Sharma Ice Factory vs Jewel Ice Factory and others

(1) This is an appeal against an order of the Addl. District Judge, Jammu, making an order of injunction absolute.

(2) The respondents filed an application before the Addl. District Judge, Jammu under Section 20 of the Arbitration Act, on the basis of an

agreement between the parties dated May 31st 1273, that in view of certain differences having arisen between the parties the dispute may be

referred to the arbitration of Mr. R. C. Gupta, as provided for in the agreement itself. This application was resisted by the appellants who

submitted that the agreement was illegal and that it was procured under undue influence and that the respondents merely being partners of the firm

could not enter into Association on behalf of the firm The Additional District Judge after hearing the parties accepted the contentions of the

respondents and made the order of injunction against the appellants directing them to deposit the entire sale proceeds in court and allowed

inspection of the accounts of the Factory by the Inspectors to be deputed by the respondents. Hence this appeal to us.

(3) Mr. Sharma (appearing in support of the appeal has submitted three points before us. In the first place, he has submitted that the arbitration

agreement was itself void in as much as the parries could not have entered into association as members of separate firms. In support of his

argument he has relied on a decision of the Supreme Court reported in AIR 1963 SC 1437, which has interpreted Section 11 of the Companies

Act. It was further submitted that no case for issuance of an injunction against the appellant has been made out by the respondents and there is no

averment in the application seeking injunction against the appellant that the respondents are likely to suffer irreparable loss which could not be

compensated in money value. It was also submitted that having regard to the general balance of convenience no special equity was made out in

favour of the respondents for granting an injunction. Lastly it was pointed cut that the order of injunction would amount to complete closure of the

business of the appellant who will not be able to meet the expenses of the factory or disburse the salaries of its employees.

(4) Mr Kotwal, appearing for the respondents has submitted that the a appellants had entered into the agreement with their open eyes and having

enjoyed certain benefits now want to resile from the agreement did not constitute an Association but it was only a common business management

pool by which certain firms had entered into mutual agreement to manage their affairs under certain principles. It was also argued that the appellant

had reaped benefits from the Association and they should not be allowed to back out from the agreement at this stage. Finally, it was argued that

the appeal itself was not maintainable because the Additional District Judge could have passed an order only under Section 41 of the Arbitration

Act which applied the provisions of the Civil Procedure Code and by necessary intendment even provisions of order 39 rule 1.

(5) We would first take up the point regarding the maintainability of the appeal. In our opinion the contention is well founded and must prevail. The

order of injunction was, undoubtedly, passed by the Additional District Judge in a proceeding under the Arbitration Act which was pending before

him. The only power which the Additional District Judge could have exercised was under Section 4l(a) of the Arbitration Act, which runs thus :

(a) The provisions of the Code of Civil Procedure (X of 1977) shall apply to all proceedings before the court and to all appeal under this Act.

(6) Although the injunction was issued on the basis of order 39 Rule 1, it was done only since this particular provision had been made specifically

applicable by virtue of Section 41a of the Arbitration Act. It, therefore, cannot bb doubted for a moment that the order passed by the Additional

District Judge was an order under the provisions of the Arbitration Act. This being the position in older to be appealable it must fall within any of

the categories laid down by Section 39 of the Arbitration Ace. Section 39 of the Arbitration Act runs as follows :

Appealable order : (I) An appeal shall lie from the following orders passed under this Act (and from no others) to the court authorised by law to

hear appeals from original decrees of the court passing the order :

An order :

(i) Superseding an arbitration.

(ii) On an award stated in the form of a special case.

(iii) Modifying or correcting an award.

(iv) Filing or refusing to file an arbitration agreement.

(v) Staying or refusing to stay legal proceeding when there is an arbitration agreement.

(vi) Setting aside or refusing to set aside an award.

