Madhya Pradesh High Court
Union Of India Through General Manager vs Nataskee Incorporation Through Its ... on 2 May, 2025
Author: Vivek Rusia
Bench: Vivek Rusia
NEUTRAL CITATION NO. 2025:MPHC-IND:11564
1 A.A. No. 57 of 2025
IN THE HIGH COURT OF MADHYA PRADESH
AT INDORE
BEFORE
HON'BLE SHRI JUSTICE VIVEK RUSIA
&
HON'BLE SHRI JUSTICE GAJENDRA SINGH
ON THE 2nd OF MAY, 2025
ARBITRATION APPEAL No. 57 of 2025
UNION OF INDIA THROUGH GENERAL MANAGER AND OTHERS
Versus
NATASKEE INCORPORATION THROUGH ITS AGENT DEEPAK
SHARMA
Appearance:
Shri Aviral Vikas Khare - advocate for the appellant.
Shri Brijesh Garg with Shri Vishal Lashkari - Advocate for the
respondent.
Reserved on : 23.04.2025
Pronounced on : 02.05.2025
---------------------------------------------------------------------------------------------------
ORDER
Per: Justice Vivek Rusia
This Arbitration Appeal under Section 37 of the Arbitration and
Conciliation Act, 1996 has been preferred against the order dated
25.02.2025 passed by the learned District Judge, Commercial Court,
Indore in MJC AV No. 12 of 2025 whereby the learned Court while
exercising powers under Section 9 of the Arbitration and Conciliation
Act, 1996 granted interim relief in favour of the Respondent.
NEUTRAL CITATION NO. 2025:MPHC-IND:11564
THE FACTS OF THE CASE, IN SHORT, ARE AS UNDER:-
2. Appellant No.2 i.e. Divisional Manager, Western Railway, Ratlam
had issued a Notice Inviting Tender (NIT) bearing No. EL-2024-2025-
09 dated 27.07.2024 of installation of Solar Grid systems at various
locations within the Ratlam Railway Division. The Respondent
participated in the tendering process and was declared the lowest bidder
(L1).
3. Consequently, a Letter of Acceptance (LOA) was issued in favour
of the Respondent on 29.11.2024. As per the terms of the LOA and the
Indian Railways General Conditions of Contract (GCC), 2022, the
Respondent was mandatorily required to submit a Performance
Guarantee (PG) within 21 days, i.e., on or before 20.12.2024 with a
provision for extension up to 60 days i.e. till 27.01.2025 on payment of
penal interest.
4. The Respondent however failed to submit the requisite
Performance Guarantee within 21 days and did not seek any extension
from the competent authority before the expiry of the stipulated period.
The Respondent unilaterally sought to submit the Performance
Guarantee beyond the permitted period without the payment of penal
interest and thereby breached the mandatory terms of the LOA. As a
consequence of the said breach and in accordance with the stipulations
of the LOA and the GCC the Appellants rescinded the LOA on
29.01.2025.
5. Being aggrieved, the Respondent approached the Commercial
Court, Indore under Section 9 of the Arbitration Act, 1996 seeking
interim protection against the rescission of the LOA and to restrain the
NEUTRAL CITATION NO. 2025:MPHC-IND:11564
appellants from awarding the work to any other party. The Respondent
claimed the existence of an arbitration clause within the standard
contract documents to contend that the dispute is arbitrable. Whereas,
the appellants contested the maintainability of the application on the
ground that no concluded contract had come into existence and thus
recourse to Section 9 of the Arbitration and Conciliation Act was wholly
misconceived.
6. Despite the objections raised by the appellants, the learned
commercial court vide order dated 25.02.2025 allowed the application
of the respondent to stay the operation of the tender and also restrained
the Appellants from awarding the work to any other bidder. Learned
Court held that the Letter of Acceptance when read together with GCC,
2022 indicated the existence of an arbitration agreement sufficient to
invoke Section 9 despite the formal contract not being executed. The
court further observed that the delay in submission of the Performance
Guarantee was marginal and denying interim protection would result in
irreparable harm to the respondent who had already undertaken
substantial preparation and investment. Consequently, balancing equities
and public interest, it restrained the appellants from continuing with the
fresh tender process.
7. Aggrieved by this order the appellants have now approached this
court seeking that the impugned order dated 25.02.2025 passed by the
Commercial Court, Indore be set aside and the order dated 29.01.2025
rescinding the LOA be upheld also that the appellants be permitted to
proceed with the execution of the tender work.
NEUTRAL CITATION NO. 2025:MPHC-IND:11564
SUBMISSION OF APPELLANTS
8. The learned counsel for the appellants submitted that the learned
Commercial Court erred in exercising jurisdiction under section 9 of the
Arbitration & Conciliation Act in the absence of a concluded arbitration
agreement between the parties. Learned counsel submitted that the
issuance of a letter of acceptance without execution of a formal contract
does not satisfy the mandatory requirement under Section 7 of the
Arbitration and Conciliation Act, 1996 for the existence of an arbitration
agreement.
