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Tuesday, September 30, 2014

Arbitration & Conciliation Act, 1996 - interim injunction pending arbitration proceedings - two agreements - one for extraction of iron ore and another for selling of iron ore - first agreement was cancelled - when selling iron ore to third party by keeping aside the second agreement - disputes arose - Arbitration petition filed for specific performance of agreement and for appointment of arbitrator and for injunction from not selling iron ore - during the pendency of this litigation, the appellant has already set upa beneficiation-cum-pelletisation plant where the entire quantity of iron ore extracted by the appellant is being consumed as a raw material. Therefore, the question of the appellant selling the iron ore to any third party does not arise at all. - Apex court held that we dispose of this appeal recording an undertaking of the appellant that during the pendency of the arbitration proceedings the appellant will not sell any part of the iron ore excavated from the mines covered by the agreement in question and such ore would be consumed captively by the appellant in its plant and the appellant would maintain a complete account of the minerals excavated and consumed captively by the appellant.= CIVIL APPEAL NO. 8645 OF 2014 (Arising out of Special Leave Petition (Civil) No.16210 of 2014) Orissa Manganese & Minerals Ltd. …Appellant Versus Synergy Ispat Pvt. Ltd. …Respondent = 2014- Sept.month - http://judis.nic.in/supremecourt/filename=41909

 Arbitration  &  Conciliation  Act,  1996 - interim injunction pending arbitration proceedings - two agreements - one for extraction of iron ore and another for selling of iron ore - first agreement was cancelled - when selling iron ore to third party by keeping aside the second agreement - disputes arose - Arbitration petition filed for specific performance of agreement and for appointment of arbitrator and for injunction from not selling iron ore - during the pendency of this litigation, the appellant has already set  up a beneficiation-cum-pelletisation plant where the entire quantity of iron  ore extracted by the appellant is being consumed as a raw material.   Therefore, the question of the appellant selling the iron ore to any third  party  does not arise at all.  - Apex court held that we dispose of  this  appeal  recording an undertaking of the appellant that during the pendency of the  arbitration proceedings the appellant will not sell any part of the iron  ore  excavated from the mines covered by the agreement in question and such  ore  would  be consumed captively by the appellant in its plant  and  the  appellant  would maintain  a  complete  account  of  the  minerals  excavated  and   consumed
captively by the appellant.=



The impugned  order  is  a  reversing  order  in  appeal  against  the
judgment and order  dated  5th  September,  2012  of  single  Judge  of  the
Calcutta High Court in A.P. No.245/2012 by which the  learned  single  Judge
rejected an application filed under Arbitration  &  Conciliation  Act,  1996
holding that the appellant was not entitled to interim injunction in aid  of
his claim for specific performance of an agreement to sell iron ore.=
     
Sometime in the year 2005-2006, at  the  instance  of  the  respondent
herein, the  appellant  entered  into  two  agreements.

one  of  the  agreements  is
that the mining activity  pursuant  to  the  mining  lease  secured  by  the
appellant (referred to supra), shall be carried on by  M/s.  Metsil  Exports
Pvt. Ltd. (Metsil)  which  is  said  to  be  an  associate  company  of  the
respondent herein on various terms and conditions, the details of which  may
not be necessary.  The agreement is dated 27.2.2005  between  the  appellant
herein and Metsil.  The agreement is styled  as  ‘Raising  Contract’. 

 The
second agreement is between the appellant and the respondent herein for  the
sale of iron ore extracted by Metsil for being utilised  in  a  sponge  iron
plant to be jointly set up by  the  appellant  and  the  respondent  herein.
According  to  the  appellant,  both  the  contracts  are  inter  dependent.
Failure of the first  contract  automatically  results  in  failure  of  the
second contract.
However, the appellant claims to have  realised  on  22nd  June,  2007
that the ‘Raising Contract’ by which the activity of mining  was  sought  to
be entrusted to Metsil is in violation of Rule 37 of the Mineral  Concession
Rules, 1960, therefore, the appellant sent  letters  to  the  respondent  as
well as to the Metsil purporting to terminate both  the  contracts.   It  is
stated at the Bar that, admittedly, Metsil never questioned the  termination
of the contract.=
whether the respondent is  entitled  to
seek specific performance of the agreement dated  27.02.2005  by  which  the
appellant agreed to sell iron ore excavated from the mines specified in  the
agreement to the respondent? 
 If the answer  to  the  said  question  is  in
affirmative then the next question would be – 
what is the rate at which  the
appellant is required to sell the iron ore to the respondent?

