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PETITIONER: M/S. SANT RAM & COMPANY

       Vs.

RESPONDENT: THE STATE OF RAJASTHAN & ORS.

DATE OF JUDGMENT:       20/11/1996

BENCH: K. RAMASWAMY, G.T. NANAVATI, K. VENKATASWAMI

ACT:

HEADNOTE:

JUDGMENT:                          O R D E R      This appeal  by special  leave arises from the order of the single  Judge of  the Rajasthan High Court made in Civil Revision Petition No. 293/90, dated August 7, 1990.      The admitted position is that the appellant had entered into a  contract with  the respondent-State for execution of the works  of widening  of Gagar Diversion Bridge at Bikaner in Sri Ganganagar Section. Pursuant to a dispute which arose between the parties, in terms of the contract, the matter by mutual agreement, was referred to the arbitrator by name Sri K.L. Sethia.  Pending arbitration,  the respondent sought to adjust the amounts due to the appellant in another contract. Thereon the  appellant filed  an application in the district Court under  Order XXXIX  Rule 1,  Code of  Civil Procedure, 1908 read  with Section  41(b) of  the Arbitration  and  the Second Schedule  to the Arbitration Act, 1940 for ad interim injunction restraining  the respondent  from  adjusting  the same. The  District Judge  by his  order held  that such  an application is  not maintainable without the intervention of the Court;  therefore, Section 41(b) and the Second Schedule have no  application. The  same came  to be  upheld  by  the learned Chief  Justice in  the  impugned  order.  Thus  this appeal by special leave.      Shri A.B.  Rohtagi,  learned  senior  counsel  for  the appellant, contends  that for  entertaining and  application under Section 41(b) read with the Second Schedule, it is not a condition  that  the  arbitration  proceedings  should  be pending through the intervention of the Court. Independently thereof, when  arbitration proceedings  were pending between the parties  in respect  of the  claim or  counter-claim and when the  respondent sough  to  adjust  the  same  with  the amounts due  from other  contracts, the  Court would, in the circumstances, intervene  and restrain  the respondents from adjusting  the  same  as  a  counter-claim.  Otherwise,  the arbitration proceeding  would be nullified. He placed strong reliance on  the judgment of a two Judge Bench of this Court in Union  of India v. Raman Iron Foundry [(1974) 3 SCR 556]. The question  is no  longer res  integra. A  Bench of  three judges of  this Court in Kamaluddin Ansari & Co. v. Union of India [(1983)  (3) SCR  607] has  considered  the  scope  of

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Section 41(b) and the Second Schedule and had held thus:      "The first  question that falls for      consideration  in  this  appeal  is      about the  exact scope and ambit of      Section 41  in order  to appreciate      the contention  raised on behalf of      the appellant:      "41.  Procedure   and   powers   of      Court:- Subject  to the  provisions      of  this  Act  and  of  rules  made      thereunder -      (a) the  provisions of  the Code of      Civil Procedure,  1908 shall  apply      to all proceedings before the Court      and to all appeals, under this Act,      and      (b) the  Court shall  have, for the      purpose of  , and  in relation  to,      arbitration  proceeding,  the  same      power of  making orders  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:-      Provided that nothing in clause (b)      shall be  taken  to  prejudice  any      power which  may be  vested  in  an      arbitrator  or  umpire  for  making      orders with  respect to any of such      matters."      In view of cl.(b) of s.41 the Court      has been  given  power  of  passing      orders in  respect of  any  of  the      matters set  out in second Schedule      for the  purpose of and in relation      to  any   proceedings  before   the      Court. The  Second Schedule  of the      Arbitration Act inter alia includes      ‘interim   injunction’    and   the      ‘appointment of receiver’."      In that  case an  application under  Section 33  of the Arbitration Act had come to be filed and then an application for ad  interim injunction was filed. It will, therefore, be clear that  to avail  the remedy under the provisions of the Code of  Civil Procedure, when an application for injunction under Section  41(b) read  with Schedule is filed, the Court shall have,  pending proceedings  for the  purpose of  an in relation to  the arbitration proceedings availed through the process of  the Court,  the same  power of  making orders in respect of  any matters set out in the Second Schedule as it has for  the purpose  of and  in relation  to any proceeding before  the   Court.  The  initiation  of  pendency  of  any proceedings in  the Court  in relation  to  the  arbitration proceedings would,  therefore, be  a  precondition  for  the exercise of  the power  by the  Civil Court under the Second Schedule of the Act.      On  merits,   this  Court   had  held  in  the  similar circumstances that  such an  injunction cannot be granted as it amounts to granting a relief which is not warranted under Section 41(b)  read with the Schedule of the Act. This Court had recorded a finding as under:      "We are clearly of the view that an      injunction    order     restraining      respondents  from  withholding  the      amount  due   under  other  pending

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    bills to  the contractor  virtually      amounts  to   a  direction  to  pay      amount    to     the    contractor-      appellants.  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."      The Division  Bench decision  on which the reliance was placed, has reiterated that principle, namely, that "such an injunction can  only be for the purpose of an in relation to the arbitration  proceedings. The  court could  not make  an injunction order  which, though ostensibly in the form of 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."  In  fact,  the  ratio therein which the learned counsel tried to propound, was not approved and  the said  decision was  expressly overruled in Kamaluddin’s case (supra).      It is  seen that under Clause (50) of the contract, the appellant has  expressly agreed for adjustment of the amount pending with  the respondent  in respect  of the claim under the dispute or any other contract with the Department. Under these circumstances,  neither on  merits nor on principle of law, we  find any illegality in the order passed by the High Court warranting interference.      The appeal is accordingly dismissed. No costs.