Holding

Section 41(b) of the Arbitration Act, 1940 does not empower the court to grant an interim injunction restraining the respondent from adjusting amounts, and the High Court’s order is upheld.

Summary

The appellant, a contractor, entered into a contract with the State of Rajasthan for bridge widening works. A dispute arose and, by mutual agreement, the matter was referred to an arbitrator. While arbitration was pending, the respondent attempted to adjust amounts due to the appellant against another contract. The appellant filed an application under Order XXXIX Rule I of the CPC and Section 41(b) of the Arbitration Act, 1940, seeking an ad‑interim injunction to restrain that adjustment. The District Judge and the Rajasthan High Court held the application non‑maintainable, a decision the appellant challenged before the Supreme Court. The Court examined the scope of Section 41(b) and the Second Schedule, holding that an injunction of this nature amounts to a direction to pay and is beyond the power conferred by the Act. Consequently, the High Court’s order was found lawful and the appeal was dismissed.

Issues considered

Whether an application for an ad‑interim injunction under Section 41(b) of the Arbitration Act, 1940 and the Second Schedule is maintainable when arbitration proceedings are pending.
Whether the court may restrain a party from adjusting amounts due under a separate contract while arbitration is pending.
Whether such an injunction amounts to a direction to pay, which is outside the ambit of Section 41(b).

Legislation cited

Arbitration Act, 1940s. Second Schedule, s. Section 41(b)
Code of Civil Procedure, 1908s. Order XXXIX Rule I

Subjects

arbitrationinterim injunctionSection 41(b)Second Schedulecontract adjustmentpending arbitrationcivil procedurecourt jurisdiction

Judgment

MIS SANT RAM AND COMPANY A
v.
THE STATE OF RAJASTHAN AND ORS.

NOVEMBER 20, 1996

[K. RAMASWAMY, G.T. NANA VAT! AND B
K. VENKATASWAMI, JJ.]

Code of Civil Procedure, 1908/Arbitration Act, 1940:

0 XXXIX R. IIS. 41 (b) and Second Schedule-Application for ad
interim injunction-Dispute referred to Arbitrator by mutual agreement- C
Pending arbitration respondent sought to adjust amount due to appellant
in another contract-Application for ad interim injunction by appellant
seeking to restrain respondent from adjusting the said amount-District
Judge and High Court held that application was not maintainable-Held,
under the contract appellant had expressly agreed for adjustment ofamount
pendinK with respondent in respect ofclaim under the dispute or any other D
contract with the respondent-Neither on merits nor on principle of law
there is any illegality in the order passed by High Court warranting
interference.

Kamaluddin Ansari & Co. v. Union of India, [1983[ SCR 607, relied E
on.

Union of Inida v. Ram Iron Foundry, [1974[ 3 SCR 556, held no
longer a good law, as it stood overruled in [1983] 3 SCR 607.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 78 ofl991. F
From the Judgment and Order dated 7.8.90 of the Rajasthan High
Court in C.R. No. 293 of 1990.

A.B. Rohtagi, Ms. Indu Malhotra and Ms. Kavita Wadia for the G
appellant.

Aruneshwar Gupta. Manoj K.Das and Manish Garg for the
Respondents.

The following Order of the High Court was delivered : H
931
932 SUPREME COURT REPORTS [I 996] SUPP. 8 S.C.R.

A 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 ofGagar
B 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 amount
due to the appellant in another contract. Thereon the appellant filed an
application in the district Court under Order XXXIX Rule I, Code of
C Civil procedure, 1908 read with Section 41 (b) of the Arbitration Act and
the Second Schedule to the Arbitration Act, I940 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 4I(b) and the Second Schedule
have no application. The same came to be upheld by the learned Chief
D 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 an application under Section 4I(b) read with the
Second Schedule, it is not a condition that the arbitration proceedings
E 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 sought 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 proceedings
F would be nullified. He placed strong reliance on the judgment of a two
Judge Bench of this court in Union ofIndia v. Raman Iron Foundry, [1974]
3 SCR 556. The question is no longer res integra. A Bench of three judges
of this Court in Kalaluddin Ansari & Co. v. Union ofIndia, [1983] 3 SCR
607 has considered the scope of Section 41 (b) and the Second Schedule
G 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:

H "41. Procedure and powers of Court: Subject to the provisions
SANT RAM AND CO. v. STA TE OF RAJ. 933

of this Act and of rules made thereunder A

(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 B
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 C
any power which may be vested in an arbitrator or upmire
for making orders with respect to any of such matters."

In view ofcl. (b) ofs. 41 the Court has been given power of
passing orders in respect of any of the matters set out in D
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 E
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 and in relation to the arbitration proceedings F
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 proceedings before the Court. The
initiation of pendency of any proceedings in the court in relation to the
arbitration proceedings would, therefore, be a pre-condition for the exercise
I
of the power by the Civil Court under the Second Schedule of the Act. G

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 : H
934 SUPREME COURT REPORTS [1996] SUPP. 8 S.C.R.

A "We are clearly of the view that an injunction order
restraining respondents from withholding the amount due
under other pending 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 oflnida has no objection
B 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 dagages. But
certainly cl. 18 of the •tandard contract confers ample power
upon the Union of India to withhold the amount and no '
injunction order could be passed restraining the Union of
c 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 and in relation to the arbitration proceedings. The court
could not make an injunction order which, though ostensibly in the form
D 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-0verruled in Kamaluddin 's
case (supra).
E 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
F warranting interference.

The appeal is accordingly dismissed. No costs.

R.P. Appeal dismissed.

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