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1979 DIGILAW 234 (GUJ)

DADIA JAYANTILAL MOTICHAND v. SHAH BABULAL BECHARDAS

1979-12-10

D.H.SHUKLA, M.K.SHAH

body1979
D. H. SHUKLA, M. K. SHAH, J. ( 1 ) AN important question which arises in this appeal is as to whether the plaintiffs who filed a suit for dissolution and accounts of a partnership firm against the defendants who were partners along with the plaintiffs in that firm and whose suit failed on a decision on a preliminary point that the suit was not maintainable as the notice as required under sec. 43 of the Indian Partnership Act had not been given prior to filing of the suit can subsequently file an application under sec. 29 of the Indian Arbitration Act for getting the arbitration agreement filed in court. . . . . . . . . . . . . . . . . . . . . . ( 2 ) IN view of the pleadings and in view of the application filed by defendant No. 1 at Ex. 16 under Order 14 Rule 2 of the Code of Civil Procedure the court framed preliminary issues as per ex. 26 viz. " (1)WHETHER the present suit is not maintainable as alleged in para 2 to (8) of the written statement of the defendant No. 1 ? (2) What order ?" after hearing the learned Advocates of both the sides and looking into the documents which were on record the court came to the conclusion that the plaintiff had abandoned their right to go in for arbitration by filing special civil suit No. 50 of 1970 against the defendants without resorting to the arbitration clause in the partnership deed; and the court therefore upheld the contention of the defendants that by virtue of the filing of the said suit prior to the present suit that is application under sec. 20 of the Arbitration Act which was converted into the suit the present suit was not maintainable. The court therefore dismissed the same and it is this order dismissing the suit on a decision on the preliminary point passed by the learned Civil Judge Senior Division Jamnagar on 18th June 1974 in Special Civil Suit No. 2 of 1973 which is assailed by the appellants in this appeal. . . . . . . . . . . . . . . . . . . . . ( 3 ) MR. . . . . . . . . . . . . . . . . . . . . ( 3 ) MR. Shahs second contention is that the previous suit was a suit in which the final order which was passed was that of rejecting the plaint and not of dismissing the suit and it should therefore be treated as an order passed under Order 7 Rule 11 (a) of the Code of Civil Procedure and the result therefore would be that on rejection of the plaint it will have an effect as if no such suit was filed. That means the action of the plaintiffs in filing the suit was an exercise in futility and that it was non est. It therefore cannot be said that by merely filing the said suit in which the plaint was rejected under Order 7 Rule 11 (a) of the said Code the plaintiffs had done anything which would amount to waiver or abandonment of their right to enforce the arbitration clause contained in the partnership deed. ( 4 ) MR. Shah in further support of his argument has relied on a Full Bench decision of the Andhra Pradesh High Court viz. In re Chunduru Vankata Subrahmanyam A. I. R. 1955 Andhra 74. This was a case in which the court dispaupered a pauper and ordered him to pay the courtfees and on non payment of the court fees the suit was dismissed and while pointing out the distinction between rejection of a plaint under Order 7 Rule 11 and dismissal of a suit under Order 33 Rule 11 the court observed as follows at page 77:"in the absence of any ambiguity courts are bound to give full meaning to the words used by the Legislature. But the main distinction between O. 7 R 11 and O. 33 R. 11 is apparent. In the case of an order under O. 7 R. 11 there is no provision for collecting the courtfee due to the Government for the simple reason that the plaint would be treated as if it Was not filed at all whereas in the case of dispaupering an express provision is made enabling the court to make an order for payment of courtfee It may be for that very reason the authors of the rule designedly used the word dismissal in contradistinction to the word rejection". Mr. Mr. Shah therefore contends that in the instant case as the plaint was rejected it should be treated as if the suit was not filed at all and that therefore filing of the said suit cannot amount to abandonment of the right to enforce the arbitration agreement. Mr. Shah also relied on Phaltan Bank Ltd. v. Saburao Appajirao and another A. I. R. 1954 Bom. 43. This was a case in which a pauper appeal against a preliminary decree was admitted as the court did not notice that it was filed beyond time. On a preliminary objection being taken the court treated the appeal as ordinary appeal and granted time for payment of court fee to the appellant. On the appellants failure the court passed an order in the form of dismissal of the appeal with costs. Formal decree was drawn up and it was held that inspite of this the order must be treated as one rejecting the memo of appeal under sec. 107 and Order 7 Rule 11 of the Code of Civil Procedure and that it was not a decree under sec. 2 (2) of the Code of Civil Procedure and consequently the preliminary decree did not merge in it. The court also held:"nor is it a decision of the appellate court on merits because in the case of an order made by the court of appeal rejecting the appeal on the ground that proper courtfees have not been paid the appeal virtually has not come before the court of appeal for disposal on the merits but has faded out for the reason that the preliminary steps to present the appeal before the appellate court properly and effectively were not taken by the