000, 1st March, 2000 and 3rd March, 2000 and was cross-examined thereafter on 27 days of hearing between March and November 2000. On 16th November, 2000, the Examination-in-Chief and cross-examination of the witnesses for MSEB commenced and the Court is informed that 15 witnesses who have deposed on behalf of MSEB were examined and cross-examined.

13. On 30th January, 2001 IDBI Bank issued two letters of renewal. By the first letter of renewal, the validity of the Bank Guarantee in the amount of Rs. 4.08 crores was extended until 29th April, 2001, subject to the condition that a demand in writing would have to be made on the Bank "strictly as outlined as per Clause 3 of our Bank Guarantee on or before April 29, 2001", failing which all rights of encashment or extension would be forfeited and extinguished and the Bank would be discharged of its obligation. A similar letter of extension also of the same date was issued in respect of the Bank Guarantee for the amount of Rs. 2.74 crores. The two Bank Guarantees were to expire on 29th April, 2001.

14. The case of DSL is that against the two Bank Guarantees which were issued by the IDBI Bank, two Fixed Deposit Receipts each in the amount of Rs. 4.08 crores and Rs. 4.63 crores were issued by the IDBI Bank in favour of DSL on which the Bank had retained a lien in view of the issuance of the Bank Guarantees. On 28th April, 2001, DSL's Advocates issued a letter to the Advocates for MSEB recording that at the time of addressing the letter, DSL in spite of its persistent follow up did not have any confirmation from the Bank that it would renew the Bank Guarantees in terms of the request made by DSL on 26th April, 2001. In the circumstances, the Advocates for DSL suggested that MSEB "may take appropriate measures". On the same day, 28th April, 2001, MSEB's Advocates addressed a letter to the Bank requesting the Bank to confirm immediately as to whether it was renewing the said Bank Guarantees for a further period as requested by DSL. The Bank was informed that in the event the Bank Guarantees were not renewed, MSEB would have to move the Arbitral Tribunal "for further appropriate directions in the matter" and consequently, an "immediate response" was sought from the Bank. The case of DSL is that on 28th April, 2001, "their Advocates had a telephonic conversation with the Advocates appearing on behalf of MSEB so as to inform the latter that DSL had been unable to obtain confirmation of the extension of the Bank Guarantees and that MSEB should, therefore, consider invoking the guarantees for encashing the guarantees immediately. Similarly, DSL's case is that its Chairman telephoned the Chief Engineer (Distribution) of MSEB on 28th April, 2001 so as to inform him of the non-availability of the confirmation of IDBI Bank to the extension of the Bank Guarantees and suggesting that MSEB should take appropriate measures for encashing the bank guarantees. DSL claims that it conveyed that DSL would have no objection to the encashment of the Bank Guarantees. (Reference to the telephonic conversation is recorded in a letter dated 16th May, 2001 of DSL's Advocate which is not controverted). A recording letter was addressed by DSL on 29th April, 2001 to the Chief Engineer (Distribution), MSEB referring to the telephonic conversation which had taken place with the latter on 28th April, 2001 at 9.15 p.m. The letter recorded that since the Bank had not confirmed that it was extending the Bank Guarantees, a suggestion had been made during the course of the telephonic conversation that MSEB should take appropriate measures on 29th April, 2001 including the encashment of the Bank Guarantees if it so desired. The Court is informed that 28th April, 2001 was a Saturday and 29th April, 2001 was a Sunday. DSL's letter dated 29th April, 2001 recorded that several banks were open "now-a-days" on Sunday and that is also possible in the case of IDBI Bank, Pune which was the issuing bank. The learned Counsel appearing on behalf of DSL has specifically stated before the Court on instructions that the Pune Branch of the IDBI Bank which had issued the Guarantees is, in fact, open on Sundays for transacting banking business. No steps were initiated by MSEB in the short time that had remained before the expiry of the two Bank Guarantees for obtaining directions from the Arbitral Tribunal permitting it to invoke the Guarantees. The Bank Guarantees expired without either a decision of the Arbitral Tribunal permitting the encashment of the Bank Guarantees or any invocation thereof by MSEB. After the guarantees had expired, on 16th May, 2001 MSEB's Advocates addressed a letter to the IDBI Bank calling upon the Bank to remit forthwith the proceeds of the two Bank Guarantees failing which it was stated that MSEB would initiate appropriate legal proceedings for the enforcement of the two guarantees. To this letter, IDBI Bank responded on 26th May, 2001 stating that the guarantees which had been issued by it in favour of MSEB had expired and the Bank had "chosen not to extend the Bank Guarantees any further". The Bank stated that it was not obliged to extend the Bank Guarantees and accordingly the question of renewing the Bank Guarantees and paying any amount thereunder did not arise.

15. On 8th June, 2001, an application was filed by MSEB before the Arbitral Tribunal in which the following reliefs were prayed for :

"a) the respondent be directed to forthwith return the said sum of Rs. 6,81,99,390/- received from the applicant pursuant to the orders made by this Hon'ble Tribunal;

b) that further proceedings before this Arbitral Tribunal be stayed till the respondents refund the amount to the applicant or carry out the said orders dated 26th July, 1999 as modified by orders dated 14th August, 1999 and 11th December, 1999 being exhibits A, B and J."

16. MSEB has, invoked the contempt jurisdiction of this Court by filing Contempt Petition No. 87 of 2001 for breach of the statement made before this Court on 6th October, 1999. The contempt petition has been admitted and is pending.

17. In the meantime, one of the learned arbitrators Shri R.B. Joshi resigned as an arbitrator and Mr. Justice S.C. Pratap came to be nominated in his place. On 3rd May, 2001, 20th July, 2001, 26th July, 2001 and 28th August, 2001 DSL addressed several letters to the IDBI Bank and to other financial institutions which have invested in the share capital of DSL, making repeated requests that steps should be taken for the renewal of the Bank Guarantees. Several of these letters were addressed after Counsel appearing on behalf of DSL informed the Arbitral Tribunal at the hearing which took place on 23rd July, 2001 that an opportunity should be given to DSL to persuade the IDBI Bank to extend or renew the Bank Guarantees. There is no dispute about the fact that IDBI Bank has declined to renew the Bank Guarantees.

18. On 14th September, 2001, an application was made by DSL before the Arbitral Tribunal by which a direction was prayed against IDBI Bank directing it to deposit in this Court the amount of Rs. 4.08 crores and Rs. 2.74 crores received from DSL and held by the bank as margin money for the issuance of the Bank Guarantees with accrued interest or in the alternative that the Bank be directed to renew the two Bank Guarantees in the amount of Rs. 4.08 crores and Rs. 2.74 crores till the final order of the Arbitral Tribunal. On this application, the Arbitral Tribunal passed an order on 27th September, 2001 directing IDBI Bank to deposit the amounts respectively of Rs. 4.08 crores and Rs. 2.74 crores together with interest before the Prothonotary & Senior Master of this Court on or before 10th October, 2001. The Arbitral Tribunal was of the view that since DSL had deposited the amounts respectively of Rs. 4.08 crores and Rs. 4.64 crores as margin money specifically for the issuance of the Bank Guarantees, these two amounts were impressed with the character of an express trust which could consequently not to be utilised by the Bank for any other purpose. The Tribunal held that though the Bank could in its discretion decline to renew the Bank Guarantees, upon its refusal, however, the Bank as a trustee or stake holder could not retain the amount with itself which it held for the benefit of the party which succeeded in the arbitral proceeding. A direction was accordingly issued in the aforesaid terms, directing the bank to deposit the amount before this Court.

19. On 10th October, 2001, DSL filed an arbitration petition under section 9 of the Act before this Court praying for the grant of relief that would require the IDBI Bank to deposit the amount which had been directed to be deposited before this Court by the Arbitral Tribunal. The arbitration petition was disposed of by a judgment and order of a learned Single Judge dated 18th February, 2002. The learned Single Judge came to the conclusion that the order which was passed by the Arbitral Tribunal on 27th September, 2001 was a nullity since the Arbitral Tribunal had no jurisdiction to issue any direction against the Bank which was not a party to the arbitration agreement between MSEB and DSL. Similarly, the learned Single Judge held that since there was no arbitration clause in the agreement between DSL and the Bank in pursuance of which the Bank Guarantees were issued the Arbitral Tribunal had no jurisdiction. This Court held that under section 17 of the Act, an interim order could be passed at the request of a party to the arbitration agreement and the existence of an arbitration agreement was a condition precedent to the jurisdiction of the Arbitral Tribunal. There was, in the opinion of the learned Single Judge, an inherent lack of jurisdiction in the Arbitral Tribunal to pass an order against IDBI Bank. Under the terms of the interim order passed by the Arbitral Tribunal, MSEB was to pay certain amounts to DSL against which DSL was to furnish Bank Guarantees. The terms and conditions that were arrived at between DSL and its bank for submitting Bank Guarantees were of no concern either to the Tribunal or MSEB. The learned Single Judge held that the issue as to whether IDBI Bank was justified in refusing to renew the Bank Guarantees was one which did not fall for consideration in the arbitration proceedings to which the application related. Consequently, the Court would have no jurisdiction under section 9 to pass any orders in relation to IDBI Bank. Finally, it must be noted that the learned Single Judge recorded that though submissions were urged before him on the question as to whether the Bank was justified in refusing to renew the Bank Guarantees, he did not propose to go into the validity or otherwise of the reasons why the Bank refused to renew the Bank Guarantees and DSL "is free to raise those questions in appropriate proceedings". The order of the learned Single Judge dated 18th February, 2002 has attained finality. The Court is informed that DSL has instituted a suit in the Civil Court against IDBI Bank in which inter alia, the refusal of the Bank to renew the two Bank Guarantees falls for determination.

