Indian Railway Construction Co. ... vs M/S. Guadricon Pvt. Ltd.
1994 Latest Caselaw 602 Del

JUDGMENT

R.C. Lahoti, J.

1. This order disposes of I.A. 4412/94 and I.A. No. 5240/94, p/2.

2. These proceedings have arisen out of a petition under Section 41 read with Schedule II of the Indian Arbitration Act, 1940.

3. The petitioner is a public sector undertaking. The respondent is a company incorporated under the Companies Act, 1956. They are parties to an agreement under which the respondent has availed advances for making tests on portable steel bridges superstructures using patented Quadricori system for procurement of plant, machinery, equipment as also raw material for execution of tendered work of Government of Bangladesh awarded to the respondent. Between the parties there have arisen disputes which form subject matter of arbitration which is pending. The respondent has entered into yet another contract with the Chief Engineer (Purchases) of the Northern Railway, Baroda House, New Delhi. The work under that contract is known as Akbnoor Bridge Project. According to the petitioner, the respondent in executing such other works, is taking aid of test certificates achieved by using the petitioner's advances and by using petitioner's plant, machinery, equipment, left over raw materials/steel sections, etc. The respondent having already received substantial amounts in execution of such other work, is due to receive more than Rs. 30 lakhs from the above said Akhnoor Bridge Project has been filed by the petitioner under Order 39 Rule 1-2 read with Schedule II and Section 41 of the Arbitration Act seeking a restraint order against the respondent from receiving any amount receivable by it from Chief Engineer Purchases of Northern Railway on account of Akhnoor Bridge Project.

4. Though order was yet to be passed on I.A. 4412/94, it appears that the petitioner as on 20.5.1994, addressed a letter to the General Manager Northern Railway Headquarters requesting the letter not to release any amount to the respondent because the release of amount may prejudice adversely the recovery which the petitioner is likely to make from the respondent hopefully under the award which is yet to be given by the Arbitrator.

4.1. On 31.5.1994, the respondent has filed I.A. No. 5240/94 styled as an application under Section 41 read with Schedule II of the Arbitration Act. 1940 and Section 151 CPC whereby it has sought for a restraint order against the petitioner from interfering (1) in the business activities of the respondent and (ii) in receiving the amount of Rs. 30 lakhs approximately from the office of the Chief Engineer Northern Railway, Baroda House New Delhi relating to the work executed at Jammu in respect of Akhnoor Bridge Project. The respondent also seeks a direction to the petitioner to inform the Chief Engineer Northern Railway that the amount payable by the letter to the respondent cannot be withheld at the instance of the petitioner.

4.2. Thus, in short, the two applications seek reliefs diametrically opposed to each other.

5. Let it be noted at the very outset that the Chief Engineer Northern Railway is not a party to these proceedings. He is also not a party to the contract entered into between the parties and the disputes forming subject matter of arbitration before the Arbitrator. So also, the petitioner herein is neither a party nor has anything to do with the contract entered into by the respondent with the Chief Engineer Northern Railway relating to Akbnoor Bridge Project.

6. Both of applications have been seriously contested by the two non-applicants of the two applications. Though the learned counsel for the parties have made their exhaustive submissions on the merit worthiness of the two applications, the major part of their arguments centers around the provisions contained in Section 41 and Second Schedule of the Arbitration Act. The scope and extent of power exercisable by the court and the nature of interim relief which can be allowed by the court during the pendency of the arbitration proceedings before the Arbitrator need to be examined and determined.

7. Section 41 of the Act and Second Schedule are extracted and reproduced hereunder for the sake of ready reference :

Section 41. procedure and powers of Court. Subject to the provisions of this Act and of rules made there under -

(a) the provisions of the Code of Civil Procedure, 1908 (5 of 1908) shall apply to all proceedings before the court, and to all appeals, under this Act, and

(b) the court shall have, for the purpose of, and in relation to. arbitration proceedings, the same power of making orders in respect of any of the matter set out in the Second Schedule as it has for the purpose of, and in relation to, any proceedings before court.

THE SECOND SCHEDULE :

Power of Court

(1) The preservation interim custody or sale of any goods which are the subject matter of the reference.

(2) Securing the amount in difference in the reference.

(3) 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 aforesaid purposes 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 evidence.

4. Interim injunctions or the appointment of a receiver.

5. The appointment, of a guardian for a minor person of unsound mind for the purposes of arbitration proceedings.

8. Straightaway, the law laid down by the Supreme Court in M/s. HMK Ansari & Co. v. Union of India , may be noticed. Vide para 18 their Lordships have held :

"Clause (a) of Section 4 makes only the procedural rules of the Civil P.C. applicable to the proceedings in court under the Arbitration Act. This clause does not authorise the court to pass an order of injunction. The power is conferred by clause (b) of Section 41. The source of power, therefore, cannot be traced to clause (a)."

