w w w . L a w y e r S e r v i c e s . i n



Project Director v/s MECON GEA Energy System (India) Ltd. (Joint Venture)


Company & Directors' Information:- MECON LIMITED [Active] CIN = U74140JH1973GOI001199

Company & Directors' Information:- M-SYSTEM INDIA PRIVATE LIMITED [Active] CIN = U72900TN2015FTC102340

Company & Directors' Information:- THE INDIA COMPANY PRIVATE LIMITED [Active] CIN = U74999TN1919PTC000911

Company & Directors' Information:- B B VENTURE PRIVATE LIMITED [Active] CIN = U52209CT2008PTC020645

Company & Directors' Information:- V P B SYSTEM INDIA PRIVATE LIMITED [Strike Off] CIN = U51397DL2012PTC241113

Company & Directors' Information:- S A R VENTURE PRIVATE LIMITED [Active] CIN = U70102DL2015PTC275704

Company & Directors' Information:- INDIA CORPORATION PRIVATE LIMITED [Active] CIN = U65990MH1941PTC003461

Company & Directors' Information:- L G SYSTEM INDIA PRIVATE LIMITED [Active] CIN = U25200MH2000PTC125913

Company & Directors' Information:- S T S SYSTEM PRIVATE LIMITED [Strike Off] CIN = U72900WB2001PTC094040

Company & Directors' Information:- V T SYSTEM INDIA PRIVATE LIMITED [Strike Off] CIN = U74999DL1999PTC098447

Company & Directors' Information:- N J VENTURE PRIVATE LIMITED [Strike Off] CIN = U70101MH2008PTC186387

    CMA.(MD).No.369 of 2009

    Decided On, 19 November 2010

    At, Before the Madurai Bench of Madras High Court

    By, THE HONOURABLE MR. JUSTICE N. KIRUBAKARAN

    For the Petitioner: P. Wilson, Addl. Advocate General for C. Arulvadivel @ Sekar, Advocate. For the Respondent: T.R. Rajagopalan Senior counsel for D. Ravichander, Advocate.



Judgment Text

(Prayer: Civil Miscellaneous appeal filed under Section 37 of Arbitration and Conciliation Act, 1996, Act No.26 of 1996 against the order passed by the Principal District Judge, Tuticorin made in I.A.No.224 of 2008 in O.P.No.222 of 2008 dated 9.1.2009.)


1. The appeal has been preferred against the order passed in interlocutory application in I.A.No.224 of 2009 in O.P.No.222 of 2008 dated 9.1.2009.


2. The case of the respondent is as follows:


The appellants invited bids for execution of a work (Four Laning and strengthening of existing 2-Lanes of Tirunelveli-Tuticorin road from Km.4/0 to 51/2 of NH 7A in Tamil Nadu, Contract Package: (Tuticorin) and the respondent was a successful bidder. The value of the contract is Rs.137,79,89,734/-. The respondent, MECON ? GEA Energy System (India) Ltd. (Joint venture) is a government undertaking company and the appellants entered into an agreement on 23.1.2004. As per the agreement, the time assigned for execution of the contract was 30 months. The respondent issued unconditional bank guarantees to the appellants and the same were furnished to the appellants on 5.1.2004, 17.2.2004, 26.4.2005, 22.12.2005, 21.4.2006 for the purpose of trade mobilization advance to the tune of Rs.26,51,67,225/-.


3. As per clause 21.1 of the agreement, the appellants/employer shall give the possession of all parts of the site and if the possession of a part is not given, the employer is deemed to have delayed the short of the relevant activities and that would be a compensation event which is prescribed in clause 44 of the agreement.


4. The terms of the agreement empowered the appellants to terminate the contract in the event of non performance of contract by the respondent and the appellants could invoke bank guarantee without any prior notice to the respondent.


5. In addition to the main agreement, the respondent entered into another agreement with the appellants on 14.12.2004 for shifting of pipe lines for proposed widening NH 7A, for execution and completion of the work to the tune of Rs.65,25,626/-.


6. The respondent mobilized the amount and commenced the work and the possession of the entire stretch of IA namely KM 4/0 to 51/2 was not given to the respondent as agreed upon.


