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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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