Coal Controller vs. Respondent: Ventura Industries Ltd.

Jul 3, 2022

IN THE SUPREME COURT OF BANGLADESH
(HIGH COURT DIVISION)

Appeal from Original Order No. 354 of 1990 along with Civil Rule No. 269 (FM) of 1990 and Civil Revision No. 168 of 1991

Decided On: 05.02.1991

Appellants: Coal Controller
Vs.
Respondent: Ventura Industries Ltd.

**Hon’ble Judges:**Anwarul Hoque Chowdhury and Kazi Ebadul Hoque, JJ.

Counsels:
For Appellant/Petitioner/Plaintiff: Khondker Mahbubuddin Ahmed with SM Moonir, Advocates

For Respondents/Defendant: Rafique-ul Huq with MA Samad and Anjumanara Sheli, Advocates - For the Respondent No. 1, Dr. Rafiqur Rahman with Tariqul Hakim, Advocates - For the Respondent No. 2

Subject: arbitration

Catch Words

Mentioned IN

**Acts/Rules/Orders:**Code of Civil Procedure, 1908 (CPC) - Order XL Rule 1; Code of Civil Procedure, 1908 (CPC) - Section 115; Code of Civil Procedure, 1908 (CPC) - Section 151; Code of Civil Procedure, 1908 (CPC) - Section 48

Citing Reference:

Discussed

 

 7

Mentioned

 

 5

Case Note:
arbitration - En cashing of performance guarantee - Section 41(b) of arbitration Act, 1940 - Appeal filed against order granting injunction restraining Appellants from en cashing performance guarantee under Section 41(b) of Act - Whether Respondent Respondents entitled to en cash performance guarantee - Held, it was a case arising under Section 41(b) of Act - Application under Section 41(b) of Act was competent and Court had exercised power thereunder with jurisdiction - There was no prima facie any fraud has been committed by seller in supplying any unspecified goods at port of unloading - Coal supplied by Appellant was in conformity with terms of contract - Contract has been performed in its totality - There was dispute which needs to be decided through an arbitrator - Coal Controller was asked for forfeiture of bank guarantee which have been exercised by traveling beyond power of contract itself - Balance of convenience was in favour of Respondent foreign supplier - If bank guarantee was kept alive by renewal for one year more then coal controller would not suffer any irreparable loss - Rule discharged. [10], [18],[30], [31],[32], [40]

JUDGMENT

Anwarul Hoque Chowdhury, J.

1. This First Miscellaneous Appeal by the Coal Controller, Directorate of Coal, Government of Bangladesh is directed against an order dated 11.8.90 passed by the Subordinate Judge and 1st Commercial Court, Dhaka in Misc. Case No. 109 of 1990 under section 41(b) read with item 4 of the Second Schedule of the arbitration Act, 1940 granting injunction restraining the appellants from encashing the performance guarantee. It is the case of the petitioner-appellant namely, the Coal Controller that opposite party No. 1, namely Ventura Industries Limited did not fulfil the condition of the contract in the nature of supply of coal and, as such, the Coal Controller demanded payment of damages which the supplier failed to comply with and thereupon the Coal Controller demanded encashment of the performance bond (Bank Guarantee) in writing to the Bank. It is the case of the appellant namely, the Coal Controller that before payment could be made by the Bank, the supplier filed an application before the Court of Subordinate Judge, Dhaka and 1st Commercial Court, purporting to be an application under section 41(b) read with item 4 of the Second Schedule of the arbitration Act, 1940 praying for restraining the petitioner, namely the Coal Controller, from encashing the performance bond dated 16.5.89 when in fact no arbitration proceeding was pending anywhere under the said contract at the relevant time. The learned court issued notice upon the petitioner, namely the Coal Controller, and ordered to maintain status quo in Miscellaneous Case No. 109 of 1990. The petitioner appeared in the case and resisted the petition by filing a written objection contending, inter alia, that no arbitration proceeding being pending, the application under section 41(b) of the arbitration Act is not maintainable and there is no dispute for arbitration. The court after hearing the parties ultimately passed the impugned order on 11.8.90 allowing the said application by granting temporary injunction by restraining the Coal Controller from encashing the performance bond for US Dollar 3,58,312.50. Against that the First Miscellaneous Case has been preferred before this Court by the Coal Controller, Directorate of Coal, Government of Bangladesh which is heard and disposed of by this Judgment.

