Sri Chand & Sons vs Gaurav Co-Op. Group Housing ...
1999 Latest Caselaw 485 Del

JUDGMENT

M.S.A. Siddiqui, J.

1. The petitioner firm has filed this petition under Section 41(b) of the Arbitration Act, 1940 praying for a direction to restrain the respondent Society and its members from alienating, transferring or otherwise creating third party interest in the flats till adjudication of disputes by the Sole Arbitrator.

2. By the agreement dated 14.8.1986, the petitioner firm was awarded contract to construct 84 flats in phase 'B' at Plot No. 1, near DTC Depot, Patparganj, Delhi for members of the respondent Society. Construction of the flats was completed in December, 1991 and draw of lots for allotment of flats to members of the respondent Society was held on 2.2.1992. No complaint with regard to the construction of the flats was made by the respondent Society within the defect liability period. By the agreement dated 18.6.1992, some additional work for supply and fixation of glazed window panes and window grills etc. was also awarded to the petitioner firm. After execution of the contract, certain disputes and differences arose between the parties with regard to the claims of the petitioner firm arising out of and in relation to the said contract. The petitioner firm filed a petition under Section 20 of the Arbitration Act before this Court for making reference of these disputes to an Arbitrator in terms of the arbitration agreement. By the order dated 19.3.1996 passed by this Court in Civil Suit No. 1914-A/ 94, Shri Jagmohan Sabharwal was appointed as an Arbitrator to adjudicate upon the said disputes between the parties. The petitioner firm has preferred a claim of Rs. 2,35,90,771 / - before the Arbitrator. According to the petitioner, despite restrain order passed in Civil Suit No. 1914-A/94, some members of the respondent Society have already sold the flats allotted to them. The petitioner, therefore, apprehends that in the event of its success in the arbitration proceedings, it may not be able to recover its dues from the respondent Society or its members.

3. The respondent Society has opposed the petition contending that in order to misappropriate the funds of the Society, Shri Manak Chand, the then Secretary of the Society, constituted the petitioner firm consisting of his father-in-law Shri Sri Chand and His Sons. The said firm was constituted in 1984. Tenders for awarding contract for construction of the said flats were floated in 1985 and at that time Shri Manak Chand was Secretary of the respondent Society. It is alleged that though validity of the tender submitted by the petitioner firm had already expired and it also did not satisfy the terms and conditions of the Notice inviting tenders yet Manak Chand, as a Secretary of the respondent Society, managed to secure the contract for the petitioner firm on exorbitant rates. It is also alleged that after awarding the said contract Shri Manak Chand and his colleagues had misappropriated huge funds of the respondent Society and the matter is under investigation by the Delhi Police. According to the respondent, a sum of Rs. 6,19,10,653/- is due to the Society from the petitioner firm and the present petition is an abuse of the process of the Court as similar prayer of the petitioner firm had already been rejected by this Court vide orders dated 19.3.1996 passed in Civil Suit No. 1914-A/94.

4. The question for consideration is: whether the petitioner has made out a prima facie case for grant of temporary injunction? It is undisputed that the petitioner firm is a partnership firm; that Shri Manak Chand's father-in-law Shri Sri Chand and his sons, namely, Shri Bhola Singh (since deceased), Shri Azad Singh and Shri Manoj Kumar were partners of the said firm and that the said firm was constituted in 1984. It is also beyond the pale of controversy that tenders for awarding construction of flats in question were floated in 1985 and at that time the said Manak Chand was Secretary of the respondent Society, It is also undisputed that by the agreement dated 14.8.1986, the petitioner firm was awarded contract for construction of the said flats and that the petitioner firm had filed a petition under Section 20 of the Arbitration Act, 1940 against the respondent Society for referring the disputes and differences between the parties to arbitration in accordance with the arbitration agreement and that by the order dated 19.3.1996 passed in Civil Suit No. 1914-A/94 Shri Jagmohan Sabharwal was appointed as an Arbitrator to adjudicate upon the said disputes between the parties.