appellant". ( 5 ) WITHOUT entering into the controversial question as to whether the very act on the part of the plaintiffs in approaching a civil court for claiming relief without first resorting to taking steps in the direction of enforcement of the arbitration agreement amounts to abandonment of their right to have the matter decided by arbitration the abandonment or waiver becoming operative at and from the very point of time such a suit is filed irrespective of the course the suit later takes we feel that the ratio of the two decisions cited by Mr. Shah does not apply to the facts of the case at hand since unlike what happened in the two cases cited in the instant case the order passed in the said suit No. 50 of 1970 has the effect of dismissing the suit after contest. We are of the view that though the order passed refers to rejecting the plaint in substance it is an order dismissing the suit. We get considerable support for the view which we take in this behalf from Phaltan Banks case (supra) cited by Mr. Shah as would be evident from the following observations which appear at page 45 para 5:order 7. R. 11 authorised the trial court to reject a plaint for the grounds mentioned in four sub sections under the said Rule and by reason of the provisions contained in sec. 107 sub-sec. (2) these Powers can be exercised by the court of appeal in respect of the appeals filed before it. Therefore. in our opinion the Phaltan High Court had jurisdiction to reject the memorandum of appeal on the ground that it was written upon an insufficiently stamped paper and the order which was passed while rejecting this memorandum must be construed as an order of rejection in spite of the fact that in form it purported to be an order of dismi issing the appeal and though a formal decree including the said decision has been drawn". ( 6 ) AGAIN the previous suit i. e. civil suit No. 50 of 1970 was filed substantially for accounts though loosely while claiming the relief a reference to dissolution was also made. It was the plaintiffs case that this was a partnership at will which had been already dissolved. They had relied on the notice correspondence before the filing of the suit. It was also their case that there had been dissolution of the said partnership by virtue of the fact that the specific venture for which the business was started had come to an end. Now reading such a plaint it would be difficult to say that it does not disclose cause of action. It did disclose a specific cause of action. The written statements were filed by the defendants inter alia contending that the plaintiffs suit was not maintainable because the requisite notice under sec. 43 (1) of the Partnership Act dissolving the firm had not been given. It did disclose a specific cause of action. The written statements were filed by the defendants inter alia contending that the plaintiffs suit was not maintainable because the requisite notice under sec. 43 (1) of the Partnership Act dissolving the firm had not been given. It was also the case of the defendants that the grounds of dissolution had not been stated. The parties then went to trial on two preliminary issues one of which was as to whether the requisite notice under sec. 43 (1) had been given or not. That issue was tried. The plaintiffs relied on the correspondence to show that such a notice was given. On going through the correspondence and construing the same the court came to the conclusion that there was absence of requisite notice as required by sec. 43 (1) of the Partnership Act and the court then recorded a finding that there was no such notice given and hence prima facie the suit was not maintainable because unless the firm is dissolved by a notice when the partnership is at will the plaintiffs suit would not be maintainable. The only order which the court could then pass would be an order dismissing the suit and not an order under Order 7 Rule 11 (a) of the Code of Civil Procedure for rejecting the plaint on the ground that it did not disclose a cause of action obviously because as a matter of fact the plaint did disclose a cause of action. On reading the plaint one cannot say that it was an admitted position that the plaintiffs had bought the suit without giving such a notice of dissolution under sec. 43 (1 ). They were on the contrary asserting that such a notice was given. The defendants were denying it. There was an issue on the point and on the decision on that issue after full contest and after construing the correspondence and hearing the arguments from both the sides though no oral evidence was led by the parties the court came to the conclusion that there was no much notice given and hence inter alia on this technical ground for want of notice the suit was dismissed. But it appears that the learned Judge through an error instead of passing an order of dismissal passed an order rejecting the plaint. But the judgment has to be read as a whole. But it appears that the learned Judge through an error instead of passing an order of dismissal passed an order rejecting the plaint. But the judgment has to be read as a whole. It has to be borne in mind that the plaint did disclose a cause of action but it was on trial of an issue with regard to notice that the court came to the conclusion that for want of notice the suit was bound to fail and hence the court passed the final order. Therefore though in form it was an order rejecting the plaint in effect and substance it was an order dismissing the suit. Wrong phraseology used by the trial court in this behalf does not and cannot change the nature and substance of the order which was in effect and substance