ADHUNIK STEELS LTD. v. ORISSA MANGANESE AND MINERALS PVT. LTD

Citation: [2007] 8 S.C.R. 213

Court: Supreme Court of India

Bench: H.K. SEMA, P.K. BALASUBRAMANYAN

Case summary

ADHUNIK STEELS LTD. v. ORISSA MANGANESE AND MINERALS PVT. LTD.pdf

Judgment text

ADHUNIK STEELS LTD. v. ORISSA MANGANESE AND MINERALS PVT. LTD. JULY 10, 2007 [H. K. SEMA AND P. K. BALASUBRAMANYAN, JJ. ] Arbitration and Conciliation Act, 1996-Section 9: Interim prohibitory/mandatory injunction-:Grant of-Held-It is governed by Specific Relief Act, 1963 and well known concepts ofbalance· of convenience, prima facie _case, irreparable injury and interim ·measure appearing tO court to be just and convenient-Section 9 was not de hors them-'-// was more so since a right to approach ordinary court was given without providing a special procedure in that behalf-,-Approach that at · · initial stage only existence of arbitration clause need be considered is not Q justified.

One party obtaining mining lease from Government and contracting · with another for raising ore on its behalf-Notice by former to latter_ purporting to terminate contract on ground that contract ll;'as violative of Rule 37 of Mineral Concession Rules, 1960 and there was danger oftheir g, losing rights as a lessee, and. also asking latter to remove their workmen and equipment from site-The latter alleging that pursuant to contract it had mqbilized huge resources for extraction of mineral arid incurred losses, moved District_ Court under Section 9 for injunction restraining termination ofcontract and dispossession from site of mines-District Court refusing ii but High- Court granting it-Correctness of~Held-Whatever might be · reasons for termination ofcontract, a notice had been issued regarding same and in terms of Order XXXIX Rule 2 of Code of Civil Procedure, I908, ·art _ interim injunction could be granted restraining breach of contract-To that .

extent, there was a prima facie case-However, it was pos:Jib/e to. assess compensation payable to fatter if their claim was upheld by arbitrator-: Though the former could not enter into a similar tranfaction with any oiher entity since that would also entail violation of Rule 37 there was no . · • , justification in preventing them from carrying on minil~g operations by themselves as that would not prejudice the latter who in case ofsuccess of. _· . ·... ;. .. ~ their claim were entitled to get compensation for termination ofcontract- Question of application of Rule 37 left to be decided by arbitrator.

--t Arbitration-Precedent-Other arbitral award-Held-Court is not concerned with what arbitrator who may be appointed will hold in impugned case and not what some other arbitrator held in some other arbitration and some other contract even· if it be between same parties-Moreover, Court could not be bound by what an arbitrator might have held in an arbitration proceeding unless it be that the said award operates as a bar between the parties barring either of them from raising a plea in that behalf. O. M. M. obtained a mining lease from the Governrnent and entered info a contract wit! t AS for raising the ore on its behalf. However, a few months thereafter, O. M. M. issued a notice to AS purporting to terminate the contract and asking them to remove their workmen and equipment from the site. According to O. M. M. , it had realized that its contract with AS was violative of Rule 37 of the Mineral Concession Rules, 1960 and since there was danger of itself los!

ng its rights as a lessee, the contract had to be terminated. AS alleged that pursuant to contract it had mobilized huge. resources for the >extraction of the mineral and incurred losses, and moved the local District Court under Section 9 of the of the Arbitration and Conciliation Act, 1996 for an injunction restraining O. M. M. from terminating the contract and dispossessing it from the site ofthe mines. O. M. M. contested the application butthe Distriet Court allowed it However, the High Court allowed the appeal ofO. M. M holding that (i) in view of Section 14(3)(c) of the Specific Relief Act, 1963 the loss, if any, that may be sustained by AS, could be calculated in terms of money; (ii) the question of balance of convenience for grant of injunction was not required to be gone into as it was otherwise not a fit case p for grant thereof.

