S.C. Mohapatra, J.@mdashThe Jute Corporation of India Ltd., (hereinafter referred to as ''the purchasing agent'') has assailed the order of injunction passed under item (4) of Second Sch. read with Section 41(b) of the Arbitration Act, 1940 (hereinafter referred to as ''the Act'') and read with Order 39, Rule 1. C.P.C at the instance of M/s. Konark Jute Limited (hereinafter referred to as ''the principal''). The appeal and the revision having been filed against the same order, are heard together and are disposed of by this common judgment.
2. The principal and the purchasing agent are companies registered under the Companies Act, 1956. They entered into a written agreement on 7-11-1984 whereunder the purchasing agent agreed to purchase jute on behalf of the principal and make the supply to the principal as per the terms indicated therein. In the said agreement there is an arbitration clause for resolving the disputes between the parties by the named Arbitrator, the Jute Commissioner.
3. As per the terms of the agreement the principal furnished two bank guarantees covering one-fourth of the value of the jute to be supplied on 9-11-1984. As is usual with business organisations, discussions were made and correspondence continued recording the minutes of the discussions and indicating the agreement of purchase and supply. On 30-4-1985, the principal requested the purchasing agent for phased supply on account of its acute financial crisis and for extension of the period of supply. On 13-6-1985, the principal proposed to the purchasing agent to sell the jute purchased on its behalf at the best available rate since the banks were not furnishing letter of credit. On 26-6-1985, the purchasing agent accepted the proposal and gave a calculation of the loss which would be sustained by it on account of such sale. On receipt of this letter, the principal addressed a letter on 1-7-1985 to the named Arbitrator to enter into reference since a dispute has arisen. The purchasing agent was also intimated this fact. The Arbitrator was requested to call a meeting of the parties for direction to file their respective claims before him. It may be noted at this stage as stated by Mr. Ashok Mukherjee, the learned counsel for the purchasing agent, that on 9-8-1985 the named Arbitrator intimated the principal that without knowing the nature and the amount of dispute it is not possible for him to enter into reference. Mr. B. B. Mohanty, the learned counsel for the principal, accepted this fact and submitted that the action of the Arbitrator is under challenge before the learned Subordinate Judge, First Court, Cuttack under the provisions of the Arbitration Act.
4. On 4-7-1985 while the purchasing agent invoked the two bank guarantees, the principal filed an application in the Court of the Subordinate Judge, First Court, Cuttack for restraining the purchasing agent from invoking the bank guarantees without knowing that the same have been invoked. This application was registered as Misc. Case No. 323 of 1985. Along with it, another application was filed for ad interim ex parte order of injunction which was registered as Misc. Case No. 324 of 1985, the learned Subordinate Judge granted ex parte ad interim injunction. When the principal came to know that before obtaining the ex parte order of injunction, the purchasing agent had already invoked the bank guarantee, it moved the learned Subordinate Judge in a separate application for restraining the purchasing agent from receiving the amount and for restraining both the banks from paying the amount under bank guarantees. This was registered as Misc. Case No. 326 of 1985. All the three applications were taken up together and the impugned final order was passed restraining the purchasing agent to enforce the bank guarantee and directing the two banks not to pay the amounts under the bank guarantees to the purchasing agent. Misc. Case No. 323 of 1985 being for restraining the purchasing agent from invoking the bank guarantee is infructuous. Final order having been passed, Misc. Case No. 323 of 1985 is also not necessary to be dealt with since the order would merge with the final order.
5. Since in Misc. Case No. 326 of 1985 the application for injunction was stated to be one under Order 39, Rule 1, C.P.C. the purchasing agent has challenged the impugned order by preferring an appeal under Order 43, Rule 1, C.P.C. registered as Misc. Appeal No. 353 of 1985 and Civil Revision registered as C. R. No. 704 of 1985. The application was indisputably for exercise of power u/s 41(b) of the Act. There was no scope for exercise of power by the court under Order 39, Rule 1, or Rule 2, C.P.C. since the matter does not arise out of a suit. Right of appeal is a creature of the statute. In the absence of any provision in the Act providing for appeal against an order u/s 41(b) no appeal lies against the impugned order. Accordingly, the Miscellaneous Appeal No. 353 of 1985 is not maintainable.
6. The language of Section 41(b) of the Act is clear that the Court has the same power of making orders as it has for the purpose of and in relation to any proceedings before the Court. It reads as follows :
"41. Procedure and powers of Court.
Subject to the provisions of this Act and of rules made thereunder--
(a) ...
(b) the court shall have, for the purpose of, and in relation to, arbitration proceedings, 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."
7. In a decision reported in (1985) 2 Ori LR 298 (Executive Officer, Notified Area Council, Polsora v. Kintali Natabar Prusti), I had occasion to deal with various previous decisions of this Court to come to conclusion that the main object behind the discretionary power to grant preventive temporary relief of injunction is to prevent the ends of justice being defeated and for that purpose to exercise sound judicial discretion Court is to be satisfied of three conditions, i.e., (a) prima facie case, (b) balance of convenience, and (c) irreparable injury. In case one of the three considerations goes against the application, the relief shall not be granted.
8. I may make it clear that the two banks are not parties to the arbitration agreement. The Court could not have restrained them in any manner. This view is supported by the Delhi High Court in the decisions reported in AIR 1982 Delhi 78 (Pesticides India, Props. Mewar Oil & Gen. Mills Ltd. v. State Chemicals and Pharmaceuticals Corpn. of India Ltd.) and
9. Mr. Ashok Mukherjee, the learned counsel for the purchasing agent-petitioner submitted that there is no prima facie case in this case since there is no arbitration proceeding which is the pre-condition for exercise of a power u/s 41(b) of the Act.