an order of dismissing the suit on a decision on merits and not an order of rejection of plaint on scrutinising the plaint under Order 7 Rule 11 (a) of the Code of Civil Procedure. The test is has the court passed the order on looking at the plaint only and on coming to the conclusion therefrom that does not disclose a cause of action ? The answer is obviously No. The plaint did disclose the cause of action. The court also came to the conclusion that it disclosed a cause of action. The defendants filed their written statements issues were framed on the contentions from the defendants side inter alia to the effect as to whether it was a partnership at will and whether notice of dissolution was necessary as required by law and as contended by the defendants and whether such notice was given. ( 7 ) WE find that the order in substance is one of dismissal though in form it is one of rejection. ( 7 ) WE find that the order in substance is one of dismissal though in form it is one of rejection. This is not a case in which the court has purported to reject the plaint on looking at the plaint alone; but this is a case in which on being satisfied that the plaint disclosed a cause of action and on considering the pleadings of the parties a specific issue was raised with regard to the notice and that issue was tried on merits and after recording finding adverse to the plaintiffs inter alia on that issue the Court inadvertently or erroneously instead of passing an order of dismissal of the said suit (which would have been the proper order) passed an order rejecting the plaint. It would also be significant to note that the court has nowhere specifically mentioned that the order which it had passed was one passed under Order 7 Rule 11 although under Order 7 Rule 12 it is obligatory for the court while recording the order under Order 7 Rule 11 to give reasons for such an order. It is true this court is not sitting in appeal against that order which in terms describes this order as an order rejecting the plaint. Yet in the facts and circumstances of the case as mentioned above and in the light of the discussion which has preceded we construe the said order as an order of dismissal. ( 8 ) WE are further fortified in the view which we take by a decision of the Madras High Court in Santhanathammal and another v. Isaki Suppan Asari and another A. I. R. 1920 Mad. 449. The question which arose here was as to whether the previous order passed of rejecting the plaint after full trial on merits operates as resjudicata in the subsequent suit on the same cause of action and it was held:"where a court passes an order rejecting a plaint after a full trial on the merits and recording a finding adversely to the plaintiff a subsequent suit for the same subject matter and based on the same cause of action will be barred as resjudicata". The following important observations at page 451 may also be noted: "1 do not think it can be argued that the decision on any point so heard and determined is not resjudicata under sec. The following important observations at page 451 may also be noted: "1 do not think it can be argued that the decision on any point so heard and determined is not resjudicata under sec. 11 and that the failure of the suit by the rejection of the plaint in consequence of findings on material questions of law is not a final disposal of the suit falling within the doctrine of resjudicata". ( 9 ) THEREFORE if the plaintiffs themselves when the dispute arose and they wanted accounts to be taken of the partnership on the basis that it was dissolved instead of filing an application under section 20 of the Arbitration Act and getting the relief through arbitration chose to approach the civil court with a suit for dissolution and accounts and submitted to its jurisdiction giving a go bye to the arbitration clause and even when the defendants made an application under sec. 34 of the Arbitration Act they resisted the same and proceeded with the suit after the defendants application under sec. 34 was rejected and when after full trial on the preliminary issue they lost their suit inter alia on the ground that the same was not maintainable in view of the failure on their part to prove that they had served the requisite notice under sec 43 (1) of the Partnership Act would it. subsequently be open to them to have recourse to the arbitration clause and file an application under sec. 20 treating the arbitration clause as subsisting inspite of such conduct on their part ? In our opinion it would not be. Their conduct amounts to abandoning their claim to go to arbitration and it amounts to so far as they are concerned renunciation of their right under the agreement which cannot later be revived once they have chosen the forum of a civil court. The fact that their suit failed on a technical ground would make no difference because that would not take away the right if they had any to pursue the remedy by filing another suit after giving proper notice. But they cannot then revive the arbitration agreement which Was dead for all purpose. On equitable principles also it would not be open for a party who himself commits the breach of an agreement to approach a court later and ask for its enforcement treating the same as subsisting. But they cannot then revive the arbitration agreement which Was dead for all purpose. On equitable principles also it would not be open for a party who himself commits the breach of an agreement to approach a court later and ask for its enforcement treating the same as subsisting. ( 10 ) THERE is a case on almost all fours with the present one which was relied upon by the defendants before