However, the High Court also held that primafacie neither Rule 37 ibid nor Section 14(l)(c) of the Act of 1963 were applicable to the facts of the case. Feeling aggrieved thereby, both AS and O. M. M. filed the present cross appeals. AS contended that (i) Section 9 of the Act of 1996 was independent of Order XXXI. X of the Code ofCivil Procedure and Act of 1963; (ii) by way of an interim measure, the court could pass mandatory or prohibitory order for the preservation of the subject matter of the arbitration agreement; (iii) until the arbitrator decided whether O. M. M. was entitled to terminate the contract and its consequences, the court had not only the power but the duty under ; Section 9 Act of 1996 to protect their contractual right to mine and lift the I ADHUNIK STEELS LTD v. ORISSAMANGANESE ANDMINERALS PVT. LTD 215 ore to the surface on behalfof O. M. M; (iv) ifO. M. M.

is permitted to enter into agreements with others for the same purpose, it would be unjust as it cancelled the agreement mainly because it was hit by Rule 37 ibid; (v) O. M. M. must be restrained from carrying on any mining operation in the mi"es concerned pending the arbitral proceedings. O. M. M. contended that (i) since neither Section 9 of the Act of 1996 nor any other of its provisions provided the conditions for grant of interipi protection; the provisions of the Code ofCivil Procedure and the Act of \963 cannot be kept out while the court considers the question whether on the facts of a case, any interim protection should be granted; so, the court had necessarily to consider the well known restrictions on the grant of interim orders; (ii) grant ofan injunCtion by way of interim measure to permit AS to carry on the mining operations pending the arbitration proceedings notwithstanding the termination ofthe contract by O. M. M. was not permissible in law.

· Disposing of the appeals, the Court HELD 1. 1. The grant ofan interim prohibitory injunction or an interim mandatory injunction are governed by well known rules and it is difficult to imagine that the legislature while enacting Section 9 of the Act intended to make a provision which was de hors the accepted principles that governed the grant of an interim injunction. Same is the position regarding the appointment of a receiver since the Section itself brings in, the concept o( 'just and convenient' while speaking of passing any interim measure of protection. The concluding words of the Section, "and the court shall have' the same power for making orders as it has for the purpose and in relation to' any proceedings before it" also suggest that the normal rules that govern· the court in the grant of interim orders is not sought to be jettisoned by the provision.

Moreover, when a party is given a right to approach an ordinary · court of the country without providing a special procedure or a special set of , rules in that behalf, the ordinary rules followed by that court would govern the exercise of power conferred by the Act. On that basis also, it is not possible ' to keep out the concept of balance ofconvenience,primafacie case, irreparable , injury and the concept ofjust and convenient while passing interim measures under Section 9 of the Act. tpara 101 (224-E, F, G, HI American Jurisprudence, 2nd Edition referred to. 1. 2. When the grant of relief by way of injunction is, in general, governed by the Specific Relief Act, and Section 9 of the Act provides for an approach to the court for an interim injunction, the relevant provisions ofthe Specific ReliefA,ct cannot be kept out ofconsideration.

For, the grant of that interim injunction has necessarily to be based on the principles governing its grant emanating out of the relevant provisions of the Specific Relief Act and the law bearing on the subject. Under Section 28 of the Act of 1996, even the arbitral tribunal is enjoined to decide the dispute submitted to it, in accordance with the substantive law for the time being in force in India, if it is not an international commercial arbitration. So, it cannot certainly be inferred that Section 9 keeps out the substantive law relating to interim reliefs. (Para 1411227-F, G; 228-A) Nepa Limited v. Mano) Kumar Agrawal, AIR (1999) Madhya Pradesh 57 overruled. Coppee Leva/in NV v. Ken-Ren Fertilisers and Chemicalsb, (1994) 2 _, Lloyd's Report I09 at II6) referred to. Dr. Banerjee in his Tagor Law Lectures on Specific Relief. referred to. Commentary on Interim and Conservatory Measures in ICC Arbitration Cases by Professor Lew; David Bean on Injunctions. , referred to. 1. 3.

