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M/S SHANTI CONSTRUCTIONS THRU' PARTNER R.K. AGRAWAL versus STATE OF U.P. THRU' PRINCIPAL SECRETARY (P.W.D.) & OTHERS

High Court of Judicature at Allahabad

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M/S Shanti Constructions Thru' Partner R.K. Agrawal v. State Of U.P. Thru' Principal Secretary (P.W.D.) & Others - FIRST APPEAL FROM ORDER No. 201 of 2007 [2007] RD-AH 1475 (29 January 2007)

 

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HIGH COURT OF JUDICATURE OF ALLAHABAD

Court No.35

First Appeal From Order No. 201 of 2007

M/s Shanti Constructions, Civil Lines, Jhansi

Vs.

State of U.P. and others

Hon'ble R.P.Misra, J.

Hon'ble Shishir Kumar, J.

Heard Sri Vinay Khare, learned counsel for the appellant and learned Standing Counsel for the respondents.

The present appeal has been filed against the order rejecting the application filed by the appellant under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as '1996 Act') by an order dated 7.12.2006 passed by the District Judge, Jhansi in Misc. Case No. 38 of 2006 (M/s Shanti Constructions Vs. State of U.P. and others). The facts giving rise to the present appeal are that the appellant who is a registered partnership firm doing business of civil and supply contracts and is also registered as class 'A' Govt. contractor by the U.P. Public Works Department. By the department an agreement dated 9.1.2006 was executed for doing certain construction works, as a part of the agreement a bond was signed by the appellant depositing the requisite amount of security of Rs. 14,85,000/- in the shape of guarantee bond on 7.1.2006. As per the agreement 6 months time was stipulated for the purposes of completion of work but due to certain inaction on the part of the respondents the delay was caused  in commencement of work such as without job mix formula, the work was not permitted to be undertaken for execution as the report of job mix formula was accepted to be delayed from C.R.R.I. New Delhi and I.I.T. Kanpur. The appellant vide its request letter dated 22.2.2006 also requested the respondents to make available the certified copy of the bond and drawing which were essentially required for day today reference and making planning of procurement of material and execute the work which were also not supplied causing delay in execution of work. By the letter dated 21.3.2006 the respondent expressed his inability to provide the land for establishing the plant stating that appropriate land was not available with the respondents. Due to inaction on the part of the respondents and notwithstanding the fact that market had gone high, the appellant applied for extension of time vide letters dated 7.7.2006 and 8.9.2006, but no extension has been granted and the contract of the appellant has been abandoned by the respondents, though there was a fault on the part of the respondents.

A notice was issued to terminate the contract and it was also threatened that the security deposit will be forfeited as there was an arbitration clause in the agreement between the parties. The appellant made an application under Section 9 of the Arbitration and Conciliation Act, 1996 before the Civil Court, Jhansi on 4.12.2006 alongwith an application which was registered as Misc. Case No. 38 of 2006, seeking an order to restrain the respondents from deducting Rs. 8,00,000/- from the security deposited by the appellant till the termination of the Arbitration proceedings. The appellant has also filed a Misc. Case No. 26 of 2006 under Section 9 of the 1996 Act regarding another bank guarantee of Rs. 6.85 lacs which relates to the same contract due to failure on the part of the respondents. The appellant has also made an application under Section 11 (6) of the Arbitration and Conciliation Act on 10.1.2006 before the Court of Hon'ble Chief Justice for appointment of an  Arbitrator.

The District Judge on 22.12.2006 fixed the matter on 20.1.2007 and again on 20.1.2007 the matter was adjourned for 24.2.2007. It has been submitted on behalf of appellant that the District Judge has illegally rejected the appellant's prayer for interim protection, though under the identical circumstances, the interim protection was granted, but the Court failed to exercise its power under Section 9 of the 1996 Act. Inspite of the fact that admittedly the arbitration proceedings are pending between the parties, vide its order dated 7.12.2006 without assigning any reason court below has rejected the application for stay. The effect of the rejection of stay application is that the security bond furnished by the appellant will be forfeited inspite of the fact that according to agreement, application for arbitration is pending. The provisions of Section 9 of the Act are being reproduced below:-

"9. Interim measures etc. by Court.- A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is informed in accordance with Sec. 36, apply to a Court-----

(i)  for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings: or

(ii)   for an interim measure of protection in respect of any of the following matters, namely:-

(a) the preservations, interim custody or sale of any goods which are the subject matters of the arbitration agreement;

(b) securing the amount in dispute in the arbitration;

(c) the detention, preservation or inspection of any property or thing which is the subject matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

(d) interim injunction or the appointment of a receiver;

(e) 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."

