1983 (8) TMI 252 - SC - Companies Law

Whether such an injunction as prayed for could be issued under s. 41 of the Arbitration Act? Held that - An injunction order restraining respondents from withholding the amount due under other pending bills to the contractor virtually amounts to a direction to pay the amount to the contractor-appellant. Such an order was clearly beyond the purview of cl. (b) of s. 41 of the Arbitration Act. The Union of India has no objection to the grant of an injunction restraining it from recovering or appropriating the amount Lying with it in respect of other claims of the contractor towards its claim for damages. But certainly cl. 18 of the standard contract confers ample power upon the Union of India to withhold the amount and no injunction order could be passed restraining the Union of India from withholding the amount. Appeal dismissed.

Issues Involved:
1. Interpretation of Clause 18 of the General Conditions of Contract.
2. Scope and ambit of Section 41 of the Arbitration Act.
3. Legitimacy of injunction orders under Section 41 of the Arbitration Act.

Issue-wise Detailed Analysis:

1. Interpretation of Clause 18 of the General Conditions of Contract:

The core issue revolves around the interpretation of Clause 18, which deals with the "Recovery of Sums Due." The clause states: "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...". The appellant argued that Clause 18 should only apply to sums that are due and payable, not to disputed claims for damages. Conversely, the Union of India contended that Clause 18 allows for the recovery of any claim for payment, including disputed claims for damages, without the need for prior adjudication.

The Supreme Court, while interpreting Clause 18, noted that the words "any claim for the payment of a sum of money" are of wide amplitude and are sufficient to cover even a claim for damages. The Court emphasized that the clause should be read in its entirety and in context. The Court concluded that Clause 18 unequivocally contemplates a claim for payment and allows the Union of India to appropriate any amount due to the contractor under other pending bills. The Court rejected the appellant's argument that Clause 18 should only apply to sums that are admitted or adjudicated as due and payable.

2. Scope and Ambit of Section 41 of the Arbitration Act:

Section 41 of the Arbitration Act provides the procedural and substantive powers of the Court in relation to arbitration proceedings. Sub-clause (b) of Section 41 allows the Court to issue interim injunctions "for the purpose of and in relation to arbitration proceedings." The appellant sought an injunction under Section 41 to restrain the Union of India from appropriating sums due under other contracts to satisfy the disputed claim for damages.

The Supreme Court held that the power to issue interim injunctions under Section 41(b) is limited to matters that are directly related to the arbitration proceedings. The Court emphasized that an interim injunction can only be issued "for the purpose of and in relation to arbitration proceedings" and not for unrelated matters. The Court concluded that the injunction sought by the appellant, which aimed to restrain the Union of India from withholding amounts due under other contracts, was outside the scope of Section 41(b) as it did not relate to the arbitration proceedings concerning the disputed claim for damages.

3. Legitimacy of Injunction Orders under Section 41 of the Arbitration Act:

The appellant argued that the Court should grant an injunction to prevent the Union of India from withholding payments due under other contracts. The Union of India countered that such an injunction would effectively amount to a direction to pay the amounts due under other contracts, which is beyond the scope of Section 41(b).

The Supreme Court agreed with the Union of India, stating that an injunction restraining the withholding of amounts due under other contracts would, in effect, direct the Union of India to make payments, which is not permissible under Section 41(b). The Court clarified that while it could restrain the Union of India from appropriating amounts to satisfy the disputed claim for damages, it could not issue an injunction that would compel the Union of India to make payments under other contracts. The Court observed that such an injunction would be inconsistent with the purpose of Section 41(b) and would exceed the Court's powers under the Arbitration Act.

Conclusion:

The Supreme Court dismissed the appeals, upholding the judgments of the Allahabad and Delhi High Courts. The Court held that Clause 18 of the General Conditions of Contract allows the Union of India to appropriate sums due under other contracts for any claim for payment, including disputed claims for damages. The Court further held that Section 41(b) of the Arbitration Act does not permit the issuance of an injunction that would effectively direct the Union of India to make payments under other contracts. The Court concluded that the injunction sought by the appellant was beyond the scope of Section 41(b) and could not be granted.

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