2007 (7) TMI 667 - SC - Indian Laws

Mining lease from the Government of Orissa for mining manganese ore - Appeal u/s 37(1)(a) of the Arbitration Conciliation Act 1996 (Acts) - scope of Section 9 of the Acts - term of the agreement was 10 years - whether an order of injunction could be granted restraining O.M.M. Private Limited from interfering with Adhunik Steels working of the contract which O.M.M. Private Limited has sought to terminate - HELD THAT - It is true that the intention behind Section 9 of the Act is the issuance of an order for preservation of the subject matter of an arbitration agreement. According to learned counsel for Adhunik Steels the subject matter of the arbitration agreement in the case on hand is the mining and lifting of ore by it from the mines leased to O.M.M. Private Limited for a period of 10 years and its attempted abrupt termination by O.M.M. Private Limited and the dispute before the arbitrator would be the effect of the agreement and the right of O.M.M. Private Limited to terminate it prematurely in the circumstances of the case. So viewed it was open to the court to pass an order by way of an interim measure of protection that the existing arrangement under the contract should be continued pending the resolution of the dispute by the arbitrator. May be there is some force in this submission made on behalf of the Adhunik Steels. But at the same time whether an interim measure permitting Adhunik Steels to carry on the mining operations an extraordinary measure in itself in the face of the attempted termination of the contract by O.M.M. Private Limited or the termination of the contract by O.M.M. Private Limited could be granted or not would again lead the court to a consideration of the classical rules for the grant of such an interim measure. Whether an interim mandatory injunction could be granted directing the continuance of the working of the contract had to be considered in the light of the well-settled principles in that behalf. Similarly whether the attempted termination could be restrained leaving the consequences thereof vague would also be a question that might have to be considered in the context of well settled principles for the grant of an injunction. Therefore on the whole we feel that it would not be correct to say that the power u/s 9 of the Act is totally independent of the well known principles governing the grant of an interim injunction that generally govern the courts in this connection. So viewed we have necessarily to see whether the High Court was justified in refusing the interim injunction on the facts and in the circumstances of the case. Whether in the circumstances an order of injunction could be granted restraining O.M.M. Private Limited from interfering with Adhunik Steels working of the contract which O.M.M. Private Limited has sought to terminate - Whatever might be its reasons for termination it is clear that a notice had been issued by the O.M.M. Private Limited terminating the arrangement entered into between itself and Adhunik Steels. In terms of Order XXXIX Rule 2 of the Code of Civil Procedure an interim injunction could be granted restraining the breach of a contract and to that extent Adhunik Steels may claim that it has a prima facie case for restraining O.M.M. Private Limited from breaching the contract and from preventing it from carrying on its work in terms of the contract. It is in that context that the High Court has held that this was not a case where the damages that may be suffered by Adhunik Steels by the alleged breach of contract by O.M.M. Private Limited could not be quantified at a future point of time in terms of money. There is only a mention of the minimum quantity of ore that Adhunik Steels is to lift and there is also uncertainty about the other minerals that may be available for being lifted on the mining operations being carried on. These are impoundables to some extent but at the same time it cannot be said that at the end of it it will not be possible to assess the compensation that might be payable to Adhunik Steels in case the claim of Adhunik Steels is upheld by the arbitrator while passing the award. But in that context we cannot brush aside the contention of the learned counsel for Adhunik Steels that if O.M.M. Private Limited is permitted to enter into other agreements with others for the same purpose it would be unjust when the stand of O.M.M. Private Limited is that it was canceling the agreement mainly because it was hit by Rule 37 of the Mineral Concession Rules 1960. Going by the stand adopted by O.M.M. Private Limited it is clear that O.M.M. Private Limited cannot enter into a similar transaction with any other entity since that would also entail the apprehended violation of Rule 37 of the Mineral Concession Rules 1960 as put forward by it. It therefore appears to be just and proper to direct O.M.M. Private Limited not to enter into a contract for mining and lifting of minerals with any other entity until the conclusion of the arbitral proceedings. At the same time we see no justification in preventing O.M.M. Private Limited from carrying on the mining operations by itself. It has got a mining lease and subject to any award that may be passed by the arbitrator on the effect of the contract it had entered into with Adhunik Steels it has the right to mine and lift the minerals therefrom. The carrying on of that activity by O.M.M. Private Limited cannot prejudice Adhunik Steels since ultimately Adhunik Steels if it succeeds would be entitled to get if not the main relief compensation for the termination of the contract on the principles well settled in that behalf. Therefore it is not possible to accede to the contention of learned counsel for Adhunik Steels that in any event O.M.M. Private Limited must be restrained from carrying on any mining operation in the mines concerned pending the arbitral proceedings. We therefore dismiss the appeal filed by O.M.M. Private Limited leaving open the questions raised by it for being decided by the arbitrator or Arbitral Tribunal in accordance with law. We also substantially dismiss the appeal filed by Adhunik Steels except to the extent of granting it an order of injunction restraining O.M.M. Private Limited from entering into a transaction for mining and lifting of the ore with any other individual or concern making it clear that it can on its own carry on the mining operations in terms of the mining lease. We think that the arbitration proceedings must be expedited. We are told that the application for appointment of an arbitrator made before the Chief Justice of the Orissa High Court under Section 11(6) of the Act is pending for over two years without orders. Normally we would have requested the Chief Justice of the Orissa High Court or his nominee to take up and dispose of the application under Section 11(6) of the Act expeditiously. But we put it to the parties that it would be more expedient if we appoint an arbitrator in this proceeding itself so that further delay can be avoided. The parties have agreed to that course. We therefore think that it would be in the interests of justice if we appoint here and now a sole arbitrator to adjudicate on the dispute between the parties. The appeals are disposed of as above.

