Order 1

Order Details: Order below exhibit
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IN THE COURT OF CITY CIVIL COURT AT
GR.BOMBAY
ORDER BELOW EX.NO.07
IN
SUIT(COMMERCIAL) NO.138 of 2019
M/s.AAS Udyog ..Plaintif
V/s
Union of India through
Chief Engineer, WR & Anr ..Defendants
Ld. advocate Mr.Wani for plaintif
Ld. advocate Mr.Ujjwal Agarwal for defendant no.1
CORAM: HIS HONOUR JUDGE SHRI
M.SALMAN AZMI
DATE: 01/02/2020
ORAL ORDER
1. This is an application tendered by
defendant no.1 u/s. 8 of the Arbitration and
Conciliation Act, 1996.
2. Heard.
3. Ld. Counsel for defendant no.1
submitted that terms and conditions of the
contract are governed by the Indian Railway
Standard Conditions of contract. As per
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clause 2900 of the said IRS conditions,
arbitration clause is provided to the contracts
including the contract granted in favour of the
plaintif. The said condition is part and parcel
of the tender document which is suppressed
by the plaintif. Sec.B under the head ‘of
other terms and conditions including special
condition of contract’ specifcally prescribes
that any dispute arising in the contract shall
be redressed through the provision in para
2900 of IRS conditions of the contract and
neither party will have recourse to any other
legal remedies without exhausting this
provision. The document in the form of
Section C under the caption ‘schedule of
requirement’ clearly contemplates the court
jurisdiction as ‘for any dispute related to
contract/inspection/action by RDSO in
pursuance of ‘General Guidelines for vendors
appeal,’ the Court jurisdiction will be the
headquarter of Zonal Railways, Mumbai. In
view of the arbitration clause, the suit be
dismissed and plaintif be directed to
approach defendant no.1 for appointment of
Arbitrator in accordance with the terms and
conditions of the agreement.
4. The plaintif has fled reply(Ex.7A).
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It is the contention of the plaintif that the suit
was fled seeking injunction against the
invocation of bank guarantee dated
05/05/2018. The application proceeds on an
erroneous premise that the suit has been fled
seeking to settle the dispute that has
allegedly arisen between the parties with
respect to the purchase order which has an
arbitration agreement. The bank guarantee
does not provide for an alternative dispute
resolution mechanism i.e. arbitration and
therefore the application is not maintainable.
The bank guarantee is a distinct and separate
agreement adjudicated as per the terms and
conditions. The bank guarantee between
bank and the benefciary is not concerned
with the underlying contract. The attempt of
defendant no.1 is to extrapolate the
arbitration clause in the underlying agreement
to the bank guarantee is futile and prayed for
rejecting it.
5. After considering the rival
contentions of the parties and going through
the plaint avernments, the suit proceeds on
the premise of invocation of the bank
guarantee contrary to the terms of the
purchase order. The prayer is for restraining
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defendant no.1 for invocation of the bank
guarantee. There is no quarrel that the
tender document contemplates that the terms
and conditions are governed by Indian Railway
Standard Conditions of contract. The clause
2900 of the IRS contemplates arbitration
clause. The said clause is reproduced as
under:-
“In the event of any question, dispute or
diference arising under these conditions or
any special conditions of contract, or in
connection with this contract)except as to any
matter the decision of which is specially
provided for by these or the special
conditions) the same shall be referred to the
sole arbitration of a Gazetted railway ofcer
appointed to be the arbitrator, by the General
manager in the case of contracts entered into
by the Zonal railways and production units’ by
any member of the railway board, in the case
of contracts entered into by the railway board
and by the head of the organisation in respect
of contracts entered into by the other
organisations under the Ministry of railways.
The Gazetted railway ofcer to be appointed
as arbitrator however will not be onf of those
who had an opportunity to deal with the
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matters to which the contract relates or who
in the course of their duties as railway servant
have expressed views on all or any of the
matters under dispute or diference. The
award of the arbitrator shall be fnal and
binding on the parties to this contract”.
6. Ld. Counsel for defendant no.1 also
pointed out the tender condition wherein the
plaintif was supposed to give the security
deposit. In support of her contention, she
placed reliance upon the judgment of
Hon’ble Supreme Court in the case of
Hindustan Petroleum Corpn. Ltd V/s
M/s.Pinkcity Midway Petroleum in Appeal
No.5156 of 2003 decided on 23/07/2003,
wherein Hon’ble Supreme Court held
that ,”Therefore, in cases where there is an
arbitration clause in the agreement, it is
obligatory for the Court to refer the parties to
arbitrations in terms of their arbitration
agreement and nothing remains to be decided
in the original action after such application is
made except to refer the dispute to an
arbitrator. Therefore, it is clear that if, as
contended by a party in an agreement
between the parties before the Civil Court,
there is a clause for arbitration, it is
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mandatory for the Civil Court to refer the
dispute to an arbitrator.”