  1. Mr. Khandaker Mahbubuddin Ahmed, the learned Advocate appearing for the appellant, submitted that the impugned order of temporary injunction as passed by the court below appealed against, is bad in law because the court would have jurisdiction to pass an order under section 41(b) read with item 4 of the Second Schedule of the arbitration Act only when an arbitration proceeding is pending and the arbitrator is in seisin of the arbitration reference as under clause 33 of the contract but in the instant case the Miscellaneous case for an injunction under the Second Schedule of the arbitration Act to be exercised under the purported power under section 41(b) of the arbitration Act, was instituted on 15.5.90 when no arbitration proceeding in fact was pending and no arbitrator was in fact appointed. That being the position, the court had no jurisdiction to pass the impugned order in the absence of any arbitration proceeding and in fact had no jurisdiction even to entertain the petition under section 41(b) of the arbitration Act. The order impugned therefore being totally without jurisdiction is liable to be set aside in limine. The application under section 41(b) was thus misconceived and not maintainable in law. It is the further submission of the learned Advocate that this position would change with the filing of the application by the party either under section 8 or section 20 of the arbitration Act when on the mere filing of the application and before an Arbitrator is appointed by the court, an arbitration proceeding would come into existence and the court would be competent to pass an order under section 41(b) of the arbitration Act and also pass ad-interim order under Second Schedule of the arbitration Act and also under the Code of Civil Procedure. It is the case of the learned Advocate that the order passed on an application made under section 8 or section 20 of the arbitration Act though passed under section 41(b) of the arbitration Act would be an order passed under the Code of Civil Procedure because even men an arbitration proceeding being not in existence the court would pass the order under the Code of Civil Procedure and not under the arbitration Act. It is further submitted by the learned Advocate that section 37(3) of the arbitration Act would have no bearing upon the interpretation of section 41 of the said Act because the provision of section 37(3) of the arbitration Act though clearly defines that arbitration proceeding would be deemed to have commenced when one party of the arbitration served on the other party thereto a notice requiring appointment of an arbitrator and when the arbitration provides that the reference shall be made to a person named or designated requiring that the difference be submitted to the person so named or designated, would have no bearing on the interpretation of section 41 as the provision of section 37(3) clearly stated that it could be for the purpose of limitation only. It is further the submission of the learned Advocate that if an arbitrator is not named in the agreement such a reference cannot be made until an arbitrator is appointed either by an act of the party or by the order of court. All these submissions of the learned Advocate has reference to the written argument filed in court today at the time of delivery Of judgment and we have tried to refer all the points submitted in that written argument in its proper perspective. Lastly, it has been submitted by the learned advocate that even if the application under section 41(b) would be maintainable before the court below, no injunction could have been granted on merits because the stipulation contained in clause 19 is that the performance bond is to be encashed/forfeited at the option of the Coal Controller for breach of any of the terms and conditions of the contract and for their default in making the supplies in whole or in part and the decision of the Government of the People’s Republic of Bangladesh in tins respect shall be final and therefore once the Coal Controller has acted in pursuance of the provision of clause 19 of the Agreement it cannot be frustrated by an order of injunction because the party by consent left it to the entire discretion of the Coal Controller and as a matter of fact the Bank Performance Bond itself would show that the said Bank issued the bond in the name of the Controller and the Bank promised to make unconditional payment of the mentioned US Dollars in Foreign Exchange on demand without any question and “without any reference to the supplier”. Mr. Khondaker Mahbubuddin Ahmed, submits that this bond which created a right in favour of the Coal Controller and a duty on the part of the Bank to pay on demand without any reference to the supplier, cannot be restrained by an order of injunction restraining the Bank from non-honouring the promises when the Bank before this court even did not deny the obligation to pay on demand as contracted upon and in banking matters of this nature the court always refrains from prohibiting any bank from honouring a bank guarantee of this nature on demand in exercise of the power of the court pending proceeding between the parties. He has referred to the decision of the Appellate Division of tins court reported in 33 DLR (AD) 298. It is the further submission of the learned Advocate that the balance of convenience and inconvenience is in favour of the Coal Controller because if the Coal Controller gets the money he will not run away with the money and the seller would always be able to take back the money in case the bond is forefeited without the blessings of law, but if the supplier takes away the money then the Coal Controller would be left with nothing even to satisfy the damage claimed which was claimed long earlier before the order of injunction and which claim in fact was not challenged by the supplier even today in any proceeding.

  2. Mr. Rafiqul Huq, the learned Counsel, appeared in this case along with Mr. MA Samad and Dr. Rafiqur Rahman appeared for the Bank along with Mr. Tariqul Hakim.

  3. Mr. Rafique-ul-Hoque, the learned Counsel appearing for the respondent No. 1 namely, Ventura Industries Ltd, submitted by reference to the counter affidavit filed by Ventura Industries in court that initially this appeal filed by the Coal Controller is not at all maintainable and that being so it should be dismissed in limine. On this preliminary point as to maintainability of this appeal, he has submitted that the impugned order was passed by the learned court below, which is the subject-matter of this appeal, in a Miscellaneous case mentioned in the impugned order itself and on a reference to the said application it is clearly seen that the said application which gives rise to the Miscellaneous case was filed in court under section 41(b) of the arbitration Act. Therefore, it cannot be argued that the order was passed on an application “purported to have been made under section 41(b)” as it was in fact an application under section 41(b) of the arbitration Act and that being so, the court below in exercising the power under section 41(b) read with Second Schedule of the arbitration Act had passed the impugned order. Section 39 of the arbitration Act provided that only appeal would lie from an order passed under this Act, namely the arbitration Act, and only in case mentioned in section 39. From a reading of the appealable order-as under section 39 of the arbitration Act it is clearly seen that an order passed under section 41(b) of the arbitration Act read with Second Schedule of the said Act is not an appealable order and if it is not an appealable order, no appeal would lie and refuting the contention of the learned Advocate for the appellant that in that case it would be an order passed under the Code of Civil Procedure. Mr. Rafiq-ul Huq submitted that a Court in exercising power of appointing an arbitrator or passing an order under section 41(b) read with Second Schedule of the arbitration Act, though is a civil Court and all provisions of the civil Court applicable to the proceeding subject to the provision of the arbitration Act, the court in passing the order under section 41(b) of the arbitration Act, passed the order under the arbitration Act and not under the Code of Civil Procedure and, according to the learned Advocate we cannot read into section 41(b) read with. Second Schedule of the arbitration Act anything by implication that the power exercised by the court in relation thereto is a power exercised by the court under the Code of Civil Procedure. Mr. Rafiq-ul Huq in support of his contention has referred to a number of decisions of the courts of Indian jurisdiction including the decision of this Court, reported in : LEX/BDHC/0147/1981 : 1982 BLD 138 and 25 DIM 274, to which we shall advert presently.