20. The Arbitral Tribunal ruled on the application filed by DSL for the refund of the amount of Rs. 6.81 crores on 12th July, 2002. Three separate orders have been passed by the three learned arbitrators. The Presiding Arbitrator, Mr. Justice V.D. Tulzapurkar, has held that "it is extremely doubtful whether the Tribunal has the power" to stay the arbitration proceedings till the amount as directed is paid back. However, the learned arbitrator has come to the conclusion that even assuming that such a power does exist, its exercise would depend upon whether there has been a wilful and contumacious default on the part of DSL. The learned arbitrator held that DSL has neither the money, nor the wherewithal to raise money for making payment since DSL is before the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985. The learned arbitrator held that the financial stringency of DSL had been pleaded even at the earlier stages of the arbitral proceedings. The Presiding Arbitrator has also held that though DSL had deposited an amount with the Bank which was earmarked for the renewal of the Bank Guarantees, in breach of its obligation, the Bank had utilised this amount for the liquidation of the dues of the creditors of DSL including the Bank. In the circumstances, Mr. Justice Tulzapurkar has been of the view that it is open to MSEB to execute the order of the Arbitral Tribunal directing DSL to pay back the amount of Rs. 6.81 crores. Mr. Justice M.L. Pendse in his interim order has reviewed the provisions of the Arbitration and Conciliation Act, 1996 and has come to the conclusion that there is no power in the Arbitral Tribunal to stay its proceedings. The learned arbitrator held that the Act does not confer a specific power to stay its proceedings upon the Arbitral Tribunal and that such a power could not be inferred from Order 39, Rule 11 of the Code of Civil Procedure, 1908 since the Code of Civil Procedure does not bind the Arbitral Tribunal. The learned arbitrator held that in any event, the hearing of the counter claim which is filed by MSEB cannot be stopped. The claim and the counter claim are to be determined together and parties have agreed that separate evidence for the counter claim is not required. The arbitrator has, therefore, held that it would be inappropriate to hold back the proceedings which had gone on for 21/2 years during the course of which 75 arbitral meetings had been held and oral evidence running into over 400 pages had been recorded. Mr. Justice Pendse has referred to the fact that before the Arbitral Tribunal, Counsel for MSEB had invited the Tribunal to examine the affidavit filed by IDBI Bank before this Court in the arbitration petition instituted by DSL for enforcing the order dated 27th September, 2001 and where the learned Single Judge held that the Tribunal had no jurisdiction to issue an order against the bank. The learned arbitrator, however, has furnished the following reasons for declining to look into the affidavit filed by the IDBI Bank before this Court :

"In the first instance, the IDBI Bank is not a party to the reference proceedings and the Tribunal cannot record any finding on the action of the Bank. The Company has serious grievance about non-renewal and it is not open for the Tribunal to record finding against the IDBI Bank in their absence. What Mr. Joshi desires is that on perusal of the affidavits, findings should be recorded against the company. Such exercise is not correct. Secondly, the Tribunal cannot overlook that even the High Court declined to adjudicate the dispute between the Company on the one hand and IDBI Bank on the other, both under section 17 and section 9 of the Act and directed the Company to file suit, if so advised. It would be inappropriate for the Tribunal now to determine the controversy between the company and the Bank and grant prayer (b)."

The third learned arbitrator Mr. Justice S.C. Pratap has differed with the view taken by the other two arbitrators both on the existence of power as well as on the question as to whether a case for the exercise of the power has been made out. In so far as the question as to whether the Tribunal had the power is concerned, Mr. Justice Pratap has held that though the Tribunal is not bound by the Civil Procedure Code as a result of section 19 of the Act, the Arbitral Tribunal is empowered to conduct its proceedings in a manner it considers appropriate. The learned arbitrator has held that in the absence of an express statutory bar to the contrary, the Tribunal would be entitled to adopt such procedure and to pass such orders as would advance the cause of justice. The learned arbitrator was of the view that both sections 17 and 19 confer jurisdiction on the Arbitral Tribunal to grant an interim stay of proceedings as prayed. In so far as the facts of the present case are concerned, the learned arbitrator has adverted in detail to the affidavit which was filed by IDBI Bank before this Court in the earlier proceedings and has come to the conclusion that the failure of DSL to renew the Bank Guarantees was deliberate, wilful and contumacious.

21. The result is that all the three learned arbitrators have concurred in holding that DSL must bring back, before the Arbitral Tribunal, an amount of Rs. 6.81 crores. The arbitrators have by a majority held that no case has been made out to hold the arbitral proceedings in abeyance or to stay them until the moneys are brought back. The dissenting arbitrator has, however, come to the conclusion that both the power as well as the reasons for exercising the power exist in the present case and that the hearing of the claim by DSL should be stayed. Though the prayer by MSEB before the Arbitral Tribunal was that the entire proceedings be stayed including its counter claim the dissenting arbitrator has directed that the hearing of the counter claim of MSEB ought to be proceeded with. The order of the Tribunal has been challenged before the Court in these proceedings.

SUBMISSIONS :

22. Both the sides have filed written submissions before this Court. The nuances of the submissions would be considered as each of the issues which arise before the Court is taken up for consideration. However, it would be appropriate to broadly summarise the submissions of the parties, thus:

MSEB :

23. Counsel appearing on behalf of MSEB submits thus :

(i) The appeal before the Court is maintainable under section 37 of the Act since the application that was filed by MSEB before the Arbitral Tribunal was for an interim measure of protection under section 17 and for a consequential order of security in connection with the measures already ordered under that section earlier :

(ii) The prayer for the stay of the arbitral proceedings is an interim measure of protection. Under the interim order of the Tribunal, MSEB paid a net sum of Rs. 6.81 crores to DSL against Bank Guarantees which were required to be kept alive during the pendency of the proceedings. If MSEB succeeds in the arbitration proceedings, it would be entitled to a refund of Rs. 6.81 crores paid at the interim stage and since DSL is a BIFR Company, the only manner in which the amount can be protected is by a stay of further arbitration proceedings;

(iii) The power conferred upon the Arbitral Tribunal under section 19 to conduct its proceedings in a manner which it considers appropriate must be read into section 17. In exercise of its power to order an interim measure of protection, the Arbitral Tribunal has the consequential power to do everything incidental and ancillary to the power conferred under section 17 :

(iv) Using the analogy of Order 39, Rule 11 of the Code of Civil Procedure, 1908 as amended in its application to the State of Maharashtra, the Arbitral Tribunal under section 17 must be held to have the power which is conferred by the aforesaid provision of the Code to secure compliance of its orders;

(v) The Supreme Court in Executive Engineer, Dhenkanal Minor Irrigation Division v. N.C. Budharaj, 2001(2) S.C.C. 721, held that the Arbitral Tribunal has all the powers necessary to do complete and full justice and a party by moving the Arbitral Tribunal instead of taking recourse to a Civil Court cannot be considered to have given up any claim which otherwise it would have successfully asserted before a Court of law:

(vi) Section 38 of the Act permits the Arbitral Tribunal to suspend or terminate arbitral proceedings in the event of a failure to deposit costs. The Arbitral Tribunal must have the same power when the breach is of a more serious nature:

(vii) A power analogous to that under Order 39, Rule 11 of the Code of Civil Procedure, 1908 is conferred upon Arbitral Tribunals by rules framed by several arbitral bodies including the London Bar Arbitration Scheme, LMAA-FA LCA Rules. London Maritime Arbitration Association and by the Rules of arbitration of the Indian Merchants Chamber:

(viii) Independent of the power conferred on the Arbitral Tribunal, the High Court in a proceeding under section 9 of the Arbitration and Conciliation Act, 1996 has the power under Clause (ii)(e) thereof, to grant an interim measure of protection and has the same power for making orders as it has for the purpose of and in relation to any proceedings before it:

(ix) The only effective mechanism for the enforcement of the order of the Arbitral Tribunal would be a stay or termination of the arbitral proceedings. DSL is a BIFR Company and the execution of the directions of the Arbitral Tribunal requiring it to pay MSEB Rs. 6.81 crores cannot be implemented in view of the provisions of the SICA, 1985. Consequently, the only effective remedy is to stay, suspend or terminate the claim of DSL.

