Paragraph numbers below are the court’s original numbering, recovered from the source text.
15. By order dated 04.01.2012, the District Judge allowed the application made by the appellant and restrained the respondents from encashing Bank Guarantee till appointment of arbitrator or constitution of Arbitral Tribunal. It may be mentioned here that the respondents did c not file any appeal against this order, which attained finality. c
16. By letters dated 20.01.2012 and 29.01.2012, the appellant then requested the respondents for return of its Bank Guarantee.
17. On 13.03.2012, an arbitration Tribunal was constituted as per Clause 32 read with Clause 64 of the contract between the parties which comprised of Shri Arun Kumar, CCE/NCR/ ALD, Shri A.K. Bijalwan FA&CAO/F&B/NCR/ALD and Shri R. Rajamani Former CCRS & Member/ Arbitrator to look into the claims and the counter claims of the parties. The arbitration proceedings are pending.
18. On 21.03.2012, the Deputy Chief General Manager/Const./ SE Rd/NDLS wrote to the Branch Manager of the Indian Mercantile Cooperative Bank for extension of Bank Guarantee, which was valid upto 13.01.2012. On the request of the respondents, the Bank extended the period of Bank Guarantee for another six months, i.e., upto 13.07.2012.
19. On 04.04.2012, the respondents through their accounts office wrote a letter to the Branch Manager of the Bank to encash the said 13ank Guarantee in their favour.
20. Since the respondents went on insisting for encashment of the · Bank Guarantee again and again saying that order dated 04.01.2012 passed by District Judge no longer survives as its life was only upto the date of constitution of arbitral Tribunal and hence the respondents became entitled to encash the Bank Guarantee, the appel I ant again filed a petition under Section 9 of the Act bearing Arbitration Suit No. 216 of 2012 before the District Judge, Allahabad seeking injunction against the respondents from encashing the Bank Guarantee.
21. By order dated 12.07.2012, the District Judge dismissed the petition and declined to grant injunction to the appellant. This time, the District Judge accepted the stand taken by the respondents and held that Clause 62( I) empowers the respondents to recover any dues/claim from the appellant and hence the respondents were within their rights to invoke the bank Guarantee and recover the dues relating to other contract.
22. Aggrieved by the said order, the appellant preferred an appeal bearing F.A.F.O. No. 2930 of 2012 before the High Court.
23. By impugned judgment dated 23.07.2012, the High Court concurred with the view taken by the District Judge and dismissed the appellant's appeal. MIS GANGOTRI ENTERPRISES LTD. v. UNION OF INDIA [ABHAY MANOHAR SAPRE, J.]
24. Challenging the said judgment, the appellant ha5 filed this appeal by way of special leave.
25. Heard Mr. 8. Adinarayan Rao, learned senior counsel for the appellant and Mr. Atul Chitaley, learned senior .counsel for the respondents.
26. Mr. B. Adinarayan Rao, learned senior counsel appearing for the appellant (Contractor) while assailing the legality and correctness of the impugned order reiterated the same submissions, which were urged by the appellant before the two Courts below in support of the application filed by the appellant under Section 9 of the Act. His submission was that since the Bank Guarantee in question was in the nature of performance guarantee furnished by the appellant for due performance ·of one contract (Anand Yihar works) daied 14.07.2006 and the same having been admittedly performed by the appellant to the satisfaction of the respondents (North Central Railway), as"is clear from the completion certificate dated 30.09.2010 issued by the respondents in. appellant's favour, the purpose for which the Bank Guarantee had been furnished was over as soon as the Satisfaction Certification was issued by the respondents in appellant's favour. Learned counsel, therefore, contended thatthe appellant became entitled to claim release of the Bank Guarantee in their favour on and after 30.09.2010 without any fetters on their rights.
27. In the second place, learned counsel urged that the respondents (North Central Railway) had no right to take recourse to Clause 62 of GCC for encashing the Bank Guarantee in question because firstly, the arbitration proceedings which arose out of another contract dated 22.08.2005 were still pending for final adjudication of the liability, ifany, and secondly; so long as the liability as to how much sum was payable and if so by whom it was payable was not finally determined in accordance with law in the arbitration proceedings by the arbitrators, there was no "sum due" and nor any "sum payable" in praesami by the appellant to the respondents and vice versa in connection with another contract.