  4. In the case of Smt Krishnamti Devi and another Vs. Lal Harjas Mal Misra and others reported in AIR 1974 (Allahabad) a Division Bench of the Allahabad High Court had occasion to examine a similar point in issue. In that case the order impugned was an order appointing an Arbitrator by the court of Additional District Judge under section 41 of the arbitration Act and a preliminary objection was taken with regard to the maintainability of this appeal on the ground that since the impugned order was passed under section 41(b) read with the Second Schedule of the arbitration Act, no appeal would lie under section 39 of the Act and as no appeal lies from an order passed under section 41(b) read with the Second Schedule of the arbitration Act appointing a receiver, an appeal was not maintainable. The court after examining the provision of section 39 of the arbitration Act found in para-4 of the Judgment that in view of the provisions of section 39 of the arbitration Act an appeal shall lie only from those orders passed under the Act and specifically mentioned and from no other orders and those orders are specifically mentioned in section 39 and an order for appointment of a receiver having not been mentioned anywhere in section 39 of the Act to be appealable, no appeal from that order would lie. In that case it was contended as it has been contended' here before this Court by Mr. Khondker Mahbubuddin Ahmed, that the case would be covered by the provision of sub-clause (a) of section 41 of the arbitration Act which makes the provision of the Code of Civil Procedure applicable to all the proceedings before the Court and therefore, the court below in not passing any final order as to the objection of the Coal Controller before the court below to the effect that this application under section 41(b) of the arbitration Act is not maintainable in absence of arbitration proceeding, yet the court having passed the order, it ought to have passed the order under the Code of Civil Procedure from which order granting an injunction, an appeal would lie under the Code of Civil Procedure and in that Allahabad case the court while answering this point found that the application under section 41(b) was moved not in a suit but it was an application under section 41 of the Act as a separate proceeding and was registered as a Miscellaneous Case. Sub-clause (b) of section 41 of the Act read with the Second Schedule confers the power of the Court to appoint a receiver when sub-clause (a) of section 41 regulates the procedure to be followed to an application for appointment of a receiver, the appointment of a receiver was not made under the provision of the Code of Civil Procedure inasmuch as the power to appoint a receiver is contained in sub-section (b) of section 41 read with the Second Schedule of the Act. The Allahabad High Court further proceeded to find that the provisions of the Code of Civil Procedure would not be taken into aid to contend that the appeal is maintainable and in fact the order was passed by the court under section 41(b), and not under Order 40, rule 1 of the Code of Civil Procedure. That being so, the court held that no appeal would lie and after the court dismissed the appeal as not maintainable, a prayer was made before the court that the appeal be treated as revision and the court after treating the appeal as revision having found no jurisdictional error in the impugned order, warranting interference under section 115 of the Code of Civil Procedure, dismissed the same.

  5. In the case of Mehta Teja Singh and Co. Vs. Fertilizer Corporation of India and another, reported in . AIR 1968 Delhi 188, a Single Bench of Delhi High Court presided over by the Chief Justice of the Delhi High Court also had Occasion to examine a similar point in issue. The moot point was whether it is open to the court to remit a part of an award and whether in such a case, an appeal lies under section 39(l)(iv) of the Act and if it is answered in the negative whether the court could entertain appeal against such an order when in that case out of abundant caution, the appellant preferred also three revisions. The court after examining section 39 of the Act which created the right of appeal found that section 39 spelt out the order passed under the Act by the court under the arbitration Act against which an appeal would lie, held that section 39 of the arbitration Act having not provided an appeal from an order remitting part of award and affirming part, the said would not be appealable. In that case under report after the court found that the appeal is not maintainable, a prayer was made to convert the memorandum into an application for revision under section US of the Code of Civil Procedure and it was allowed and the court in doing so held that it must not be forgotten that the power of the High Court in exercising the revisional jurisdiction is restricted to questions of jurisdictional error only.

  6. In the case of Haji Karimdad Vs. Insaf Meah and others, reported in : LEX/BDHC/0147/1981 : 1982 BLD 138, a Single Bench of this court examined the point as to the maintainability of the application under the inherent jurisdiction of this court for restoration of an application for setting aside of an ex parte decree passed under section 17 of the arbitration Act The court in allowing the application under section 151 of the Civil Procedure Code held that since no appeal lies against an order of dismissal of an application under Order 9 rule 13 of the Code of Civil Procedure in a proceeding under the arbitration Act itself, an application under section 151 was maintainable. In short, the said learned Judge of the Single Bench held that as there is no provision for an appeal under the arbitration Act, rejecting an application under Order 9, rule 13 made in the arbitration proceeding, an application could be entertained under the inherent jurisdiction of this court but no appeal would lie.

  7. We are in respectful agreement with the above and we find that no appeal would lie from an order passed under section 41(b) of the arbitration Act read with the Second Schedule granting an ad-interim injunction in favour of the petitioner in that case which order being not specially included to be an appealable order under section 39 of the arbitration Act, the said is not appealable. Further, an order passed in a separate Misc. case under the arbitration Act under section 41(b) is not an order under the provisions of the Civil Procedure Code for it to be appealable either, and hence the appeal is dismissed as not maintainable.

  8. Mr. Rafique-ul-Huq, the learned Counsel, submitted that even if this appeal is transformed into a Revision and the Rule issued on an application under section 115 of the Code of Civil Procedure is now heard on merits, the said Rule would also be liable to be discharged in limine for the simple reason that in the instant case there is no jurisdictional error or material irregularities causing injustice, as alleged.

  9. In the instant revision we are concerned with the impugned order passed by the learned Subordinate Judge and Commercial Court No. 1, Dhaka in Miscellaneous Case No. 109 of 1990 instituted before that court by Ventura Industries Ltd. against the Coal Controller arid others. From a reading of the plaint of that Miscellaneous case it appears that it was a case arising under section 41(b) of the arbitration Act read with Second Schedule of item 4 of the said Act. In that application which gives rise to the Miscellaneous Case No. 109 of 1990 it was the case of the petitioner Ventura Industries Ltd. that in spite of the fact that the petitioner Ventura Industries supplied the contractual amount of coal at the port of destination by carrying it through seven different ocean going boats and in spite of the fact that the survey report of the said coal taken at Chittagong port of the sample carried by MV Valletta City and MV Tanaray Star, carrying 18,000 and 14071.903 metric tons each, given by the surveyor, tally with the specification of the coal as contracted in material particular, yet the Coal Controller obtained a report from the Department of Supply and Inspection and found a deviation of size of the steam coal and in view of that concocted report of the second consignment of the steam coal carried by MV Dimitrisen they claimed damage in terms of clause 16 of the penalty clause of the contract and against that the-plaintiff seller applied for appointment for an independent Umpire to examine the coal again. Those coal again were examined and a report submitted, in which report the department found some variation as to size only and it is the case of the supplier that due to loading and unloading, which took place five/six times in each voyage this breakage of the coal making the size lower and smaller would be quite natural and incidental, but yet the penalty was demanded by the Coal Controller and now an attempt is also made to confiscate the Bank guarantee for non-performance of the contract by the seller when as a matter of fact the Coal Controller has unloaded the entire coal and sold it to the public and made a great profit out of it because the report shows that though there is some variation in the size, the coal is of excellent quality. This order of the Coal Controller to confiscate the bank guarantee was challenged to be unreasonable, arbitrary, malafide and it has been specifically alleged that this power had been exercised by the Coal Controller going beyond the power given by the contract and by violating the terms of contract, illegally and that being the position, the said order should be stayed by an order of ad-interim injunction till this matter is heard by the arbitrator, for the appointment of whom the plaintiff Ventura Industries Ltd. had already applied to the Coal Controller, vide letter dated 10.5.90 in terms of arbitration clause of the contract, but with no result The court after hearing the parties came to a finding that the Coal Controller is attempting to encash the performance guarantee which is for non-performance of the contract as to supply of the coal carried to the port of Chittagong from Singapore by ocean-going boats when the Umpire’s sample survey of two ships have been conducted and the report of another one is still pending and when it had been the contention of the learned Advocate for the plaintiff at the hearing of the injunction that before the umpire’s report is received, the attempt to encash the bank guarantee is bad and therefore need be stopped, the court on the submission of the party and after examining the paper came to a finding that as the umpire’s survey report of all the consignments have not yet reached, encashment of the bank guarantee at this stage would be against natural justice and having found the balance of convenience and inconvenience in favour of the supplier it issued notices to show cause why they should not be restrained from encashing the bank guarantee fixing hearing of the main matter on 11.9.90 and the court in the meantime issued ad-interim order and this appeal was preferred before this court immediately thereafter.

