Shankar Industries Private Ltd. vs East Jamuria Co. Private Ltd.

K.L. Roy, J.—This is an application by the State of Uttar Pradesh (hereinafter referred to as U.P.) in a suit in which it is not a party, to have its rights in respect of certain boulders lying on the banks of the river Ghogra and at Mihinpurwa Railway siding in the State of U.P. which are the subject-matters of the claim by the Plaintiff against the Defendant in the said suit adjudicated. U.P. called for tender for the construction of Guide Bunds over the river Ghogra and the tender submitted by the East Jamuria Co. Ltd., the Defendant herein, was accepted for Rs. 2,24,56,830. A contract in writing was entered into between U.P. and the Defendant on January 7, 1966, and a written work order was also issued on the same date. In terms of the said contract the Defendant furnished an indemnity bond for Rs. 4,50,000 executed by the State Bank of India in favour of U.P. The said contract provided, inter alia,, that (i) 10 per cent of the amount of the bills submitted by the contractor would be deducted towards the security deposit; (ii) that time was of the essence of the contract and that on failure to complete the work or any part of the Work within the specified date the contractor should be liable to pay a fine of an amount equal to one per cent on the estimated costs of the whole work or such other sum as the Chief Engineer might decide for every day; (iii) in addition, U.P. should have the right to rescind the contract or to complete the contract by employing its own labourers and deducting the price for such labourers from the amount due to the contractor or to employ another contractor to complete the work in which case the expenses incurred in excess of the sum which would be payable on the original contract to be borne and paid for by the contractor. It was further provided that in the event the contractor committed any breach of the contract aforesaid the Executive Engineer at his discretion should take possession of all or any tools, plant, materials and stores in or upon the works or the site thereof or belonging to the contractor or procured by him and intended to be used for the execution of the work paying or allowing for the same in account at current market rates to be certified by the said Executive Engineer. It is claimed in the petition that under the authority given by the said contract the Chief Engineer imposed a fine of Rs. 2,24,568 on the contractor for every day from the date of receipt of the order dated November 5, 1966, and also called Upon the State Bank of India to pay the indemnity of Rs. 4,50,000 on November 16, 1966. It is further claimed that the State Bank of India by its letter dated November 22, 1966, called upon the contractor to make arrangement for payment of the said sum of Rs. 4,50,000. It is to be recorded that there was an Arbitration clause in the aforesaid contract. On November 24, 1966, East Jamuria applied to this Court for filing the Arbitration agreement u/s 20 of the Arbitration Act and by an order dated January 17, 1967, the application was allowed by S. K. Datta J. The learned Judge passed an order on February 6, 1967, restraining U.P. from realising the security of Rs. 4,50,000 and by a further order dated February 20, 1967, appointed Mr. B. C, Mitra, a member of the Bar, as the Arbitrator. In the meantime on November 28, 1966, East Jamuria purported to pledge 2,75,000 eft. of boulders lying on the Railway siding at Mihinpurwa and 50,000 eft. lying on the bank of the river Ghogra for securing a sum of Rs. 4 lacs lent and advanced by Shankar Industries Private Ltd., the Plaintiff in this suit, and the present suit being Suit No. 627 of 1967 was filed by the Plaintiff against the Defendant on March 20, 1967, for recovery of Rs. 6,39,017-12 and for a declaration of charge on the said boulders. On an ex part application Mr. Justice Ramendra Mohan Datta appointed a Director of the Plaintiff as Receiver of the said boulders on March 21, 1967. The Receiver was alleged to have been obstructed in getting possession, and contempt proceedings were started in this Court. On April 20, 1967, in the presence of U.P., Mr. Justice Datta varied the order made on March 21, by directing U.P. to deposit Rs. 12 lacs with the Registrar of this Court to be held by him subject to further orders and free from all lien and upon such deposit being made the boulders would be measured in the presence of all parties including the Receiver at Mihinpurwa site and U.P. would be at liberty to utilise the boulders. The parties agreed that the joint measurement already Published on 30.11.70 taken of the boulders at the river site was correct. On April 19, 1967, this application was made by U.P. pro interesse suo for determination of its rights in regard to the boulders in the presence of the Plaintiff and the Defendant. U.P. also appealed against the said orders of Mr. Justice Datta and in the Court of Appeal the following order was made by consent on May 2, 1967:

(i) Rs. 12 lacs deposited in terms of the order of R. M. Datta, J. to be held by the Registrar, O.S., to the credit of Suit No. 627 of 1967 (Shankar Industries Private Ltd. v. East Jamuria Co. Private Ltd.). The Registrar shall hold this sum to meet the claims, if any, of Shankar Industries Private Ltd. and also the claims, if any, of East Jamuria Co. Private Ltd.. in respect of price and/or compensation for the boulders taken possession of by the State of Uttar Pradesh.

