ANS CONSTRUCTIONSPVT.LTD. v. UNION OF INDIA

1. The challenge in these appeals is to a common order dated 10 October 2014 passed by the learned sole Arbitrator rejecting the application filed by the Appellant/Claimant under Section 17 ofthe Arbitration and Conciliation Act, 1996 ('Act') in the arbitration proceedings betweenthe Appellant and the Union ofIndia arising out ARB.A.Nos.31 and32of2014 1of[5] 2015:DHC:11782 of two contracts awarded to the Appellant by the Respondent for construction ofthe staffquarters atBalrampur,UttarPradesh.

2. Initially,the Appellant had filed an application under Section 9of the Act in the Court of the learned District Judge, Lucknow. The learned District Judge, by an order dated 13^^ November 2012, restrained the Respondent from encashing the bank guarantees furnished by the Appellant. That order was challenged by the Respondent in the High Court ofAllahabad at Lucknow.By an order dated 14'*^ August 2014, the Division Bench of the High Court allowed the appeal in part and modified the order of the learned District Judge. While maintaining the stay on the encashment ofbank guarantees,the Division Bench setting aside the findings recorded by the learned District Judge as regardsthe termination ofthe contract.

3. It needs to be noted that at that stage the contracts in question were notterminated by the Respondent.

4. The Appellant filed an application under Section 17 of the Act before the learned Arbitrator. The said application became necessary on account ofa letter issued by the Respondent on 26^'^ July 2014 to the bank seeking encashment ofthe bank guarantees furnished by the Appellant. In para 9 of the said application it was stated that the ARB.A.Nos.31 and32of2014 Page2of[5] Appellant has suffered tremendous loss in executing the contract for the reasons beyond its control. Further it was stated that "The Claimant shall suffer irreparable loss and injury in case the present application is not allowed and the Department is not restrained from encashing the Bank Guarantee".It was alleged that the Respondent's action in seeking encashmentofthe bank guarantees was arbitrary.

5. The said application was dismissed by the learned Arbitrator by the impugned order dated 10^^ October 2014.In para 11 ofthe impugned order the learned Arbitrator observed as under: "It is observed that both the parties are alleging opposite party for breach of contract. At present it carmot be concluded that who was at fault in performance ofthe contract and which party was in breach of contract and such conclusion can only be arrived at the time ofmaking final award after hearing the full case and taking into consideration the oral and written submissions made by both the parties."

6. Thereafter, the learned Arbitrator proceeded to summarize as to what would be the consequence "ifthe contract is terminated by the Respondent". It must be noticed that at that stage when the learned Arbitrator was considering the application under Section 17 ofthe Act the Respondent had terminated one ofthe contracts on 25^^ September 2014.It had yetto terminate the other contract. There was no occasion for the learned Arbitrator to speculate as to what would happen in the ARB.A.Nos.31 and32of2014 Page3of[5] event oftermination ofthe contract.

7. Learned Arbitrator did not consider the question of balance of convenience atthat stage,particularly on account ofthe fact that even the High Court had notinterfered with the order ofthe learned District Judge granting stay ofencashment ofthe bank guarantees. As ofthat date,the balance ofconvenience wasin favour ofthe Appellantand in continuation ofthe restraint on the Respondent against encashment of the bank guarantees. This aspect, however, was not considered by the learned Arbitrator.

8. On 22"'' October 2014 this Court in the present appeals passed an order to the effect that the encashment ofthe bank guarantees would be subject to the outcome ofthe appeals. However,it appears thatthe bank issued a letter dated 20"^ November 2014 to the Respondent referring the order ofthis Court and asking the Respondent to peruse the documents"and let us know the facts ofthe above." As a result,it appears that as of today, the bank guarantees furnished by the Appellant have not yet been encashed.

9. Mr.Sanjay Jain,learned Additional Solicitor General appearing for the Respondent states that the bank was wholly unjustified in declining the encashment ofthe bank guarantees when there was no ARB.A.Nos.31 and32of2014 Page4of[5] specific order restraining such encashment.

10. Be that as it may, the Court is of the view that since the bank guarantees have not been encashed as ofdate and the stay granted by the learned District Judge as affirmed by the Allahabad High Court was continuing till the impugned order ofthe learned Arbitrator has continued and de facto till date, the balance of convenience in continuing thatstatus quo lies in favour ofthe Appellant.

11. Accordingly,the impugned order dated 10^'^ October 2014 ofthe learned Arbitrator is set aside and the Respondent is restrained from encashing the bank guarantees furnished by the Appellant during the pendency ofthe arbitral proceedings,subject to the condition that the Appellant will keep the bank guarantees alive till the expiry of one month after passing ofthe final award by the learned Arbitrator.

12. The appeals are allowed in the above terms. All pending applications are disposed of.

13. Order be given Dastito counsel for the parties.