9. Learned counsel submitted that in the absence of an executed
contract, there is no subsisting arbitration agreement between the
parties. Thus, the invocation of Section 9 jurisdiction was wholly
misconceived and not maintainable.
10. Reliance is placed upon the judgments of the Hon'ble Apex Court
in Bharat Broadband Network Ltd. vs. United Telecoms Ltd. reported
in (2019) 5 SCC 755 and Essar House Private Limited vs. Arcelor
Mittal Nippon Steel India Limited reported in 2022 SCC Online SC
1219 to contend that the existence of a valid arbitration agreement is a
sine qua non for the exercise of power under Section 9.
11. Learned counsel for the appellants further submitted that the
failure of the respondent to submit the Performance Guarantee within
the stipulated period amounted to a breach of fundamental terms of the
LOA and the GCC. In terms of Clause 16(4) of GCC, in the event of
failure to furnish PG within 60 days, the LOA automatically stands
rescinded without the necessity of any further notice. The respondent
having failed to submit the PG within 21 days or within the extended 60
NEUTRAL CITATION NO. 2025:MPHC-IND:11564
days with sanctioned approval could not assert any contractual or
equitable rights under the LOA. Counsel further relied on clause 19 and
clause 20 of the GCC.
12. Learned counsel further submitted that the respondent suppressed
material facts regarding the non-submission of PG in time and misled
the Court to secure interim protection. Learned counsel further
submitted that granting interim protection in such circumstances not
only affects the lawful rights of the appellants but also delays important
public infrastructure projects, causing grave prejudice to the public
interest and escalating financial burdens.
13. Reliance is also placed on the judgment of the Hon'ble Apex
Court in M/s India Meters Ltd. vs. Punjab State Electricity Board
reported in 1993 (1) SCC 230, on the decision of the division bench of
this court in M/S Khushi Agro Pvt. Ltd. vs. State of M.P in W.P
14395/2023 and the decision of the Bombay high court in Spice Digital
Ltd. vs. Vistaas Digital Media reported in 2012 SCC Online Bom1536.
SUBMISSIONS OF RESPONDENT
14. Learned counsel for the respondent argued that the cancellation of
the LOA dated 29.11.2024 by the appellants was an arbitrary act and
without due consideration of the substantial compliance made by the
respondent. Learned counsel submitted that the respondent after being
declared the successful bidder furnished the required Performance
Guarantee through an FDR amounting to Rs. 19,31,671/- in favour of
the Senior Divisional Finance Manager, Ratlam, which was forwarded
via e-mail dated 28.01.2025 before the issuance of the cancellation order
dated 29.01.2025.
NEUTRAL CITATION NO. 2025:MPHC-IND:11564
15. Learned counsel further submitted that technical difficulty had
been duly communicated to the appellants on 16.01.2025 and the
performance guarantee was furnished by 27.01.2025. The subsequent
rescission of the LOA and initiation of a fresh tender process on
04.02.2025 was therefore unjustified and prejudicial.
16. Learned counsel further submitted that the arbitration clause
contained in the General Conditions of Contract (GCC) binds the parties
and the absence of a formal signed contract does not negate the
existence of an enforceable arbitration agreement. Learned counsel
submitted that the balance of convenience, readiness and willingness to
perform was correctly appreciated by the Commercial Court while
granting interim relief and thus the impugned order warrants no
interference.
17. Reliance is placed on the judgments of the Hon'ble Apex court in
Firm Ashok Traders v. Gurumukh Das Saluja reported in (2004) 3
SCC 155; Adhunik Steels Ltd. v. Orissa Manganese and Minerals Pvt.
Ltd. reported in (2007) 7 SCC 125 and Skyline Education Institute vs.
S.L. Vaswani reported in AIR 2010 SC 3221.
18. Reliance is also placed on judgments of different High Courts in
National Thermal Power Corporation vs. Navayuga Engineering
Company reported in AIR 2019 Delhi 4; Sree Venkatarya Builders vs.
Kausalya Shelter Ltd. reported in AIR 2022 Telangana 51and Janset
Labs vs. Sudha Analyticals reported in AIR 2022 Telangana 146.
19. Also reliance is placed on the decision of the division bench of
this court in Devendras Kumar Patel vs. State of M.P in W.P
4318/2022.