  10. The points involved in this matter as canvassed by the learned Counsel representing the parties in court are whether an application of this nature under section 41(b) of the arbitration Act would be maintainable before the court exercising power of granting interlocutory order of stay and the like in relation to or for the purpose of an arbitration proceeding, at a time when an arbitration proceeding has not yet started after the appointment of an arbitrator.

  11. This is to be answered by reference to the provisions of the arbitration Act and particularly to the provision of section 41 of the said Act. Section 41 of the arbitration Act provided that subject to the provisions of this Act and the rules made thereunder, the court shall have, under section 41(b), “for the purpose of and in relation to arbitration proceeding”, the same power of making order in respect of any of the matters set out in the second schedule. The section therefore, authorised an ad interim order to be passed by a court as provided under the Second Schedule of the arbitration Act and that would be an order passed under section 41(b) for the purpose of and in relation to an arbitration proceeding.

  12. What is meant by the expression arbitration proceeding as appears in section 41(b) of the arbitration Act The ordinary meaning of the expression would mean a proceeding where the parties would refer the matter in dispute to be decided by an arbitrator. The question that arises, as in the instant case, is whether for the court to exercise the power under schedule 2 of the Act in exercise of the power under section 41(b) of the Act in relation to an arbitration proceeding, an arbitration proceeding need be already in existence which means a pending proceeding. The answer to the question is in the negative, for the simple reason that in section 41(b) of the arbitration Act in the absence of an expression such as “pending” the expression “pending” cannot be read into it to be read before arbitration proceeding even by implication. If the legislature wanted that only after an arbitrator had been appointed after being asked by one of the parties, then only the court would have power to pass an order under section 41(b) for preserving the matter in dispute meaning the subject matter of that arbitration proceeding, to be held privately between the contracting parties outside the court, the legislature ought to have said so but rather the expression arbitration proceeding when read along with the other provisions of the Act clearly indicated that the court will be competent to pass an order read with the Second Schedule of the arbitration Act for preserving the subject matter of the dispute in status quo ante in relation to an arbitration proceeding and also for the purpose of an arbitration proceeding. The expression an arbitration Proceeding and for the purpose of an arbitration proceeding used here is wider and therefore should not be interpreted to mean an existing or a pending arbitration proceeding but would also include all other steps taken for the purpose of a proceeding by initiating a proceeding whether an arbitrator is appointed or not.

  13. Further, it is seen that an arbitration proceeding can also be started by one of the parties to the contract or agreement requiring arbitration by filing an application before the court to appoint an arbitrator under section 8 of the. arbitration Act or to file an application before the court under section 20 of the arbitration Act to show cause as to why the agreement should not be filed in court.

  14. A plethora of decisions of this Court and also of the court of Indian jurisdiction supports the view that on the filing of the application under section 8 of the arbitration Act or under section 20 of the arbitration Act but before an arbitrator is appointed by the court and the matter is referred to the arbitrator and the arbitrator is in seisin of the dispute, the court can pass an ad-interim order under section 41(b) read with Second Schedule of the Act That being the legal position under section 8 and section 20 it would not stand to reason to argue that the legislature contemplated a different situation in private arbitration when the necessity of an ad-interim order to maintain and preserve the status quo ante is as immediate as in case of a proceeding under section 8 and section 20 of the Act No such distinction thus need be made in this regard.

  15. A suit starts after filing of the plaint, and dial would be the date of limitation. An arbitration under sections 8 and 20 of the arbitration Act for the purpose of ad interim order, starts from filing of the application. What about private arbitration proceeding when it starts. The expression “arbitration proceeding” has not been defined in the Act itself stating when it should be deemed to have commenced but from a reading of section 37(3) of the arbitration Act it is seen that all the provisions of the Limitation Act is made applicable to arbitration proceeding as they apply to proceedings in court. Section 37(2) of the arbitration Act provided that for the purpose of limitation an arbitration shall be deemed to have commenced when a party to the arbitration agreement served on the other party thereto a notice requiring the appointment of an arbitrator or where the arbitration agreement provided that the reference shall be made to a person named or designated in the agreement, requiring that the difference be submitted to person so named or designated so. Article 181 of the Limitation Act provided that an application be made in court with in three years from the time when the right accrues, for which no period of limitation is provided for elsewhere in the schedule of the Limitation Act or by section 48 of the Civil Procedure Code. Therefore, section 41(b) of the arbitration Act need be read along with section 37(2) of the said Act for a finding that an arbitration proceeding shall be deemed to have commenced from the date when one party to the arbitration agreement served on the other party thereto a notice requiring appointment of an arbitrator, which initial step need be taken within 3 years of the right accrued to call for arbitration