The respondent filed an  application  (A.P.  No.922/2011)
under Section 9 of the  Arbitration  and  Conciliation  Act,  1996  praying,
inter alia, for an order of  injunction  restraining  the  appellant  herein
from selling iron ore to the third party. 
It may  be  mentioned  here  that
subsequent  to  the  decision  of  the  appellant  to  terminate  both   the
agreements, the appellant commenced the mining operation from January  2009.
The learned single Judge of the Calcutta High Court,  by  his  order  dated
14.11.2011, declined to  grant  any  ad  interim  order  as  sought  by  the
respondent.=
 Thereafter, the  respondent  preferred  another  application  in  A.P.
No.245/2012 in which an  interim  order  came  to  be  passed  on  29.3.2012
restraining the appellant herein from selling  any  part  of  the  iron  ore
extracted from the mines in  question  without  first  offering  the  entire
extract to the respondent.

Aggrieved by  the  same,  the  appellant  herein
carried the matter in appeal under Section 37(1)(a) of the  Arbitration  and
Conciliation Act, 1996  before  a  Division  Bench  of  the  High  Court  in
A.P.O.T.  No.184/2012.  =

 By the order impugned herein, the  High  Court  had  set
aside the order of the single Judge in A.P. No.245/2012,  thereby,  allowing
Section 9 application  filed  by  the  respondent  in  part.
The  operative portion of the order reads as follows:
“The respondent is restrained by an order of injunction  to  sell  the  iron
ores excavated from the disputed mines to  any  third  party  without  first
offering to the appellant and is, further, directed to maintain accounts  of
the iron ores raised from the said  mines  since  the  commencement  of  the
mining  operation  subject,  however,  to  the  result   of   the   arbitral
proceeding.
We make it clear that the findings arrived at by the  Hon’ble  Single  Judge
and, also, by us are limited for the purpose of disposal of the  application
under Section 9 of the Arbitration and  Conciliation  Act  and  are  without
prejudice to the rights and contentions of the parties  before  the  learned
arbitrator.”
=
It is the categoric stand of the appellant  herein  in  the  SLP  that
during the pendency of this litigation, the appellant has already set  up  a
beneficiation-cum-pelletisation plant where the entire quantity of iron  ore
extracted by the appellant is being consumed as a raw material.   Therefore,
the question of the appellant selling the iron ore to any third  party  does
not arise at all.  Consequently, the second question  of  offering  the  ore
for sale to the respondent before selling it to a third party  equally  does
not arise.=

No doubt, if the respondent eventually succeeds  in  the  arbitration,
it would be entitled to specific performance of the agreement  in  question.
The respondent can always seek monetary compensation for the loss  sustained
by it by virtue of the non supply of the minerals by  the  appellant  during
the pendency of the arbitration proceedings.

23.   For the abovementioned reasons, we dispose of  this  appeal  recording
an undertaking of the appellant that during the pendency of the  arbitration
proceedings the appellant will not sell any part of the iron  ore  excavated
from the mines covered by the agreement in question and such  ore  would  be
consumed captively by the appellant in its plant  and  the  appellant  would
maintain  a  complete  account  of  the  minerals  excavated  and   consumed
captively by the appellant.

24.   In the facts and circumstances of the case, there will be no order  as
to costs.

2014- Sept.month - http://judis.nic.in/supremecourt/filename=41909


                                                    Non-Reportable
                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

                       CIVIL APPEAL NO.  8645  OF 2014
      (Arising out of Special Leave Petition (Civil) No.16210 of 2014)


Orissa Manganese & Minerals Ltd.             …Appellant

                                  Versus

Synergy Ispat Pvt. Ltd.                            …Respondent


                               J U D G M E N T

Chelameswar, J.


1.    Leave granted.

2.    Aggrieved by the judgment dated 16th May 2014 of  the  High  Court  of
Calcutta in A.P.O.T. No.460/2012, the respondent therein filed this appeal.

