Case Note & Summary
The appellants, Reliance Infrastructure Ltd and P.S.Toll Road Pvt Ltd, entered into a construction contract with the respondent, M/s Roadway Solution (I) Pvt Ltd, on 15th April 2011 for strengthening and widening of a road on Pune-Satara section of NH 4. The appellants submitted four performance bank guarantees, which were renewed and extended up to 31st March 2016. Disputes arose between the parties, and on apprehension of invocation of the bank guarantees, the respondent filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 before the District Judge, Pune on 1st January 2016, seeking an injunction. The District Judge passed an ex-parte ad-interim order on the same day restraining the appellants from invoking the bank guarantees. The appellants challenged this order under Section 37 of the Act before the Bombay High Court. The High Court admitted the appeal and heard it finally by consent. The court observed that the ex-parte order was passed without hearing the appellants and without recording any special reasons. The court noted that bank guarantees are independent contracts and can be injuncted only in cases of fraud or irretrievable injustice, which were not established. The court set aside the ex-parte order and directed the trial court to hear the parties and pass appropriate orders in accordance with law. The court also directed that the bank guarantees be kept alive until the disposal of the Section 9 application.
Headnote
A) Arbitration - Interim Measures - Section 9 of the Arbitration and Conciliation Act, 1996 - Ex-parte Injunction - The court set aside an ex-parte ad-interim order restraining invocation of bank guarantees, holding that such orders should not be passed without hearing the opposite party unless there is a special reason recorded, and that the bank guarantees are independent contracts which cannot be injuncted except in cases of fraud or irretrievable injustice. (Paras 1-10)
B) Arbitration - Appeal - Section 37 of the Arbitration and Conciliation Act, 1996 - Maintainability - The appeal under Section 37 against an order under Section 9 is maintainable. (Para 1)
Issue of Consideration
Whether the learned District Judge was justified in passing an ex-parte ad-interim order restraining the appellants from invoking the bank guarantees without hearing the appellants and without recording satisfaction that the case falls within the exceptions to the rule that bank guarantees are independent contracts.
Final Decision
The appeal is allowed. The ex-parte ad-interim order dated 1st January 2016 is set aside. The trial court is directed to hear the parties and pass appropriate orders in accordance with law. The bank guarantees shall be kept alive until the disposal of the Section 9 application.
Law Points
- Section 9 of the Arbitration and Conciliation Act
- 1996
- Section 37 of the Arbitration and Conciliation Act
- Ex-parte interim order
- Principles of natural justice
- Bank guarantee invocation
Case Details
2016 LawText (BOM) (01) 156
Arbitration Appeal (L) No.154 of 2016 in Misc.Application No.1009 of 2015 in OMP No.101009 of 2015 along with Civil Application No.7 of 2016
Anoop V. Mohta, G.S. Kulkarni
Mr.Janak Dwarkadas Sr.Counsel a/r Mr.D.J.Kakalia a/w Mr.Paresh Patkar, Mr.Tushad Kakalia i/b Mulla & Mulla Craigie Blunt & Caroe for Appellants; Mr.Ravi Kadam Sr.Counsel a/w Mr.Samit Shukla, Mr.Sandeep Sharma, Mr.Nirav Shah, Mr.Nilesh Tated Ms.Nishal Mittal, Mr.Nausher Kohli, Mr.Pethe Mr.Munaf Virjee i/b Pethe & Co for Respondents
Reliance Infrastructure Ltd and P.S.Toll Road Pvt.Ltd
M/s Roadway Solution (I) Pvt.Ltd
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Nature of Litigation
Appeal under Section 37 of the Arbitration and Conciliation Act, 1996 against an ex-parte order under Section 9 of the Act restraining invocation of bank guarantees.
Remedy Sought
The appellants sought setting aside of the ex-parte ad-interim order dated 1st January 2016 passed by the learned District Judge-II, Pune, which restrained them from invoking the bank guarantees.
Filing Reason
The respondent filed a Section 9 application on apprehension of invocation of bank guarantees by the appellants, and the District Judge passed an ex-parte injunction without hearing the appellants.
Previous Decisions
The learned District Judge-II, Pune, passed an ex-parte ad-interim order on 1st January 2016 in Misc.Application No.1009 of 2015 in OMP No.101009 of 2015, restraining the appellants from invoking the bank guarantees.
Issues
Whether the ex-parte ad-interim order restraining invocation of bank guarantees was justified without hearing the appellants and without recording special reasons.
Whether the bank guarantees, being independent contracts, could be injuncted in the absence of fraud or irretrievable injustice.
Submissions/Arguments
The appellants argued that the ex-parte order was passed without hearing them and without recording any special reasons, and that bank guarantees are independent contracts which cannot be injuncted except in cases of fraud or irretrievable injustice.
The respondent argued that the order was necessary to protect their interests pending arbitration.
Ratio Decidendi
Ex-parte ad-interim orders under Section 9 of the Arbitration and Conciliation Act, 1996 should not be passed without hearing the opposite party unless there are special reasons recorded. Bank guarantees are independent contracts and can be injuncted only in cases of fraud or irretrievable injustice.
Judgment Excerpts
The Appellant (Original Respondent) has filed this Appeal under section 37 of the Arbitration and Conciliation Act, 1996 (Amendment Act, 2005) (The Arbitration Act) thereby challenging an ex-parte order dated 1st January 2016 passed by the learned District Judge-II Pune, in Misc.Application No.1009 of 2015 in OMP No.101009 of 2015, filed under section 9 of the Arbitration Act by the respondent herein, for reliefs of injunction on apprehension of invocation of the contractual Bank Guarantees.
Admit. Heard finally by consent.
Procedural History
The respondent filed a Section 9 application on 1st January 2016 before the District Judge, Pune, who passed an ex-parte ad-interim order on the same day. The appellants filed an appeal under Section 37 of the Arbitration Act on 7th January 2016, which was admitted and heard finally by consent.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 9, Section 37