  16. It is the clear assertion of the respondent, Ventura Industries Ltd. that they have on 10.5.90 applied to the Coal Controller for appointment of an arbitrator as provided under the arbitration Clause for the dispute to be settled by an arbitrator so appointed. It is the contention of the appellant Coal Controller that no such notice has been received by them, but from an examination of the said letter as in Annexure A of the counter affidavit it is seen that there appears in that letter at the left hand bottom of the first page the seal of the Coal Directorate with the remark “received” and it is dated 10.5.90. The said letter requested the Coal Controller to nominate an arbitrator immediately. From Annexure A of the counter affidavit which is another letter written by Ventura Industries Ltd. to the Coal Controller dated 9.7.90 it is seen that there also they have requested the Coal Controller to give them the name and designation of the arbitrator along with the development in the matter and there the same seal of the Coal Controller appears with the remark “received” dated 9.7.90. From other Annexures of the said counter affidavit it is seen that vide letter dated 30.7.90,6.8.90,20.8.90 and 21.8.90 the same prayer was made for appointment of an arbitrator but in vain. The impugned order in the instant case was passed by the court on 11.8.90 in the miscellaneous case filed on 15.5.90. Therefore, it is seen that at the time when the court passed the order on 11.8.90 there were a number of letters written by one of the parties to the contract for appointment of an arbitrator to refer the dispute to the arbitrator and even prior to that filing of the miscellaneous case under section 41(b) of the arbitration Act the Ventura Industries Ltd. has already applied, being one of the parties to the contract, for appointment of an arbitrator vide letter dated 10.5.90 and that being the position it should be said that there was initiation of the arbitration, having been asked by one of the parties for it to be deemed to have commenced on and from 10.5.90 as contemplated under section 37(3) of the arbitration Act.

  17. That being the position we hold that this application under section 41(b) of the arbitration Act was competent and the court had exercised the power thereunder with jurisdiction.

  18. The provision of Indian arbitration Act while compared with the arbitration Act as applicable here being Act 10 of 1940, it appears that those are legislations in pari materia. The courts of Indian jurisdiction had occasion to examine a similar point in a number of decided cases and reference may be made to a few.

  19. In the case of M/s Vijayawa Transport Vs. AP State CS Corporation Ltd, reported in AIR 1983 Andhra Pradesh 172, the corporation withheld the payment of money to the contractor which was due to the petitioner contractor on the basis of the failure of the petitioner to deliver the sugar which has caused damage. The petitioner disputing the right of the respondent corporation to withhold payment and by invoking the arbitration clause filed OS suit under section 20 of the arbitration Act. Pending that arbitration suit the appellant filed an application requesting the court to issue an injunction under section 41(b) of the arbitration Act read with Second Schedule directing the corporation not to withhold payment of the amount due to the appellant for works already done. In that case the corporation’s defence was that the power under section 41 would not be available to the court till an arbitrator has been appointed. Refuting this contention, the Division Bench of Andhra Pradesh High Court held that section 41 of the arbitration Act is worded very widely and it empowers the court to exercise the power of passing orders as mentioned in the second schedule not only for the purpose of arbitration proceeding. arbitration proceeding may not be the same thing as an arbitration and an arbitration proceeding covers much wider area than that of arbitration in the strict sense and in the context of the arbitration Act. The arbitration proceeding means not necessarily to commence only from the point of time when an arbitration proper has commenced with the appointment of an arbitrator by the court and the High Court without giving a restricted interpretation held that a restricted interpretation of section 41(a) of the arbitration Act would be unwarranted because that would deny to the civil Court the necessary authority and jurisdiction to entertain any application and grant any ad-interim relief so essential for the administration of justice and the court held that in many cases obtaining of an ad-interim relief is no less important than obtaining a final relief and came to a finding that the phrase “Arbitration proceeding” is wide enough to justify the granting of interim relief even before an arbitrator is appointed. The said Division Bench has also referred to the judgment of the Kerala High Court in the case of Baby Paul Vs. Hindustan Paper Corporation Ltd. reported in AIR 1978 (Kerala) 223 which incidentally is also referred to before us by the learned Advocate for the appellant which no doubt supports the view as urged by the Coal Controller that an arbitration proceeding commences only on the arbitrator getting the authority to arbitrate and according to that view the applicability of section 41 of the arbitration Act would be postponed till the court appoints an arbitrator under section 20 of the Act and the court after considering the said Kerala decision came to the view that the said view as taken by the Single Bench of the Kerala High Court would create a vacuum to meet the situation that may arise from the time of an application made for the appointment of an arbitrator till arbitrator is appointed and considering the fact that section 41 of the arbitration Act is the section which provides relief for ends of justice, the learned Judges of the Division Bench did not consider it proper to close its operational efficiency by such a restricted interpretation and the court found no reason to accept the judgment of the Kerala High Court in Baby Paul case.

  20. In the case of M/s Taj Builders Vs. More Development Authority and another reported in AIR 1985 (Madhya Pradesh) 146 a similar matter on an application under section 41 of the Indian arbitration Act came for decision where it was contended that the said application is not maintainable and the applicant was not entitled to any ad-interim relief inasmuch as there is no valid arbitration agreement or arbitration proceeding existing between the parties at that time. The court, however, found that an arbitration proceeding as contemplated in section 41(b) of the Act is not restricted to cases in which the arbitration proceeding is pending before the court. That power can be exercised in other arbitration proceeding, started out of court and by referring to amendment of section 41 of the arbitration Act where the expression “arbitration proceeding” has been substituted for the word “reference” as in the earlier Act came to the finding that the said substitution was made to cover the various kinds of proceeding which the Act contemplated and the intention of the legislature by affecting the amendment was to include within the scope of clause (b) of section 41 all those proceedings which are held in pursuance of the arbitration agreement whether with or without the intervention of the court.

  21. It is thus seen that the above two decisions cited hereinbefore support the views we have taken hereinbefore that the expression “arbitration proceeding” appearing in section 41(b) of the arbitration Act does not contemplate an existing arbitration proceeding or a pending arbitration proceeding between the parties for the court to act thereunder and the expression “arbitration proceeding” has been brought into existence by amendment of the expression previously appearing in the said section namely “reference” and it was intended to give arbitration proceeding a wider meaning covering all those proceedings which are taken in pursuance of the arbitration agreement.