3.    The impugned  order  is  a  reversing  order  in  appeal  against  the
judgment and order  dated  5th  September,  2012  of  single  Judge  of  the
Calcutta High Court in A.P. No.245/2012 by which the  learned  single  Judge
rejected an application filed under Arbitration  &  Conciliation  Act,  1996
holding that the appellant was not entitled to interim injunction in aid  of
his claim for specific performance of an agreement to sell iron ore.

4.    The factual background of the case is as follows.

5.    The appellant herein secured a mining lease originally from the  State
of Bihar (now Jharkhand) in the year 1996.   However,  the  appellant  could
not secure the necessary approval under the Forest Conservation  Act,  1980.
Therefore, the mining operation had to be kept under suspension.

6.    Sometime in the year 2005-2006, at  the  instance  of  the  respondent
herein, the  appellant  entered  into  two  agreements.   According  to  the
appellant (we say so because what exactly is the purport of  the  agreements
is a matter pending consideration in arbitration, therefore, we do not  wish
to make any definite statement in that regard), one  of  the  agreements  is
that the mining activity  pursuant  to  the  mining  lease  secured  by  the
appellant (referred to supra), shall be carried on by  M/s.  Metsil  Exports
Pvt. Ltd. (Metsil)  which  is  said  to  be  an  associate  company  of  the
respondent herein on various terms and conditions, the details of which  may
not be necessary.  The agreement is dated 27.2.2005  between  the  appellant
herein and Metsil.  The agreement is styled  as  ‘Raising  Contract’.    The
second agreement is between the appellant and the respondent herein for  the
sale of iron ore extracted by Metsil for being utilised  in  a  sponge  iron
plant to be jointly set up by  the  appellant  and  the  respondent  herein.
According  to  the  appellant,  both  the  contracts  are  inter  dependent.
Failure of the first  contract  automatically  results  in  failure  of  the
second contract.

7.    However, the appellant claims to have  realised  on  22nd  June,  2007
that the ‘Raising Contract’ by which the activity of mining  was  sought  to
be entrusted to Metsil is in violation of Rule 37 of the Mineral  Concession
Rules, 1960, therefore, the appellant sent  letters  to  the  respondent  as
well as to the Metsil purporting to terminate both  the  contracts.   It  is
stated at the Bar that, admittedly, Metsil never questioned the  termination
of the contract.  However, the  respondent  company  chose  to  dispute  the
legality of the decision of the appellant in terminating the  agreement  for
sale of iron ore.  The respondent filed an  application  (A.P.  No.922/2011)
under Section 9 of the  Arbitration  and  Conciliation  Act,  1996  praying,
inter alia, for an order of  injunction  restraining  the  appellant  herein
from selling iron ore to the third party.  It may  be  mentioned  here  that
subsequent  to  the  decision  of  the  appellant  to  terminate  both   the
agreements, the appellant commenced the mining operation from January  2009.
 The learned single Judge of the Calcutta High Court,  by  his  order  dated
14.11.2011, declined to  grant  any  ad  interim  order  as  sought  by  the
respondent.  By an order dated 14.3.2012,  the  said  A.P.  No.922/2011  was
disposed of.

8.    Thereafter, the  respondent  preferred  another  application  in  A.P.
No.245/2012 in which an  interim  order  came  to  be  passed  on  29.3.2012
restraining the appellant herein from selling  any  part  of  the  iron  ore
extracted from the mines in  question  without  first  offering  the  entire
extract to the respondent.  Aggrieved by  the  same,  the  appellant  herein
carried the matter in appeal under Section 37(1)(a) of the  Arbitration  and
Conciliation Act, 1996  before  a  Division  Bench  of  the  High  Court  in
A.P.O.T.  No.184/2012.   By  a  consent  order  dated   17.4.2012   in   the
abovementioned A.P.O.T., the parties agreed for the appointment of one  Shri
Pradeep Kumar Ghosh, Senior Advocate, as the Arbitrator to  adjudicate  upon
the dispute between the parties.  The  said  A.P.O.T.  came  to  be  finally
disposed of by an order dated 9.5.2012 with a direction that  the  appellant
would sell iron ore to the respondent, if the respondent so  opted,  at  the
prevailing market price during the pendency of the arbitration proceedings.