It is true that the intention behind Section 9 of the Act is the issuance of an order for preservation of the subject matter ofan arbitration · agreement. It ~as open to the court to pass an order . by way of an interim measure of protection that the existing arrangement under the contract should be continued pending the resolution of the dispute by the arbitrator. But, at the same time, whether an interim measure per""! itting AdhunikSteels to .. carry on the mini·ng operations, an extraordinary mea~ure in itself in the face of the attempted termination of the contract byp. M. M. private Limited or the termination of the contraCt by O. M. M. Private f:. imited, could be granted or not, would again lead the court to a considerationiofthe classical rules for the grant of such an interim measure. Whether an interim mandatory injunction could be granted directing (he continl! an.

ce of the working ofthe contract, had to be considered in the light of the well-~ettled principles in that behalf. Similarly, whether the attempted termination could be restrained ~ leaving the consequences thereof vague would also be a question that might have to be considered in the context ofwell settled principles for the grant of H. an injunction. Therefore, on the whole, it would not be correct to say that the ADHUNIK STEELS LTO v. ORISSA MANGANESE AND MINERALS PVT. LTfl 217 power under Section 9 of the Act is. totally independent of the well known -+ principles governing the grant ofan interim injunction that generally govern the courts ift'th. is connection. fPara 18) 1229-B, C, D, E, Fl . 2. The approach that at the initial stage, only the existence of an arbitration clause need be considered is not justified. fPara 1511228-AI ·B The Siskina (1979) AC 210, Fourie v. ,le Roux, (2007) 1 W. L. R. 320, referred to, 3. 1. The question here is whether in the circumstances, an .

order of injunction could be granted restraining O. M. M. Private Limited from interfering with Adhunik Steels' working of the contract which O. M. M. Pri~ate Limited has sought to terminate. Whatever might be its reasons for termination, it is . clear that a notice had been issued by the O. M. M. Private Limited terminating the arrangement entered into between itselfand Adhunik Steels: In terms ofOrder XXXIX Rule 2 of the Code of Civil Proce --· 37 of the Mineral Concession Rules, 1960 and its impact on the agreement _.. _ entered into between the parties. Therefore, that question is left open for being decided by the arbitrator. (Para 19)(230-A, B, CJ 7. The attempt made by O. MM. Private Limited to rely upon some other arbitral award in support ofits claim that Rule 37 of the Mineral Concession Rules, 1960 would apply, is neither here nor there.

The Court is not concerned ~ith what the arbitrator who may be appointed will hold in the present case and not what some other arbitrator held in some other arbitration and some other contract even if it be between the same parties. Moreover, the Court could not be bound by what an arbitrator might have held in an arbitration ... 1. ,proceeding unless it be that the said award operates as a bar between the parties barring either of them from raising a plea in that behalf. (Para 19) (230. ,. C, DJ 8. The arbitration proceedings must be expedited. The application for appointment of an arbitrator made before the Chief Justice ofthe Orissa High. Court under Section 11(6) of the Act is pending for over two years without orders. Normally, the Court would have requested the ChiefJustice'ofthe ):--.. _ ;. Orissa High Court or hi~ nominee to take up and dispose of the application under Section 11(6) of the Act expeditiously. But the Court put it to the parties _ AOHUNIK STEELS LTDv.

ORISSA MANGANESE AND MINERALS PVT. LTD[BALASUBRAMANYAN,!. ) 2}9 •• that it would be more expedient if we appoint an arbitrator in this proceeding itself, so that further delay can be avoided. The parties have agreed to that course. The Court, therefore, in the interests of justice appointed a sole arbitrator to adjudicate on the dispute between the parties. It was expected that the sole arbitrator would enter upon the reference and pronounce his award expeditiously. IPara 25) 1232-B, C, DI . B CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6569 of2005. "'· ... , From the Judgment & Order dated 18. 03. 2005 of the High Court of Orissa at Cuttack in Arbitration appeal No. 26 of 2004. WITH Dushyant Dave and Shyam Divan, Sr. Adv. , Smita Bankoti, Anirudh and Devendra Singh for the Appellant. C. A. Sundaram and Ranjit Kumar, Sr. Adv. , Arvind Kumar, Laxmi Arvind, -4 Mahesh Agarwal, Gopal Jain and Poonam Prasad for the Respondent. .... The. Judgment of the Court was delivered by P. K.