7. The possession of land was given in different stretches over different parts and 59% of the site alone was given to the respondent. As there was delay in handing over the site in violation of clause 21 of the agreement. The respondent wrote a letter to the appellants on 10.8.2005 pointing out the delay and other acts of omission.


8. Since there was a delay and other omissions on the part of the appellants the respondent was compelled to rescind the agreement by writing a letter dated 5.3.2007 and further called upon to resolve the dispute by appointing an arbitrator and to constitute an Arbitration Tribunal.


9. As per the procedure, in the review meeting dated 5.4.2007 it was decided to terminate the agreement on mutual convenience and an addendum agreement was drawn to terminate by mutual convenience as there was no provision available in the agreement for such course. By reply dated 10.4.2007 the appellants denied the violation on its part and as the delay would not constitute the compensation event. Through letter dated 20.8.2007 the appellants admitted the work under agreement could not be completed due to delay in acquisition of land and shifting of utilities.


10. A draft addendum agreement was sent to the respondent thorough letter dated 31.8.2007 and the appellants pointed out the full and final settlement and the amount would be notified to the respondent separately.


11. On 3.10.2007 a draft agreement for termination by mutual consent was sent to the respondent and the respondent suggested certain changes in the agreement. However through various letters from 8.1.2008 to 10.3.2008, the appellants threatened to terminate the contract, if the respondent did not sign the mutual termination agreement without changes proposed by the respondent. Changes included regarding shifting of pipe line. Due to the dispute with regard to inclusion clause regarding shifting of pipe line, the said agreement could not be executed and in view of that the appellants threatened to invoke the bank guarantee. Therefore respondent approached the civil court invoking Section 9 of the Arbitration and conciliation Act to get interim order.


13. Counter affidavit was filed by the appellants denying the case of the respondent. The appellants contended that the total period of the contract was fixed as 30 months namely completion of 15 kilometers in 18 months, and further 15 kilometers within 22 months and remaining length by the end of 30th month; As per the contract the appellants paid 5% of the contract value as interest free mobilization advance in March 2004 and subsequently paid 5% of contract value of Rs.6.8 crores for the purpose of mobilizing the machinery required for the work; In fact the respondents misused the advance payment availed by them; Shifting of pipeline utility was entrusted to the respondent as per separate agreement. The said shifting work was entrusted on 14.12.2004; The respondent mobilized the machinery with delay and therefore the commencement of work suffered; In view of clause 21 of the agreement, the appellants handed over the entire stretch on 11.2.2004 and asked the respondent to commence the work in the land handed over to the respondent commencing from 29.3.2009; As per the agreement, the land would be given in bits and pieces to the respondent. Though the required amount was given to the respondent, the respondent did not attempt to complete the work till the end of agreement; Inaction on the part of the respondent made the appellants to suffer. Out of the advance amount received to the tune of Rs.17.78 crores and only Rs.6.8 crores was recovered by the appellants; The appellants agreed to terminate the contract by mutual convenience; However the respondent further delayed by wrong interpretation of the mutual agreement. In nutshell, the appellants contended that the respondent was neither interested to conclude addendum agreement or complete the work undertaken by them as per the contract.


14. After hearing both the parties, the civil court granted interim orders holding that:


1) Entire stretch of land was not handed over to the respondent;

2) The petitioner incurred heavy expenditure by hire;

3) Parties decided to terminate the agreement by mutual consent;

4) The respondent initiated action for arbitration proceedings as per agreement which contains clause for arbitration and

5) There was a threat of invoking bank guarantee,


The trial court granted interim order viz. Status-quo considering the above facts. The said interim order is challenged before this court by way of this appeal.


15. Mr.P.Wilson, learned additional Advocate General would submit that:


1) There was no delay on the part of the appellants in handing over the possession of the land;


2) The arbitration clause 24.2 in contract data is a conjoint agreement and the respondent has to necessarily pass through the mechanism of Dispute Review Board as per 24.1 of contract data in order to invoke clause 24.2;


3) On the date of filing of Section 9 petition there is no valid binding agreement for arbitration;


4) The respondent did not satisfy the court that the arbitration proceedings were actually contemplated or manifestly intended so as to invoke Section 9 of Arbitration and Conciliation Act 1996.


