BHAGWATI - (1.) THESE appeals raise an interesting question relating to the interpretation of Cl. 18 of the General Conditions of Contract contained in the Standard Form of Contract No. D.G.S. and D. 68. That is the standard form in which contracts are entered into by the Central Purchase Organization of the Government of India for purchase of stores from third parties described as 'contractors' and the question of interpretation which arises for determination is, therefore, one of some importance, affecting as it does a large number of people who enter into such contracts with the Government of India. The facts giving rise to these appeals follow a common pattern and it would, therefore, be sufficient if we set out the facts relating to Civil Appeals Nos. 1224 and 1225 of 1973. They bring out clearly the point which arises for consideration in all the three appeals.
(2.) THE respondent tendered for supply of certain quantity of foam compound to the appellant and its tender was accepted by the appellant by Acceptance of Tender dated 16/07/1968. THE Acceptance of Tender was subject to the General Condition of Contract contained in the Standard Form of Contract No. D.G.S. and D. 68. THE only clauses of the General Conditions of Contract which are material for our purpose are clauses 18 and 24 and they read as follows: "18. Recovery of Sums due: Whenever any claim for the payment of a sum of money arises out of or under the contract against the contractor, the purchaser shall be entitled to recover such sum by appropriating in whole or in part, the security, if any, deposited by the contractor, and for the purpose aforesaid, shall be entitled to sell and/or, realise securities forming the whole or part of any such security deposit. In the event of the security being insufficient, the balance and if no security has been taken from the contractor, the entire sum recoverable shall be recovered by appropriating any sum then due or which at any time thereafter may become due to the contractor under the contract or any other contract with the purchaser or the Government or any person, contracting through the Secretary, if such sum even be not sufficient to cover the full amount recoverable, the contractor shall on demand pay to the purchaser the balance remaining due. ... ... ... ... ... ... ... ... ... ... ... ... ... ." "24. Arbitration : In the event of any question, dispute or difference arising under these conditions or any special conditions of contract, or in connection with this contract, (except as to any matters the decision of which is specially provided for by these or the special conditions) the same shall be referred to the sole arbitration of an Officer in the Ministry of Law, appointed to be the arbitrator by the Director General of Supplies and Disposals. It will be no objection that the arbitrator is a Government servant, that he had to deal with the matters to which the contract relates or that in the course of his duties as a Government servant he has expressed views on all or any of the matters in dispute or difference. THE award of the arbitrator shall be final and binding on the parties to this contract. ... Work under the contract shall, if reasonable possible, continue during the arbitration proceeding and no payment due to or payable by the purchaser shall be withheld on account of such proceedings. ... THE performance of this contract ran into difficulties and a dispute arose between the parties giving rise to claims by either party against the other. THE respondent contended that the appellant had committed a breach of the contract and was, therefore, liable to pay to the respondent a sun of Rs. 2,35,800.00by way of damages suffered by the respondent by reason of the breach of the contract. THE appellant, on the other hand, said that it was the respondent who had committed the breach of the contract and was liable to pay to the appellant by way of damages a sum of Rs. 2,28,900.00 under C1. 14 of the General Conditions of Contract. THE Assistant Director of Supplies by his letter dated 30/03/1971, called upon the respondent to make payment of the amount of Rs. 2,28,900.00 and intimated that if the respondent failed to do so on or before 30/04/1971, the Pay and Accounts Officer, New Delhi / Madras would be authorised to recover the same from the pending bills of the respondent in respect of other contracts. This dispute between the parties being a dispute arising out of the contract, was liable to be settled by arbitration under clause 24 of the General Conditions of Contract and the respondent, therefore, filed an application in the Delhi High Court under Section 20 of the Indian Arbitration Act for filing the Arbitration Agreement contained in that clause. THE respondent also at the same time made an application to the Delhi High Court for an interim injunction restraining the appellant from recovering the amount of damages claimed by it from the pending bills of the respondent. This application was, however, rejected by the Delhi High Court on the ground that it was not shown that there were any pending bills of the respondent at that time out of which the threatened recovery could be made by the appellant. THE application under Section 20 of the Indian Arbitration Act was thereafter heard by the Delhi High Court and by an order dated 5/05/1972, the Delhi High Court allowed that application and ordered the arbitration agreement contained in cl. 24 to be filed and made an order of reference to arbitration in accordance with the arbitration agreement. THE claim of the respondent against the appellant for Rs. 2,35,800.00 and the counterclaim of the appellant against the respondent or Rs. 2,28,900.00 thus became the subject-matter of reference to arbitration. During the pendency of the arbitration some amounts became due and payable by the appellant to the respondent in respect of other contracts entered into between the parties. In view of the letter dated 30/03/1971 the respondent apprehended that the appellant would appropriate these amounts towards recovery of the amounts of damages claimed by it even though the claim for damages was disputed by the respondent and was pending adjudication before the arbitrator. THE respondent, therefore, made Interim Application No. 119 of 1972 to the Delhi High Court on 17/01/1972 under Section 41 read with the Second Schedule to the Indian ARBITRATION AND CONCILIATION ACT, 1940 praying that the status quo should be maintained and the appellant should be restrained from recovering its claim for damages from the amounts due and payable by the appellant to the respondent in respect of the pending bills. Now it appears that this Interim Application No. 119 of 1972 was made in the Original Application under Section 20 of the Indian ARBITRATION AND CONCILIATION ACT, 1940 and the appellant, therefore, raised a technical objection that the Original Application under S. 20 having been disposed of, Interim Application No. 119 of 1972, as filed, could not be maintained. THE respondent, in view of this technical objection raised on behalf of the appellant, filed another Interim Application No. 746 of 1972 as an independent application under Section 41 read with the Second Schedule to the Indian ARBITRATION AND CONCILIATION ACT, 1940 on 18/05/1972 praying for the same