5. It is a well recognized principle for the grant of equity relief that the party invoking discretionary jurisdiction of the Court must come to the Court with clean hands and must disclose all facts for and against it in order to claim the discretionary relief of injunction. It was contended in the counter affidavit filed on behalf of the respondent Society that Shri Manak Chand, the Secretary of the respondent Society in collusion with other members/office bearers, namely, S/Shri R.D. Rajvanshi, S. Prasad, N.P. Nimesh and Badan Singh and others misappropriated huge funds of the Society and the same is being investigated by the Delhi Police. It was also alleged that S/Shri Manak Chand, R.D. Rajvanshi and S. Prasad had been manipulating to hold one post or the other of the respondent Society till they were thrown out in an election held in pursuance of the directions of this Court in 1996. The aforesaid facts have not been specifically denied by the petitioner firm. Shri P.S. Alop, present Secretary of the respondent Society has filed his affidavit to show that S/Shri Manak Chand, RD. Rajvanshi and S. Prasad had occupied important posts of the respondent Society during the period from 8.8.1979 to 2.8.1992. Details are as under :

Manak Chand  

From 8.8.1979 to 26.10.1980  

Executive Member of the Society  

From 27.10.1980 to 17.4.1983  

Cashier of the Society  

From 18.4.1983 to 10.6.1984  

Executive Member of the Society  

From 11.6.1984 to 13.7.1986  

Secretary of the Society  

From 14.7.1986 to 13.9.1997  

Vice President of the Society  

From 5.2.1989 to 2.8.1992  

Executive Member of the Society  

S. Prasad

From 8.8.1979 to 26.10.1980 Cashier/Secretary

From 27.10.1980 to 17.4.1983 Secretary

From 18.4.1983 to 10.6.1984 President

From 11.6.1984 to 13.7.1986 Cashier

From 14.7.1986 to 13.9.1987 President

From 5.2.1989 to 2.8.1992 Executive Member

R.D. Rajvanshi

From 8.8.1979 to 26.10.1980 Executive Member

From 27.10.1980 to 17.4.1983 President

From 18.4.1983 to 10.6.1984 Secretary

From 11.6.1984 to 13.7.1986 President

From 14.7.1986 to 13.9.1987 Secretary

From 5.2.1992 to 2.8.1992 Executive Member

6. The aforesaid facts are relevant to show that Shri Manak Chand, being an influential member of the respondent Society, remained at the helm of the affairs of the respondent Society from 1979 to 1992. These facts also assume importance in view of the contention raised by the learned Counsel for the respondent Society that Shri Manak Chand had fraudulently secured the contract in question for his dose relations by misusing his official position as a Secretary of the respondent Society. It was relevant to mention that bias may be of three kinds, pecuniary, personal and official. In the instant case personal bias may be proved by the existence of close relationship between an important office bearer of the Society and partners of the petitioner firm. Otherwise it is very difficult to prove a man's state of mind by direct evidence. In this context, it will be useful to reproduce the following paragraphs of the affidavit filed by Shri P.S. Alop, Secretary of the respondent Society :

"2. I say that as per tender conditions the tenderer must be recognised, experienced, first class contractor who has successfully executed at least two works of the same nature. A certificate to substantiate the same must accompany the tender. For ready reference of this Hon'ble Court relevant condition of the tender is reproduced below :

"Tenders are invited from the recognised, experienced, first class contractors who have successfully executed at least two works of similar nature. A certificate to substantiate the same must accompany the tender."

3. From the record of the Society I can say that M/s. Siri Chand & Sons now floated a partnership concern consisting of Shri Siri Chand, who is father-in-law of Shri Manak Chand. The other partners are sons of Shri Siri Chand viz. brother-in-laws of Shri Manak Chand. I say as per the proforma working experience and financial capacity for executing civil work was required to be furnished in terms of the Tender Form, but nothing has been shown though erroneously suggested working experience of last 5 years. It is erroneous on the face of it. Photo copy of the proforma forming part of the tender submitted by M/s. Siri Chand & Sons is placed on record as per Annexure X. 4."

7. The aforesaid statement dearly shows that the tender submitted by the

petitioner firm did not satisfy the requirements of the relevant condition of the Notice inviting tender issued by the respondent Society. It also needs to be highlighted that even after expiry of the validity of the tender submitted by the petitioner firm, the contract in question was awarded to it. Reference may in this connection be made to the following clause of the agreement dated 14.8.1986 executed by the parties :

"Whereas M/s. Sri Chand & Sons submitted their item rate tender amounting to Rs. 95,54,157.50 against the estimated cost of Rs. 65,00,000/- in respect of phase 'B' for construction of above mentioned 84 flats. While the validity of the tender^ expired on 3.5.1986, the contractor made a request vide their letter dated 10.7.1986 to undertake the work as per their tender dated 3.11.1985 and thereupon the owner made negotiations with the contractor. The contractor agreed to undertake the construction of 84 flats of phase 'B' including sanitary installations at their tendered rates on the following terms and conditions which have been finally and mutually agreed upon by the contractor and the owner/Society."