28. In the third place, learned couns.el contended that the District Judge, in the first instance, having rightly granted the injunction to the appellant vide order dated 4.01.2012 and no appeal having been filed against this order by the respondents, the said order had become final and was binding on the parties. It was, therefore, urged that when the . appellant moved the second application for grant of injunction after the c matter was referred to arbitration because of insistence on the part of the respondents to encash the bank guarantee, the District Judge should have extended the life of first order dated 04.01.2012 instead of again going into the merits of the case.
29. Lastly, learned counsel urged that in the light of this legal position arising in the case, the appellant. had made out a prima facie case for grant of injunction against the respondents (North Central Railway) from encashing the bank guarantee in question.
30. In reply, learned counsel for the respondents (North Central railway) supported the impugned order and contended that no case is c made out to interfere in the impugned order and hence it be upheld.
31. Having heard the learned counsel for the parties and on perusal of the record of the case, we find force in the submissions of the learned senior counsel for the appellant. 32. ln our considered opinion, it may not be necessary for us to go into more details of the issue because, in our view, the controversy involved in this case remains no more rq i11fegra and stands decided by thi_s Court. in the case of Union of India vs. Raman Iron Foundry, (1974) 2 SCC 231. Since the issue stands already decided by this Court and hence it is necessary to examine the facts of the case and law laid down therein in detail and then apply the same to the facts of the case at hand. 33. The facts of the case of Union oflndia (DGS&D) (supra) were that the respondent (Raman Iron Foundry) entered into a contract with the Union of India (DGS&D)-the appellant for supply of certain quantity of"Foam compound". The contract, apart from several other conditions, contained two clauses, namely, Clauses 18 and 24. Clause 24 provided that in the event of any dispute arising between the parties in connection with the contract, the same shall be decided by means of Arbitration. Clause 18 with which we are concerned provided for "recovery of sums due" which reads as under : "18. Recovery of sums due – whenever any claim for the payme.nt of a sum of money ar.ises 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 MIS GANGOTRI ENTERPRISES LTD. v. UNION OF INDIA [ABHAY MANOHAR SAPRE. J.) 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 Secr~tary, 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." 34. The perfonnance ofthe"contract rah into difficulties and dispute arose between the parties giving rise to claiins by either parties against the other. The.respondent contended that the appellant committed a breach of the contract and was, therefore, liable to pay to the respbndenfa sum of. Rs. 2;35;8001- by way of damages suffered by the ·respondent by reason of the breach of the contract whereas the appellant, on the other hand; said that it was the respondel1twhb"comniittedthe breach of the contract and was, therefore, liable to pay to the appellant by way of damages•a sum of Rs. 2;28,900/-. In the meantime, the appellant through Assistant Director of Supplies sent a letter to the respondent calling upon the respondent to make payment to them a sum of Rs. 2,28,900/- and threatened that if the said a,mount is not paid, it will be recovered from several respond~nts' pending bills in respect of other contracts. 35. The respondent, therefore, filed an application under Section 20 of the Indian Arbitration Act· 1940 in Delhi High Court against the appellant for filing the arbitratioil agreement. The tespondent also made an application for an' interim injunction restraining the appellant from recovering the ·amount of damages claimed by i"t from several pending bills of the respondent. The learned Single Judge dismissed the injunction application orithe·ground that it could not be proved that there were any pehdin'g bills but at the same time allowed the application made under Section 20 of the Indian Arb'itration Act and referred the matter to arl:iiiration· as per Clause 24 of GCC. This is how the claim/counter Claim of the parties became· the subject matter of the arbitration proceedings: · · 36. Pending arbitrati.on proceedings,. the appellant made attempt to recover the said amount from the respondent and hence the respondent c again made another interlocutory application under Section 41 read with second schedule to the Indian Arbitration Act, 1940 and prayed for status quo in the case. The appellant resisted the application. It was contended that Clause 18 empowers the appellant to make recovery of any amount from the respondent. The learned Single Judge allowed the respondent's application. He took the view that Cfause 18 did not authorize the appellant to appropriate the amounts of any pending bil Is 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 the arbitrator or suit in civil court. Accordingly, the injunction, as prayed for, was granted to the respondent against the appellant. It is this issue, which was carried by the Union of!ndia to this Court. 