(ii) The said sum of Rs. 12 lacs shall be deposited day after to-morrow.

(iii) Measurement will take place in terms of the order of Mr. Justice R. M. Datta.

(iv) Affidavit-in-opposition to the application of the State of Uttar Pradesh to be filed on or before May 10, 1967, and affidavit-in-reply by the State of Uttar Pradesh on or before May 20, 1967, and the main application of the State of Uttar Pradesh shall appear in the list of adjourned motions of the learned Judge taking interlocutory matters on May 22, 1967.

(v) Excepting modifications and variations as aforesaid the order of Mr. Justice R. M. Datta made on April 20, 1967, shall remain in force.

Learned Standing Counsel stated:

(i) State of Uttar Pradesh is taking over the boulders under'' and/or in terms of the Agreement dated January 7, 1966, between State of Uttar Pradesh and East Jamuria Co. Private Ltd.

(ii) East Jamuria Co. Private Ltd. shall be at liberty to take such steps as they may be advised to take for recovery of the price for compensation of the boulders out of Rs. 12 lacs that would be deposited in Court.

(iii) The interim order as aforesaid is without prejudice to the rights and contentions of-

(1) East Jamuria Co. Private Ltd.

(2) State of Uttar Pradesh, and

(3) Shankar Industries Private Ltd.

Both the appeals by consent of parties are disposed of on the above terms.

The learned Advocate-General for U.P., who argued the case on behalf of the Petitioner, submitted that the Petitioner should be allowed to come in and contest the claim of the Plaintiff in this suit to protect its own interest. It was contended that the property in the boulders had already passed to U.P., only the determination of the balance of the price under the contract remained. What was conceded before the Court of Appeal was that East Jamuria was entitled to the balance of 25 per cent of the price of the boulders under the contract and, accordingly, Rs. 12 lacs was deposited in Court to secure the claim of East Jamuria to be determined after joint measurement had been taken in terms of the order of this Court. No doubt the disputes as to the matters covered by the contract are governed by the arbitration agreement and would have to be decided by the Arbitrator and cannot be agitated in this suit, but the Petitioner''s case is that no valid hypothecation of the boulders could be effected by East Jamuria in favour of the Plaintiff as the property in the boulders had already passed to UP. Further, the proximity of the dates of the order imposing the fine to be paid by East Jamuria, the demand on the State Bank of India to pay the amount of indemnity to U.P., the demand by the State Bank of India on the Defendant to make arrangement for payment, and the alleged date of the pledge raised a strong presumption that the alleged pledge was not genuine. It is further the contention of the Petitioner that there is common management of the two companies being parties to this suit and the alleged pledge and the institution of the suit were intended to enable East Jamuria to avoid the consequences of its failure to fulfil its contract with U.P. The learned Advocate-General further submitted that in order to create a-pledge the pledgor must be in possession of the goods at the time of the pledge and in this case there is no dispute that U.P. had already taken possession of the boulders. It was further submitted that the boulders were acquired from different quarries by the contractor and consigned by Railway to the Executive Engineer, U.P., at Mihinpurwa Railway siding and thereafter the boulders were transported to the dam site of the river. The boulders were appropriated to the contract on consignment to the Executive Engineer and the property in the boulders must be deemed to have passed to U.P. and the contractor had no title left to make a pledge in favour of the plaintiff It was next contended that there could not be any pledge 01 hypothecation of unascertained goods and the alleged pledge of part of boulders lying both at Mihinpurwa and on the river site without demarcation could not be validly effective. It was finally submitted that in view of the proximity of the dates between proceedings taken by U.P. to recover the amount of the penalty from East Jamuria and that of the alleged pledge and in view of the contentions of the Petitioner and the close connection between the two companies a question would arise whether East Jamuria could be said to have created this charge only to defeat or delay the claim of U.P. and, if so, whether at the instance of U.P. the pledge could be avoided. The learned Advocate-General finally submitted that this question could only be determined either on this very application being tried on evidence or by relegating U.P. to a fresh suit or by giving leave to U.P. to be made a party to this suit so that the rights and contention of the different parties might be felicitously determined in their presence.