9.     The  respondent   herein   filed   an   Special   Leave   Petition(C)
No.20425/2012 in this Court challenging the order dated 9.5.2012  passed  in
A.P.O.T. No.184/2012.  The said SLP  was  disposed  of  by  an  order  dated
27.7.2012, the relevant portion of the order reads as follows:
“The Division Bench of the High Court in  the  impugned  order  observed  as
follows:

We, therefore, substantially modify the order passed by  the  learned  Trial
Judge as above and this will continue  till  the  decision  of  the  learned
Arbitrator or until further order which might be  passed  by  learned  Trial
Judge at the final hearing of the  interlocutory  application  whichever  is
earlier.  The findings and observation of the learned Trial  Judge  so  also
ours shall be regarded as being  tentative,  and  it  will  not  be  binding
effect either at the time of hearing of the arbitration agreement or at  the
time of final  hearing  of  the  interlocutory  application  pending  before
learned Trial Judge.

The above observations of the Division Bench fully protect the  interest  of
both parties………..”

10.   A.P.O.T. No.245/2012 eventually came to be disposed  of  by  an  order
dated 5.9.2012.  The relevant portion of the order reads as follows:
“The Petitioner is not entitled to any interlocutory injunction in  aid  the
claim for specific performance of the selling agreement that it has  carried
to the arbitral reference.  In the light of the prima facie view taken  that
the  Metsil  and  the  petitioner  combine  had  entered  into  a  composite
arrangement with the respondent, the petitioner’s knowledge of  the  alleged
breach of the agreement by the Respondent would  date  back  several  months
before it made the polite enquiry with  the  respondent  by  its  letter  of
December 24, 2009.   Such  delay  would  amount,  in  the  circumstances  to
latches  and  conduct  encouraging  the  respondent  to   believe   in   the
petitioner’s endorsement and acceptance of the breach.   The  petitioner  is
not entitled to any order in furtherance of its  claim  on  account  of  the
negative covenant since the selling agreement cannot be seen to be a  stand-
alone contract. In any event, the negative covenant in clause  14.1  of  the
selling agreement entitled the petitioner  to  exclusively  obtain  the  ore
extracted from the Ghatkuri mines by Metsil  and  the  petitioner  ought  to
have been aware, in the light of the facts now  brought  on  record  by  the
respondent, that the raising agreement with Metsil had  been  terminated  by
the respondent.”


11.   Aggrieved by the same, the respondent carried the matter in appeal  in
A.P.O.T. 460/2012.  By the order impugned herein, the  High  Court  had  set
aside the order of the single Judge in A.P. No.245/2012,  thereby,  allowing
Section 9 application  filed  by  the  respondent  in  part.  The  operative
portion of the order reads as follows:
“The respondent is restrained by an order of injunction  to  sell  the  iron
ores excavated from the disputed mines to  any  third  party  without  first
offering to the appellant and is, further, directed to maintain accounts  of
the iron ores raised from the said  mines  since  the  commencement  of  the
mining  operation  subject,  however,  to  the  result   of   the   arbitral
proceeding.

We make it clear that the findings arrived at by the  Hon’ble  Single  Judge
and, also, by us are limited for the purpose of disposal of the  application
under Section 9 of the Arbitration and  Conciliation  Act  and  are  without
prejudice to the rights and contentions of the parties  before  the  learned
arbitrator.”

12.   We have heard Shri Kapil Sibal, learned senior counsel  appearing  for
the appellant and Shri Salman Khurshid,  learned  senior  counsel  appearing
for the respondent.

13.   The impugned order is an order passed in a proceeding  arising  in  an
application under Section 9 of the Arbitration  &  Conciliation  Act,  1996.
The arbitration  proceedings  between  the  parties  herein  are  admittedly
pending where the main question is - whether the respondent is  entitled  to
seek specific performance of the agreement dated  27.02.2005  by  which  the
appellant agreed to sell iron ore excavated from the mines specified in  the
agreement to the respondent?  If the answer  to  the  said  question  is  in
affirmative then the next question would be – what is the rate at which  the
appellant is required to sell the iron ore to the respondent?

