Department of Women and Child Development Belapur, Navi Mumbai vs Jaina Marketing and Associates

S. C. DHARMADHIKARI, J

Admit. By consent the Appeal is heard finally. PaperBooks dispensed with. Notice of Appeal is waived by the Respondent.

2 By this Appeal, the State of Maharashtra through the Department of Women and Child Development, is challenging an order passed inÂ

Arbitration Petition No. 619 of 2018Â dated 15th June, 2018 and which order reads as under:-

“The learned AGP for the Respondent, on instructions from Mr. Girase, states that pending the arbitration proceedings, the Respondent shall issue

a bank guarantee of a nationalized bank in favour of the Prothonotary and Senior Master of this Court in the sum of Rs. 12,03,12,937/-. The

statement is accepted.  The bank guarantee as agreed, shall be issued within two weeks from today. The bank guarantee shall continue to be in

force/effect for a period of 12 weeks from the date of passing of the Award by the learned Arbitrator. It is clarified that, the Petitioner may without

prejudice to its rights and contentions submit their bid before the time prescribed for acceptance of the bids. The above Arbitration Petition as well

as Chamber Summons are accordingly disposed of.â€​

3 A preliminary objection was raised to the maintainability of this Appeal by Mr. Andhyarujina, the learned counsel appearing on behalf of the

Respondent. He would submit that the above reproduced order has been passed by consent and no Appeal would lie against such an order. The

Arbitration Petition as also the Chamber Summons have been disposed off and if any doubt arises that is also cleared by subsequent order dated 6th

July, 2018, when a Notice of Motion (L) No. 1548 of 2018 in Commercial Arbitration Petition No. 619 of 2018 was disposed off by holding that the

initial order was passed by consent of the parties and no question of reviewing it, therefore, arises.Â

4 We have heard Mr. Sakhare, the learned Senior Counsel appearing on behalf of the Appellant State. Â He would submit that the order passed by

the learned Single Judge may be recording consent but the factum of consent has been disputed. In that regard, our attention is invited to an

affidavit filed in support of the Notice of Motion moved in this Appeal. This additional affidavit dated 20th August, 2018, according to Mr. Sakhare,

clarifies that the officer present in Court could not have given his consent on behalf of the State Government, unless authorized to do so. There is a

prescribed procedure and in Government machinery the superiors would have to be consulted and their approval obtained before making any

statement binding the State. In the case at hand, according to Mr. Sakhare, the State Government has cancelled the tender. In view thereof, allÂ

the more, the approvals were required firstly from the Commissioner and thereafter the Secretary, Department of Women and Child Development,

who as well, is not the authority. The proposal has to go to the Department of Finance which Department will consult the Department of

Planning. Thus, several administrative clearances have to be obtained and which have not been obtained before making a binding statement.

5 That apart, Mr. Sakhare would submit that the State has a substantial defence. The impugned order is passed on a Petition under Section 9 of the

Arbitration and Conciliation Act, 1996 (for short “the Actâ€) and it seeks a substantive relief, namely, that pending the constitution of Arbitral

Tribunal and the hearing and final disposal of the arbitration proceedings to be initiated by the Respondent-Original Petitioner and enforcement of

the Award, this Court should direct the State to accept the delivery of 20,117 mobile phones manufactured by the Respondent-Original PetitionerÂ

and reliance is placed on two Agreements dated 5th September, 2017 read with letter dated 30th November, 2017. Then, there is a restraint

sought against the State to engage any other contractor or suppliers for procuring the said mobile phones, save and except the Respondent-Original

Petitioner. Finally, the sum of Rs. 12,03,12,937/- should be deposited pending the above. These prayers virtually seek a final relief and whether on

the given facts and circumstances and in law can that be granted, according to Shri Sakhre, is a issue which the Court has to determine even at this

prima-facie stage. No amount of consent by a official of the State can enable the Court to pass the impugned order. That issue has to be

determined by the Court independent of the understanding and agreement between parties and by due application of mind.

6 These reliefs are founded, according to Mr. Sakhare, on the pleadings, particularly in paragraphs 14 and 15 of the Petition.