3 7. The questions, which fell for consideration before this Court, were – first, what is the true interpretation of Clause I 8; second what is the meaning of the words "sum due" and "may become due" under the contract or any other contract with the purchaser occurring in Clause 18; third, whether Clause I 8 empowered the Union of India to make recovel) of amount claimed by it by way of damages (liquidated or unliquidatcd) for breach of contract pending arbitration proceedings from the contractor and lastly, whether in such case, contractor is entitled to claim injunction against the Union of India from making recovery of such sum. 38. Justice Bhagwati (as His Lordship then was) speaking for the Bench examined the issue in great detail in the light oflaw laid down by English and Indian Courts. The learned Judge in his distinctive style of writing after examining the entire case law on the subject held that an expression "sum due" occurring in Clause 18 would mean a sum for which there is an existing obligation to pay in praesmti or in other words which is presently payable and due and, therefore, recovery of only such sums can be made subject matter of Clause 18 which is presently payable and due. It was held that a claim, which is neither due and nor payable, cannot be made subject matter of Clause I 8. It was further held that Clause 18 does not create a lien on other sums due to the contractor or give to the purchaser a right to retain such sums until his claim against the contractor is satisfied. It was also held that a claim for damages for breach of contract is 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 Clause I 8 to recover the amount of such claim by appropriating other sums due to contractor. M/S GANGOTRI ENTERPRISES LTD. v. UNION OF INDIA [ABHAY MANOHAR SAPRE, J.] 39. Their Lordships approved the view taken by Chagla C.J. in the case of Iron and Hardware (India) Co. vs. Firm Shamlal and Bros., AIR 1954 Bom.423 by observing in para 11 as under. "11. …………………………………………………. The same view. has also been taken consistently by different High Courts in India. We may mention only a few of the decisions, namely, Jabed Slteiklt v. Talter M11llik,AlR 1941 Cal 639 S. Milklw Singh v. N.K. Gopaltt Krislm11 Muda/iar, AIR 1956 Punj 174 and Iro11 am/ H11rdw11re (llldi11) Co. v. Firm S/wmlttl and Bros., AIR 1954 Bom 423. Chagla, C.J. in the last mentioned case, stated the law in these terms: (at pp. 425- 26) In my opinion it would not be true to say that a person who commits a breach of the contract incurs any pecuniary liability, nor would it be true to say that the other party to the contract who complains of the breach has any amount due to him from the other party. As already stated, the only right which he has is the right to go to a Court of law and recover damages. Now, damages are the compensation which a Court or law gives to a party for the injury which he has sustained. But, and this is most important to note, he does not get damages or compensation by reason of any existing obligation on the part of the person who has committed the breach. He gets con1pensation as a result of the fiat of the Court. Therefore, no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages. Therefore, when damages are assessed, it would not be true to say that what the Court is doing is ascertaining a pecuniary liability which already existed. The Court in the first place must decide that the defendant is liable and then it proceeds to assess what that liability is. But till that determination there is no liability at all upon the defendant. This statement in our view represents the correct legal position and has our full concurrence. 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 clause 18, c c (2016] 2 S.C.R. to recover the amount of such claim by appropriating other sums due to the contractor. On this view, it is not necessary for us to consider the other contention raised on behalf of the respondent, namely, that on a proper construction of clause 18, the purchaser is entitled to exercise the right conferred under that clause only where the claim for payment of a sum of money is either admitted by the contractor, or in case of dispute, adjudicated upon by a court or other adjudicatory authority. We must, therefore, hold ··.that the appellant had no right or authority under clause 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 fro~ doing so. 12. We accordingly dismiss the appeals. The appellant in each appeal will pay the costs of the respondent all throughout." 