(x) On the merits of the case, the conduct of DSL as disclosed is not bona fide, inter alia because: (i) The Bank Guarantees which were furnished were not unconditional and were subject to a supervening condition that they could be invoked only after an order passed by the Arbitral Tribunal before their expiry; (ii) The renewal of the Bank Guarantees was sought only on 26th April, 2001 when the guarantees were to expire on 29th April, 2001 and DSL had failed to pay the full commission for the renewal of the guarantees; (iii) In view of its weak financial position, DSL ought to have taken proper measures to move the Tribunal before the guarantees expired; (iv) 29th April, 2001 was a Sunday and it was only on the Saturday prior thereto that MSEB was informed that the Bank was not willing to renew the Guarantees; (v) DSL had never contended that the guarantees were not renewed due to financial difficulty on their part and that it was only on 8th April, 2002 which was more than 7 months after MSEB filed the application that DSL sought to take up this defence; (vi) DSL cannot escape its liability by merely showing financial difficulties, but must establish a case of financial impossibility of which there are no material particulars.

DSL:

Counsel for DSL submits thus :

(1) The appeal under section 17 is not maintainable and an order granting or refusing to stay arbitral proceedings for the purpose of enforcing an order for interim protection under section 17 is not an order under section 17. Even if the order of stay could be passed by the arbitrators under section 19, no appeal can lie because an appeal lies only against an order under section 17;

(2) The power to stay, suspend, or terminate proceedings can in any event be exercised only if there is a wilful default on the part of DSL. In the present case the financial difficulties of DSL have been on the record of the Arbitral Tribunal right from the institution of the statement of claim by DSL. The same position is reiterated in several affidavits and applications including those which emanate from MSEB;

(3) The Arbitration and Conciliation Act, 1996 is a Code in itself. The Arbitral Tribunal has not been entrusted with the power to take steps in aid of the execution and enforcement by its orders. The only circumstance in which the Arbitral Tribunal can suspend its proceedings is spelt out in the proviso to section 38(2) in connection with the non-payment of costs. Since a specific provision is made only for a particular eventuality, recourse to section 19 is not permissible;

(4) Since the grant of stay is discretionary, the power of the Appellate Court to vary the order of the Arbitral Tribunal is limited and the appeal Court will not substitute its own discretion for the exercise of the discretion of the Arbitral Tribunal;

(5) The order for payment can be enforced only in the manner provided in section 36 of the Act;

(6) The conduct of MSEB disentitles it to any relief particularly when no steps were taken by MSEB for encashing the Bank Guarantees despite the attention of MSEB having been specifically drawn to the effect that the bank had not confirmed the renewal of the Guarantees;

(7) Though MSEB sought a stay of the entire proceedings, the dissenting arbitrator has granted a stay only of the hearing of the claim filed by DSL. This would lead to an anomalous situation because in the course of the examination of the witnesses of MSEB, the cross-examination cannot be curtailed merely to what is in the counter claim, while excluding the basis of the claim.

24. These submissions may now be considered by dividing them into the following heads for convenience of exposition.

POWER OF THE ARBITRAL TRIBUNAL :

25. The first and perhaps the fundamental issue which arises in these proceedings is whether the Arbitral Tribunal does have the power to grant a stay of the proceedings before it or to suspend the hearing of the claim as a step in aid to the enforcement of its interim order. In so far as this aspect of the matter is concerned, the barest facts needed to be appreciated are that by an order dated 26th July, 1999, the Arbitral Tribunal had directed that MSEB should deposit before the Tribunal the amounts respectively of Rs. 4.08 crores and Rs. 4.64 crores which DSL was to withdraw against Bank Guarantees. The interim order of the Tribunal initially contemplated that a determination would shortly take place thereafter of the entitlement of DSL to retain these amounts for the quarters ending June 1999 and September 1999. That determination eventually did not take place and on 11th and 14th December, 1999, the Tribunal passed two orders, the result of which was that the Bank Guarantee of Rs. 4.08 crores (enhanced, as already noted to Rs. 4.50 crores) was to be kept alive during the pendency of the arbitral proceedings and for a period of one month after the Award. Moreover, out of the amount of Rs. 4.64 crores that was received by the DSL, 50% thereof was to be refunded back to MSEB and the balance would continue to be secured by a Bank Guarantee furnished by DSL. Shorn of the details, DSL has received an amount of Rs. 6.81 crores in pursuance of the interim orders of the Arbitral Tribunal against which it was to furnish Bank Guarantees which would be kept alive during the arbitral proceedings and for a period of one month after the Award was delivered. IDBI Bank which was the issuing bank declined to renew the Bank Guarantees which have been extinguished on and from 29th April, 2001. DSL is, therefore, clearly under an obligation having received an amount of Rs. 6.81 crores to either bring back the amount or to secure that amount in the manner directed by the Arbitral Tribunal by furnishing an alternative Bank Guarantee of a like nature. DSL has failed to do that and has pleaded that as a sick industrial company under the SICA 1985, it is financially unable to provide a fresh Bank Guarantee. The Arbitral Tribunal has responded in the only manner it could have which is by directing DSL to refund the amount of Rs. 6.81 crores and bring back the amount before the Tribunal. DSL has submitted to that order and the learned Counsel on its behalf expressly submitted before this Court that DSL accepts its liability to return the amount. However, according to DSL, it is presently unable to do so because its financial circumstances make its impossible to bring back the amount of Rs. 6.81 crores. MSEB claims that it cannot enforce the order of the Arbitral Tribunal for a refund of Rs. 6.81 crores and, it would be impossible for MSEB to execute a decree in that amount even if a final Award were to be passed in view of the operative provisions of section 22 of the SICA, 1985. Under section 22 proceedings for execution against the properties of a sick industrial company cannot lie or be proceeded with further without the permission of the BIFR. MSEB, therefore, sought an order before the Arbitral Tribunal calling for the suspension of the hearing and a stay of all proceedings as a means to secure compliance with the order passed by the Arbitral Tribunal for a refund of the amount.

26. In considering whether the Arbitral Tribunal could have acceded to the request which was made by DSL, it would at the outset be necessary to refer to some of the salient features of the Arbitration and Conciliation Act, 1996. The Act as its long title would indicate, is an Act "to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign Arbitral Awards as also to define the law relating to conciliation and for matters connected therewith or incidental thereto".

27. Part-I of the Act is entitled "arbitration". There are in all ten Chapters which are constituent elements of Part-I.

28. Chapter I makes 'General Provisions' including those relating to definitions, the receipts of written communications, as regards a waiver of a right to object, the extent of judicial intervention and for administrative assistance. The expression "arbitration agreement" is defined in section 2(b) to mean an agreement referred to in section 7. Section 2(c) defines an "Arbitral Award" to include an interim Award.

29. Chapter II is entitled "arbitration agreement" and the fasciculus of provisions forming part thereof contains in section 7 a reference to the arbitration agreement; in section 8 a power to refer parties to arbitration where there is an arbitration agreement and the power of the Court in section 9 to provide inter alia interim measures. Section 7(1) defines the expression "arbitration agreement" to mean an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. The expression "party" is defined by section 2(h) to mean the party to an arbitration agreement.

30. The definition of the expression "arbitration agreement" and of the expression "party" when read in the context of sub-section (1) of section 7, emphasises that an agreement between the parties to refer their disputes to arbitration is essentially consensual in nature and character.

31. Chapter III deals with the composition of the Arbitral Tribunal, the appointment of arbitrators and the grounds for challenge, the procedure for challenge and the termination and substitution of an arbitrator. (Sections 10 to 15). The termination of a mandate of the arbitrator is not co-terminus with the termination of arbitral proceedings because when the mandate of the arbitrator terminates when he withdraws from the office or by agreement between the parties, a substitute arbitrator is to be appointed according to the same rules that were originally applicable to the appointment of the arbitrator.

32. Chapter IV of Part-I deals with the jurisdiction of Arbitral Tribunals and section 16 provides that the Arbitral Tribunal is entitled to rule on its own jurisdiction including on any objection with reference to the existence or validity of an arbitration agreement. A determination by the Arbitral Tribunal on the question of the jurisdiction or on the existence or validity of the arbitration agreement has important consequences in terms of the continuance or, as the case may be, the cessation of proceedings. A ruling by the Arbitral Tribunal that it has no jurisdiction or, as the case may be, that there is no valid or existing arbitration agreement will result in a termination of proceedings by the Arbitral Tribunal. The power to make that determination has specifically been entrusted to the Arbitral Tribunal.

33. Section 17 which is a part of Chapter IV empowers the Arbitral Tribunal, unless the parties have otherwise agreed, to order a party, at the request of a party, to take any interim measure of protection in respect of the subject matter of the dispute. Under sub-section (2), the Arbitral Tribunal may require a party to provide appropriate security in connection with a measure which the Tribunal has directed under sub-section (1). Section 17 of the Act provides as follows :

"17. Interim measures ordered by Arbitral Tribunal.---(1) Unless otherwise agreed by the parties, the Arbitral Tribunal may, at the request of a party, order a party to take any interim measure of protection as the Arbitral Tribunal may consider necessary in respect of the subject matter of the dispute.

(2) The Arbitral Tribunal may require a party to provide appropriate security in connection with a measure ordered under sub-section (1)."

34. Chapter V of the Act deals with the conduct of arbitral proceedings. Those provisions begin with a determination of the rules of procedure in section 19 and cover the place of arbitration (section 20), the commencement of arbitral proceedings on the date on which a request that the disputes be referred to arbitration is received (section 21); the language of the arbitration (section 22); submission of the statement of claim and defence (section 23); hearing and written proceedings (section 24); the consequences of a default in filing the statement of defence (section 25); expert evidence (section 26) and the assistance of the Court in taking evidence (section 27).