8. It is significant to mention that on 2.2.1999, learned Counsel for the petitioner, on instruction of Sri Chand (one of the partner of the petitioner firm and father-in-law of Shri Manak Chand) made a statement before the Court that on the date of award of the contract to the petitioner firm Shri Manak Chand was not even an office bearer of the respondent Society. Shri P.S. Alop has filed a copy of the Minutes of the Meeting dated 13.7.1986 of the Annual General Body of the respondent society in order to rebut the said statement made on behalf of the petitioner firm. Faced with the said situation, Sri Chand filed his affidavit offering unconditional apology for the false statement made before this Court. Now it has been admitted that on 13.7.1986, Shri Manak Chand was Secretary of the respondent Society. In my opinion, the said fact alone tilts the scales of equity in favour of the respondent Society. However, in this context, it will be useful to reproduce the following Minutes of the Meeting dated 13.7.1986 :

 "x x x             x x x   x x x  
 

 (c)      The Secy, mentioned that the question of award of contract of 2nd phase i.e. 84 flats was considered at the last general body meeting deferred for consideration in the next general body meeting. He stated, that the question for consideration by general body was whether the contract for 2nd phase be given to existing contractor or to one of the contractors whose offers received earlier or fresh tender be issued. The opinion in the meeting was that it would be better to award contract to some other contractor as it would generate competition and quality comperasion. Issue of fresh tender would be time consuming as also the rates offer will be more. In view of this the contract may be given to one of the contractors whose offers already with us and were considered suitable for the Society. The Secretary mentioned that the general body had considered the rates terms and conditions suitable to the society only in respect of M/s. Manohar & Co. and M/s. Sree Chand & Sons. The Secy, also mentioned that M/s. Sree Chand has intimated to undertake construction on the same rates, terms and conditions as agreed to earlier. After some further discussion, general body unanimously passed the following resolution : 
  "The general body resolves that the contract for 2nd phase i.e. 84 flats be given to

M/s. Sree Chand & Sons at the rates as offered by them in their tender submitted in Nov., 1985 less 3% rebate." (sick) 
 

 xxxxxxxx 
 

 xxxxxxxx 
 

 The meeting disbursed with thanks to the Chair. 
 

Sd/- 

Manak Chand"  
 

9. Prima facie, the aforesaid circumstances clearly go to show that there was an abnormal desire on the part of Shri Manak Chand to award the contract to his close relations. It hardly requires any argument to show that Shri Manak Chand was interested in the matter of grant of contract in question to the petitioner firm. The Society would normally be guided by the proposals of the member Secretary. Further, to say that the member Secretary is only one of the members of the Society is to overlook the fact that the member Secretary can subtly influence the minds of the other members against acceptance of other tenders in preference to his own relation. When a tender of a dose relation of Secretary of the Society comes up for consideration, the other members would feel themselves embarrassed in frankly discussing its merits. Whether they were so influenced or not is, however a matter impossible to determine. It is not, therefore, the actual bias in favour of the relation of the member Secretary that is material but the possibility of such bias. In such a situation it is difficult to eliminate the evil of quid pro quo. The aforesaid circumstances give rise to an inference that partners of the petitioner firm in collusion with Manak Chand, the then Secretary of the Society, have acted in an unfair or unequitable manner in securing the contract in question. Consequently, I find and hold that the petitioner has failed to make out a prima facie case for grant of injunction.

10. That apart, the petitioner has also sought interim injunction against members of the respondent Society who are not before me. Petitioner's similar prayer has already been rejected by this Court vide orders dated 19.3.1996 passed in Civil Suit No. 1914-A/ 1994. The relevant paragraph of the said order is as under :

"Mr. Aggarwal states that till such time the Arbitrator makes and publishes his award, members of the respondent Society should be restrained from disposing of the flats allotted to them by the society. The members of Society are not before me. At this stage, as members of the Society are not before the Court and without hearing them, it will not be appropriate to pass such an order."

11. For the foregoing reasons, the petition filed under Section 41(b) of the Arbitration Act, 1940 is dismissed. The interim order dated 22.5.1997 is vacated. Before I part with this order, I would like to make it dear that nothing stated herein shall affect the rights of the parties that are being agitated in the arbitration proceedings. By way of abundant caution, I want, however, to record that any observation made by this Court on the merits of the case of either party shall not be taken into consideration by the Arbitrator.