14.   By the order under appeal, the High Court directed the  appellant  not
to sell the iron ore to any third party without first offering the  same  to
the respondent herein and also to maintain accounts of the iron  ore  raised
by the appellant from the said mines from the date of  commencement  of  the
mining operation.

15.   It is the categoric stand of the appellant  herein  in  the  SLP  that
during the pendency of this litigation, the appellant has already set  up  a
beneficiation-cum-pelletisation plant where the entire quantity of iron  ore
extracted by the appellant is being consumed as a raw material.   Therefore,
the question of the appellant selling the iron ore to any third  party  does
not arise at all.  Consequently, the second question  of  offering  the  ore
for sale to the respondent before selling it to a third party  equally  does
not arise.

16.   While ordering notice  on18.7.2014  in  the  instant  appeal,  it  was
directed by the Court that the appellant “will  maintain  record/account  of
all the ore consumed”  by  the  appellant  “during  the  pendency”  of  this
matter.

17.   When the matter was taken up for hearing it was once again  reiterated
by the appellant that they have in fact been captively consuming the  entire
iron ore extracted from the mines in question.

18.   Shri Sibal, learned senior counsel appearing for the appellant made  a
submission at the bar that this Court may record an undertaking made by  the
appellant that the appellant  will  not  sell  any  part  of  the  iron  ore
extracted from the mines in question to any third party during the  pendency
of the arbitration proceedings.  He also made a submission that  the  entire
iron ore extracted would be consumed captively in  the  plant  belonging  to
the company.

19.   On the other hand, Shri Khurshid,  learned  senior  counsel  appearing
for the  respondent  submitted  that  the  respondent  has  existing  export
obligations incurred on the basis  of  the  agreement  between  the  parties
herein (referred to supra) and, therefore, the appellant  must  be  directed
to sell the iron ore excavated by  it  to  the  respondent  at  the  current
market rate subject to the condition that  the  respondent  is  entitled  to
recover the differential amount between the current  market  price  and  the
amount agreed upon between the parties by the agreement in question, in  the
event of the respondent’s success in the arbitration proceedings.

20.   In view of the categorical assertion made by  the  appellant  and  the
undertaking that the appellant would consume the entire iron  ore  excavated
captively, we do not see any reason to give any direction to  the  appellant
to sell  the  iron  ore  to  the  respondent  during  the  pendency  of  the
arbitration.  Such a direction, in our opinion, would  virtually  amount  to
the enforcement of the agreement in issue without adjudication of the  right
of the respondent to seek specific performance of the agreement.  No  doubt,
if the appellant company were to be selling the iron ore excavated by it  to
any third party, there was some justification by the respondent to  seek  an
interim direction to the appellant  to  sell  the  ore  to  the  respondent,
subject  ofcourse  to  the  determination  of  the  cause  finally  in   the
arbitration proceedings.  But it is not the case here.

21.   The learned senior counsel for the respondent further  submitted  that
in case an interim order is not granted, even if the  respondent  eventually
succeeds in the  arbitration  proceedings  and  obtains  an  award  for  the
specific performance of the agreement in question, the success would  remain
only on paper as huge amount of mineral excavated  by  the  appellant  would
already have been sold by that time and there is no way  of  the  respondent
obtaining the said mineral.

22.   No doubt, if the respondent eventually succeeds  in  the  arbitration,
it would be entitled to specific performance of the agreement  in  question.
The respondent can always seek monetary compensation for the loss  sustained
by it by virtue of the non supply of the minerals by  the  appellant  during
the pendency of the arbitration proceedings.

23.   For the abovementioned reasons, we dispose of  this  appeal  recording
an undertaking of the appellant that during the pendency of the  arbitration
proceedings the appellant will not sell any part of the iron  ore  excavated
from the mines covered by the agreement in question and such  ore  would  be
consumed captively by the appellant in its plant  and  the  appellant  would
maintain  a  complete  account  of  the  minerals  excavated  and   consumed
captively by the appellant.

24.   In the facts and circumstances of the case, there will be no order  as
to costs.

                                                               ………………………….J.
                                                             (J.
Chelameswar)


                                                             …….………………..….J.
                                                    (A.K. Sikri)
New Delhi;
September 12, 2014

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