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Non-Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  8645  OF 2014 (Arising out of Special Leave Petition (Civil) No.16210 of  

2014)

Orissa Manganese & Minerals Ltd.  …Appellant

Versus

Synergy Ispat Pvt. Ltd. …Respondent

J U D G M E N T

Chelameswar, J.

1. Leave granted.

2. Aggrieved by the judgment dated 16th May 2014 of the  

High  Court  of  Calcutta  in  A.P.O.T.  No.460/2012,  the  

respondent therein filed this appeal.

3. The  impugned  order  is  a  reversing  order  in  appeal  

against the judgment and order dated 5th September, 2012  

of  single  Judge  of  the  Calcutta  High  Court  in  A.P.  

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No.245/2012 by which the learned single Judge rejected an  

application filed under Arbitration & Conciliation Act,  1996  

holding  that  the  appellant  was  not  entitled  to  interim  

injunction in aid of his claim for specific performance of an  

agreement to sell iron ore.

4. The factual background of the case is as follows.

5. The appellant herein secured a mining lease originally  

from the State of Bihar (now Jharkhand) in the year 1996.  

However,  the  appellant  could  not  secure  the  necessary  

approval  under  the  Forest  Conservation  Act,  1980.  

Therefore,  the  mining  operation  had  to  be  kept  under  

suspension.

6. Sometime in the year 2005-2006, at the instance of the  

respondent  herein,  the  appellant  entered  into  two  

agreements.  According to the appellant (we say so because  

what exactly is the purport of the agreements is a matter  

pending  consideration  in  arbitration,  therefore,  we do  not  

wish to make any definite statement in that regard), one of  

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the agreements is that the mining activity pursuant to the  

mining lease secured by the appellant (referred to supra),  

shall be carried on by M/s. Metsil Exports Pvt. Ltd. (Metsil)  

which is said to be an associate company of the respondent  

herein on various terms and conditions, the details of which  

may not be necessary.  The agreement is dated 27.2.2005  

between the appellant herein and Metsil.  The agreement is  

styled  as  ‘Raising  Contract’.    The  second  agreement  is  

between the  appellant  and the  respondent  herein  for  the  

sale of iron ore extracted by Metsil  for  being utilised in a  

sponge iron plant to be jointly set up by the appellant and  

the respondent herein.  According to the appellant, both the  

contracts are inter dependent.  Failure of the first contract  

automatically results in failure of the second contract.

7. However, the appellant claims to have realised on 22nd  

June, 2007 that the ‘Raising Contract’ by which the activity  

of mining was sought to be entrusted to Metsil is in violation  

of Rule 37 of the Mineral Concession Rules, 1960, therefore,  

the appellant sent letters to the respondent as well as to the  

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Metsil  purporting  to  terminate  both  the  contracts.   It  is  

stated at the Bar that, admittedly, Metsil never questioned  

the termination of the contract.  However, the respondent  

company chose to dispute the legality of the decision of the  

appellant in terminating the agreement for sale of iron ore.  

The respondent filed an application (A.P. No.922/2011) under  

Section  9  of  the  Arbitration  and  Conciliation  Act,  1996  

praying,  inter alia, for an order of injunction restraining the  

appellant herein from selling iron ore to the third party.  It  

may be mentioned here that subsequent to the decision of  

the  appellant  to  terminate  both  the  agreements,  the  

appellant  commenced  the  mining  operation  from  January  

2009.  The learned single Judge of the Calcutta High Court,  

by  his  order  dated  14.11.2011,  declined  to  grant  any  ad  

interim order  as  sought  by  the  respondent.   By  an  order  

dated 14.3.2012, the said A.P. No.922/2011 was disposed of.

8. Thereafter,  the  respondent  preferred  another  

application in  A.P.  No.245/2012 in  which an  interim order  

came to be passed on 29.3.2012 restraining the appellant  

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herein from selling any part of the iron ore extracted from  

the mines in question without first offering the entire extract  

to the respondent.   Aggrieved by the same, the appellant  

herein carried the matter in appeal under Section 37(1)(a) of  

the Arbitration and Conciliation Act, 1996 before a Division  

Bench  of  the  High  Court  in  A.P.O.T.  No.184/2012.   By  a  

consent  order  dated  17.4.2012  in  the  abovementioned  

A.P.O.T., the parties agreed for the appointment of one Shri  

Pradeep Kumar Ghosh, Senior Advocate, as the Arbitrator to  

adjudicate upon the dispute between the parties.  The said  

A.P.O.T.  came to be finally disposed of by an order dated  

9.5.2012 with a direction that the appellant would sell iron  

ore to the respondent,  if  the respondent so opted,  at  the  

prevailing  market  price  during  the  pendency  of  the  

arbitration proceedings.