the lower court and which has been relied upon here also and that is Pran Nath Ranjan v. State of Jammu and Kashmir A. I. R. 1972 J and K. 11. This was also a case in which earlier a civil suit was filed by a party which was dismissed after contest and it was held by the court that application under sec. 20 by the very party when his earlier civil suit on the same averment was dismissed on contest was not maintainable. The following observations which appear at page 12 are very significant. "but where the party himself chose to invoke the jurisdiction of the civil court submits to it does not avail of the arbitration clause files a regular suit in which the defendant appears and contests the suit and ultimately the suit is dismissed he cannot afterwards claim the benefit of the arbitration clause and ask the court to enforce the said clause against the second party. Having once submitted to the jurisdiction of the civil court he cannot file a subsequent application making the same averments therein as he had made in the plaint". We are respectfully in agreement with the above observations of the Jammu and Kashmir High Court". ( 11 ) MR. Shah then contended that in any event the question as to whether the plaintiffs by filing the civil suit have abandoned their right to enforce the arbitration agreement or to proceed with the arbitration as per the arbitration clause. will be a matter requiring the decision of the arbitrator himself and the civil court in an application under section 20 will not be competent to enter into that question because further submitted Mr. will be a matter requiring the decision of the arbitrator himself and the civil court in an application under section 20 will not be competent to enter into that question because further submitted Mr. Shah once the requirements of section 20 are complied with the court is bound to order the agreement to be filed in court and after following the procedure as prescribed in this behalf it has to make an order of reference to arbitration and the arbitrator has then to deal with all the questions during the course of arbitration. In support of this point canvassed by Mr. Shah he relied on Wazir Chand Mahajan and another v. The Union of India A. I. R. 1967 S C. 990. The question which arose before the Supreme Court was entirely a different one and it related to as whether Article 181 of the Limitation Act (old) would be applicable in a case of application under section 20 of the Arbitration Act and the Supreme Court held that the application under section 20 was governed by Article 181 of the Limitation Act unless that provision in the Arbitration Act indicates contrary intention and section 37 (1) of the Arbitration Act was not such provision. Thus the scope and ambit of section 37 was also considered and it was in this context that the Supreme Court made the following observations:"if Art. 181 of the Limitation Act only governs applications under the Code of Civil Procedure for which no period of limitation is provided under the schedule an application under the Arbitration Act 1940 not being an application under the Code of civil Procedure unless there is some provision which by express enactment or plain intendment to the contrary in the Arbitration Act will not be governed by that Article". The Supreme Court then considered the precise scope of section 37 (1) the Arbitration. Act which was sought to be pressed into service by the for the respondent as indicating a contrary intention. Section 37 (1) down that all the provisions of the Indian Limitation Act 1908 shall to arbitration as they apply to proceedings in court and the Supreme further observed". In our judgment this clause does not govern an application for filing an arbitration under sec. 20 of the Arbitration Act. Section 37 (1) down that all the provisions of the Indian Limitation Act 1908 shall to arbitration as they apply to proceedings in court and the Supreme further observed". In our judgment this clause does not govern an application for filing an arbitration under sec. 20 of the Arbitration Act. In terms it provides that the of the Indian Limitation Act are to apply to arbitrations as they apply to proceedings in court. In other words an arbitrator in dealing with a matter to him is bound to apply the provisions of the Limitation Act. Sec. 37 (1) no reference to an application under the Arbitration Act for effectuating a reference to the arbitrator such as an application for filing an arbitration agreement". BUT so far as the instant case is concerned the question which arises is as to whether the very right to prefer an application under section 20 of the Arbitration Act which the plaintiffs otherwise possessed was available to the plaintiffs they having once abandoned the same by filing a civil suit. If the civil court comes to the conclusion that there is no subsisting arbitration agreement and that the plaintiffs have lost the right to get the arbitration agreement enforced than the matter ends there. Therefore in that case there could not be any reference to arbitration and the arbitrator would not be seized of the matter. The question will have to be decided by the court and if the court comes to the conclusion as it came in the instant case that the plaintiffs had lost their right to go in for arbitration then the matter ends there and the arbitrator does not come into picture at all. Section 37 (1) of the Arbitration Act will not then come into play because it applies to a valid arbitration. In the instant case as there is no arbitration section 37 (1) cannot come into play. This decision therefore does not help Mr. Shah. Appeal dismissed. .