BALASUBRAMANYAN, J. 1. These Cross Appeals by Special Leave challenge the order passed by the High Court of Orissa in an appeal under Section 37(l)(a) of the Arbitration & Conciliation Act, 1996. The said appeal was one filed by the respondent in C. A. -No. 6569 of2005 which is the appellant in C. A. No. 6570 of 2005 challenging an order of the District Court at Sundargarh in a petition under Section 9 of the Act filed by the appellant in C. A. No. 6569 of 2005 and the respondent in C. A. No. 6570 of 2005. For -.. _ convenience, the parties will hereinafter be referred to as "Adhunik Steels" and "O. M. M. Private Limited". Adhunik Steels it was, that filed the application under Section 9 of the Act. 2. O. M. M. Private Limited obtained a mining lease from the Government of Orissa for mining manganese ore from certain extents of land situate in Sundargarh district in the State of Orissa. For reasons of its own, O. M. M. Private Limited entered into an agreement dated 14. 5.

2003 with Adhunik Steels for raising the manganese ore \)n . its· behalf. The term of the agreement was __,. ; IO years with effect from 18. 5. 2003, it·conferred onAdhunikSteels an option to s~ek a renewal for a further t~rm. 3. According to Adhunik Steels, pursuant to this agreement, it had mobilized hμge resources for carrying on the excavation and extraction ofthe· mineral by arranging for the necessary labour, staff; equipments, and so· on. . It had also incurred expenditure for removing the overburden. Qn 24. 11. 2003, O. M. M. Pri. vate Limited issued a notice to Adhunik Steels purporting to terminate the agreement. The notice also called upon Adhunik ·Steels to remove their workmen and equipment from the site. According to O. M. M. Private Limited, it had realized that the con~act it had entered into with Adhunik Steels was one in violation· of Rule 37 of the Mineral Concession Rules, 1960 and since there was danger ofO. M. M.

Private Limited itselflo~ing its rights as a lessee, the contract had to be terminated. Adhunik Steels, alleging that it had incUfred considerable expenditure and had already incurred losses, moved the District Court at Sundargarh under Section 9 or' the Act for an injunction restraining O. M. M. Private Limited from termil)ating the contract and from dispossessing ft:dhunik Steels from the site of the mines and for other consequential reliefs. The said application, \\. :as opposed by O. M. M. Private Limited on various grounds. Ultimately, by order dated 18. 8. 2004, the District Court allowed the application and restrained O. M. M. Private Limited from relying on, acting upon or giving effect to the letter of terinination dated 24. 11. 2003 and further restraining O. M. M. Private Limited from dispossessing Adhunik Steels from the mines in question: The order was to remain in force till the final award that was to be passed by an Arbitral · J.

ribunal constituted in terms of the arbitration agreement. 4. We may notice here that prior to approaching . the Distrkt Court at Sundargarh, Adhunik Steels had moved the Calcutta·High Court under Section 9 of the Act seeking identical reliefs. O'. M. M. Private Limited had raised an objection to jurisdiction in the I I0. It is true that Section 9 of the Act speaks of the court by way -of .... an interim measure passing an order for protection, for the preservation, interim custody or sale of any goods, whicb are the subject matter. of the arbitration agreement and such interim measure of protection as may appear j to the court to be just and convenient. The grant of an interim prohibitory injunction or an interim mandatory injunction are governed by well known f rules and it is difficult to imagine that the legislature while enacting Section 9 of the Act intended to make a provision which was de hors the accepted prindples that governed the grant of an interim injunction.

Same is the position regarding the appointment of a receiver since the Section itself ~ brings in, the concept of 'just and convenient' while speaking of passing any - an arbitrator might have held in an arbitration proceeding unless it be that the said award operates as a bar between the parties barring either of them from raising a plea in that behalf 20. The question here is whether in the circumstances,. an order of injunction could be granted restraining O. M. M. Private Limited from interfering with Adhunik Steels' working of the contract whieh O. M. M. Private Limited has sought to terminate. Whatever might be its reasons for termination, it is clear that a notice had been issued by the O. M. M. Private Limited terminating the arrangement entered into between itself and Adhuhik Steels.