9. The respondent herein filed an Special Leave Petition(C)  

No.20425/2012  in  this  Court  challenging  the  order  dated  

9.5.2012 passed in A.P.O.T. No.184/2012.  The said SLP was  

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disposed  of  by  an  order  dated  27.7.2012,  the  relevant  

portion of the order reads as follows:

“The Division Bench of the High Court in the impugned order observed as  follows:

We, therefore, substantially modify the order passed by the learned Trial  Judge  as  above  and  this  will  continue  till  the  decision  of  the  learned  Arbitrator or until further order which might be passed by learned Trial  Judge at  the final  hearing of the interlocutory application  whichever  is  earlier.  The findings and observation of the learned Trial Judge so also  ours shall be regarded as being tentative, and it will not be binding effect  either at the time of hearing of the arbitration agreement or at the time of  final hearing of the interlocutory application pending before learned Trial  Judge.

The above observations of the Division Bench fully protect the interest of  both parties………..”

10. A.P.O.T. No.245/2012 eventually came to be disposed  

of by an order dated 5.9.2012.  The relevant portion of the  

order reads as follows:

“The Petitioner is not entitled to any interlocutory injunction in aid the  claim for specific performance of the selling agreement that it has carried  to the arbitral reference.  In the light of the prima facie view taken that the  Metsil  and  the  petitioner  combine  had  entered  into  a  composite  arrangement with the respondent, the petitioner’s knowledge of the alleged  breach  of  the  agreement  by  the  Respondent  would  date  back  several  months before it made the polite enquiry with the respondent by its letter  of December 24, 2009.  Such delay would amount, in the circumstances to  latches  and  conduct  encouraging  the  respondent  to  believe  in  the  petitioner’s endorsement and acceptance of the breach.  The petitioner is  not  entitled  to  any order  in  furtherance  of  its  claim on account  of  the  negative  covenant  since  the  selling  agreement  cannot  be  seen  to  be  a  stand-alone contract. In any event, the negative covenant in clause 14.1 of  the selling agreement entitled the petitioner to exclusively obtain the ore  extracted from the Ghatkuri mines by Metsil and the petitioner ought to  have been aware, in the light of the facts now brought on record by the  

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respondent, that the raising agreement with Metsil had been terminated by  the respondent.”

11. Aggrieved  by  the  same,  the  respondent  carried  the  

matter  in  appeal  in  A.P.O.T.  460/2012.   By  the  order  

impugned herein, the High Court had set aside the order of  

the  single  Judge  in  A.P.  No.245/2012,  thereby,  allowing  

Section 9 application filed by the respondent  in  part.  The  

operative portion of the order reads as follows:

“The respondent is restrained by an order of injunction to sell the iron ores  excavated from the disputed mines to any third party without first offering  to the appellant and is, further, directed to maintain accounts of the iron  ores raised from the said mines since the commencement of the mining  operation subject, however, to the result of the arbitral proceeding.

We make it clear that the findings arrived at by the Hon’ble Single Judge  and, also, by us are limited for the purpose of disposal of the application  under Section 9 of the Arbitration and Conciliation Act and are without  prejudice to the rights and contentions of the parties before the learned  arbitrator.”

12. We have heard Shri Kapil Sibal, learned senior counsel  

appearing  for  the  appellant  and  Shri  Salman  Khurshid,  

learned senior counsel appearing for the respondent.

13. The impugned order is an order passed in a proceeding  

arising in an application under Section 9 of the Arbitration &  

Conciliation Act, 1996.  The arbitration proceedings between  

the parties herein are admittedly pending where the main  

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question  is  -  whether  the  respondent  is  entitled  to  seek  

specific performance of the agreement dated 27.02.2005 by  

which the appellant agreed to sell iron ore excavated from  

the mines specified in the agreement to the respondent?  If  

the answer to the said question is  in affirmative then the  

next  question  would  be  –  what  is  the  rate  at  which  the  

appellant is required to sell the iron ore to the respondent?   