5) The contract was terminated and the work was given to third party contractor who already executed the work.


16. He relied upon a judgment of the Hon'ble Supreme Court in Sundaram Finance Company Limited vs. NEPC India Limited reported in (1999) 2 SCC 479 and contended that a dispute must have arisen which is referable to the Arbitration Tribunal. He pointed out that there is no "dispute", unless the Dispute Review Board gives its recommendation as per Clause 24.1. The next judgment relied upon by the learned Senior counsel is Jagdish Chander vs. Ramesh Chander and others reported in (2007) 6 MLJ 317 (SC) which declares that unless the parties agreed for arbitration, the dispute cannot be referred to Arbitration. By relying upon the said judgements he would contend that consensus to refer the dispute is missing in the clause for settlement of dispute. Relying upon the judgement he further submitted that Section 7 of the Act is a condition precedent for exercising power to seek arbitration and it requires the parties to settle the dispute by negotiation. Notice should be given to refer the dispute to Dispute Review Board and thereafter only arbitration clause could be invoked. Learned senior counsel further submitted that since there was failure on the part of the respondent in executing the contract and the respondent utilized the advance amounts to other purpose, in the interest of public, the contract was terminated on 8.5.2009. He submitted that when the contract was terminated, the appellants is entitled to all the benefits including invocation of bank guarantee. After the appeal was admitted and interim suspension was obtained from this court on 29.4.2009, the appellants terminated the contract on 8.5.2009 and invoked bank guarantee on 9.5.2009. Mr.P.Wilson, learned Additional Advocate General submitted that the contract was terminated and the work was given to a contractor who already executed the work. Therefore he seeks for allowing the appeal.


17. On the other hand Mr.T.R.Rajagopalan, learned Senior counsel for the respondent submitted that though the work was entrusted, the lands were not acquired and there was a delay in handing over the possession of the land resulting in delay in execution; The delay in handing over the lands, was admitted by the appellants themselves; Since the dispute arose due to fundamental breach by the appellants the respondent called upon to constitute a Dispute Review Board or alternatively to refer the matter to the Arbitration Tribunal through letter dated 5.3.2007. Secondly he submitted that even though the Dispute Review Board is contemplated under Clause 24.1, it is not mandatory to wait for the recommendations of the Dispute Review Board, as the appellants threatened to invoke bank guarantees; The Dispute Review Board has got no jurisdiction or power to restrain the appellants from invoking bank guarantee; If the bank guarantee is invoked, the very purpose of going through DRB and Arbitration would be lost.


18. The learned Senior counsel further submitted that the respondent is entitled to invoke Section 9 of the Arbitration Act to get interim relief. The pre-request under the contract to refer to DRB would not preclude the parties to claim interim relief under statutory provisions.


19. Finally he submitted by obtaining suspension of status quo granted by the Trial court, the appellants illegally terminated the contract and invoked the bank guarantee and therefore the amount under the bank guarantee is required to be redeposited before the court, till the arbitration proceedings are over.


20. Learned counsel relied upon the judgment of the Hon'ble Supreme Court in Firm Ashok Traders and another vs. Gurumuk Das Saluja and others reported in (2004) 3 SCC 155. It declared that time or the stage for invoking jurisdiction of the court under Section 9 can be: (i) before, or (ii) during the Arbitral proceedings, or (iii) at any time after making of the arbitral award but before it it is enforced in accordance with Section 36. By relying upon the said judgement, learned senior counsel submitted that the respondent is at liberty to invoke Section 9 of the Act at any time.