35. Section 19 thereof is material for the purposes of the present controversy and provides as follows :

"19. Determination of rules of procedure.---(1) The Arbitral Tribunal shall not be bound by the Code of Civil Procedure, 1908 (5 of 1908) or the Indian Evidence Act, 1872 (1 of 1872).

(2) Subject to this part, the parties are free to agree on the procedure to be followed by the Arbitral Tribunal in conducting its proceedings.

(3) Failing any agreement referred to in sub-section (2), the Arbitral Tribunal may, subject to this part, conduct the proceedings in the manner it considers appropriate.

(4) The power of the Arbitral Tribunal under sub-section (3) includes the power to determine the admissibility, relevance, materiality and weight of any evidence."

36. In sub-section (1) of section 19, the Act has prescribed that the Arbitral Tribunal shall not be bound by the Code of Civil Procedure, 1908 or by the Evidence Act, 1872. These are words of amplitude and not of restriction. These words do not prohibit the Arbitral Tribunal from drawing sustenance from the fundamental principles underlying the Civil Procedure Code or Evidence Act, but free the Tribunal from being bound, as would a Civil Court, by the requirement of observing the provisions of the Code and the law relating to evidence with all its rigour. Sub-section (2) of section 19 preserves the consensual nature of the arbitral proceeding by laying down that subject to the provisions of Part-I, the parties are free to agree on the procedure to be followed by the Arbitral Tribunal in conducting its proceedings. The freedom which is conferred upon the parties to agree on the procedure to be followed by the Arbitral Tribunal is regulated by Part-I but subject to that regulation parties are otherwise free to agree on arbitral procedure and the conduct of proceedings. In the event that parties are not agreed on the procedure to be followed in the conduct of proceedings, the Arbitral Tribunal is again, subject to Part-I, free to conduct the proceedings in a manner which it considers appropriate. Sub-section (4) of section 19 provides some indication of the contents of sub-section (3). Sub-section (4) lays down that the power of the Arbitral Tribunal under sub-section (3) includes the power to determine the admissibility, relevance, materiality and weight of any evidence. Sub section (4) is of course not exhaustive of the content of sub-section (3) but provides an instance of the power conferred by sub-section (3).

37. As a part of Chapter V, certain provisions have been enacted to deal with the case of defaults by a party. Section 25 envisages a situation where without sufficient cause, (i) the claimant fails to communicate his statement of claim within the period prescribed, (ii) the respondent fails to communicate his statement of defence or (iii) a party fails to appear or produce documentary evidence. In a case where the claimant fails to communicate his statement of claim, the Arbitral Tribunal shall terminate the proceedings. Where the respondent fails to communicate his statement of defence, the Tribunal shall continue the proceedings without treating that failure in itself as an admission of the allegations made by the claimant. The third possibility which is envisaged by section 25 is where a party fails to appear at an oral hearing or to produce documentary evidence, in which case, the Tribunal shall continue the proceedings and make the Arbitral Award on the evidence before it.

38. The Arbitral Tribunal can apply to the Court for assistance in taking evidence and the procedure in this regard its regulated by sub-sections (1) to (4) of section 27. Sub-section (5) of section 27 lays down that persons failing to attend in accordance with a process issued by the Court for the recording of evidence before the Arbitral Tribunal or making any other default, or refusing to give their evidence, or being "guilty of any contempt of the Arbitral Tribunal during the conduct of arbitral proceedings shall be subject to the like disadvantages, penalties and punishments by order of the Court on the representation of the Arbitral Tribunal as they would incur for the like offences in suits tried before the Court". The power to punish for any contempt of the Arbitral Tribunal has been vested with the Court.

39. These statutory provisions enacted by Parliament are extremely material for, they reveal the scheme of the legislation. The legislature has envisaged a default of a certain specified nature and character in section 25 of the Act and has authorised the Arbitral Tribunal to terminate the proceedings where a claim has not been filed within the period prescribed by the Tribunal. Other kinds of defaults including a default in failing to attend for giving evidence in accordance with the process issued by the Court or contempt of the Arbitral Tribunal during the conduct of arbitral proceedings are subject to the imposition of disadvantages, penalties and punishments by order of the Court on the representation of the Tribunal. The canvass of Chapter V is in relation to the conduct of arbitral proceedings. Chapter V does not encompass the termination of arbitral proceedings by the Arbitral Tribunal save and except for the reference to termination in section 25(a).

40. Chapter VI of the Act is entitled "Making of Arbitral Award and termination of proceedings". The termination of proceedings can take place under section 30(2) if the parties settle the dispute, during the course of arbitral proceedings and if a request to that effect is made by the parties before the Arbitral Tribunal. That settlement then culminates in an agreed Arbitral Award. Section 31 deals with the form and contents of the Arbitral Award and sub-section (6) thereof provides that the Arbitral Tribunal may, at any time during the arbitral proceedings, make an interim Arbitral Award on any matter with respect to which it may make a final Arbitral Award.

41. Section 32 is entitled "Termination of proceedings" and sub-section (1) provides that the arbitral proceedings shall be terminated by the final Arbitral Award or by an order of the Arbitral Tribunal under sub-section (2). Sub-section (2) of section 32 is important for the purposes of the present proceedings and provides as follows :

"32(2) The Arbitral Tribunal shall issue an order for the termination of the arbitral proceedings where-

(a) the claimant withdraws his claim, unless the respondent objects to the order and the Arbitral Tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute,

(b) the parties agree on the termination of the proceedings, or

(c) the Arbitral Tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible."

Sub-section (2), therefore, contemplates three situations where the Arbitral Tribunal is vested with the power to terminate the arbitral proceedings, namely, (i) when the claimant withdraws his claim, (ii) when the parties agree and (iii) when the Tribunal finds that continuation of the proceedings has for any other reason become unnecessary or impossible. The mandate of the Arbitral Tribunal terminates with the termination of the arbitral proceedings. (Sub-section (3) of section 32). Clause (c) of sub-section (2) of section 32 has vested a residuary power in the Arbitral Tribunal to terminate the proceedings where it finds that a continuation thereof has for any other reason become unnecessary or impossible. The legislature has advisedly left it to the Tribunal to determine as to when the continuation of the proceedings has become unnecessary or impossible. The expression "unnecessary" may for instance involve a situation where proceedings are rendered infructuous. A situation may have arisen as a result of which an adjudication into the dispute has become unnecessary either as a result of the fact that the dispute does not survive or for any other valid reason. Situations may also arise where a continuation of proceedings is rendered impossible. Impossibility is not merely to be viewed from the point of view of a physical impossibility of an adjudication, but may conceivably encompass a situation where a party by a consistent course of conduct renders the very continuation of the arbitral proceedings impossible. Then again a party which has been guilty of contumacious conduct cannot be heard to seek the benefit of its conduct to seek termination. It is impossible to catalogue the circumstances in which the Arbitral Tribunal may hold that it is either unnecessary or impossible to continue the arbitral proceedings.

42. Be that as it may, I am of the view that it is difficult to accede to the submission of the learned Counsel appearing on behalf of MSEB that the power under Clause (c) of sub-section (2) of section 32 can be utilised by the Arbitral Tribunal to extract compliance with an interim order that has been passed against a party to the proceedings. The Act, it must be noted, has made provision with regard to the finality and enforcement of Arbitral Awards. Chapter VII of the Act provides for recourse against an Arbitral Award while Chapter VIII in section 36 for enforcement of Arbitral Awards. As already noted earlier, in section 2(c) an Arbitral Award is defined to include an interim Award and by section 31(6) the Arbitral Tribunal is empowered to make an interim Arbitral Award in respect of any matter in which it may make a final Arbitral Award. Under section 36 an Award can be enforced under the Code of Civil Procedure in the same manner as if it were a decree of the Court where time for making an application to set aside the Award under section 34 has expired or such an application having been made, it has been refused. An independent provision for the enforcement of Arbitral Awards is thus expressly provided for in Chapter VIII of the Act. That being the position, it is in my view difficult to accept the submission made on behalf of MSEB that the power under section 32(2)(c) can be used as a substitute for the enforcement of the Award or where as in the present case, the enforcement of an interim order is perceived by one of the parties, as being likely to encounter difficulties because of an independent provision of law enacted by Parliament, namely the Sick Industrial Companies (Special Provisions) Act, 1985. Arbitral proceedings are not rendered unnecessary or impossible by the SICA, 1985. The Act of 1985 embodies a legislative policy of protecting the properties of a sick industrial company against execution, distress or the like without the permission of the BIFR. That does not render in any manner the arbitral proceedings unnecessary or impossible.