For all these reasons, he would submit that the Appeal should be entertained and allowed.

7 Mr. Andhyarujina, the learned counsel appearing on behalf of the Respondent would clarify that it is not open for the State, once it has given consent

to argue as above, and it cannot urge anything on merits. More-so, when a Petition seeking appointment of an Arbitrator is pending before this

Court and the expression of any opinion by this Court, even prima facie, would pose difficulties for the Respondent-Original Petitioner. Hence, the

Appeal should be dismissed.

8 With the assistance of the counsel appearing for the parties, we have perused the Appeal paper book and additional affidavit placed on record.

9 While it is true that there is a consent of the State recorded by the learned Single Judge, on the basis of a statement of the Assistant Government

Pleader appearing for the State but the person present in the Court might not have understood its implication or consequences. The persons present in

Court admittedly are a Assistant Commissioner, Integrated Child Development Services Scheme (ICDS), Navi Mumbai and Under Secretary of the

Department of Women and Child Development, Government of Maharashtra. They might have given a consent with regard to furnishing a security

in the form of bank guarantee at best but the entire Petition has been disposed off on that basis by clarifying that this is without prejudice to the rights

and contentions, particularly of the Respondent.

10 Further, this bank guarantee was to remain in force or effect for a period of 12 weeks from the date of passing of the Award by the learned

Arbitrator. With greatest respect, these are indeed sweeping directions. These would mean that such a security in the form of bank guarantee

and that too by the State Government has to remain alive till an Award, if any, is made in the arbitral proceedings. Today the position is that beyond

filing a Petition under Section 9 and making an application under Section 11 of the Act, the Respondent has not taken further steps. Even if we

assume that the Arbitrator will be appointed, still, the arbitral proceedings would have to be decided in accordance with law. There are several

contentious issues raised and  according to the learned Senior Counsel for the State going to the root of the matter. Prima facie, we see some

substance in the contentions raised by Mr. Sakhare. If the Arbitration Petition itself refers to the nature of the contract, namely, procurement of

mobile phones and says that there is an alleged agreement but a formal purchase order and confirmation from the State was yet to be obtained and

the Respondent-Original Petitioner was following up the matter, then, all the more, and with greatest respect, we do not think that the learned Single

Judge was justified in making an interim order of this nature. The pleadings in paragraphs 2.11 and 2.12 of the Arbitration Petition record that the

Petitioner did not receive formal purchase order from the State. When it contacted the State officials, it was informed that as stated in the letter

dated 30th November, 2017 issued by the State (Exhibit-L to the Petition), they would have to keep the mobile phones with OTG feature ready and

the Respondent State would demand the mobile phones on an urgent basis. The Original Petitioner claimed to have manufactured these mobile

phones. The Original Petitioner then claims that these mobile phones were ready for delivery and while it was waiting for a response, it was in

receipt of a Communication dated 23rd April, 2018 from the State allegedly terminating/withdrawing the agreement and thereby returning the

performance bank guarantee submitted by the Original Petitioner-Respondent before us. If these are the pleas in the Arbitration Petition itself, then,

at-least two important issues arise for determination and consideration. These pleas have to be considered by the Court and the Learned Single

Judge, with greatest respect, could not have proceeded only on consent of the parties.Â

11 To our mind, in more decisions than one, the Hon'ble Supreme Court has clarified that Article 19 (1) (g) of the Constitution of India confers no

vested or fundamental right to trade or have a business deal with the State. That is not the sweep of the Article or the freedom. In a decision

reported in A. I. R. 1997 Supreme Court 128 (Krishnan Kakkanth v/s. Government of Kerala and Others), the Hon'ble Supreme Court summarized

the legal position as under:-

“26 Under Clause (1) (g) of Article 19, every citizen has a freedom and right to choose his own employment or take up any trade or calling subject

only to the limits as may be imposed by the State in the interests of public welfare and the other grounds mentioned in clause (6) of Article 19. But it

may be emphasised that the Constitution does not recognise franchise or rights to business which are dependent on grants by the State or business

affected by public interest (Saghir vs. State of U.P., 1955 (1) SCR 707: (AIR 1954 SC 728).