  22. It is further seen that the decision of the Kerala High Court in Baby Paul’s case which has been subsequently affirmed by another Single Bench of the Kerala High Court in the case of PK Therasia Vs. State reported in AIR 1971 (Kerala) which held that the arbitration proceeding would commence after an arbitrator has been appointed, has been over-ruled by a Division Bench of Andhra Pradesh in the case of M/s Vijayawa Transport Vs. AP State CS Corporation Ltd, reported in 1983 (Andhra Pradesh) 172. It is also seen that another Single Bench of the Madhya Pradesh High Court in the case of Taj Builder Vs. Indore Development Authority as referred to earlier reported in AIR 1985 (Madhya Pradesh) 146 also failed to accept the view of the Calcutta High Court taken in the case of Ranjit Chandra Mitra, reported in AIR 1963 (Calcutta) 594 to the effect that in the absence of a subsisting arbitration proceeding, an application under section 41 is not maintainable in view of the fact that the said view, even the view of the Calcutta High Court in the case of Ranjit Chandra Mitra was subsequently over-ruled by the decision of the said High Court in Jebendra Nath Sana’s case, reported in AIR 1970 (Cal) 255 and in Moheswar’s case, reported in AIR 1975 (Cal) 165.

  23. In the case of Ckhedilal Variniwas Vs. Brit-Over Ltd, reported in 53 CWN 45. it was similarly contended that an application under section 41 of the arbitration Act would not be maintainable for any injunction but only when an arbitration proceeding is actually pending. The court after considering section 41(b) of the arbitration Act came to a finding that the court has been empowered under section 41(b) of the arbitration Act to pass an order for the purpose of and in relation to arbitration proceeding and the said term is not limited to pending arbitration proceeding and the court found no reason to hold that the word pending should be read in to that section. In recent cases, such as reported in AIR 1986 (Orissa) 238 and AIR 1968 (Kerala) 169 a similar view was taken.

  24. In the instant case subsequent to the grant of injunction the Ventura Industries Ltd. has already filed an application under section 8 of the arbitration Act for appointment of an arbitrator and in which situation, in any view, an ad interim order may also have been passed by the court even if it is taken that the previous order was premature (Ref AIR 1986 (Orissa) 238).

  25. It has been argued by Mr. Khondakar Mahbubuddin Ahmed, the learned Advocate for the appellant, that there is in fact no dispute for the appointment of an arbitrator and in the absence of any dispute there cannot exist an arbitration proceeding or its initiation on the application of one of the parties to appoint an arbitrator when in fact in the instant case the performance guarantee cannot be a part of the dispute to be decided by arbitration because under the provision of the contract itself, which binds both the parties, the decision of the Coal Controller to confiscate the bank guarantee is absolute and in terms of the bank guarantee given by the bank, the bank is also bound to pay, on demand, without any reference to anybody else and that being the position there is no dispute in the matter to be taken before an arbitrator and in that view of the matter the Coal Controller did not appoint an arbitrator because there is nothing to refer. Further, the bank guarantee of this nature cannot be postponed by a civil Court by issuance of an ad-interim order of injunction because that is against all norms of commercial transaction and the Bank in fact being not a party to the agreement of arbitration cannot be restrained by an order of ad-interim injunction as was done in the instant case and it is the contention of the learned Advocate that the court had in fact exercised the power in granting injunction without jurisdiction and in fact there is a jurisdictional error in the process and in support of his contention the learned Advocate has referred to a decision of the Appellate Division of the Supreme Court reported in 33 DLR (AD) 297.

  26. This would take us back to the stipulation as in the contract itself between the parties in order to appreciate either in the affirmative or in the negative the submission of the learned Advocate on this point which we consider to be of much importance.

  27. Clause 19 of the contract speaks of the performance bond (Guarantee) and it is provided there that the same guarantee is given by the seller namely Ventura Industries Ltd. for fulfilment of the contract, which means the whole contract. It further provided that the performance bond is liable to be forfeited at the option of the Directorate of Coal “for breach of any terms and conditions of the contract” by the supplier or for their default to supply the whole or in part and the decision of the Government of the People’s Republic of Bangladesh in this respect shall be final and binding upon the parties. It further stipulates in the said clause that no interest shall be paid by the Government on the performance bonds or on the amount thus “held by” for observing the necessary formalities. It further provided that the performance bonds will be realised after full settlement of dispatch money and other claims and disputes if any. From a plain reading of this clause it would therefore show that though the Controller is the final authority to confiscate the bank guarantee, which in the instant case is more than one crore laka, at his discretion, it will be so confiscated only when there is a breach of any terms and conditions of the contract or for their default in making supply in whole or in part Therefore, the forfeiture of the performance bank guarantee must relate to certain circumstances proved to the satisfaction of the Coal Controller and for that matter to the satisfaction of this court for the Coal Controller to exercise his option because clause 19 of the contract does not contemplate that the Coal Controller would confiscate the bank guarantee even after the supplier had performed all his part of the contract in full for no reason at all. In the instant case from a reading of the contract itself it is seen that the supplier, namely the Ventura Industries Ltd., contracted to supply coal to the Government of Bangladesh, the consignee being the coal controller, an amount of one lac metric tons of coal with variation of 5% from the standard, more or less, at buyer’s option. The specification of the coal had also been mentioned in clause 3 and it is stated therein that volatile matter would be 30-40% maximum, fixed carbon 43-47% minimum, sulphur 0.5 to 1% maximum. It further provided that the steam coal shall be free from stone, and other foreign matters, be of the size namely (i) SO mm and up 50% about (ii) 25 mm to 49 mm = 40% about and (iii) 0-25 mm-10% about. Clause 13 provided that before shipment of coal, there would be on the spot pre-shipment inspection of coal by 2/3 members of the purchase committee of the coal. On arrival of each consignment at unloading point visual inspection will be carried out at Chittagong by the Department of Supply and Inspection to ascertain the quantity, quality and size, etc. of the coal supplied. It further provided that the Department of Supply and Inspection will draw a representative sample including an umpire sample in presence of seller or of his authorised representative for physical/chemical ‘test to be carried out at the Bangladesh Standard and Testing Institution, Tejgaon. In case of difference in specification and size between the contractual specification and post landing analysis report, both the buyer and seller may jointly nominate and appoint an inspection agency in Bangladesh for chemical analysis of the umpire sample to be conducted in presence of the buyer’s and seller’s representatives and their report would be final. Clause 15 provided that in case the quality and/or quantity is found not in conformity with the contractual terms, condition and specification and size after arrival of the goods at the port of destination, the buyer may lodge their claim with the seller supported by survey/inspection report and the claim should be filed by the buyer within 15 days on receipt of survey/inspection report and the seller shall within 30 days thereafter meet it. Clause 16 provided that if as a result of physical inspection/chemical analysis the coal is found to be not in conformity with the required size and specification, a penalty shall be levied at the absolute discretion of the Controller and in case, of variation of size with the prescribed limit, a penalty of US dollar 0.50 per metric ton will be levied by the buyer for each 1% or part thereof for such variation and such penalty shall be paid by the supplier in foreign exchange within one month from the date of receipt of such notice from the Controller.