43. Chapter IX of the Act is entitled "appeals" and in so far as the present case is concerned, it is material to note that an appeal lies against an order of the Arbitral Tribunal granting or refusing to grant an interim measure under section 17. Chapter X of Part-I makes miscellaneous provisions and section 38 thereof deals with deposits. Sub-section (1) of section 38 empowers the Arbitral Tribunal to fix the amount of deposit as an advance for costs referred to in sub-section (8) of section 31. Sub-section (8) of section 31 provides for costs including the fees and expenses of the arbitrator and witnesses, legal fees and expenses, administrative fees of the institution supervising the arbitration and other expenses incurred in connection with the arbitral proceedings and Award. Sub-section (2) of section 38 provides that the deposit is to be payable in equal shares by the parties, but where one party fails to pay his share of the deposit, the other party may pay that share. The second proviso to sub-section (2) enunciates that where the other party also does not pay the aforesaid share in respect of the claim or the counter claim, the Arbitral Tribunal may suspend or terminate the arbitral proceedings in respect of such claim or counter-claim as the case may be. A provision thus has been enacted for the suspension of the proceedings by the Arbitral Tribunal where costs have not been deposited.

44. A reading of the provisions contained in Part-I of the Arbitration and Conciliation Act, 1996 would, therefore, in my view, leave no manner of doubt that the Arbitral Tribunal does not have the power to suspend the arbitral proceedings before it as a step in aid of the execution of an interim order passed by the Arbitral Tribunal. While consolidating and amending the law relating to domestic and international commercial arbitration, the legislature has made specific provisions for the termination or, as the case may be, for suspension of arbitral proceedings. The Arbitral Tribunal is empowered to rule on its jurisdiction and to determine a challenge to the existence or the validity of an arbitration agreement. In such a situation, the recent decision of three learned Judges of the Supreme Court in Bhatia International v. Bulk Trading S.A., holds that applications for stay of arbitral proceedings or to challenge the existence or validity of the arbitration agreement or involving the jurisdiction of the Arbitral Tribunal have to be made to the Arbitral Tribunal under the Act. Such applications cannot be made to the Court under section 9. Where there is a challenge to the jurisdiction of the Arbitral Tribunal or the existence or validity of the arbitration agreement is questioned, an application can only lie before the Arbitral Tribunal to have these issues adjudicated. As an incident of its power to adjudicate on its jurisdiction, the Arbitral Tribunal may entertain an application for stay or as a consequence of its determination upholding a challenge to its jurisdiction or to the existence or validity of the agreement on arbitration, terminate proceedings. In so far as defaults are concerned, the legislature has made specific provisions which envisage specific instances of default and provide clear cut consequences of those defaults. Among these circumstances, as already noted, are those envisaged in sections 25, 27(5) and 38 of the Act. Provisions have been made in section 32 for termination of proceedings. That being the position, it would be impermissible to read into sub-section (3) of section 19 a power to suspend arbitral proceedings or to terminate arbitral proceedings as an incident of the enforcement of an interim order.

45. Counsel appearing for MSEB submits that under sub-section (2) of section 19, parties can agree to the procedure to be followed by the Arbitral Tribunal in conducting its proceedings. Counsel adverts to the provisions contained in the arbitration procedure adopted by the London Common Law Bar Association which empower the Tribunal to strike out and dismiss any claim made in the arbitration on the ground of a deliberate defiance by the claiming party of any peremptory order of the Tribunal and/or inordinate and inexcusable delay on the part of the claiming party which has given rise to a substantial risk that a fair determination of any issue in the arbitration will not be possible. The other illustrations include the LMAA FALCA Rules of 1996 and the London Maritime Arbitrator's Association Terms, 1987. Provision has also been made by the rules of arbitration of the Indian Merchants Chamber, Bombay for suspension or termination of arbitral proceedings where an order of deposit is not complied with. These are, however, specific instances of provisions contractually agreed upon by parties under a particular scheme of arbitration. These schemes for arbitration apply where parties voluntarily submit themselves to them. The agreement of parties binds them to the particular scheme. Matters of deposit of costs are regulated by section 38 of the Act. But apart from this, the schemes of arbitral associations that have been relied upon by MSEB above only go to emphasise the consensual nature of arbitral proceedings. Parties by an agreement between them are free to agree on the procedure to be followed by the Arbitral Tribunal in conducting its proceedings and the procedure to which parties have agreed, must necessarily bind them. But from this, it would not be possible to infer that the Arbitral Tribunal has the power to suspend its proceedings or to terminate its proceedings as a means to secure compliance with an interim order.

46. The jurisprudential concept of an Arbitral Tribunal is that it is a private forum which is chosen by the parties as a means of a speedy and expeditious resolution of disputes between them. The Arbitral Tribunal is not akin to a Court of law which has, ordinarily a jurisdiction in general and an existence in perpetuity. The existence of an Arbitral Tribunal arises out of an arbitral agreement between the parties and upon the invocation of arbitration. The adjudicatory powers of an Arbitral Tribunal extend to such matters as parties have referred to it. The Arbitration and Conciliation Act, 1996 is a regulatory statute which has consolidated and amended the law of arbitration. The legislature in its wisdom has conferred power upon the Arbitral Tribunal to terminate its proceedings or to suspend its hearings in situations envisaged in the statute. It would, in my view, be impermissible for an Arbitral Tribunal to transcend the ambit of the powers which the parties have conferred and what the legislature has envisaged. Section 17 of the Act upon which a considerable degree of reliance was sought to be placed, provides for interim measures by the Arbitral Tribunal. The interim measure which section 17 contemplates, is one of protection "as the Arbitral Tribunal may consider necessary in respect of the subject matter of the dispute". The measure of protection has to be "at the request of party". The Arbitral Tribunal is empowered to "order a party to take any interim measure of protection". These words "order a party to take any interim measure of protection" upon their plain grammatical connotation do not comprehend a suspension or termination of arbitral proceedings. The suspension of arbitral proceedings or, for that matter a termination is not something which a party is ordered to do or perform. In the present case, it was in pursuance of section 17 that the Arbitral Tribunal directed MSEB to deposit certain amounts under sub-section (1) and DSL to provide security as a condition for withdrawal of those amounts under sub-section (2). DSL having failed to ensure a continuance of the security, the Arbitral Tribunal has directed it to refund the amount which was withdrawn. That direction of the Arbitral Tribunal is unexceptionable. The point, however, is that the Arbitral Tribunal has no power and was justified in taking the view that it did not have the power to suspend its proceedings until the amount which was withdrawn by DSL was brought back before the Tribunal. MSEB has, however, a right of recourse to the provisions of the Act for enforcing the order of the Tribunal for bringing back the amount.

47. MSEB, however, contends that as a result of an independent provision of law enacted by Parliament, namely, the Sick Industrial Companies (Special Provisions) Act, 1985, it would be impeded in adopting execution, distress or the like against the properties of DSL by virtue of section 22 of the Act. That, however, in my view, cannot be a ground for debarring DSL from pursuing an adjudication of its claim in the arbitral proceedings. The provisions of the SICA, 1985 embody a policy adopted by Parliament in public interest to make "special provisions with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a Board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto". Under the provisions of the Act, a "sick industrial company" is defined by section 3(o) as an industrial company, registered for not less than five years which has at the end of any financial years accumulated losses equal to or exceeding its entire net worth. Under sub-section (1) of section 15, there is a mandatory obligation, that where an industrial company has become a sick industrial company, the Board of Directors of the Company, shall, make a reference to the BIFR within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company. Similarly, under section 23(1) where the accumulated losses of an industrial company as at the end of any financial year have resulted in an erosion of fifty per cent or more of its net worth during the immediately preceding four financial years, the company is within a stipulated period under an obligation to report the fact of such erosion to the BIFR and to take consequential steps as set out therein. A violation of the provisions of section 23 attracts penal liability. The provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 are reflective of a policy which has been adopted by Parliament. Neither the Arbitral Tribunal, nor the Court can comment upon the wisdom of that policy. That is a matter for the legislature to determine. The perceived difficulty in the execution of an Arbitral Award in the case of a company which is a sick industrial company under the SICA, 1985 cannot be a valid ground for depriving the company of its right to pursue proceedings in arbitration.

48. Counsel for MSEB relied upon several judgments in support of the proposition that the powers which have been conferred upon the Arbitral Tribunal, must comprehend such ancillary or incidental powers which would enable the Tribunal to do complete justice between the parties. Reliance was placed in particular, upon the decision of the Supreme Court in R.B.I. v. Peerless General Finance and Investment Company Ltd., , in Chief Executive Officer and Vice-Chairman v. Haji Daud Haji Harun Abu, and upon the decision of a Constitution Bench in regard to the arbitrator's jurisdiction to Award interest in Executive Engineer, Dhenkanal Minor Irrigation Division v. N.C. Budharaj, 2001(2) S.C.C. 721. There is no doubt about the fundamental principle of law that if the legislature enables something to be done, it gives power at the same time by necessary implication to do everything which is indispensable for carrying out the purpose in view. In Budharaj (supra), the Supreme Court held that it is not in dispute that an arbitrator appointed in a pending suit or with the intervention of the Court, had all the powers of the Court in deciding the dispute. That being the position, the Court held that when parties appoint an arbitrator without the intervention of the Court and without recourse to litigation, they cannot be considered to have frittered away and given up any claim which otherwise could have been successfully asserted before a Court to obtain relief. The Supreme Court held as follows :

"By agreeing to have settlement of disputes through arbitration, the party concerned must be understood to have only opted for a different forum of adjudication with less cumbersome procedure, delay and expense and not to abandon all or any of its substantive rights under the various laws in force, according to which only even the arbitrator is obliged to adjudicate the claims referred to him. As long as there is nothing in the arbitration agreement to exclude the jurisdiction of the arbitrator to entertain a claim for interest on the amounts due under the contract, or any prohibition to claim interest on the amounts due and become payable under the contract, the jurisdiction of the arbitrator to consider and award interest in respect of all periods subject only to section 29 of the Arbitration Act, 1940 and that too the powers of the Court thereunder, has to be upheld. The submission that the arbitrator cannot have jurisdiction to Award interest for the period prior to the date of his appointment or entering into reference which alone confers upon him power, is too stale and technical to be countenanced in our hands, for the simple reason that in every case the appointment of an arbitrator or even resort to Court to vindicate rights could be only after disputes have cropped up between the parties and continue to subsist unresolved, and that if the arbitrator has the power to deal with and decide disputes which cropped up at a point of time and for the period prior to the appointment of an arbitrator, it is beyond comprehension as to why and for what reason and with what justification the arbitrator should be denied only the power to Award interest for the pre-reference period when such interest becomes payable and has to be awarded as an accessory or incidental to the sum awarded as due and payable, taking into account the deprivation of the use of such sum to the person lawfully entitled to the same."