21. There is no dispute with regard to covenants of the agreement. Clause 24.2 of contract data speaks about arbitration proceedings and the appointment of Arbitration Tribunal. The value of the contract is Rs.137,79,89,734/- and the respondent executed a bank guarantee to the tune of Rs.26,51,63,226/- and the said guarantee could be invoked upon the termination of contract in the event of non-performance of contract by the respondent. According to the respondent the possession of land was not given at a stretch and it was given in bits and pieces and that was the reason why the respondent could not execute the contract. By letter dated 10.8.2005 the respondent informed the appellants that the work commenced on 13.12.2004 and the delay in execution of the work was by the appellants due to non-acquisition of land, non-appointment of engineers and representatives and other reasons and they are extracted as follows:


"?Delay in appointment of Engineer's representative

-- Hindrance due to non-acquisition of land

-- Delay on account of realignment

-- Hindrance on account of borrow area

-- Delay on account of decision on laying Geotextile

-- Hindrance on account of delay in tree cutting

-- Hindrance due to rain fall

-- Effect of Wind

-- Effect of impending Tsunami "


It is further stated therein that the land for construction of the toll was not handed over and the District Revenue Officer, Tuticorin was not available to deal with the issue relating to the land acquisition. It is clearly stated in the said respondent's letter that the minimum length of continuous stretch as envisaged in the contract was not made available to the respondent. It was also pointed out that the shifting of pipe line was awarded as a different project.


22. Through letter dated 14.2.2006, the respondent submitted the statement relating to utilization of mobilization advance. Though the appellants contended that the respondent was required to execute the work in time, even the lands were given in bit and pieces which was admitted by the appellants in their letter dated 20.8.2007 that the project could not be completed mainly due to delay in acquisition of land and shifting of utilities and the last para of the letter dated 20.8.2007 is extracted as follows:


"As regards our another project on NH-&A for Tuticorin Port connectivity which is again in JV with M/s. MECON Ltd. As head Partner, the position is that project could not be completed mainly due to delay in acquisition of land and shifting of utilities. The client has agreed to terminate the contract as per mutual convenience. Steps in this regard are being taken up by the client"


Therefore it is proved that there was a delay on the part of the appellants to hand over the possession of the land to the respondent. The non-handing over of the site would definitely constitute a compensation event as per clause 44.1(A) of general conditions of the Contract.


23. By letter dated 5.3.2007 the respondent pointed out that the possession of the land was not given and there was a delay in handing over the possession due to the land acquisition. As per the above letter 59% of the land alone was given by the appellants in bits and pieces on various dates and the minimum length of continuous stretch as envisaged in the contract was not made available to the respondent for all the three mile stones. It was pointed out that even though notice to proceed was given for the entire structure of 42.5 kms., only the 27.85 kms. of complete ROW could be handed over during 30 months, that too bit and pieces. (It was further pointed out that though three mile stones identified to me, one mile stone has not been handed over.) Secondly it was pointed out that due to non-acquisition of land, shifting of water pipe line for 26 kilometers the work could not be completed. There was a delay in taking steps for cutting trees, shifting of Electricity power and HT line. There was a delay on the part of engineer in providing approval of geotextiles, clearance or direction for methodology of construction of old carriage way etc.


24. The respondent pointed out that by previous letter dated 10.8.2005, the respondent gave the details of the delay and sought extension of time and no response was received by the appellants. Since the appellants declined to perform its duties and obligations, the consequent failure constituted fundamental breach. It is stated that the delay constituted fundamental breach of contract. Therefore the respondent rescinded the contract due to various fundamental breaches of the contract by the appellants. By the said letter dated 5.3.2007 the respondent called upon the appellants to constitute a Dispute Review Board or in the alternative to nominate an arbitrator to resolve the dispute.


25. Though the appellants contended through reply dated 10.4.2007 that the entire land deemed to have been handed over to the contractor, it runs contra to the appellants' letter dated 20.8.2007, which admits that project could not be completed mainly due to delay in acquisition of land and shifting of utilities. Moreover the entire land was required to be handed over physically. In any event in view of admission in the letter dated 20.8.2007, it is proved that the contract could not be executed in time because of the delay in handing over the possession. The Letter dated 5.3.2007 rescinding the contract by the respondent and the denial letter dated 10.4.2007 by the appellants would constitute a "dispute" which is required to be referred to arbitration.


26. Clause 24.1 of the contract data, postulates that the settlement of dispute is by Dispute Review Board and the relevant portion of the clause 24(1) is extracted as follows:


" Dispute Review Board.