14. By the order under appeal, the High Court directed the  

appellant not to sell the iron ore to any third party without  

first offering the same to the respondent herein and also to  

maintain accounts of  the iron ore raised by the appellant  

from the said mines from the date of commencement of the  

mining operation.

15. It is the categoric stand of the appellant herein in the  

SLP that during the pendency of this litigation, the appellant  

has  already  set  up  a  beneficiation-cum-pelletisation  plant  

where  the  entire  quantity  of  iron  ore  extracted  by  the  

appellant is being consumed as a raw material.  Therefore,  

the question of the appellant selling the iron ore to any third  

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party  does  not  arise  at  all.   Consequently,  the  second  

question of offering the ore for sale to the respondent before  

selling it to a third party equally does not arise.   

16. While  ordering  notice  on18.7.2014  in  the  instant  

appeal, it was directed by the Court that the appellant “will  

maintain  record/account  of  all  the  ore  consumed”  by  the  

appellant “during the pendency” of this matter.

17. When the matter was taken up for hearing it was once  

again reiterated by the appellant that they have in fact been  

captively consuming the entire iron ore extracted from the  

mines in question.

18. Shri  Sibal,  learned  senior  counsel  appearing  for  the  

appellant made a submission at the bar that this Court may  

record  an  undertaking  made  by  the  appellant  that  the  

appellant will not sell any part of the iron ore extracted from  

the mines in question to any third party during the pendency  

of the arbitration proceedings.  He also made a submission  

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that  the  entire  iron  ore  extracted  would  be  consumed  

captively in the plant belonging to the company.

19. On  the  other  hand,  Shri  Khurshid,  learned  senior  

counsel  appearing  for  the  respondent  submitted  that  the  

respondent has existing export obligations incurred on the  

basis of the agreement between the parties herein (referred  

to supra) and, therefore, the appellant must be directed to  

sell  the iron ore excavated by it  to the respondent at the  

current  market  rate  subject  to  the  condition  that  the  

respondent  is  entitled  to  recover  the  differential  amount  

between the current market price and the amount agreed  

upon between the parties by the agreement in question, in  

the  event  of  the  respondent’s  success  in  the  arbitration  

proceedings.

20. In  view  of  the  categorical  assertion  made  by  the  

appellant  and  the  undertaking  that  the  appellant  would  

consume the entire iron ore excavated captively, we do not  

see any reason to give any direction to the appellant to sell  

the iron ore to the respondent during the pendency of the  

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arbitration.  Such a direction, in our opinion, would virtually  

amount  to  the  enforcement  of  the  agreement  in  issue  

without adjudication of the right of the respondent to seek  

specific  performance  of  the  agreement.   No  doubt,  if  the  

appellant company were to be selling the iron ore excavated  

by it to any third party, there was some justification by the  

respondent to seek an interim direction to the appellant to  

sell  the  ore  to  the  respondent,  subject  ofcourse  to  the  

determination  of  the  cause  finally  in  the  arbitration  

proceedings.  But it is not the case here.

21. The learned senior counsel for the respondent further  

submitted that in case an interim order is not granted, even  

if  the  respondent  eventually  succeeds  in  the  arbitration  

proceedings  and  obtains  an  award  for  the  specific  

performance  of  the  agreement  in  question,  the  success  

would  remain  only  on  paper  as  huge  amount  of  mineral  

excavated by the appellant would already have been sold by  

that time and there is no way of the respondent obtaining  

the said mineral.

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22. No doubt, if the respondent eventually succeeds in the  

arbitration, it  would be entitled to specific  performance of  

the agreement in question. The respondent can always seek  

monetary compensation for the loss sustained by it by virtue  

of the non supply of the minerals by the appellant during the  

pendency of the arbitration proceedings.

23. For  the  abovementioned  reasons,  we  dispose  of  this  

appeal recording an undertaking of the appellant that during  

the pendency of  the arbitration proceedings the appellant  

will  not  sell  any  part  of  the  iron  ore  excavated from the  

mines covered by the agreement in question and such ore  

would be consumed captively by the appellant in its plant  

and the appellant would maintain a complete account of the  

minerals  excavated  and  consumed  captively  by  the  

appellant.

24. In the facts and circumstances of the case, there will be  

no order as to costs.

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………………………….J.                                                              (J. Chelameswar)

…….………………..….J.                               (A.K. Sikri) New Delhi; September 12, 2014

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