JUDGMENT
Vijender Jain, J.
1. This is a petition filed by the petitioner under Section 41 of the Arbitration Act, 1940, praying, inter alia, that respondents be restrained from encashing the bank guarantees which were five in number. This court on 26.3.1993 by exparte order restrained the respondents from encasing bank guarantees with the direction that the petitioner shall keep alive all the above bank guarantees. On 24.1.1991, the matter was referred for arbitration by the parties and the arbitration was appointed which, according to Mr. Taneja, learned counsel for the respondents continued till 24.5.1992. According to Mr. Sanjeev Puri, learned counsel for the petitioner, the arbitrator continued with the arbitration proceedings till 14.4.1993 and thereafter as time for making the award was not extended by the defendants, the petitioner filed a petition under Section 28 of the Arbitration Act in this court. In the present application this court is not concerned with the application under Section 28 of the Arbitration Act.
2. The main arguments advanced by the learned counsel for the respondents is that the present petition is not maintainable in view of the plain language of Section 41(b) which reads as under :
“41(b) the court shall have for the purpose of, and in relation to, arbitration proceedings, the same power of making orders in respect of any of the matters set out in the Second Schedule as it has for the purpose of, and in relation to, any proceedings before the court.”
3. Mr. Taneja learned counsel for the respondents has argued that according to him guarantee is independent contract and therefore the present petition is not for the purpose and in relation to arbitration proceedings and that being the situation simplicitor the petition like the present one would not be maintainable in the absence of any arbitration proceeding for the purpose of and in relation to contract of bank guarantee. He has referred a commentary on the Arbitration Law by S. D. Singh at page 826(1) 10th Edition that where the main contract for construction contains an arbitration clause and bank guarantee given as security for purpose of the contracts is not covered by the arbitration clause and an application under Section 41(b) for restraining the encashment of the bank guarantee by ad-interim injunction is not maintainable. He has also cited in his support commentary on Arbitration Act by Justice Malik, IInd Edition printed by Kamal Law House, Calcutta wherein following M/s. H. M. Ansari & Co. v. Union of India , a case has been cited that a Single Judge of the Calcutta High Court held that ‘an interim injunction against invocation of the bank guarantee could not be issued under Section 41(b) of the Arbitration Act.’ Mr. Taneja has further contended that the contract of guarantee being an independent contract the court should not normally interfere in its invocation unless and until there is a specific plea of fraud or specific equities in favor of the petitioner. The petitioner must plead and produce all the necessary evidence in proof of fraud in execution of the contract of guarantee and he in support of his submission has also cited State Trading Corporation of India Ltd. v. Jain sons Clothing Corporation and another (1994 (4) Scale 332).
4. On the other hand, Mr. Sanjeev Puri learned counsel for the petitioner has contended that a contract of guarantee is incidental and dependent on the main contract which has got an arbitration clause and if ultimately the award is against the respondents no useful purpose will be served if at this stage the respondent is allowed to encash the bank guarantee when the petitioner has already undertaken to keep the bank guarantee alive till the final disposal of the award. He has also cited in his support S. K. Seigell v. Rakesh Seigell and another (JT 1987 (4) SC 405), a Single Bench Decision of this court, particularly para 14, which is as follows :
“I may at this stage note two decisions of the Supreme Court in Union of India v. Raman Iron Foundry and M/s. H. M. K. Ansari & Co. v. Union of India (supra). There decisions do not appear to me of much relevance to the controversy involved in the proceedings before me. However, I may note that in Raman Iron Foundry’s case, the court said, with reference to the provisions of Section 41(b) read with Second Schedule, that a court has power to issue interim injunction but such interim injunction could only be for the purpose of and in relation to arbitration proceedings. In fact, this is what Section 41(b) says. In M/s. H. M. K. Ansari & Co.’s case, the court said that clause (a) of Section 41 made only the procedural rules of the Civil procedure Code applicable to the proceedings in court under the Arbitration Act and that clause did not authorise the court to pass an order of injunction. The power was conferred by clause (b) of Section 41 and that the source of power, therefore, could not be traced to clause (a).”