If any dispute arises between the Employer and the Contractor in connection with, or arising out of the Contract of the execution of the Works, whether during the execution of the Works or after their completion and whether before or after the repudiation or other termination of Contract, including any disagreement by either party with any action, inaction, opinion, instruction, determination, certificate or valuation of the Engineer, the matter in dispute shall, in the first place, be referred to the Disputes Review Board (" the Board").


The Board shall be established by the signing of a Board member's Declaration of Acceptance (as required by paragraph 12 of Annexure A to this Contract Date) by all three Board Members."


"..... Either the Employer or the Contractor may refer a dispute to the Board in accordance with the provisions of Annexure A to this Contract Data.


If either the Employer or the Contractor is dissatisfied with any Recommendation of the Board, or if the Board fails to issue its recommendation within 56 days after receipt by the Chairman of the Board of the written Request for Recommendation, then either the Employer or the Contractor may, within 14 days after his receipt of the Recommendation, or within 14 days after the expiry of the said 56-day period, as the case may be give notice to the other party, with a copy for information to the Engineer, of his intention to commence arbitration, as hereinafter provided, as to the manner in dispute . Such notice shall establish the entitlement of the party giving the same to commence arbitration, as hereinafter provided, as to such dispute and subject to Sub-Clause 24.3, no arbitration in respect thereof may be commenced unless such notice is given.


".....24.2 Arbitration


Any dispute in respect of which the Recommendation(s), if any, of the Board has not become final and binding pursuant to Sub Clause 24, shall be finally settled by arbitration as set forth below. The arbitral tribunal shall have full power to open-up review and revise any decision, opinion, instruction, determination, certificate or valuation of the Engineer and any Recommendation(s) of the Board related to the dispute."


27. A perusal of clauses 24.1 and 24.2 of contract data would reveal that first, the dispute is required to be referred to Dispute Review Board and within 14 days from the receipt of recommendation from the Dispute Review Board, the parties should give notice to commence arbitration proceedings. As rightly pointed out by the learned Senior Counsel for the respondent, recommendations for DRB are only recommendatory in nature. There is a mechanism contemplated under Clause 24(1), which is is required to go through the Dispute Review Board. However the existence of reference to the Dispute Review Board does not preclude the respondent to seek remedy under Section 9 of the Arbitration and Conciliation Act 1996. Further it is pertinent to note that the appellants themselves have contended the delay in handing over of the site and consequently agreed for mutual termination of the agreement. Since there was no provision in the agreement for such course, the parties having drawn an addendum agreement, it is not open to the appellants to contend that the respondent has to pass through the mechanism of DRB. As already found by this court the existence of DRB cannot be a prohibition for invoking of statutory remedy, which the respondent is entitled to. The dispute is pursuant to the issuance of respondent's letter dated 5.3.2007 and reply dated 10.4.2007. Therefore a dispute between the parties under the contract existed and Section 9 of the Act has been rightly invoked by the respondent.


28. As rightly pointed out by the learned Senior Counsel for the respondent that pre requirement under the contract to refer DRB would not preclude the parties from claiming interim relief under Section 9 of the Act. Section 9 of the Arbitration and Conciliation Act 1996 is extracted as follows:


" 9. Interim measures, etc., by Court.-- A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to a Court:--


(i) for the appointment of a guardian for a minor or a person of unsound mind for the purposes of arbitral proceedings; or


(ii) for an interim measure of protection in respect of any of the following matters namely:--


(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;


(b) securing the amount in dispute in the arbitration;


( c ) the detention, preservation or inspection of any property or thing which is the subject matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;


(d) interim injunction or the appointment of a receiver;


(e) such other interim measure of protection as may appear to the Court to be just and convenient, and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it. "


29. A mutual agreement cannot prohibit a party from invoking statutory provisions. If the contention of Mr.Wilson, learned Additional Advocate General is to be accepted that DRB is a precondition to go for Arbitration, then it would render the statutory provisions like Sections 23 to 27 of the Contract Act and Section 9 of the Arbitration Act a dead letter in the statue. A party cannot be prevented from availing statutory remedy before competent court. The existence of the dispute has been admitted by the appellants through letter dated 20.8.2007 wherein the appellantss consented with the respondent mutually to terminate the contract and consequently decided to execute the addendum agreement. However this court is not inclined to go into details with regard to the dispute, which shall be gone into by Arbitration Tribunal.