Summary

Issues Involved:
1. Legality of the contract under Rule 37 of the Mineral Concession Rules, 1960.
2. Applicability of Section 14 and Section 41 of the Specific Relief Act in granting an injunction.
3. Scope and power of the court under Section 9 of the Arbitration & Conciliation Act, 1996.
4. Balance of convenience and irreparable harm in granting interim relief.

Detailed Analysis:

1. Legality of the contract under Rule 37 of the Mineral Concession Rules, 1960:
The High Court and the District Court both prima facie concluded that Rule 37 of the Mineral Concession Rules, 1960 did not apply to the contract between Adhunik Steels and O.M.M. Private Limited. This issue was left open for the arbitrator to decide. The Supreme Court refrained from making a pronouncement on this matter, emphasizing that the arbitrator should determine the applicability and impact of Rule 37 on the agreement.

2. Applicability of Section 14 and Section 41 of the Specific Relief Act in granting an injunction:
The High Court upheld the contention that the loss sustained by Adhunik Steels could be calculated in terms of money, thereby making an injunction inappropriate under Section 14(3)(c) of the Specific Relief Act. The court did not address the balance of convenience due to its conclusion that the case did not warrant an interim injunction. The Supreme Court noted that the principles governing the grant of an interim injunction, including those under the Specific Relief Act, must be considered when deciding on interim measures under Section 9 of the Arbitration & Conciliation Act.

3. Scope and power of the court under Section 9 of the Arbitration & Conciliation Act, 1996:
The Supreme Court discussed at length the scope of Section 9, noting that it allows the court to pass orders for interim measures of protection. However, the exercise of this power is not independent of the principles governing the grant of interim injunctions. The court must consider factors such as balance of convenience, prima facie case, and irreparable injury. The court emphasized that Section 9 does not operate in isolation from the substantive law relating to interim reliefs.

4. Balance of convenience and irreparable harm in granting interim relief:
The District Court had granted an injunction to Adhunik Steels, restraining O.M.M. Private Limited from terminating the contract and dispossessing Adhunik Steels. The High Court, however, reversed this decision, concluding that the damages could be quantified and compensated in monetary terms. The Supreme Court upheld the High Court's decision but modified it by restraining O.M.M. Private Limited from entering into any similar contract with another entity until the conclusion of the arbitral proceedings. The court allowed O.M.M. Private Limited to carry on mining operations on its own.

Conclusion:
The Supreme Court dismissed the appeal by O.M.M. Private Limited and substantially dismissed the appeal by Adhunik Steels, except for granting an injunction restraining O.M.M. Private Limited from entering into a similar transaction with any other party. The court appointed Mr. Justice R.C. Lahoti as the sole arbitrator to expedite the arbitration proceedings. The appeals were disposed of with no order as to costs.