30 It may be indicated that although a citizen has a fundamental right to carry on a trade or business, he has no fundamental right to insist upon the

Government or any other individual for doing business with him. Any Government or an individual has got a right to enter into contract with a

particular person or to determine person or person with whom he or it will dealâ€​.

12 Secondly, the State has a incidental or ancillary power and inbuilt in the power to enter and execute contracts, to cancel the tender itself. Thirdly

and importantly, a contract with the State to bind it has to abide by the Mandate of Articles 298 and 299 of the Constitution of India. These Articles

read as under:-

“298. Power to carry on trade, etc.â€" The executive power of the Union and of each State shall extend to the carrying on of any trade or

business and to the acquisition, holding and disposal of property and the making of contracts for any purpose:

Provided thatâ€

(a) the said executive power of the Union shall, in so far as such tradeor business or such purpose is not one with respect to which Parliament may

make laws, be subject in each State to legislation by the State; and

(b) the said executive power of each State shall, in so far as such tradeor business or such purpose is not one with respect to which the State

Legislature may make laws, be subject to legislation by Parliament.

Contracts.â€"(1) All contracts made in the exercise of the executive power of the Union or of a State shall be expressed to be made by the

President, or by the Governor of the State, as the case may be, and all such contracts and all assurances of property made in the exercise of that

power shall be executed on behalf of the President or the Governor by such persons and in such manner as he may direct or authorise.

(2) Neither the President nor the Governor shall be personally liable in respect of any contract or assurance made or executed for the purposes of this

Constitution, or for the purposes of any enactment relating to the Government of India heretofore in force, nor shall any person making or executing

any such contract or assurance on behalf of any of them be personally liable in respect thereof.â€​

13 We express no final opinion on such matters but these issues indeed arise, particularly, when the Respondent asserts that there is a binding and

concluded contract with the State but the State Government (Appellant) has nowhere admitted this position. These aspects would have to be

investigated and probed deeper and further. In such circumstances, in our view, the learned Single Judge could not have only on a statement and

alleged consent of the State finally disposed off the Arbitration Petition itself. These are matters which cannot in the larger public interest be

disposed off in this manner. This Court would have to record its independent satisfaction and reasons for any prima facie conclusion. These are

legal issues and tests evolved, inter alia are whether the State being the opponent in whose favour the balance of convenience lies, whether there is

strong prima facie case and to whom irreparable hardship and injury will be caused, which cannot be compensated in terms of money. Whether

granting any relief will override public interest is an important legal test to be applied, when the State is a litigant. Even at interlocutory or interim

stage all these aspects are extremely relevant. In these circumstances, though we maintain a part of the order under challenge, we allow the

Appeal to the extent indicated below. We are of the opinion that interests of justice would be served, if this Appeal is disposed off with the

following order and directions:-

(a) The order under Appeal dated 15th June, 2018 is quashed and set aside to the extent that Commercial Arbitration Petition No. 619 of 2018 shall

stand restored to the file of this Court for disposal afresh on merits and in accordance with law uninfluenced by the impugned order or any

observations therein.Â

(b) All contentions of both sides are kept open. Beyond emphasizing them, we have not expressed any opinion thereon. They shall be open for being

raised on the basis of the pleadings of parties.

(c) The order passed directing furnishing of a bank guarantee in the sum of Rs.12,03,12,937/- shall continue to operate as an adinterim order. That

bank guarantee be furnished and should be kept alive till the disposal of the Petition under Section 9 of the Act or such other period as the learned

Single Judge deems fit and proper.

(d) It will be open for the State Government to urge that depending on the out-come of the application under Section 11 of the Act, this ad-interim

order be modified accordingly. It is, thereupon, for the learned Single Judge to decide the issue after hearing both sides.

(e) An endeavour shall be made by the learned Single Judge to dispose off the Arbitration Petition as revived by us, expeditiously.

(f) We clarify that once the initial order is set aside in the above terms, the subsequent order dated 6th July, 2018 would not survive.Â

14 The Commercial Appeal as also Notice of Motion(L) No. 746 of 2018 stands disposed off accordingly.