  28. In the instant case from the various annexures and correspondences produced it is seen that the Controller of Coal did not send any representative at the port of loading for any preshipment inspection as was provided for in clause 13 which it initially inspected before loading, could have caused less inconvenience. It is seen also from the record dial the seller, namely Ventura Industries Ltd, to be on the safe side and in abundant caution, caused inspection of the said coal, about to be loaded on board the ship only to be unloaded at the port of Chittagong, at weir own initiative. From a reference to the said inspection certificate appended to in the supplementary affidavit of the counter affidavit filed by Ventura Industries Ltd, annexure C Series, it appears that the survey was caused by a reputed foreign surveyor and they issued the certificate on ship loading basis and it states that the sample material contained in four bags and one bag handed over to the receiver and one bag handed over to the Laboratory, Jakarta for analysis purpose and one bag retained by surveyor for further reference and its result has been certified therein and it certified that the steam coal has been found to be free from stone and other foreign matters and it is of the size and certified to be 50 mm and up, 51.99% about, 26-49 mm 38.86% about 025 mm 9.15% about. The inherent moisture is certified to be 6.79%, volatile matter 39.98%, fixed carbon 43.30%, sulphur 0.69%, calorific value 6.228 kcal/Kg and on a reference to the various other certificates on vessel/boat basis they appear to be same. This document had not been challenged by the Coal Controller in their affidavit in opposition to be forged or incorrect documents and we find that those documents were prepared when there was no dispute as to the size and quality of the coal and done at the initiation of the seller at the port of loading as stipulated in the contract itself but in the absence of the buyer, the buyer having expressed their inability to be present at the first consignment and promising to intimate future inspection which was never intimated. On a comparison of the certificate granted at the port of delivery on inspection by Carsurin Ltd Laboratory, Jakarta with the contract, it appears that the size of the coal that was contracted to be supplied is much the same when it was in fact loaded on the boat at the point of loading at Singapore and we find that this controversy that the seller had not acted as per contract in so far diligence is concerned, as it is in report that little more care in handling the coal could have retained the original size, any such case of negligent handling in loading and unloading is not regulated by the terms of the contract.

  29. We do not find that prima facie any fraud has been committed by the seller in supplying any unspecified goods at the port of unloading. From a reference to the various documents submitted by the Coal Controller and specifically from the Annexure submitted by the Coal Controller in his affidavit in reply at page 18 that the claim is related to deviation in size only and not as to the quality which is stated to be quite satisfactory, it is a case of departure or violation, if any, of the terms of the contract as to the size. Now going back to the contract itself, it is seen that it is agreed between the parties that in case there is supply of coal which is below the size as contracted for and below the prescribed limit the Coal Controller within 30 days of the receipt of the chemical and size analysis report of coal, may claim with the buyer for penalty and damages at his discretion and the penalty levied would be for the variation of size at the rate of US Dollar 0.50 per metric ton for each 1% or part thereof for such variation. There is no other provision in the contract itself for any other penalty or forfeiture. The forfeiture of the performance guaranteed thus, will not be immediately attracted and would not be immediately forfeited because the penalty should be claimed after laboratory test of all the consignments of coal. In the instant case the performance guarantee was ordered to be forfeited for the purpose of realisation of that penalty before all the reports had been received by the Coal Controller and on this ground the court below found the order of the Coal Controller asking for forfeiture of performance guarantee to be premature which was alleged by the Ventura Industries Ltd however to be also malafide and without jurisdiction.

  30. It thus appears that prima facie the Ventura Industries Ltd. had been able to show that the coal supplied by them at the port of loading was in conformity with the terms of the contract both as to quality, quantity and size. They further had been able to show prima facie by letter annexure ‘A’ in the counter affidavit that the contract has been performed in its totality and on that certificate remaining 5% had been released. Coal being a fragile commodity it may be possible that during the transit period the coal had been broken and therefore the size may differ at the dispatch point. It is alleged that yet the Coal Controller has arbitrarily ordered confiscation of the bank guarantee and thus, by letter dated 10.5.90 the supplier demanded arbitration. It therefore shows prima facie that there is a dispute. The seller has also challenged the authority of the Coal Controller to exercise his option in ordering confiscation of the Bank guarantee being malafide and arbitrary when, according to the Coal Controller, the entire contract has been duly performed in finally releasing the rest 5% which can only be released after due performance. There is thus a dispute which needs to be decided through an arbitrator as under clause 39 of the contract. The parties would be barred from taking the matter before a court unless it is admitted to be done through an arbitrator to be appointed by the Coal Controller at his discretion, which is asked for but had not been appointed as yet and this bar is in the contract itself.