In terms of Order XXXIX Rule 2 of the Code of Civil Procedure, an interim injunction ~could be granted restraining the breach· of a contract and to that extent Adhunik Steels may claim that it has a prima facie case for restraining O. M. M. Private Limited from breaching the contract and from preventing it from carrying on its work in terms of the contract. It is in that context that the High Court has held that this was not a case where the damages that may be suffered by Adhunik Steels by the alleged breach of contract by Q;M. M. Private Limited could not be quantified at a future point oftime in terms of money. There is only a mention of the minimum quantity ofore that . A. dhunik Steels is to lift and there is also uncertainty about the other minerals that may be available for being lifted on the mining operations being carried on. These are impoundables to some extent but at the same time· it cannot be said that ( . • t ' ~ ADHUNIK STEELSLlD•. ORISSAMANGANESEANDMINERALS PVT.

LlD[BALASUBRAMANYAN. J. J23} --> at the end of it, it will not be possible to assess the compensation that might ~~be payable to Adhunik Steels in case the claim of Adhunik Steels is upheld by the arbitrator while passing the award. 21. But, in that context, we cannot brush aside the contention of the learned counsel for Adhunik Steels that ifO. M. M. Private Limited is pennitted to enter into other agreements with others for the same purpose, it would be unjust when the stand of O. M. M. Private Limited is that it was canceling the agreement mainly because it was hit by Rule 37 of the Mineral Concession \ -.. }. Rules, 1960. Going by the stand adopted by·O. M. M. Private Limited, it is clear that 0. M. M. Private Limited cannot enter into a similar transaction with any other entity since that would also entail the apprehended violation of Rule c. 37 of the Mineral Concession Rules, 1960, as put forward by it. It therefore appears to be just and proper to direct O. M. M.

Private Limited not to enter into a contract for mining and lifting of minerals with any other entity until the conclusion of the arbitral proceedings. 22. At the same time, we see no justification in preventing O. M. M. Private Limited from carrying on the mining operations by itself. It has got J a mining lease and subject to any award that may be passed by the arbitrator on the effect of the contract it had entered into with Adhunik Steels, it has the right to mine and lift the minerals therefrom. The carrying on of that activity by 0. M. M. Private Limited cannot prejudice Adhunik Steels, since ultimately Adhunik Steels, if it succeeds, would be entitled to get, if not the main relief, compensation for the tennination of the contract on the principles well settled in that behalf. Therefore, it is not possible to accede to the contention of learned counsel for Adhunik Steels that in any event O. M. M.

Private Limited must be restrained from carrying on any mining operation in the mines concerned pending the arbitral proceedings. -,.. 23. We think that we should refrain from discussing the various issues at great length since we feel that any discussion by us in that behalf could prejudice either ofthe parties before the arbitrator or the arbitral tribunal. We have therefore confined ourselves to making such general observations as are necessary in the context of the . elaborate arguments raised before us by learned counsel. 24. We therefore dismiss the appeal filed by O. M. M. Private Limited _,.. _ leaving open the questions raised by it for being decided by the arbitrator or Arbitral Tribunal in accordance with law. We also substantially dismiss the appeal filed by Adhunik Steels except to the extent of granting it an order of injunction restraining O. M. M.

Private Limited from entering into a transaction for mining and lifting of the ore with any other individual or concern making it clear that it can, on its own, carry on the mining operations in tenns of the mining lease. . 25. We think that the arbitration proceedings must be expedited. We are told that . the application for appointment of an arbitrator made before the Ghit;f Justice of the Orissa High Court under Section 11(6) of the Act is pending for over two years without orders. Normally, we would have requested the Chief Justice of the Orissa High Court or his nominee to take up and dispose of the application under Section 11 (6) of the Act expeditiously. But we put it to the parties that it would be more expedient if we appoint an arbitrator in this proceeding itself, so that further delay can be avoided. The parties have agreed to that course.

We therefore think that it would be in the interests ofjustice if we appoint here and now a sole arbitrator to adjudicate on the dispute between the parties. Hence we appoint Mr. Justice R. C. Lahoti, fonner Chief Justice of India as the sole arbitrator to decide the dispute between the parties. The arbitrator will be free to fix his terms in consultation with the parties. We confidently expect the sole arbitrator to enter upon the reference and pronounce his award expeditiously. . 26. The appeals are disposed of as above. We make no order as to costs. vs. Appeals disposed of.