The Supreme Court held that the arbitrator appointed whether with or without the intervention of the Court has the power and jurisdiction to Award interest on the sum found due and payable for the pre-reference period in the absence of any specific stipulation or prohibition in the contract. The principle laid down in this decision of the Supreme Court does not advance the case of MSEB, since the Arbitration and Conciliation Act, 1996 makes express provisions with regard to the power of the Arbitral Tribunal to suspend or terminate arbitral proceedings. The circumstances in which arbitral proceedings can be terminated, or as the case may be, can be suspended are defined by the Act. The Act has consolidated and amended the law relating to domestic and international commercial arbitration. The legislation envisages defaults and enunciates the consequences of those defaults. The legislation enables the Arbitral Tribunal to rule on its jurisdiction and to determine question relating to the existence and validity of the arbitration agreement. Specific provisions have been made by the Act for the enforcement of Arbitral Awards, these being both final and interim Awards. MSEB is not correct in asserting that the Arbitral Tribunal has the power to suspend its hearings as a means to secure compliance with its interim order. The difficulties which MSEB perceives that it would face under the Sick Industrial Companies (Special Provisions) Act, 1985 in obtaining the permission of the BIFR for enforcing the order of the Arbitral Tribunal furnishes no ground to bar DSL from pursuing its remedy in arbitration.

POWER OF THE COURT UNDER SECTION 9:

49. The alternative submission which has been urged before the Court is that even if the arbitrator does not have the power to suspend the hearing of the arbitral proceedings, the Court in an appropriate case can do so in the exercise of its power under section 9. Section 9 of the Arbitration and Conciliation Act, 1996 provides as follows:

"9. Interim measures, etc. by Court.---A party may before or during arbitral proceedings or at any time after the making of the Arbitral Award but before it is enforced in accordance with section 36, apply to a Court:-

(i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or

(ii) for an interim measure of protection in respect of any of the following matters, namely:-

(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement,

(b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any sample to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purposes of obtaining full information or evidence;

(d) interim injunction or the appointment of a Receiver;

(e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it."

50. If the power that has been conferred upon the Court under section 9 of the Act is compared with the power which is conferred on the Arbitral Tribunal under section 17 what would need to be noticed first is that the power of the Court can be exercised either before or during the arbitral proceedings or even thereafter upon the making of the Arbitral Award but before it is enforced in accordance with section 36. The power of the Arbitral Tribunal contrariwise is a power which the Arbitral Tribunal has during the pendency of arbitral proceedings before it to order an interim measure of protection. In so far as the Arbitral Tribunal is concerned, the proceedings terminate upon a final Arbitral Award or on an order passed under sub-section (2) of section 32. The second important aspect which needs emphasis is that unlike section 17 of the Act, where the Arbitral Tribunal is empowered at the request of a party to order a party to take an interim measure of protection in respect of the subject matter of the dispute, the power of the Court under section 9 is in respect of the matters specified in Clause (i) or in sub-clauses (a) to (e) of Clause (ii). Clause (ii) covers a host of matters including the preservation, interim custody or sale of goods which are the subject matter of the arbitration agreement; securing the amount in dispute in the arbitration; the detention, preservation or inspection of any property which is the subject-matter of the dispute in arbitration; interim injunctions, the appointment of a Receiver, and such other interim measure of protection as may appear to the Court to be just and convenient. Under section 17, the Arbitral Tribunal has to "order a party to take any interim measure of protection. The measures on the other hand which are contemplated by sub-clauses (a) to (e) of Clause (ii) of section 9 are wider in their ambit because they go beyond a mere direction by the Court to a party to take an interim measure of protection. Section 9 then provides that the Court shall have the same power for making orders as it has for the purposes of and in relation to, any proceedings before it. This Court, in the exercise of the powers under section 9 of the Act, has, therefore, all the powers which are granted to it including those available under the Code of Civil Procedure, 1908 for the purposes of and in relation to any proceedings in a suit on the original side. Equally while interpreting the provisions of section 9 regard must be had to the general object of the Act which is to restrict judicial intervention in arbitral proceedings. In keeping with that object, section 5 postulates that notwithstanding anything contained in any other law for the time being in force, in matters governed by that part, no judicial authority shall intervene except where so provided in the part. Consequently, the Supreme Court held in a decision of three learned Judges in Bhatia International v. Bulk Trading S.A., that applications for stay of arbitral proceedings or to challenge the existence or validity of the arbitration agreement or the jurisdiction of the Arbitral Tribunal could only lie before the Arbitral Tribunal and not before the Court under section 9. The Act does not contemplate the interference of courts at the interim stage in matters of jurisdiction of the Arbitral Tribunal or in challenges to the existence or validity of the arbitration agreement. The Court would in such cases not be entitled to exercise powers under section 9.

51. Under sub-clause (e) of Clause (ii) of section 9, a residuary power is conferred upon the Court to order such other interim measure of protection as may appear to the Court to be just and convenient. That residuary provision is of a sufficiently wide amplitude to provide an avenue of redressal that would ensure and protect a party to the arbitral proceedings against an abuse of the arbitral process. Arbitration as a means to a speedy and expeditious resolution of disputes must achieve the object and purpose which it is intended to fulfil. The Court, therefore, in an appropriate case, does have the jurisdiction statutorily conferred to grant such interim measures of protection as may appear to it to be just and convenient. The legislature has designedly conferred the power upon the Court to do so in broad terms. The exercise of the power is conditioned by the perception of the Court that it is just and convenient to order an interim measure of protection. Unlike the power of the Arbitral Tribunal under section 17 which is co-extensive with the continuation of the arbitral proceedings, the power of the Court under section 9 arises both before during the course of arbitral proceedings and even thereafter once an Award is made until its enforcement. In this wide canvass, various eventualities may arise which may require the Court to ensure, in an appropriate case, that the process of arbitration is not abused. The conferment of a residual jurisdiction upon the Court in sub-clause (e) of Clause (ii) of section 9 has to be matched by a consciousness on the part of the Court while exercising the jurisdiction that this power is to be utilised for effectuating the object for which the power has been conferred. The Court must be bound by the general discipline of the Act, which constitutes a Code in itself, that discipline being of limited judicial intervention. Therefore, in consonance with the norm of restricted judicial intervention, the Court has to assess whether a case for the exercise of its jurisdiction under sub-clause (e) of Clause (ii) of section 9 has been made out. In an appropriate case, it would be open to the jurisdictional Court to protect a party to an arbitration agreement by securing compliance with the orders of the Tribunal upon pain of suspension of an arbitral proceeding. Before exercising its power under section 9(ii)(e) to suspend arbitral proceedings a strong prima facie case must, however, be shown to exist by the claimant for relief. A prayer for relief is under section 9(ii)(e) not a substitute for enforcing the order of the Arbitral Tribunal. A wilful disregard of the order of the Tribunal must be shown to exist, bordering on contumacious behaviour.

52. The question as to whether a provision which is analogous to section 9 of the Arbitration and Conciliation Act, 1996 would include the power to grant a stay of the arbitral proceeding, came up for consideration in England in a judgment of the Queen's Bench Division Commercial Court) in (Richco International Ltd. v. International Industrial Food Co. SAL, 1989(1) All.E.R. 613. In the case which came up for consideration, the plaintiff who was a seller, sold certain consignments of wheat, the destination of which was a Syrian port under a contract which included normal GAFTA arbitration terms. Upon loading, the cargo was rejected by the buyer on the ground that it did not meet the specifications as to quality and notified that the cargo would be kept at the sellers' disposal upon the arrival of the vessel in Syria. The seller presented the sale documents to the buyer, but these were rejected. According to the buyer, the sub-buyers which were a Syrian State purchasing agency, had also rejected the cargo. The buyer invoked the arbitration Clause but it so transpired that in the meantime, the buyer had received the payment from the sub-buyers with a discount for the lesser quality. On an application by the seller, a Judge directed the buyer to pay a sum of US$ 1,820,000 which was not complied with by the buyer. The seller applied for an order that in default of paying the sum into Court the buyer be debarred from contesting the arbitration. In that context, the provisions of section 12(6)(f) of the Arbitration Act, 1950 came up for consideration before Hirst, J. That provision was analogous to section 9 of the Arbitration and Conciliation Act, 1950 and provided as follows :

"The High Court shall have, for the purpose of and in relation to a reference, the same power of making orders in respect of (a) security for costs... (f) securing the amount in dispute in the reference; (g) the detention, preservation or inspection of any property or thing which is the subject of the reference or as to which any question may arise therein, and authorising for any of the purposes aforesaid any persons to enter upon or into any land or building in the possession of any party to the reference, or authorising any samples to be taken or any observation to be made or experiment to be tried which may be necessary or expedient for the purpose of obtaining full information or evidence... as it has for the purpose of and in relation to an action or matter in the High Court.......".