  31. The question whether the matter is to be taken as a dispute before the arbitrator is referable to the intention by the party as spelt out in the arbitration clause itself and it would depend as to what is the cause of the dispute and what leads to the dispute and whether one of the parties could prima facie show that there exists a dispute though denied by the other, to be decided by an arbitrator. In the instant case the arbitration clause as in clause 33 provided that all matters of dispute or difference between the parties arising under this agreement shall be referred for decision to the sole arbitrator to be nominated by the Controller. The decision of the arbitrator so nominated shall be final and binding on the parties. Reference to arbitration shall be a condition precedent to any proceeding in court regarding the matter in dispute. In the instant case the dispute is as to the contractual right of the parties arising out of the contract; the power of the Coal Controller to ask for the damage and penalty without all the consignments tested and the power of the Coal Controller to ask for forfeiture of the Bank guarantee which in the instant case has been alleged to have been exercised by traveling beyond the power of the contract itself.

  32. It has been submitted by the learned Advocate for the appellant that the order appealed against suffers from an inherent illegality because a civil Court would have no jurisdiction to restrain by way of an injunction a Bank from honouring a Bank Guarantee as the Bank is not a party to any arbitration agreement and it would be against all norms of international Banking practices and therefore the Coal Controller had a right to confiscate and the Bank had a duty to honour the promise made in the guarantee itself and he referred to the decision of the Appellate Division, reported in 33 DLR (AD) 298. It is urged that the decisions referred to by the learned Advocate in this matter of injunction regarding the Bank guarantee as in 33 DLR (AD) 298. is distinguishable from the facts of the present case and Mr. Rafiqul Huq submits that the decisions of the superior courts of this country on this point is the law but the present case is not covered by that decision as the dispute here is that this Coal Controller, though has an undisputed right to confiscate the Bank guarantee at his discretion and the Bank cannot be restrained from honouring the said promise as the Bank is not a party to any arbitration agreement, has the very right to confiscate the Bank guarantee when the exercise of that right is alleged to be premature and also done in bad faith and malafide.

  33. That is the dispute and it appears to have arisen out of the contract An arbitrator exercises a quasi judicial function. He is both a judge of law and of fact and hence a pure question of law such as whether the exercise of the power of the Coal Controller is beyond the power and done in violation of the contract and malafide, could be a matter for arbitration reference.

  34. The law in this regard is also well settled that when parties, to building construction or supply of goods and the like designate a person to be authorised to finally determine question relating to the execution or non-execution as per terms of the contract and stipulated that the decision of the person shall be final and binding on both the parties, it would be binding except in cases of fraud, gross mistake on his part, as would imply an act of bad faith or failure to exercise an honest judgment on grounds of collusion with the other party or an act of misconduct AIR 1975 (Madhya Pradesh) 152.

  35. The parties would be bound by the decision of one named person who is not an arbitrator but the said person even being a servant or an employee under one of the parties, is required to act honestly and also judicially with a full realisation of the responsibilities of his position in dealing with the question in which his opinion is final. In the instant case since it is alleged that the Coal Controller had not acted honestly but malafide the matter needs to be decided by an arbitrator. There are thus, matters to be referred to an arbitrator and in case of non appointment of an arbitrator, a petition under section 8 of the arbitration Act for the Court to appoint one would lie which it appears has already been filed by the Ventura Industries.

  36. In matter of injunction, the court has always to consider, in the light of the attending facts and circumstances of each case in granting or refusing an injunction, the balance of convenience and inconvenience and irreparable loss and injury that would be caused to one of the parties in case it is allowed or refused.

  37. It has been the contention of the learned counsel Mr. Rafiqui Huq that the balance of convenience and inconvenience is in favour of the supplier namely Ventura Industries Ltd. when the performance guarantee is concerned because the moment the performance guarantee is confiscated, which is of a huge amount, the supplier will have to bring into this country in order to pay to the Bank in foreign exchange immediately from his other resources but if it is found subsequently that the Bank guarantee ordered to be confiscated and already confiscated and encashed is not liable to be so confiscated then the foreign supplier would have to be repaid by the Coal Controller but this repaid money cannot be taken out in foreign exchange immediately by the foreign supplier without the permission of the Bangladesh Bank because of the restriction on foreign exchange Regulation and it cannot be taken out of the country only because of a court’s order causing much delay in the process to the great disadvantage of the foreign seller when in fact he has a prima facie case to argue and to show that the Bank guarantee is not liable to be so encashed. The court below also found the balance of convenience and inconvenience in favour of the petitioner namely the Ventura Industries Ltd and granted injunction and it is argued that there is no reason why this court in exercise of its power under the Revisional jurisdiction will interfere with the same. A huge amount of money would have to be transferred immediately and that would cause financial constraint restricting the business capacity and capability of the foreign seller to invest in other business when in fact their cash is limited which will not be the case with the Coal Controller because this Bank guarantee is not immediately taken back by the seller out of this country, nor the foreign supplier is asking for release of the money. What he is asking is only to postpone its confiscation till the liability, in the facts of the case, is decided by an arbitrator, when prima facie he has proved that he has not violated the terms of the contract and performance the contract in its totality.

  38. Mr. Khandaker Mahbubuddin Ahmed submits that there would be no such complication as to transfer of money from one country to another because of the paper transaction and a court’s order would expedite the matter causing no irreparable loss to the seller if the injunction would not be granted and when the Coal Controller has an absolute right to encash or demand without reference to any arbitration.

  39. Having considered the submissions of the learned Advocate in this regard, we find that in the instant case the balance of convenience and inconvenience is in favour of the opposite party foreign supplier and if the Bank guarantee is kept alive by renewal for one year more and it is directed to be so kept, the Coal Controller would not suffer any irreparable loss or injury. On the premises above and having found no substance in this Revision, the Rule is also discharged without any order as to cost. It is directed that an arbitrator be appointed by the court on the application pending before the court under section 8 if the court finds it fit and when appointed the matter be referred to by the foreign seller immediately to the said Arbitrator and the Arbitrator decides the matter within two months thereafter. This is so ordered only to expedite the matter and to see that the money is not blocked in this country for an indefinite period or the money is denied to the Coal Controller also for an indefinite period.

Communicate this order to the court below at once, namely the court of Subordinate Judge, 1st Commercial Court, Dhaka where the application under section 8 is pending. The connected Civil Rule being No. 269 (fm) of 1990 is discharged.

Bangladesh vs. Respondent: Luxmi Bibi and Ors.
Bangladesh Water Development Board and Ors. vs. Respondent: Golam Rabbani Khan and Ors.

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