30. In the judgment relied on by Mr.P.Wilson, Additional Advocate General in Sundaram Finance Ltd. vs. NEPC India Ltd. Reported in (1999) 2 SCC 479 it has been stated there has been manifest intention to take recourse to the arbitral proceedings at the time when the application under Section 9 is filed. It is in this regard, the averments made by the respondent in O.P.222 of 2008 demonstrates their intention to seek remedy through arbitration. As already discussed, there existed a dispute and coupled with the intention to have recourse to arbitral proceedings only, the respondent satisfied the parameters prescribed by the Hon'ble Supreme Court in the said judgment and as such the petition under Section 9 is maintainable. In Jagdish Chander vs. Ramesh Chander and others reported in (2006) MLJ 317 (SC), it was found that there was no agreement in terms of Sections 7 and 11 of the Arbitration and Conciliation Act 1996. When the clause relating to settlement of dispute between parties require their consent, before disputes could be referred to arbitration. However in the said case the words found in the agreement reads as follows:


"the dispute shall be referred to for arbitration if parties so determined. ".


Therefore it was held that the said agreement was not an arbitration agreement. However, in this case clause 24.2 of contract data states that there is no requirement for any further agreement between the parties. It is a crystal clear from clauses 24.1 and 24.2 that there would be an arbitration if any dispute arises between the parties and there is no further requirement of consensus. Hence the aforesaid decision is peculiar to the arbitration clause in the said agreement and not applicable to the case on hand. From the clauses in the agreement in hand, it is a clear case for existence of dispute by which the cause of action arises for invoking Section 9 of the Arbitration Act.


31. The judgment relied on by the respondent in Firm Ashok Traders and another vs. Gurumukh Das Saluja and others reported in (2004) 3 SCC 155 clearly spelt out the pre jurisdiction for invoking jurisdiction of Civil Court under Section 9 of the Act namely before or during arbitral proceedings or at any time after making arbitral award and before it is enforced in accordance with Section 36 of the Act. It also held that the court under Section 9 is only formulating interim measures so as to protect the right under adjudication before the Arbitral tribunal from being frustrated.


Para 17 of the judgment is usefully extracted as follows:


"17. There are two other factors which are weighing heavily with us and which we proceed to record. As per the law laid down by this court in Sundaram Finance Ltd. An application under Section 9 seeking interim relief is maintainable even before commencement of arbitral proceedings. What does that mean? In Sundaram Finance Ltd. Itself the Court has said:


It is true that when an application under Section 9 is filed before the commencement of the arbitral proceedings, there has to be manifest intention on the part of the applicant to take recourse to the arbitral proceedings.


Section 9 permits application being filed in the court before the commencement of the arbitral proceedings but the provision does not give any indication of how much before. The word "before" means, inter alia, "ahead of; in presence of sight of; under the consideration or cognizance of. The two events sought to be interconnected by use of the term "before" must have proximity of relationship by reference to occurrence; the later event proximately following the preceding event as a foreseeable or "within-sight" certainty. The party invoking Section 9 may not have actually commenced the arbitral proceedings but must be able to satisfy the court that the arbitral proceedings are actually contemplated or manifestly intended (as Sundaram Finance Ltd. Puts it) and are positively going to commence within a reasonable time. What is a reasonable time will depend on the facts and circumstances of each case and the nature of interim relief sought for would itself give an indication thereof. The distance of time must not be such as would destroy the proximity of relationship of the two events between which it exists and elapses. The purpose of enacting Section 9, read in the light of the Model Law and UNCITRAL Rules is to provide "interim measures of protection". The order passed by the court should fall within the meaning of the expression " an interim measure of protection" as distinguished form an all-time or permanent protection."


32. The clear facts of the case would reveal the existence of dispute, which is the only requirement for invoking Section 9 of the Act and therefore the respondent has cause of action for approaching the civil court under Section 9 of the Act. The appellants threatened the respondent to invoke bank guarantee and therefore the application under Section 9 of the Act before civil court is maintainable.