Hirst, J. relied upon the judgment of the Court of Appeal in the case of (The Argenpuma), 1984(2) Lloyd's Report 563 where it was held that the Court had statutory jurisdiction to order a permanent stay of a claim in an arbitration where the claimant had failed to comply with an order of the Court to furnish security for costs. Hirst, J., for the Court held thus:

"In my judgment, the submissions of Counsel for the sellers are sound in principle. The analogy of The Argenpuma, 1984(2) Lloyd's Report 563 seems to me so close as to provide all but binding authority in favour of his basic proposition, and certainly to give me a sound foundation on which to uphold his basic argument. Counsel for the buyers' suggested rationale for the cases where parties are debarred from suing or defending claims seems to me inconsistent with the security for costs cases; in such cases there is no default by the plaintiff in the actual conduct of the case, and he may indeed (and no doubt often does) have a good sound claim, but because of his default in complying with an order for security the Court undoubtedly has powers to debar him from pursuing that claim, be that claim just or unjust. This is the only sanction the Court has for compliance with its order and it is a sanction which the Court in proper cases can and will impose.

A defendant who fails to comply with an order under section 12(6)(f) or Order 20 for the securing of a specific fund (or under para (g) for the custody or preservation of property) is in no worse position than the plaintiff in the above mentioned comparable circumstances, when his defence, just or unjust, is debarred. In each case the sanction is undoubtedly a severe one and it goes without saying that the Court will only impose it in the exercise of its discretion if the circumstances fully warrant so stringent an order."

This decision does support the proposition that in an appropriate case, where the circumstances warrant the passing of an order as stringent as a stay of the arbitral proceedings, the Court in the exercise of its power under section 9 of the Arbitration and Conciliation Act, 1996 can impose such sanctions to secure due compliance with an order of the Arbitral Tribunal. This power must, however, in my view, be wielded with extreme caution and circumspection. The sound reasons for judicial restraint are founded as much in the underlying rationale of the Act of 1996 which is to limit judicial intervention, as in the drastic consequences which ensue from such judicially imposed sanctions. While construing the provisions of Order 11, Rule 21 of the Code of Civil Procedure, 1908, a Bench of three learned Judges of the Supreme Court held in Babbar Sewing Machine v. Trilok Nath, that even assuming that in certain circumstances the provisions of Order 11, Rule 21 must be strictly enforced, "it does not follow that a suit can be lightly thrown out or a defence struck without adequate reasons". The Supreme Court laid down that the test is whether the default is wilful-where there is contumacy on the part of the defendant or a wilful attempt to disregard the order of the Court is established. The rule, the Supreme Court noted, must be worked with caution and may be made use of as a last resort. The same principle was reiterated by Mr. Justice V.R. Krishna Iyer, while delivering the judgment of the Supreme Court in Jolly George Varghese v. Bank of Cochin, . Construing the power of arrest under section 51 read with Order 21, Rule 37 of the Code of Civil Procedure, the Supreme Court held that there must be "some element of bad faith beyond a mere indifference to pay, some deliberate or recusant disposition in the past or, alternatively, current means to pay the decree or a substantial part of it". The Supreme Court emphasised "the need to establish not mere omission to pay but an attitude of refusal on demand verging on dishonest disowning of the obligation under the decree". These decisions in my view provide the guiding principles for the Court. Therefore, though I am of the opinion that the Court under section 9 of the Act does have the power in an exceptional case to impose sanctions against a recalcitrant party, such as by the grant of a stay of the arbitration proceedings to secure compliance with an interim order for the furnishing of security, that power has to be exercised with caution and circumspection. A default in effecting payment cannot be a ground in itself to justify the exercise of a power as stringent or serious in its ramifications. There has to be an element of bad faith, or of contumacious conduct. That may be for instance where despite being possessed of means, a party refuses to comply with an order to furnish security. The question is as to whether that power has to be exercised in the present case and it is to that question that I now turn.

Exercise of the power in the present case:

53. The Arbitral Tribunal had, in the present case, directed that Bank Guarantees should be furnished to secure MSEB against a deposit of the two amounts of Rs. 4.08 crores and Rs. 4.63 crores which were permitted to be withdrawn by DSL. The interim order of the arbitrators dated 26th July, 1999 contemplated that the Bank Guarantees would enure until a determination was made in accordance with Clause (g) of the order as to whether DSL was entitled to retain the lease rent or any part thereof for the quarters ending June and September 1999. The determination by the Arbitral Tribunal under Clause (g) did not take place. On 14th December, 1999, the Arbitral Tribunal directed DSL to return 50% of the amount of Rs. 4.63 crores covered by the second bank guarantee and it is common ground that the total amount that was as a result retained by DSL amounts to Rs. 6.81 crores. The two bank guarantees were, therefore, to the extent of the aforesaid amount. The Arbitral Tribunal directed that these bank guarantees be continued during the pendency of the arbitral proceedings and thereafter for a period of one month upon the declaration of the Award. Counsel appearing for MSEB has sought to emphasise that it was the obligation of DSL to ensure the due renewal of the Bank Guarantees by the issuing bank. That submission is absolutely unexceptionable for, having furnished the Bank Guarantees and having made a statement before the Arbitral Tribunal on 11th December, 1999 that the Guarantees would be renewed from time to time until the Award was declared and thereafter for one month. DSL was bound to comply with its statement made before the Arbitrators. The Guarantees were due to expire on 29th April, 2001. Counsel appearing for MSEB has laid a considerable degree of emphasis on the fact that the request for extension of the Bank Guarantees that was made on behalf of DSL was submitted as late as on 26th April, 2001, barely a couple of days before the guarantees were due to expire. In response to the aforesaid submission. Counsel appearing for DSL has drawn the attention of the Court to the chart contained in paragraph 21 of the reply filed by DSL in which it has been submitted that on all previous occasions the applications for the extension of the Bank Guarantees had been made to the issuing bank only a few days prior to the expiry of the Bank Guarantees despite which the bank had renewed the Guarantees from time to time. Counsel for DSL urged that DSL had deposited an amount of Rs. 4.08 crores and Rs. 4.63 crores as margin money for the Bank Guarantees in respect of which fixed deposit receipts (Compilation pages 170 and 171) were issued by IDBI Bank on which the bank had retained a lien. The lien was retained by the Bank on account of the Bank Guarantee which were being issued against the aforesaid deposits. DSL urges that after it wrote a letter to IDBI Bank on 26th April, 2001 seeking the renewal of the Bank Guarantees, the matter was followed up and on 28th April, 2001 it became apparent that the bank was not likely to issue a confirmation about the renewal of the Bank Guarantees. On 28th April, 2001, DSL wrote to MSEB adverting to the fact that the Guarantees had not yet been renewed and suggesting that MSEB should adopt appropriate measures. In response thereto, a letter was written on 28th April, 2001 by the Advocates for MSEB to IDBI Bank seeking its confirmation as to whether it was renewing the Bank Guarantees failing which MSEB would have to move the Tribunal for appropriate directions. There are two important circumstances upon which DSL relies, the first being a telephonic conversation which took place between the Advocates appearing on behalf of DSL with the Advocates appearing on behalf of MSEB on 28th April, 2001. DSL's Advocates' letter dated 16th May, 2001 records this conversation as having taken place. The second circumstance is that according to DSL, there was a further conversation between its Chairman and the Chief Engineer (Distribution) of MSEB at 9 p.m. on 28th April, 2001. In so far as the conversation with the Chief Engineer is concerned, DSL has adverted to that conversation in a recording letter dated 29th April, 2001 which sets out that MSEB was advised to take appropriate measures including the encashment of the Bank Guarantees. MSEB undoubtedly faced a time constraint. The invocation of the Bank Guarantees had to be completed by 29th April, 2001 and though that was a Sunday, it is common ground that the IDBI Bank was transacting business from its Pune Branch from which the Guarantees were issued, on that date. The defence of DSL is that on 28th April, 2001 it had made several efforts to bring to the notice of MSEB the serious consequences that would ensue from the fact that Guarantees were not being renewed by the IDBI Bank. DSL contends that despite this, no steps were taken by MSEB to move the Arbitral Tribunal for urgent orders permitting the invocation of the Bank Guarantees and all that was done was to enquire with the IDBI Bank on 28th April, 2001 as to whether it was going to renew the Bank Guarantees. Apart from this explanation, which is borne out by the record and pleadings, the subsequent conduct of DSL is to my mind material in this case. Several letters were addressed by DSL both to IDBI Bank and to the other financial institutions which have a 40% stake in the share capital of DSL asking for their urgent intervention in the matter. DSL addressed its first letter dated 3rd May, 2001 to IDBI Bank which was followed by letters on 20th July, 2001, 26th July, 2001 and 28th August, 2001 either to IDBI Bank or to other financial institutions seeking their intervention in the matter. These efforts on the part of DSL failed since IDBI Bank declined to renew the Bank Guarantees. Thereupon, DSL took out proceedings before the Arbitral Tribunal for a direction to the IDBI Bank either to deposit the proceeds of the two Guarantees with the Prothonotary and Senior Master of this Court or for a direction to the bank to renew the Guarantees. That application was allowed by the Arbitral Tribunal upon which DSL filed an application under section 9 of the Arbitration and Conciliation Act, 1996 for enforcement of the order of the Arbitral Tribunal. This Court came to the Conclusion that the order of the Arbitral Tribunal was a nullity since it could not bind the IDBI Bank which was not a party to the arbitral proceedings. As noted above, DSL was under an obligation to ensure the renewal of the Bank Guarantees. The steps which were taken by DSL immediately before the expiry of the Guarantees on 29th April, 2001 and after 29th April, 2001 cannot be ignored by the Court in assessing whether there has been contumacious behaviour on the part of DSL.