10. Section 41(b) of the Act envisages exercise of power of the Court only where an arbitration proceeding is pending. By the time the application was filed u/s 41(b), the principal had called upon the named Arbitrator to enter into reference and intimated the same to the purchasing agent. Since immediately after the letter of the purchasing agent estimating the loss by sale of jute, the named Arbitrator was requested to enter into reference, a dispute arises at least relating to the calculation of loss. When one of the parties calls upon the Arbitrator to enter into the reference it can be said that an arbitration proceeding is pending. Once an arbitration proceeding is pending, the Court gets jurisdiction to exercise power u/s 41(b) of the Act Whether the Arbitrator is justified in writing the letter to the principal need not be considered by me at this stage since it is stated at the Bar that a proceeding is pending before the learned Subordinate Judge on that account in Misc. Case No. 464 of 1985.
11. Even if it is assumed that an arbitration proceeding was not pending on 4-7-1985, when an application for injunction was filed, on the admitted position, now an arbitration proceeding is pending in Court itself. In case the other ingredients for grant of injunction would be satisfied, the order granting injunction should not be vacated in exercise of the revisional power only on the ground of absence of a proceeding, as the only effect would be that the party will have to approach the trial court again to get the order.
12. The next contention of Mr. Mukherjee is that unless there is a dispute the Arbitration has no scope to enter into the reference and accordingly there was no prima facie case. On facts he submitted that the purchasing agent intimated the loss that would be sustained by it. The principal did not give any reply that it would not be liable to pay the amount estimated to be the loss. If the principal would have denied its liability or questioned the computation, a dispute might have arisen. Getting the estimate, the principal could not have rushed to the Arbitrator. Whatever might have been the position at the stage, from the application u/s 41(b), it is clear that the principal had no intention to pay the estimated loss and disputed its liability. Accordingly, absence of a reply to the purchasing agent would not by itself be sufficient to come to the conclusion in this case that there was no dispute. Under the Act while insisting that the agreement for arbitration would be a written agreement, the dispute is not required to be written. The conduct of the parties would have to be examined to find out whether there is a dispute.
13. In I.L.Rule (1973) Cut 1309 Orissa State Commercial Transport Corporation Ltd. v. Satyanarayan Singh, it has been held that prima facie would mean a fair case to be presented by the party before the Court From the allegations and the counter statements it cannot be said that there is no fair case to be presented. In fact, the entire gamut of submission before the learned Subordinate Judge and in this Court related to the interpretation of the agreement and effect of the various letters between the two parties. Thus, acceptance or rejection of one or the other interpretation given by the learned counsel would make either party successful. In such circumstances, it can safely be concluded that there is a prima facie case.
14. It is submitted by Mr. Ashok Mukherjee that the principal would not have any injury since the money under the bank guarantees would be realised from the bank who agreed to pay the same. In any case, the money realised can be received back on success and there would be no irreparable injury. There can be no doubt that realisation of money, when there is existence of dispute about the liability, is an injury to the person from whom it would be realised. The question is whether the injury is irreparable.
On the own showing of the purchasing agent, the principal is in financial stringency. As prudent business organisation it would take steps for realisation of the same, from the principal after paying the amount on bank guarantees. Realisation of the money by the bank though apparently separate is in fact so closely connected with its payment that both are to be considered to be continuous. On account of financial stringency when realisation would not be possible, liquidation proceeding of the company or sale of its manufacturing machineries for realisation of the same would become inevitable. This would have the result of loss of business goodwill and ruin which cannot be repaired by subsequent returning back the money. In the present case, it would become an irreparable injury. The decisions cited by Mr. Mukherjee about the injunction on bank guarantees are distinguishable on this account.
15. The question of balance of convenience now become very material. In case the purchasing agent is not able to receive the money on bank guarantee, its business is likely to be affected. As Mr. Mukherjee submitted the financing organisation like the Reserve Bank of India might have doubt about the creditworthiness of the purchasing agent and it may not be able to get the finance at the liberal rate of interest. On the other hand, in the peculiar circumstances of this case, the receipt of the money on bank guarantee would lead to the ruins of the principal which cannot be repaired. Establishment of an industry like jute mill has several restrictions. Once it is lost, it may not be possible for the principal to have it again on account of the various industrial policies. The balance of convenience in such a situation would be in favour of the principal. Delayed receipt of the money will be less inconvenient than complete ruin on the other side.
16. In conclusion, exercise of discretion for the grant of injunction against the purchasing agent would be prevention of the ends of justice being defeated. An unconditional restraint on the purchasing, agent would not be just. Its interest is to be protected so that its business does not suffer. This can be best done in case the principal secures the commercial rate of interest on the amount on both the bank guarantees for six months to the satisfaction of the trial court. In case the purchasing agent borrows money for continuance of its business from any bank it will not suffer loss. I am fixing the period of six months keeping in mind the disposal of the Misc. Case No. 464 of 1985 within two months and disposal of the proceeding before the Arbitrator within the statutory period of four months in case necessary direction is given to an Arbitrator to enter into reference on the application of the principal of which I express no view.
17. The learned counsel for both the bankers against whom the trial court passed the order of injunction which was not challenged by them agree and assure in Court that until they are required to pay the amounts on the two bank guarantees to the purchasing agent, they would not insist on realisation of the amounts from the principal.
18. In the result, the purchasing agent (the Jute Corporation of India) is restrained from subject to the condition that the principal furnishes security for commercial rate of interest on that amount for that period to the satisfaction of the trial court. The trial court is directed to dispose of the Misc. Case No. 464 of 1985 within two months from today. In case the arbitration proceedings are not disposed of within six months, the trial court shall consider the question of extending the period of injunction depending upon the conduct of the parties and other subsequent events. The Civil Revision is allowed in part. The Misc. Appeal is dismissed. No costs.