33. In the proceedings status quo order was granted till the disposal of Section 9 application against which this appeal has been preferred by the appellants. An exparte order interim suspension was obtained on 29.4.2009. After obtaining suspension of status-quo order, the appellants terminated the contract on 8.5.2009. The trial court after considering the matter in detail and after contest, made the status quo order absolute. However by obtaining suspension order, the appellants terminated the contract and invoked the bank guarantee. By virtue of status quo order the respondent's rights were preserved under Section 9 of the Act. On obtaining suspension of the status-quo order, the appellants had invoked the Bank guarantee thereby aggrandized the relief in the appeal without any contest by the respondent. Such course of action by the appellants during pendency of the appeal mocks fair play. Though the correctness of such invocation is not the subject matter of the appeal, yet this court is impelled to render a finding on such conduct of the appellants and declare the invocation as invalid. Further such rendering becomes necessary to arrive at a just conclusion in the above appeal. Being the Government undertaking, the appellantss should have acted fairly and should have waited till the disposal of the appeal before taking any action. By terminating the contract and invoking bank guarantee, the appellants tried to defeat the case of the respondent without contest and getting order on merits. In this case by an order of suspension, the contract was terminated and

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bank guarantee was invoked and the respondents' money was appropriated by the appellants. In any event all these issues are to be adjudicated before the Arbitration Tribunal. Section 9 application is only an interim measure and to preserve the interest and rights of the aggrieved party. 34. Therefore the reasoning for grant of interim order given by the civil court that 1) 59% of the site alone was given by the appellants. 2) Respondent incurred heavy expenditure in securing high power machineries. 3) Parties decided to terminate the agreement. 4) The terms of the Addendum agreement have not been uniformly accepted. 5) The agreement contains a clause for Arbitration 6) The urgency of the application under "threat" from the appellants could be inferred are well founded and the appellants has not made out any case to interfere in these findings and the same cannot be interfered. 35. Though the status quo order was passed in interim application, the order was passed by the trial court after considering respondent's documents Ex.P1 to P26 and appellants's documents Ex.R1 to R28 and pleadings of the parties and convinced about prima facie case in favour of the respondents besides considering the balance of convenience. The Hon'ble Supreme Court in N.Srinivasa v. Kuttikaran Machine Tools Ltd. Reported in 2009 (5) SCC 182 restored the status-quo order passed by the trial court, Bangalore in an application filed under Order 39 Rule 1 and 2 read with Section 151 of the C.P.C. Taken out in Section 9 application reversing the judgment of Karnataka High Court. Therefore interlocutory application is maintainable in Section 9 application. Hence, it cannot be found fault with on the ground that there can not be any interim order in Section 9 application as order in Section 9 application itself is interim in nature. 36. As already found by this court, the existence of DRB would not be a bar for the respondent to invoke Section 9 of the Act. The Trial court rightly granted an interim order as interim measure preserving the rights of the respondent and the same cannot be disturbed. However, in view of subsequent developments that the work was given to third parties and has been executed as alleged by the appellants, the interim order granted by the trial court is required to be modified and restricted to Bank guarantee alone. The question of correctness of termination and consequences, if any is left open to the appropriate forum to decide if the parties so desire. The respondent has taken out M.P.No.3 of 2009 for direction to redeposit bank guarantee amount to enable the petitioner to take fresh bank guarantee to the benefit of the respondent. Therefore interest of justice requires an order to be granted as prayed for in the said petition and therefore the appellants are hereby directed to re-deposit the amount drawn from the banks to the tune of Rs.26,51,67,225/- (Rupees Twenty Six Crores and Fifty one lakhs and sixty seven thousand two hundred and twenty five only) so as to enable the respondents to take fresh bank guarantee to the benefit of the appellants within 12 weeks from the date of the receipt of a copy of this order. 37. With the above direction the appeal is dismissed. However there will be no order as to costs. Consequently the connected M.P.Nos.1 and 2 of 2009 are closed and M.P.No.3 of 2009 is allowed.
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