7. There is no quarrel about the
above proposition of law. Here in this case,
the dispute is for invocation of bank
guarantee. The agreement of bank guarantee
is a distinct agreement wherein the issuing
authority is a party whereas to the contract of
plaintif and defendant no.1, bank is not a
party and bank has nothing to do with the
contract between plaintif and defendant no.1.
Ld. Counsel for the plaintif placed reliance
upon the judgment of Hon’ble Bombay
High Court in the case of Suresh
Arjundas Bakhtiani V/s Union of India
and another wherein the Hon’ble Bombay
High Court held that, “ It is futile to contend
that arbitration clause contained in main
contract must be treated as incorporated in
contract of bank guarantee. No such as soon
as benefciary of guarantee invokes
guarantee. It is not possible to accept
submission that dispute raised by petitioner in
respect of enforcement or non-enforcement of
bank guarantee is liable to be referred to
arbitration, without even impleading bank as
party thereto or that arbitration, clause
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contained in main contract would cover
dispute as to enforcement or non-
enforcement arbitration clause contained in
main contract would cover dispute as to
enforcement of bank guarantee by
benefciary. One cannot do indirectly what
one is not free to do directly.”
8. He also placed reliance upon the
judgment of Hon’ble Madras Court in the
case of BEFESA AQUA, Sau CIF A
41290792, Avda Buhaire, 2 41018,
Sevilla, Spain and another V/s IVRCL
Infrastructure and Projects Ltd. M-
22/3RT, Vijaynagar colony, Hyderabad-
500 057 and others wherein the Hon’ble
Madras Court held that,” According to me, a
mere reference to ECC contract or supply
contract or the execution of the bank
guarantees, pursuant to the requirement as
per the ECC contract and supply contract will
not make the arbitration clase to be read into
bank guarantees. According to me, the bank
guarantees, which are subject matter of the
interpretation in these cases fall under the
category 3 of the paragraph 13 as stated
above. Therefore, unless a special reference
to arbitration clause is mentioned in the bank
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guarantee, the same cannot be read into the
bank guarantee and when there is no
arbitratioin clause in the bank guarantee, the
application under Section 9 of the Arbitration
and Conciliation Act, 1996 is not
maintainable.”
9. After considering the law laid down
in the above cited judgments, it is apparent
that merely if there is reference of security
deposit in the original contract would not
cover the contract of bank guarantee for the
dispute to be referred to the arbitrator. The
bank and the benefciary are only parties to
the bank guarantee. The right of the
benefciary under the bank guarantee to
enforce the payment under bank guarantee
governs by the bank guarantee only and not
by the terms of the contract. The bank
guarantee is a contract from original contract
pursuant to which the bank guarantee is
furnished. The Bank is not a party to the
original contract or to the arbitration clause.
There is no arbitration clause in the bank
guarantee and even if there is reference of
the other contract, it will not include the
incorporation of the arbitration clause, unless
expressely arbitration clause is mentioned in
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the contract of bank guarantee. Therefore,
the stand of defendant no.1 that the matter is
required to be referred to arbitrator does not
hold good. The agreement of bank guarantee
is independent. There is no such arbitration
clause. Therefore, the dispute in the suit can
be entertained and tried by this Court. Hence,
this application needs no consideration.
Accordingly, it is expedient to pass following
order:-
ORDER
1. Application Exh.7 stands rejected.
2. Cost in the cause
3. Defendants have not fled the written
statement, suit to proceed without W/S
against defendants.
01/02/2020 M.SALMAN AZMI
CITY CIVIL COURT,
GR.MUMBAI.
Dictated on: 01/02/2020
Transcribed on: 11/02/2020
Signed on: 17/02/2020
'CERTIFIED TO BE TRUE AND CORRECT COPY OF THE ORIGINAL
SIGNED JUDGMENT/ORDER”.
18/02/2020 at 4.00 pm.
MRS.T.C.KAMBLE
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Name of the Judge HHJ SHRI M.S.AZMI, CR NO.1
Date of Pronouncement of judgment/
order
01/02/2020
Judgment and order signed by P.O. 17/02/2020
Judgment/order uploaded on 18/02/2020
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