interim relief as was claimed in the earlier Interim Application No. 119 of 1972. Both these interim applications were resisted by the appellant relying on clause 18 of the General Conditions of Contract but Mr. Justice Avadh Bihari of the Delhi High Court, who heard these interim applications, took the view that clause 18 did not authorise the appellant to appropriate the amounts of any pending bills of the respondent towards satisfaction of its claim for damages against the respondent, unless such claim for damages was either admitted by the respondent or adjudicated upon by arbitration or suit in Civil Court. THE learned Judge accordingly by an order dated 15/11/1972, allowed both the interim application and issued an interim injunction restraining the appellant "from effecting recovery of the amounts claimed to be due from the other pending bills" of the respondent. THE appellant thereupon, with certificates obtained from the Delhi High Court, preferred Civil Appeals Nos. 1224 and 1225 of 1973 in this Court. One appeal was directed against the impugned order in so far it related to Interim Application No. 119 of 1972 and the other in so far as it related to Interim Application No. 846 of 1972. THE appellant also preferred Civil Appeal No. 1330 of 1973 against a similar order passed by the learned Judge in Interim Application No. 854 of 1972 in the other case. There are in the main two grounds on which the learned Solicitor General, appearing on behalf of the appellant, challenged the order of interim injunction made by Mr. Justice Avadh Bihari : A. The impugned order amounted in effect and substance to an order directing the appellant to pay the amounts of the pending bills of the respondent in respect of the other contracts and since the question of payment of the amounts of such pending bills did not form the subject-matter of the reference which was pending before the arbitrator, the learned Judge had no jurisdiction under S. 41 read with the Second Schedule to make such an order and the impugned order was, therefore, outside the scope of his power and hence invalid. B. Clause 18 comes into play when there is a claim for payment of a sum of money arising out of or under the contract. It is not necessary that the sum of money must be due and payable to the purchaser. It is enough if there is a claim even for damages. Whenever there is such claim, the purchaser is given a right under Clause 18 to recover it by appropriating "any sum then due or which at any time thereafter may become due to the contractor under the contract" or under any other contract. The appellant was, therefore, entitled to recover the amount of its claim for damages against the respondent by appropriating the sums which subsequently become due to the respondent under other contracts even though, the claim for damages was contested by the respondent and was pending adjudication before the arbitrator. No interim injunction could be granted to prevent the exercise of such right. If interim injunction were to be granted in a case of this kind as of course merely on the ground, without anything more, that the claim for damages is pending adjudication and until it is determined in favour of the purchaser, it should be allowed to be recovered by the purchaser out of other sums due to the contractor, it would render Clause 18 meaningless and ineffectual and the right to the purchaser under that clause would become illusory. Of course, it would be open to the court even in such a case to grant interim injunction, if it is satisfied that the claim for damages is prima facie not well founded and the balance of convenience requires that, pending adjudication, the purchaser should be restrained from effecting recovery of the claim for damages from out of other sums due to the contractor. But here admittedly either of these two factors was taken into consideration by the learned Judge and the order of interim injunction made by him cannot, therefore, be sustained. We shall proceed to examine these grounds in the order in which we have set them out. Re: Ground A
(3.) IT was common ground between the parties that the order of interim injunction was made by the learned Judge under Section 41(b) read with the Second Schedule to the Indian ARBITRATION AND CONCILIATION ACT, 1940. Now Section 41(b) say that the Court shall have, for the purpose of and in relation to arbitration proceedings, the same power of making order in respect of any of the matters set out in the Second Schedule as it has for the purpose of and in relation to any proceedings before the Court and one of the matters set out in the Second Schedule is "interim injunction". The Court has, therefore, power under S. 41.(b) read with Second Schedule to issue interim injunction, but such interim injunction can only be "for the purpose of and in relation to arbitration proceedings". The arbitration proceedings in the present case were for determination of the mutual claims of the appellant and the respondent arising out of the contract contained in the Acceptance of Tender dated 16/07/1968. The question whether any amounts were payable by the appellant to the respondent under other contracts was not the subject-matter of the arbitration proceedings. The Court obviously could not, therefore, make an interim order which, though ostensibly in form an order of interim injunction, in substance amounted to a direction to the appellant to pay the amounts due to the respondent under other contracts. Such an interim order would clearly not be for the purpose of or in relation to the arbitration proceedings as required by Sec. 41(b). But here the order of interim injunction made by the learned Judge does not, expressly or by necessary implication, carry any direction to the appellant to pay the amounts due to the respondent under other contracts. IT is not only in form but also in substance a negative injunction. IT has no positive content. What it does is merely to injunct the appellant from recovering, suo motu, the damages claimed by it from out of other amounts due to the respondent. IT does not direct that the appellant shall pay such amounts to the respondent. The appellant can still refuse to pay such amounts if it thinks it has a valid defence and if the appellant does so, the only remedy open to the respondent would be to take measures in an appropriate forum for recovery of such amounts where it would be decided whether the appellant is liable to pay such amounts to the respondent or not. No breach of the order of interim injunction as such would be involved in non-payment of such amounts by the appellant to the respondent. The only thing which the appellant is interdicted from doing is to make recovery of its claim for damages by appropriating such amounts in satisfaction of the claim. That is clearly within the power of the Court under Section 41(b) because the claim for damages forms the subject-matter of the arbitration proceedings and the Court can always say that until such claim, is adjudicated upon, the appellant shall be restrained from recovering it by appropriating other amounts due to the respondent. The order of interim injunction made by the learned Judge cannot, therefore, be said to be outside the scope of his power under Section 41(b) read with the Second Schedule. Re: Ground B.;