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Allahabad High Court sets aside order of commercial court

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The Allahabad High Court has set aside the order passed by the Commercial Court, Lucknow and ruled that a prima – facie case has to be inferred on the basis of pleadings and material available on record regarding the main subject matter of the proceedings and not in respect of any consequences.

The Division Bench of Justice Devendra Kumar Upadhyaya and Justice Rajnish Kumar passed this order while hearing a petition filed by M/S Sri Sai Nath Associates through partner Upendra Bahadur Singh.

By instituting these proceedings of appeal under Section 37 of the Arbitration and Conciliation Act, 1996, the appellant has laid a challenge to an order dated 11.03.20022, passed by the Commercial Court, Lucknow in Arbitration Case, whereby the application made by the appellant under Section 9 of the 1996 Act praying grant of interim protection/order has been rejected.

In this case, a contract was entered into between the appellant-firm and respondent-University on 16.11.2017 for providing manpower services by the appellant-firm to the respondent-University. As per Clause 4 of the said agreement period of contract was initially for one year which was extendable upto 3 years on year-to-year basis at the discretion of the respondent-University and basis of such extension, as spelt out in the contract, was requirement and performance of the manpower and the Agency.

The contract entered into on 16.11.2017 was extended from time to time, however, by means of an order dated 07.01.2022, passed by the Registrar of the respondent-University, the contract between the parties was terminated w.e.f 11.01.2022 and consequently the security deposit made by the appellant-firm was also forfeited giving the reason that work of the appellant-firm was not satisfactory.

The contract between the parties contains an arbitration clause which provides that in the event of any dispute or difference arising between the parties in respect of or under the agreement, the same shall be referred to the Vice Chancellor of the respondent University whose decision shall be binding on the parties, however, if the appellant-firm is still not satisfied, then arbitration shall be conducted in accordance with the provisions of 1996 Act.

On passing of the order dated 07.01.2022 terminating the contract, the appellant-firm instituted a petition under Section 9 of 1996 Act before the Commercial Court at Lucknow seeking interim injunction against the respondent-University.

The prayer made in the said petition under Section 9 of 1996 Act was that an ad interim/interim injunction may be granted to stay the operation and implementation of the order dated 07.01.2022 to the extent that it holds the appellant-firm guilty of unsatisfactory performance in respect of the agreement dated 16.11.2017, till disposal of the arbitral proceedings.

It was further prayed that an ad interim/interim injunction may be granted to the appellant-firm restraining the respondent-University from taking any adverse action and also from rejecting the bid of the appellant-firm on the basis of the order dated 07.01.2022 in case the appellant participates in any future tender process.

The appellant-firm before the trial court pleaded, inter alia, that the order dated 07.01.2022 was passed on the basis of some report by some Committee and such a procedure was not envisaged in the contract.

It was further pleaded by the appellant firm before the court below that the Committee, pursuant to whose report the order dated 07.01.2022 has been passed, was constituted by the respondent-University and since such a Committee has not been envisaged in the contract entered into between the parties, hence it did not have any legal sanctity and accordingly the findings based on such a Committee’s report cannot supersede the contractual obligation between the parties.

It was also pleaded that the order dated 07.01.2022 could not have been passed by the respondent-University and in fact it has been passed only to restrain the appellant-firm from participating in future tender process.

Further submission of the appellant before the court below was that the order dated 07.01.2022 is stigmatic and that the same has been passed with malafide on the ground of unsatisfactory performance. On the basis of the aforesaid and other submissions, the interim injunction was prayed for by the appellant, however, prayer made by the appellant was contested by the respondent-University on the ground, inter-alia, that despite several opportunities having been given the appellant-firm did not appear before the Committee and in fact there are enough material which established that the appellant-firm had violated certain clauses of the contract and further on the basis of such material, it can be inferred that the performance of the appellant-firm had not been satisfactory.

The court below after discussing the case of the respective parties has refused the prayer made in the petition moved by the appellant-firm under Section 9 of the 1996 Act by stating that the documents available on record clearly establish that the appellant-firm was given notice by the Enquiry Committee and despite service of notice, the appellant-firm did not appear before the Committee.

It has also been observed by the trial court that the issue as to whether services rendered by the appellant-firm were satisfactory or not, is to be determined by the Arbitrator and as such in proceedings under Section 9 of the 1996 Act this inference cannot be drawn as to whether the services of the appellant-firm were satisfactory or not and accordingly there does not appear to be any justification for staying the operation of the order dated 07.01.2022 during pendency of the Arbitration proceedings.