54. DSL's deteriorating financial position was equally a matter which was within the knowledge of MSEB. Counsel for DSL has drawn the attention of the Court to several parts of the pleadings, applications and affidavits before the Arbitral Tribunal which show that the deteriorating financial condition of DSL was a matter of record before the Arbitral Tribunal DSL had in fact sought an interim Award before the Arbitral Tribunal on the basis of the pleading that the withholding of payments by MSEB was causing serious prejudice to it, leading to a default in the payment of interest and the principal sums due to financial institutions (DSL : compilation pages 8 to 14). DSL also relies on what it had set out at paragraphs 9.1, 18.2, and 19 of the statement of claim filed before the Arbitral Tribunal. That MSEB was conscious of the poor financial position of DSL is apparent from the interim application which was filed on 8th June, 2001 before the Arbitral Tribunal. In paragraphs 21 and 22 of the interim application, MSEB stated that DSL is in serious financial difficulties; that a number of winding up petitions have been filed against it by creditors before this Court and that DSL has been declared as a relief undertaking under the Bombay Relief Undertakings Act on 31st March, 2001. On 28th February, 2002 an affidavit was filed on behalf of DSL before the Arbitral Tribunal once again emphasising its financial difficulties. On 22nd January, 2002 the Superintending Engineer (Distribution) of MSEB set out in his affidavit before the Arbitral Tribunal that DSL was in acute financial difficulty and had registered itself as a sick industrial undertaking. The Chairman and Managing Director of DSL in an affidavit dated 5th May, 2002 had pointed out before the Tribunal that though the gross turn over of the Company was around Rs. 80 lakhs per month, this was inclusive of sales tax of 15.3% and excise duty of 16%. Besides it was recorded that since the company was in financial difficulties, suppliers of raw material had to be paid on the basis of cash on delivery which would work out to 50%. The affidavit recorded that the salary bill of the Company came to about Rs. 25 lakhs and the company had not been able to pay the salaries and wages of its employees for over five months. It was again highlighted before the Arbitral Tribunal in the written submissions filed by DSL that several affidavits of the employees of DSL were filed before the Arbitral Tribunal recording the serious financial difficulties faced by DSL as a result of which even the salaries had not been paid to the employees. There is no dispute about the fact that a reference has been registered under section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 on 3rd July, 2001. In these circumstances, I am of the view that one of the learned Arbitrators, Mr. Justice V.D. Tulzapurkar, who has adverted to the financial difficulties which have been faced by DSL was justified in taking the view that having regard to these financial difficulties, it cannot be regarded that the failure of DSL to submit a fresh Bank Guarantee after 29th April, 2001 following the refusal of IDBI Bank to renew the earlier guarantees was deliberate or contumacious.

55. The learned arbitrator who has expressed his dissent has devoted a significant part of the order to reproducing the affidavit of the IDBI Bank. The finding of the dissenting arbitrator that DSL's conduct is contumacious is founded on the allegations contained in the affidavit of IDBI Bank. That affidavit, it must be noted, was filed in the arbitration petition which was moved before this Court by DSL for securing compliance with the order passed by the Arbitral Tribunal against the bank requiring it to deposit the proceeds of the bank guarantees. This Court held in that proceeding that IDBI Bank was not a party to the arbitration agreement and that it was therefore, in the very nature of things, outside the jurisdiction of the Arbitral Tribunal to issue any direction to the IDBI Bank. A finding was recorded by this Court in the course of its judgment that it was not appropriate for the Court to go into validity or otherwise of the reasons why the bank refused to renew the bank guarantees in those proceedings. That order has attained finality. In fairness, it must be recorded that beyond a passing reference to the affidavit of IDBI Bank, Counsel for MSEB has not attempted to sustain his submissions with reference to the affidavit of IDBI Bank in the earlier petition. In fact, Counsel for MSEB submitted that the reference to the conduct of the IDBI Bank in the order of Mr. Justice V.D. Tulzapurkar must also be excluded from consideration. I am of the view that it is inappropriate for this Court to look into the affidavit of IDBI Bank or to rule on the dispute between the bank and DSL. There is a serious dispute between DSL and IDBI Bank. DSL has instituted a civil suit against IDBI Bank. The defence on merits of IDBI Bank has not been adjudicated upon. IDBI Bank is not a party to these proceedings. In fairness, it must be said that neither of the two Learned Counsel has sought to rely upon the affidavit filed by the bank, conscious as they were of the grave limitations of any such exercise.

56. Counsel appearing on behalf of DSL has stated before the Court that DSL submits to the order passed by the Arbitral Tribunal requiring DSL to bring back the amount of Rs. 6.81 crores. Counsel urged that DSL accepts the position that having been permitted to withdraw the amount against the furnishing of bank guarantees, DSL is duty bound to bring back the said amount. DSL has, however pleaded before the Court that at present, it is impossible for the company to do so in view of the fact that the company is facing serious financial stringency and in pursuance of which a reference has been registered before the BIFR. Counsel for DSL has stated before the Court that in another matter involving an arbitral proceeding between MSEB and DSL, the Arbitral Tribunal has allowed the claim of DSL to the extent of Rs. 1.13 crores and in execution of the Arbitral Award, DSL has secured an attachment of the Bank Account of MSEB to the extent of Rs. 1.13 crores. Counsel for DSL states that DSL has no objection to this amount being adjusted forthwith by MSEB against the direction issued by the Arbitral Tribunal to DSL in the present case subject to the right of DSL to claim the Award of interest in the event that the Arbitral Tribunal holds that MSEB is liable to refund the amount. Independent of this statement, Counsel for DSL states before the Court that DSL would be ready and willing and shall move the BIFR before whom a reference has been registered for suitable orders permitting DSL to furnish security inter alia in regard to an unencumbered factory of DSL so that the balance of the amount of Rs. 6.81 crores can be duly secured. Learned Counsel has fairly stated that there are pending proceedings before the Debt Recovery Tribunal in which certain interim orders operate. Counsel for DSL has already stated that should MSEB move the BIFR for permission to execute the order of the Arbitral Tribunal, under section 22, DSL would show its bona fides by extending its co-operation in all respects since DSL does not seek to obstruct the execution of the order.

57. Having given my careful consideration to the submissions which have been urged, I am of the view that this is not a fit and proper case for the exercise of the jurisdiction of this Court under section 9 of the Arbitration and Conciliation Act, 1996 to suspend the arbitral proceedings. Two of the learned arbitrators, Mr. Justice V.D. Tulzapurkar and Mr. Justice M.L. Pendse have considered it inappropriate that the arbitration proceedings should be deferred or suspended at this stage. 75 hearings have taken place before the Arbitral Tribunal. The evidence of DSL's sole witness has been recorded and he was cross-examined over a period of nine months over the course of 25 arbitral hearings. Over 400 pages of evidence has been recorded by the Arbitral Tribunal. I do not find that any case has been made out for the suspension of arbitral proceedings. MSEB has failed to establish that there has been contumacious conduct on the part of DSL. DSL has been able to demonstrate before the Court that there has been no wilful disregard of the order of the Arbitral Tribunal. MSEB is at liberty to adopt appropriate proceedings for executing the order of the Arbitral Tribunal requiring DSL to bring back the amount withdrawn by moving the BIFR for its permission under section 22 of the SICA, 1985. The statement which has been made on behalf of DSL by its learned Counsel in the terms recorded hereinabove is accepted. In the view which I have taken, it is not necessary to pursue the question as regards the maintainability of the appeal under section 37, raised by DSL. Since the learned Counsel have addressed the Court both with reference to the power of the Arbitral Tribunal under section 17 and the power of the Court under section 9 and on whether a case has been made out in fact for the exercise of jurisdiction, the question of maintainability does not survive. I do not find any merit in the arbitration petition which is accordingly dismissed.