40. In our considered opinion, the case at hand being somewhat identical to this case has to be decided keeping in view the law laid down by this Comi in the case of Union oflndia (DGS&D) (supra). . 41. Coming now to the facts of the case at hand, we find that wordin.gs of Clause 62 of the contract in question with. which we are concerned is identical to that of Clause 18 of Union oflndia (DGS&D) (supra). Clause 62 ofGCC provides for.determination of contract owing to default of contractor. The relevant portion of Clause 62 reads as under: "The amounts thus to be forfeited or recovered may be deducted from any moneys then due or which at any time thereafter may become due to the Contractor by the Railway under this or auy other contract or otherwise." 42. On perusal of the record of the case, we find that firstly, arbitration proceedings in relation to the contract dated 22.08.2005 are still pending. Secondly, the sum claimed by the respondents from the appellant does not relate to the contract for which the Bank Guarantee had been furnished but it relates to another contract dated 22.08.2005 for which no bank guarantee had been furnished. Thirdly, the sum claimed MIS GANGOTRI ENTERPRISES LTD. v. UNION OF INDIA [ABHAY MANOHAR SAPRE, J.] by the respondents from the appellant is in the nature of damages, which is not yet adjudicated upon in arbitration proceedings. Fourthly, the sum claimed is neither a sum, due in praesenti nor a sum payable. In other words, the sum claimed by, the respondents is neither an admitted SU!)l and nor a sum which stood adjudicated by any Court of law, in any judicial proceedings but it is a disputed sum and lastly, the Bank Guarantee in question being in the nat~re of a performance guarantee furnished for execution work of contract dated 14.07 .2006 (Anand Vihar works) and the'work having been completed to the satisfaction of the respondents, they had no right to encash the Bank Guarantee. 43. We have, therefore, no hesitation in holding that both the courts below erred in dismissing the appellant's application for grant ofinjunction. We are indeed constrained to observe that both the courts committed jurisdictional error when they failed to take note of the law laid down by this Court in Union of India (DGS&D) (supra) which governed the controversy and instead placed reliance on Himadri Chemicals Industries Ltd. vs. Coal Tar Refining Company, AIR 2007 SC 2798 and U.P. State Sugar Corporation vs. Sumac International Ltd., (1997) 1 SCC 568, which laid down general principle relating to Bank Guarantee. There can be no quarrel to the proposition laid down in those cases. However, every case has to be decided with reference to the facts of the case involved therein. The case at hand was similar on facts with that of the case of Union of India (DGS&D) (supra) and hence the law laid down in that case was applicable to this case. Even in this Court, both the learned counsel did not bring to our notice the law laid down in Union oflndia (DGS&D) case (supra). 44. We are also of the view that the District Judge having decided the injunction application in the first instance in appellant's favour vide order dated 04.01.20 I 2 erred in rejecting the application made by the appellant second time vidc order dated 12.07.2012. It is not in dispute that the respondents despite having suffered the injunction order dated 04.01.2012 did not file any appeal against this order. Such order thus attained finality and was, therefore, binding on the parties. 45. In the I ight of foregoing discussion, we hold that the appellants have made out a primafacie case in their favour for grant of injunction against the respondents so also they have made out a case of balance of convenience and irreparable loss in their favour as was held by this Court in the case of Union of India (DGS&D) (supra). They are, c SUPREME COURT Rf PORTS therefore, entitled to claim injunction against the respondent in relation to encashment of Bank Guarantee no. 12/2006 dated 04.08.2006. 46. We, accordingly, allow the appeal, set aside the impugned order and in consequence allow the injunction application made by the appellant under Section 9 of the Act in Arbitration Suit no. 411/2011 in District Court, Allahabad and grant injunction in appellant's favour by restraining the respondents jointly and severally from encashing Bank Guarantee no. 12/2006 dated 04.08.2006 furnished by the appellant in connection with Anand Vihar Works. No costs. Nidhi Jain Appeal allowed.