It was contended before their Lordships of the Supreme Court that clause (a) of Section 41 makes the Code or Civil Procedure applicable to all proceedings before the court and to all appeals under the Act and therefore. Order 39 of the Code could be invoked to get an injunction order even if the conditions of clause (b) of Section 41 were not satisfied. Their Lordships of the Supreme Court repelled th contention and observed :

".... If the contention of Shri Kacker is accepted the appeals would lie under Sections 96, 100 or 104 of the CPC but the Arbitration Act itself provides for appeal under Section 39. Besides, if Clause (a) of Section 41 gave wide powers to pass an order of injunction, Clause (b) of Section 41 would become otiose.

9. A single bench decision of the High Court of Madhya Pradesh in Manohar Singh v. Hind Kumar Kohli , was referred to at the Bar. The High Court of Madhya Pradesh faced with an application under Order 38 Rule 5 CPC traced the source of power for passing an order there under to clause (a) of Section 41 and held :

"It is true that in any of the items of the second schedule there is not specific power given for passing an order under Order 38 Rule 5 but clause (a) of Section 41 makes the provisions of the Code of Civil Procedure applicable to all proceedings before the court and to all appeals, except where such application is expressly excluded by the Act or by any enactment or rule."

With greatest respect to the learned Judge deciding Manohar Singh's case it has to be said that the view of the law taken therein runs counter to the law laid down by the Supreme Court and, therefore, cannot be said to be good law. The law laid down by the Supreme Court is that Section 41(a) makes only the procedural rules of CPC applicable to the proceedings in court under the Arbitration Act. An order of attachment before judgment under Order 38 Rule 5 CPC is not a matter of more procedure. It appears that the law laid down by the Supreme Court though available was not brought to the notice of the learned Judge deciding Manohar Singh's case.

10. M/s. HMK Ansari's case (supra) was a case where the contractor had entered into more contracts than one with the Union of India. The Union of India threatened to withdraw an amount from the payment due under the pending bills of other contracts of the contractor. The contractor sought for an injunction under Section 41 read with Second Schedule of the Arbitration Act and Order 39 Rules 1-2 read with Section 151 CPC restring the Union of India from appropriating or withholding or recovering the amount claimed from its other bills in any manner whatsoever. Their Lordships of the Supreme Court held :

"The court has got the power to pass an order of injunction only for the purpose of and in relation to arbitration proceedings before the Court."

"It was not open to the court to pass the interim injunction restraining the respondent from withholding the amount due to the appellant under pending bills in respect of other contract".

11. Following the above said law laid down by their Lordships of the Supreme Court, the High Court of Andhra Pradesh has held in C. Raghava Reddy v. Superintending Engineer Irrigation Circle Niazamabad :

"The Court has no power, under the Arbitration Act, to grant an injunction restraining the Government from with holding the amounts due to the appellant herein in respect of other contracts for the reason that such an injunction cannot be said to be for the purpose of, and in relation to the proceedings before the court".

12. In view of the aforesaid legal position, well settled as it is, both the applications - one filed by the petitioner and the other filed by the respondent - are liable to be rejected. The amount which is claimed by the respondent from the General Manager, Northern Railway in connection with Akhnoor Bridge Corporation is neither a subject matter of the proceedings before the Arbitrator, nor has anything to do therewith. The relief sought by either party cannot be said to be for the purpose of and in relation to arbitration proceedings.

13. It was forcefully contended by the learned counsel for the respondent that it was not only unreasonable but also illegal on the part of the General Manager or the Chief Engineer of the Northern Railway to have withheld the payment due to the respondent on account of Akhnoor Bridge Project contract on a letter written by the petitioner IRCON, and it was equally illegal and improper on the part of the petitioner to have asked the General Manager/Chief Engineer Northern Railway to withhold the payment to the respondent. There is substance in the submission of the learned counsel for the respondent inasmuch as the claim pending before the Arbitrator to which the present proceedings relate is yet to be adjudicated upon and in hopeful anticipation of an award by the Arbitrator, a party cannot of its own ask a third party to withhold a payment which is otherwise legitimately due and payable. However, that is the position of law which the respondent is at liberty to bring to the notice of the General Manager/Chief Engineer, Northern Railway. In so far as, this Court is concerned, in view of the law which has already been stated hereinabove, no order either way can be made.

14. For three reasons the two applications filed by the petitioner and respondent herein must fail. Firstly, the parties are asking for a relief which is neither 'for the purpose of' nor 'in relation to' the arbitration proceedings. Sesondly, the amount payable in respect of Akhnoor Bridge Project contract is not a subject matter of this suit. Thirdly, the General and/or Manager or the Chief Engineer, Northern Railway are not parties in these proceedings and no order can be made effecting or binding them behind their back.