The court below has further stated in the order dated 11.03.2022 that, prima-facie, no ground for grant of interim protection is made out in favour of the appellant-firm for the reason that the the respondent-University has already appointed a new Agency and as such in case the order dated 07.01.2022 is stayed, the same will result in irreparable loss to the respondent-University. Giving the aforesaid reasons, the petition under Section 9 of 1996 Act moved by the appellant-firm has been rejected.

The Court said,

The question which falls for our consideration in the case is as to whether while passing the order dated 11.03.2022, which is under appeal herein, the Commercial Court below has exercised its jurisdiction vested in it under Section 9 of the 1996 Act on the well settled legal parameters and principles which are applicable for considering a prayer for grant of interim injunction.

It is a well settled principle of law that normal rules governing grant of interim orders are applicable to the proceedings drawn and conducted under Section 9 of 1996 Act as well. It is equally well settled that three necessary ingredients which are to be taken into consideration by any court for granting interim injunction under Order 39 Rules 1 and 2 of the Code of Civil Procedure are to be taken into account by the court while considering an application or petition under Section 9 of the 1996 Act.

In other words, if a party seeks any interim measures for protection, the court needs to consider such an application or petition on the basis of three cardinal principles for grant of any relief in the nature of interim injunction i.e a prima-facie case, irreparable loss or injury or prejudice and balance of convenience. The purpose of grant of interlocutory order is primarily to preserve in status-quo, the right of parties which may appear to the court on the basis of prima-facie case. The object of grant of such temporary injunction is to mitigate the risk of injustice to the plaintiff during the period a suit or arbitration proceedings are pending i.e till the period such proceedings are concluded.

When we peruse the order dated 11.03.2022, passed by the court below, the Court found that after narrating the respective cases of the parties, the court below has only observed that the order dated 07.01.2022 has been passed by the respondent-University terminating the contract dated 16.11.2017 and forfeiting the security amount on the basis of the report submitted by the Enquiry Committee which had given notice to the appellant-firm, however, despite service of the notice, the appellant-firm did not appear before the Committee. The court below has also recorded in the order under appeal that the issue as to whether the services rendered by the appellant-firm were satisfactory or not, is an issue which can be determined only by the Arbitrator in the arbitration proceedings and not by the court in the proceedings under Section 9 of the 1996 Act. Another reason recorded by the court below for refusing the grant of interim protection as prayed for by the appellant-firm is that since the respondent-University has appointed another Agency as such the claim for grant of stay of the order dated 07.01.2022 is not made out.

The Court observed,

If we analyze the reasons given by the court below for refusing to grant the prayer made by the appellant-firm in its application/petition under Section 9 of 1996 Act, what we find is that the court below has not determined as to whether the appellant-firm was able to make out a prima-facie case.

Merely by mentioning that since the respondent-University has appointed another Agency and, therefore, the appellant-firm does not have prima-facie case, in our considered opinion, does not qualify to be a justifiable reason for arriving at the conclusion that the appellant- firm had failed to establish prima-facie case.

Prima-facie case in the context of grant of temporary injunction is not dependent upon any consequential or resultant event which is consequential or resultant to the action which forms the cause of action for taking any legal action such as instituting a suit or initiating the arbitration proceedings. The prima-facie case has to be inferred on the basis of pleadings and material available on record in respect thereof regarding the main subject matter of the proceedings and not in respect of any consequences.

As to whether balance of convenience lies in favour of grant of interim protection as prayed for or it lies in not granting the same is another issue, determination of which was required to be made by the court below while deciding the application/petition moved by the appellant-firm under Section 9 of the 1996 Act.

Appropriate determination/consideration even of this issue is not reflected from the order dated 11.03.2022, passed by the court below which is under appeal before us.

Accordingly, the Court allowed the appeal and the order dated 11.03.2022, passed by the Commercial Court, Lucknow in Arbitration Case is hereby set aside.

“It is further directed that the parties to the proceedings before the Commercial Court shall not seek any adjournment and adjournment shall be permissible only in exceptional circumstances, that too, with the leave of the court concerned.

It is further directed that the proceedings of the petition under Section 9 of the 1996 Act shall be expedited by the court below and shall be concluded within a maximum period of three months from the date certified copy of the order is produced before it,” the order reads.

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