NEUTRAL CITATION NO. 2025:MPHC-IND:11564
APPRECIATION & CONCLUSION
20. The interim relief granted by the learned Commercial Court is
reproduced below:-
"16. फलत: आवेदक की ओर से प्रस्तुaत आवेदन पत्र अंतर्गत धारा 9 माध्य स्थ म एवं
सुलह अधधधनयम 1996 स्वीeकार करते हुए आदेधित ककया जाता है कक-
1. अनावेदकर्ण, टेंडर क्रमांक EL-2024-25-09 से संबंधधत कायों के संबंध
में कोई नवीन टेंडर जारी नहीं करें र्े और यकद ऐसा कोई टेंडर जारी ककया
र्या हो तो ककसी अन्यज के पक्ष में टेंडर मंजूर नहीं करें र्े और न ही लेटर ऑफ
एकसेोपटेंस जारी करें र्े।
2. यह कक अनावेदकर्ण, आवेदक के द्वारा जमा की र्ई अनेस्टल मनी को जप्त
नहीं करें र्े।"
21. As of today, the respondent has not initiated any arbitration
proceedings against the appellants. If these proceedings are initiated in
the near future the same will not be concluded in the next couple of
years. In compliance with this interim order, the appellants will not be in
a position to issue any tender in respect of the installation of solar
panels. This can't be a scope of Section 9 of the Arbitration and
Conciliation Act. Even if this respondent has a good prima facie case in
the arbitration proceedings, at the most the compensation, loss of profit,
damage etc. could be claimed for the wrong action of the appellant. The
temporary injunction to the effect that no new tender be issued for the
work in question and if the tender has been issued, then the Railways
shall not accept the tender and issue a "Letter of Acceptance" from any
other tender cannot be issued.
22. The Apex Court in the case of Essar House Private Limited
(supra) has discussed the scope of Section 9 and held that "the scope of
Section 9 of the Act is very broad, the Court has a discretion to grant
thereunder a wide range of interim measure of the protection "as may
NEUTRAL CITATION NO. 2025:MPHC-IND:11564
appear to the Court to be just and convenient" though such discretion
has to be exercised judiciously and not arbitrarily". For ready reference
Para 38, 39, 40 and 41 are reproduced below:-
38. In this case, however, the High Court has taken note of the pleadings for
invoking the principles of Order 38 Rule 5 CPC and observed:-
"31. In our view, the paragraphs of the aforesaid pleadings of the
respondent in the arbitration petition filed under section 9 filed by the
respondent were sufficient to secure the claim of the respondent under
section 9 of the Arbitration Act and to invoke the principles of Order
38 Rule 5 of the Code of Civil Procedure even if it is strictly made
applicable to the facts of this case."
39. In deciding a petition under Section 9 of the Arbitration Act, the Court
cannot ignore the basic principles of the CPC. At the same time, the power
Court to grant relief is not curtailed by the rigours of every procedural
provision in the CPC. In the exercise of its powers to grant interim relief under
Section 9 of the Arbitration Act, the Court is not strictly bound by the
provisions of the CPC.
40. While it is true that the power under Section 9 of the Arbitration Act should
not ordinarily be exercised ignoring the basic principles of procedural law as
laid down in the CPC, the technicalities of CPC cannot prevent the Court from
securing the ends of justice. It is well settled that procedural safeguards, meant
to advance the cause of justice cannot be interpreted in such a manner, as
would defeat justice.
41. Section 9 of the Arbitration Act provides that a party may apply to a Court
for an interim measure or protection inter alia to (i) secure the amount in
dispute in the arbitration; or (ii) 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.
23. The Apex Court in the case of M/s N.G. Projects Ltd. vs. Vinod
Kumar Jain in Civil Appeal No.1846/2022 has held that the position of
law with regard to the interpretation of terms of the contract is that the
question as to whether a term of the contract is essential or not is to be
viewed from the perspective of the employer and by the employer".
Since the construction of a road is an infrastructure project and keeping
in view the intent of the legislature infrastructure projects should not be
stayed. Such provision should be kept in view even by the Writ Court
NEUTRAL CITATION NO. 2025:MPHC-IND:11564
while exercising its jurisdiction under Article 226 of the Constitution of
India. If the Court finds that there is total arbitrariness or that the tender
has been granted in a malafide manner, still the Court should refrain
from interfering in the grant of tender but instead, relegate the parties to
seek damages for the wrongful exclusion rather than to injunct the
execution of the contract. For ready reference, para 23 is reproduced
below:-
"23. In view of the above judgments of this Court, the Writ Court
should refrain itself from imposing its decision over the decision of the
employer as to whether or not to accept the bid of a tenderer. The Court
does not have the expertise to examine the terms and conditions of the
present-day economic activities of the State and this limitation should
be kept in view. Courts should be even more reluctant in interfering
with contracts involving technical issues as there is a requirement of the
necessary expertise to adjudicate upon such issues. The approach of the
Court should be not to find fault with magnifying glass in its hands,
rather the Court should examine whether the decision-making process is
after com- plying with the procedure contemplated by the tender
conditions. If the Court finds that there is total arbitrariness or that the
tender has been granted in a malafide manner, still the Court should
refrain from interfering in the grant of tender but instead relegate the
parties to seek damages for the wrongful exclusion rather than to
injunct the execution of the contract. The injunction or interference in
the tender leads to additional costs on the State and is also against
public interest. Therefore, the State and its citizens suffer twice, firstly
by paying escalation costs and secondly, by being deprived of the
infrastructure for which the present-day Governments are expected to
work."
24. In view of the above, the order dated 25.02.2025 passed by the
learned Commercial Court is hereby set aside.
25. Accordingly, the present Arbitration Appeal succeeds and is
hereby allowed.
(VIVEK RUSIA) (GAJENDRA SINGH)
JUDGE JUDGE
Vatan