15. Learned counsel for the petitioner still tried to salvage the prayer contained in the petitioner's application by resorting to Order 38 Rule 5 CPC and submitting that even if Order 39 Rules 1-2 CPC read with Section 41 and Second Schedule of Arbitration Act was held to be inapplicable, the facts and circumstances of the case eminently justify relief being allowed to the petitioner by way of attachment before judgment of the amount payable by the Northern Railway to the respondent.

16. Order 38 Rule 5(1) CPC provides as under :

"R. 5 Where the defendant may be called upon to furnish security for production of property : (1) Where at any stage of a suit, the Court is satisfied by affidavit or otherwise that the defendant, with intent to obstruct or delay the execution of any decree that may be passed against him -

(a) is about to dispose of the whole or any part of his property; or

(b) is about to remove the whole or any part of his property from the local limits of the jurisdiction of the court, the court may direct the defendant, within a time to be fixed by it, either to furnish security, in such sum as may be specified in the order to produce and place at the disposal of the court, when required the said property or the value of the same or such portion thereof as may be sufficient to satisfy the decree or to appear and show cause why he should not furnish security."

17. It is well settled than an order for attachment before judgment is not to be made merely because the court is convinced of the plaintiff having a strong case on merits or merely because the court feels that it would not cause any harm to the opposite party. The ingredients must exist without which a court will not have jurisdiction to make the order. (See Sardar Govind Rao Mahadik v. Devi Sahai and others ). High Court of Madhya Bharat in Nand Lal v. Keshri Mal (AIR 1950 MB 70), sounded a note of caution - "attachment of property is a serious proceeding and courts ought to be careful not to lend themselves as tools of oppression. The High Court of Gujarat in Bharat Tobacco Co. v. Maula Saheb A. Zamadar (AIR 1908 Guj. 202), has stated the law in the following terms :

"In order to invoke the jurisdiction of the court under Order 38 Rule 5, it is not sufficient to reproduce the language of that rule but the party seeking the order must establish by affidavit or otherwise facts which would satisfy the court that the opposite party is about to dispose of the whole or any part of his property with a view to obstructing or delaying the execution of the decree that may be passed in the suit. An order of attachment before judgment is a drastic order and ordinarily the court would be slow in exercising the power conferred upon it under Order 38 Rule 5 for the simple reason that if the power is not exercised with utmost care and caution, it may ruin the reputation and business of the party against whom the power is exercised. The court must act with utmost circumspection before issuing an order of attachment so that the power vested in the court is not abused by an unscrupulous litigant as a weapon of oppression against the opposite party. It is the duty of the court to take care to see that it is not used as an instrument to coerce the opposite party to settle the matter with the party armed with an order of attachment before judgment on the latter's terms."

18. The High Court of Calcutta in an illuminating judgment on the provisions of Order 38 Rule 5-6 CPC, in Prem Raj Mundra v. Md. Maneck Gazi and others laid down 11 guiding principles to be kept in view by the courts faced with a prayer for attachment before judgment. These principles have been formulated from a perusal of several authorities on the point and referred to in the judgment. The following principles are relevant for the case at hand which are extracted and reproduced :

(1) That an order under Order 38 Rules 5 and 6 can only be issued, if circumstances exist as are stated therein.

(2) Whether such circumstance exist is a question of fact that must be proved to the satisfaction of the court.

(3) That the court would not be justified in issuing an order for attachment before judgment, or for security, merely because it thinks that no harm would be done thereby or that the defendants would not be prejudicated.

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(8) That the mere fact of transfer is not enough since nobody can be prevented from dealing with his properties simply because a suit has been filed : There must be additional circumstances to show that the transfer is with an intention to delay or defeat the plaintiffs claim. It is open to the court to look to the conduct of the parties immediately before suit, and to examine the surrounding circumstances and to draw an inference as to whether the defendant is about to dispose of the property and if so, with what intention. The court is entitled to consider the nature of the claim and the defense put forward.

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 (10) That in case of running business, the strictest caution is necessary and the mere fact that a business has been closed, or that its turnover has diminished, is not enough."  
  
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19. This court has carefully perused the contents of I.A. 4412/94. The contents of the application and the affidavit in support thereof do not satisfy the requirements of Order 38 Rule 5-6 CPC. Withholding of payment is sought for solely on the ground that it was necessary for meeting the ends of justice. Without entering upon the discussion suffice it to say that the application does not set out any facts attracting the applicability of any of the ingredients of Order 38 Rule 5 CPC so as to persuade this court to grant the relief by way of attachment before judgment to the petitioner. On the contrary, having perused the facts and circumstances of the case and such material as is available on record, prima facie this court finds the respondent to be a well established company of long standing having a widespread field of its activities. There is no material available in record to justify drawing an inference that the respondent was securing release of Rs. 30 lakhs approximately from the Northern Railway with the intention of defeating or delaying the petitioner's claim.

20. As an upshot of the above discussion, both the I.As. 4412/94 and 5240/94 are rejected.