1974 (3) TMI 105 - SC - Companies Law

Whether the order of. interim injunction was made by the learned Judge under s. 41 (b) read with the Second Schedule to the Indian Arbitration Act, 1940? What is required for attracting the applicability of cl. 18 is a mere claim for payment of a sum of money arising out of or under the contract against the contractor and it is not necessary that a sum of money must be actually due and payable from the contractor to the purchaser? Held that - 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 s. 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 s. 41 (b) read with the Second Schedule. A claim for damages for breach of contract is, therefore, not a claim for a sum presently due and payable and the purchaser is not entitled, in exercise of the right conferred upon it under cl. 18, to recover the amount of such claim by appropriating other sums due to the contractor. Thus the appellant had no right or authority under cl. 18 to appropriate the amounts of other pending bills of the respondent in or towards satisfaction of its claim for damages against the respondent and the learned Judge was justified in issuing an interim Injunction restraining the appellant from doing so. Appeal dismissed.

Issues Involved:
1. Interpretation of Clause 18 of the General Conditions of Contract.
2. Jurisdiction of the court under Section 41(b) read with the Second Schedule of the Indian Arbitration Act, 1940.
3. Validity of the interim injunction restraining the appellant from recovering damages from pending bills.

Issue-wise Detailed Analysis:

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

The central issue in this case revolves around the interpretation of Clause 18 of the General Conditions of Contract contained in the Standard Form of Contract No. D.G.S. & D. 68. Clause 18 pertains to the "Recovery of Sums Due" and states that whenever any claim for the payment of a sum of money arises out of or under the contract against the contractor, the purchaser is entitled to recover such sum by appropriating the security deposit or any sums due under the contract or any other contract with the purchaser or the Government.

The court observed that Clause 18 is intended to deal with the recovery of sums presently due and payable by the contractor to the purchaser. The heading of Clause 18, "Recovery of Sums Due," indicates that it pertains to sums that are presently recoverable. The court emphasized that the clause does not create a lien or retention right but provides a mode of recovery for sums that are due and payable. The court rejected the appellant's argument that a mere claim for damages, even if disputed and not adjudicated, could be recovered under Clause 18. The court held that the clause applies only where there is a claim for a sum presently due and payable by the contractor.

2. Jurisdiction of the court under Section 41(b) read with the Second Schedule of the Indian Arbitration Act, 1940:

The appellant contended that the interim injunction issued by the learned Judge amounted to a direction to pay the amounts of pending bills, which did not form the subject matter of the arbitration proceedings. The court examined Section 41(b) of the Indian Arbitration Act, 1940, which allows the court to make orders in respect of any matters set out in the Second Schedule, including interim injunctions, for the purpose of and in relation to arbitration proceedings.

The court clarified that the order of interim injunction in this case was a negative injunction, restraining the appellant from recovering damages by appropriating amounts due under other contracts. It did not direct the appellant to pay the amounts due to the respondent. The court held that such an order was within the power of the court under Section 41(b) read with the Second Schedule, as it related to the arbitration proceedings concerning the mutual claims of the parties arising out of the contract.

3. Validity of the interim injunction restraining the appellant from recovering damages from pending bills:

The appellant argued that Clause 18 allowed the purchaser to recover any claim for payment of a sum of money, including disputed claims for damages, by appropriating sums due under other contracts. The court rejected this interpretation, stating that a claim for unliquidated damages does not give rise to a debt until adjudicated and assessed by a court or arbitrator. The court referred to established legal principles that a claim for damages is not a debt until judgment is delivered, and the party aggrieved by the breach of contract has only the right to sue for damages.

The court held that the appellant had no right under Clause 18 to appropriate amounts due under other contracts to satisfy its claim for damages, which was pending adjudication. The interim injunction restraining the appellant from doing so was justified. The court dismissed the appeals and ordered the appellant to pay the costs of the respondent.

Conclusion:

The Supreme Court dismissed the appeals, upholding the interim injunction that restrained the appellant from recovering its claim for damages by appropriating amounts due under other contracts. The court clarified that Clause 18 of the General Conditions of Contract applies only to sums presently due and payable, and not to disputed claims for damages pending adjudication. The court also affirmed its jurisdiction under Section 41(b) read with the Second Schedule of the Indian Arbitration Act, 1940, to issue such interim injunctions.

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