5. I am afraid in view of the law laid down by the Supreme Court that the contract of guarantee is independent contract court’s interference has to be minimum and only in cases where fraud is pleaded or invocation of bank guarantee is not in terms of the contract of guarantee. Therefore, the submission of Mr. Puri cannot be agreed to on this point. However, in M/s. V.K. Construction Works Limited v. The Banks of Rajasthan Ltd. and another (1992 (3) Delhi Lawyer 155), another Single bench’s decision of this court taking notice of U.P. Co-operative Federation Ltd. v. Singh Consultants & Engineers Pvt. Ltd. (JT 1987 (4) SC 405), and H. M. Kamaluddin Ansari & Co. v. Union of India and other (supra) a learned Judge of this court held :
“This brings me to the second legal question raised by counsel for the defendant. Counsel for the defendant has urged in support of his argument that it is settled law that a bank guarantee is an independent contract and it has to be considered and enforced without reference to the underlying contract, i.e. the contract in pursuance of which the bank guarantee was furnished. He has drawn my attention to Section 41 of the Arbitration Act read with Schedule II of the said Act to submit that under these provisions relief can be granted to party only in relation to the contract which contains the arbitration clause and not in relation to an independent contract. It was held that injunction. In support of this argument counsel has relied on H. M. Kamaluddin Ansari & Co. v. Union of India and others (supra). In this case a petition under Section 33 of the Arbitration Act had been filed challenging the validity of the arbitration clause along with an application under Section 41 of the Arbitration Act for injunction restraining the purchaser from withholding the payment under another contract. It was held that injunction prayed for could not be granted because the amount due under the other contract to the contractor/applicant was not the subject matter of the proceedings under Section 33 of Arbitration Act.
The analogy of the Supreme Court judgment cannot be strictly applied in the present case. It may be true that for purposes of encashment of bank guarantee one may not have to make any reference to the construction agreement and the enforcement of the bank guarantee has to be seen on the language of the bank guarantee. However, the parent contract cannot be totally overlooked because the bank guarantee has been furnished only in accordance with the requirement of the said contract. Secondly, the disputes which may ultimately be referred to arbitration in the petition under Section 20 are likely to include the dispute regarding bank guarantee. In fact, in one of the present cases it has been shown that in the reply filed by the defendant, the defendant has himself sought to refer the dispute regarding bank guarantees to arbitration. When this is so it may not be proper to drive a party to multiplicity of proceedings by making it file one petition for reference of disputes to arbitration under Section 20 of the Arbitration Act and another independent suit for injunction regarding encashment of bank guarantee. For this reason as also for the reason that though the bank guarantee is an independent contract yet since it has been furnished in pursuance of another contract which contains an arbitration clause. I am not inclined to hold that the plaintiff cannot seek a remedy in the arbitration proceedings. The right of the party at whose instance the bank guarantee is furnished to file a suit in relation to the bank guarantee has been recognised. I do not find it fair and reasonable to drive such a party to separate proceedings. I may note here that in various cases decided by this court no party has been non-suited on this ground and the petitions for interim relief under Section 41 of the Arbitration Act read with Schedule II have been entertained. In view of this discussion the second contention on behalf of the defendant fails.
6. I am in complete agreement with the position of law as laid down in M/s. V.K. Construction Works Ltd. (supra). I would not like to oust the petitioner on the basis of the reasoning given in the above noted case and I hold that the present petition is maintainable. I am of the opinion that the bank guarantee has not been invoked in terms of the contract of guarantee and to avoid multiplicity of litigation. I confirm the injunction granted by this court on 26th March, 193 and direct the petitioner to keep alive all the bank guarantees till the application of the petitioner under Section 28 of the Arbitration Act is disposed of.
7. With these observations, this petition stands disposed of.