Mr. I. P. Mukherjee, the learned Counsel for the Defendant East Jamuria, made two submissions, First of all he contended that after the order of the Appeal Court dated May 2, 1967, there was nothing left to be determined. U.P. had accepted the position that Rs. 12 lacs was due from it to East Jamuria as the price of the boulders taken over by U.P. and the only question left was the determination of the rights between the Plaintiff and the Defendant so far as this amount was concerned. Mr. Mukherjee also submitted that the allegations of U.P. against the Defendant East Jamuria in respect of the contract could not be agitated in this suit as they were the subject-matter of the arbitration proceedings. He, however, had no objection to this application being set down for trial on evidence but could not see what useful purpose would be served thereby.

Mr. S.D. Banerjee, the learned Counsel for the Plaintiff, referred me to the terms of the order of the Appeal Court of May 2, 1967, and contended that the said order recorded the admission of U.P. that a sum of Rs. 12 lacs was due to East Jamuria on account of the price of the boulders and the only question left was who was to get the money. On the admission of U.P. the question as to the payment of price by it had been finalised. Now U.P. cannot be allowed to go back on the admission made before the Appeal Court and try to reopen the question once again. The Receiver appointed by this Court took possession of the boulders hypothecated to the Plaintiff and it was only on the admission of U.P. that Rs. 12 lacs was the price of the aforesaid boulders that the Court permitted it to take possession of the same. Whatever disputes there are between U.P. and East Jamuria would have to be determined in the arbitration proceedings and this suit had nothing to do with any such dispute. According to the learned Counsel, the Appeal Court only recognised the two parties, namely, Shankar Industries Private Ltd. and East Jamuria so far as the sum of Rs. 12 lacs deposited in Court was concerned. U.P. was nowhere in the picture, its liability for having taken the boulders had already been crystalised. The joint measurement directed by the Court was to ascertain the quantity for the purpose of calculation and also to determine the quantity of the boulders which were not hypothecated to the Plaintiff. Both the learned Counsel submitted that no relief could be obtained by,the Petitioner in this application.

I am unable to accept any of the aforesaid contentions of either Mr. Mukherjee or Mr. Banerjee. First of all the order of the Appeal Court dated May 2, 1967, leaves no room for doubt that it was only an interim arrangement as otherwise there would be no necessity for directions for further affidavits and for the main application, i.e., the present application, being heard by the interlocutory Court. Liberty was also given to East Jamuria to take such steps as they might be advised for recovery of the price or the compensation for the boulders taken over by U.P. and finally the Court made it clear that the interim order aforesaid was without prejudice to any of the rights and contentions of either East Jamuria or the State of UP. or the Plaintiff Shankar Industries Private Ltd. I cannot agree that the aforesaid order had finally decided the rights between the parties or had finally fixed the price of the boulders taken over by U.P. at Rs. 12 lacs on admission made to the Court. This is an application pro interesse suo with the object of protecting the interest of a party not a party to the suit. The scope and effect of such an application has been considered and elaborately discussed by Banerjee J. in Union of India v. Radha Kissen Agarwalla (1961) 65 C.W.N. 848 . That the Court has inherent jurisdiction to make an order making a third person a party Defendant to a suit is well established since the decision of this Court in Oriental Bank Corporation v. J.A. Charriol ILR (1886) Cal. 642. In my opinion this is an eminently suitable case where the State of U.P. should be allowed to come in and be made a party Defendant to this suit so that its rights vis-a-vis the Plaintiff and the Defendant in this suit may be determined. I, accordingly, make an order giving leave to the Petitioner to be made a party Defendant to this suit. The Attorneys for the Petitioner would be entitled to obtain a copy of the plaint on usual terms and the State of U.P. would file its written statement in this suit within six weeks from date. This order is without any prejudice to the arbitration proceedings or to the order made by R. M. Datta J. and confirmed by the Court of Appeal. Costs of this application would be costs in the cause. On the oral application of the Solicitor for the Plaintiff, operation of the order made herein is stayed for a fortnight from date.