From perusal of the aforesaid provision, it is clear that a party may before or during arbitral proceeding or at any time after making an arbitral award but before it is informed in accordance with Section 36 may apply to the Court for interim protection, therefore, the Court ought to  have decided the said application, in view of the Provisions of Section 9 of the 1996 Act. There is no dispute to this effect that the application under Section 11 of the 1996 Act for the purposes of appointment of an arbitrator is pending consideration before this Court. The reliance has been placed upon the judgement reported in AIR 1999 SC 565 (M/s  Sundaram Finance Ltd., v. M/s NEPC India Ltd.) particularly upon the paragraph 14 and 15 of the said judgement, which is reproduced below:------

"14. Under the 1996 Act the Court can pass interim orders under Section 9 Arbitral proceedings, as we have seen, commence only when the request to  refer the dispute is received by the respondent as per Section 21 of the Act. The material words occurring in Section 9 are "before or during the arbitral proceedings." This clearly contemplates two stages when the Court can pass interim orders, i.e. during the arbitral proceedings or before the arbitral proceedings. There is no reason as to why Section 9 of the 1996 Act should not be literally construed. Meaning has to be given to the word "before" occurring in the said section. The only interpretation that can be given is that the Court can pass interim orders before the commencement of arbitral proceedings. Any other interpretation, like the one give by the High Court, will have the effect of rendering the word  "before" in Section 9 as redundant. This is clearly not permissible. Not only does the language warrants such an interpretation but it was necessary to have such a provision in the interest of justice. But for such a provision no party would have a right to apply for interim measure before notice under Section 21 is received by the respondent. It is not unknown when it becomes difficult to serve the respondents. It was, therefore, necessary that provision was made in the Act which could enable a party to get interim relief urgently in order to protect it's interest. Reading the section as a whole it appears to us that the Court has jurisdiction to entertain an application under Section 9 either before arbitral proceedings or during arbitral proceedings or after the making of the arbitral award but before it is enforced in accordance with Section 36 of the Act.

15. Section 9 of the said Act corresponds to Article 9 of the UNCITRAL Model Law which is as follows:

"It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a Court an interim measure of protection and for a Court to grant such measure."

This article recognises, just like Section 9 of the 1996 Act, a request being made before a Court for an interim measure of protection before arbitral proceedings. It is possible that in some countries if a party went to the Court seeking interim measure of protection that might be construed under the local law as meaning that the said party had waived its right to take recourse to arbitration. Article 9 of the UNCITRAL Model Law seeks to clarify that merely because a party to an arbitration agreement requests the Court for an interim measure "before or during arbitral proceedings" such recourse would not be regarded as being incompatible with an arbitration agreement. To put it differently the arbitration proceedings can commence and continue notwithstanding a party to the arbitration agreement having approached the Court for an order for interim protection. The language of Section 9 of the 1996 Act is not identical to Article 9 of the  UNCITRAL Model Law but the expression "before or during arbitral proceedings" used in Section 9 of the 1996 Act seems to have been inserted with a view to give it the same meaning as those words have in Article 9 of the  UNCITRAL Model Law.  It is clear, therefore, that a party to an arbitration agreement can approach the Court for interim relief not only during the arbitral proceedings but even before the arbitral proceedings. To that extent Section 9 of the 1996 Act is similar to Article 9 of the  UNCITRAL Model Law."

In view of the aforesaid decision  of the Apex Court, the learned counsel for the appellant has submitted that the Court was having full power to pass an interim order under Section 9 of the 1996 Act and in not doing so the effect will be that the security bond of the appellant will be forfeited and the appellant will be put to loss.

We have considered the submissions made on behalf of the parties and have perused the records as the limited question for consideration before this Court is as to whether the application under Section 9 of the 1996 Act was maintainable or not. Admittedly from perusal of Section 9 of the 1996 Act as well as the decision of the M/s Sundaram case (Supra), it is clear that the application was maintainable and the Court should have considered the same on merits but the Court without giving any reason has rejected the application as such it appears that the order dated 7.12.2006 is an order of non application of mind without assigning any reason. In AIR 1990 SC 1984 (S.N.Mukherjee Vs. Union of India), the Apex  Court has clearly held even to this effect that the administrative authority while deciding the case has to record reasons. Therefore, the Judicial Authority or quasi judicial authority is also bound to record reasons while deciding the case. The reason given is that if the reasons have been recorded, it excludes chances of arbitrariness and assures a decree of fairness in the process of decision making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. Therefore the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact whether the decision is subject to appeal, revision or judicial review. The similar view has been taken in 1991 (2) SCC 716 Maharashtra State Board of Secondary and Higher Secondary Education Vs. K.S.Gandhi and others and M/s Mahabeer Prasad Santosh Kumar Vs. State of U.P. & others reported in AIR 1970 SC 1302.

In view of the aforesaid facts the impugned order dated 7.12.2006 passed in M/s Shanti Constructions Vs. State of U.P. & others is liable to be quashed only on this ground that no reason has been recorded.

There is a short question involved in the present appeal in regard to consideration of the stay application and as the matter is pending since long the present appeal is disposed of with a direction that the Misc. Case No. 38 of 2006 may be disposed of finally by the Court below and till the decision of the case, the respondent nos. 1 to 3 should not forfeit the security bond of the appellant. The appeal is disposed of accordingly.

No order as to costs.

Dated:29.01.2007

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