(7) The order passed by the court below does not fall within any of the categories enumerated by Section 39 of the Arbitration Act. Moreover, the

provisions of Sub Section (1) of Section 39 of the Arbitration Act, clearly provide that an appeal shall lie from the orders mentioned in the

categories and from no others. It is, therefore, manifest that an appeal against an order of the court below granting an injunction under section 41 of

the Arbitration Act was not appealable.

(8) Nevertheless, there can be no doubt that this appeal could be treated as revision as prayed for. It has been held by a Ful1 Bench of the

Allahabad High Court in AIR 1937 Allahabad, 65, that a revision would lie against such an order. Even Section 115 CPC is wide en ugh to

include an order of the nature passed by the court below. Section 115 of the Code of Civil Procedure runs thus :

The High Court may call for the record of any case which has been decided by any court subordinate to the High Court and in which no appeal

Jus thereto, and if such subordinate court appears..........

(9) This Section lays down two conditions for the application of the original jurisdiction of the court :

(i) That the order must have been passed by a court subordinate to the High Court, and ;

(ii) No appeal lies thereto.

(10) Both these conditions are satisfied in the present case. It is obvious that the court of Additional District Judge was a court subordinate to the

High Court and in view of the provisions of Section 39 of the Arbitration Act, the order impugned was nor appealable. We have therefore, treated

this appeal as an application in revision

(11) It was then contended by Mr. Kotwal, that it this court was to interfere in revision, there must be an error of jurisdiction or of law. We are,

however, satisfied in this cage that the learned Addl District Judge, has passed an order completely ignoring the well settled principles laid down by

this court in granting orders of injunction The application filed by the respondents before the court below did not mention any details at all as to the

nature of the irreparable loss likely to be suffered by the respondents if injunction was vacated. Nor is here anything in the application to show the

nature and the amount of benefits which the respondents had secured under the agreement. It was also not alleged by the respondents that if

injection was not granted, the respondents would suffer irreparable loss which could not be compensated in money value from the appellants in

view of the fact that he was not a man of substantial means. On the other hand, if injunction is granted it will bring the entire business of the

appellant to a stand still and deprive him of his reasonable profits and rightful earnings. The learned Judge seems to have completely overlooked

the aforesaid considerations which formed the sinequonon for granting an injunction which is not a matter of routine but an extraordinary remedy to

be granted only on the principles mentioned above.

(12) Even on the balance of convenience no special equity has been averred much less proved by the respondents. On the other band, we find that

the agreement itself lays down a certain formula or a yard stick to determine damages in case a default is committed by any party to the agreement.

This, therefore, should have been sufficient ground for the court below to have refused injunction. If however, injunction is refused this will not

interfere with working of the business of the respondents which will continue in full force. If the respondents suffer any damages they can recover it

from the appellants. Thus it is manifest that the grant of injunction against the appellants works serious injustice to them. We are, therefore satisfied

that the order of the Add! District Judge is vitiated by a serious and material irregularity in the exercise of his jurisdiction. We however, need nor

go into further derails because Mr. Sharma, learned counsel for the appellants has agreed that he will have no objection if the Deputy Registrar of

this court is deputed to inspect the accounts of the Ice Factory and to determine the sale proceeds from time to time. The Deputy Registrar will be

assessed by a representative of the respondents whenever he visits the factory and the representative will be allowed to lay his point of view before

the Deputy Registrar. The Deputy Registrar shall submit his monthly reports to the Addl. District Judge Jammu.

(13) For the foregoing, reasons, the petition is allwed and the order of injunction passed by the court below is modified to this extent that the order

for deposit of sale proceeds is set aside as also the order of inspection of the factory by the respondents, except in the manner as indicated above.

The Deputy Registrar shall be paid a sum of Rs. 100/ (One hundred rupees) per visit to be shared in the ratio of 70 (respondents) and 30

(appellants).

(14) We refrain from making any observation on the validity of the agreement in this petition.

(15) There will be no order as to costs.