Abid Khan v. Escorts Farm, Ramgarh — 1981 DIGILAW 887 (ALL)

JUDGMENT K.N. Singh, J. - This appeal is directed against the order of the Additional Civil Judge, Kumaun at Nainital, dated 30-8- 1974, rejecting the defendant-appellant's application made under S. 34, Arbitration Act, 1940, for the stay of the suit filed by the plaintiff-respondent. 2. Messrs Escorts Farm (Ramgarh) Limited, Kashipur, plaintiff-respondent carries on business in poultry farm of purchasing and selling eggs and birds. M/s. Abid Khan and Sons, defendants, also carry on business of sale and purchase of eggs and birds in Nainital. Sri Abid Khan is its proprietor. The defendants used to purchase eggs and birds from the plaintiff-respondent. Certain disputes regarding payment of price arose between the plaintiff and the defendants. Both the parties agreed to refer the dispute to adjudication by an arbitrator and in pursuance of that agreement they appointed Sri I. N. Tandon, Advocate of Nainital, as sole arbitrator. Sri Tandon entered upon the reference but after some time he refused to act as arbitrator. Thereafter the plaintiff or the defendants took no further steps in the matter and none of the two parties made any application under S. 8, Arbitration Act, before the Court for supplying the vacancy by appointment of another arbitrator. On 5-7-1973, the plaintiff filed a suit in the court of the District Judge, Nainital for the recovery of Rs. 28,134-81 against the defendant-appellants with the allegation that the defendant had purchased eggs and birds on credit from the plaintiff on various dates, but they had not paid the entire price. On the service of the summons, the defendants appeared and made an application before the District Judge on 22- 10-1973 under S. 34, Arbitration Act, for stay of the proceedings in the suit on the ground that the parties had agreed in writing to refer the dispute to an arbitrator and Sri Tandon had been appointed as the sole arbitrator. On the refusal of Sri Tandon to act as arbitrator the plaintiff did not take any steps for appointment of arbitrator and as such it was not entitled to file the suit as the agreement dated 26-8-1972 to refer matter to arbitration was still binding on the parties. The plaintiff- respondent filed objection to the application asserting that on the refusal of Sri Tandon the arbitration agreement exhausted itself and the vacancy could not be supplied. The plaintiff- respondent filed objection to the application asserting that on the refusal of Sri Tandon the arbitration agreement exhausted itself and the vacancy could not be supplied. The Additional Civil Judge by his order dated 30- 8-1974 rejected the defendants' application. Aggrieved, the defendants have referred this appeal. 3. The learned Judge held that the plaintiff-respondent's contention that the vacancy was not to he supplied was without any substance. The arbitration agreement did not indicate any intention of the parties not to supply the vacancy and as such even if Sri Tandon had refused to act as arbitrator, the parties could approach the court for appointment of arbitrator in accordance with the provisions of S. 8 of the Act. The learned Judge further held that the arbitration agreement did not automatically stand terminated on the refusal of Sri Tandon to act as arbitrator. The arbitration agreement was legal and valid and the parties could get an arbitrator appointed in accordance with the agreement. The learned Judge however rejected the defendants' application on the ground that the defendants did not make any attempt for the appointment of arbitrator till the filing of the suit, and the defendants' conduct indicated that they did not intend to proceed with the arbitration. On these findings the defendants' application under S. 34, Arbitration Act, was dismissed. 4. Section 34, Arbitration Act, reads as under : "34. On these findings the defendants' application under S. 34, Arbitration Act, was dismissed. 4. Section 34, Arbitration Act, reads as under : "34. Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings and if satisfied that there is not sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and ,visiting to do all things necessary to the proper conduct of the arbitration such authority may make an order saying the proceedings." Under the said provision one of the conditions precedent for staying the proceedings in the suit is that the person who applies for stay of the proceedings in the suit must show that he was at the time when the proceedings in the suit were commenced and is still ready and willing to do all things necessary to the proper conduct of the arbitration. Whenever a defendant makes an application for stay of proceedings in the suit under S. 34 of the Act it is obligatory for him to show that at the time the suit was filed and also at the time when he was making the application he was all along ready and willing to do all things necessary to the proper conduct of the arbitration. This is a mandatory requirement which must be fulfilled before the proceedings in a suit are stayed. Under the law of the land it is open to an aggrieved person to approach the civil court for redress of his grievances. The civil court has jurisdiction to hear and decide the claim of an aggrieved party, but if the parties agree to get the matter settled through arbitration, the jurisdiction of the civil court is ousted. Under the law of the land it is open to an aggrieved person to approach the civil court for redress of his grievances. The civil court has jurisdiction to hear and decide the claim of an aggrieved party, but if the parties agree to get the matter settled through arbitration, the jurisdiction of the civil court is ousted. The civil court's jurisdiction cannot however be ousted if the party which comes forward before the court for claiming relief for the stay of the suit does not bind itself to get the matter adjudicated through arbitration in accordance with the arbitration agreement entered into between the parties. This mandatory requirement is based on the equitable principle that a party who seeks to get the proceedings in the suit stayed, must be willing to get the matter adjudicated through arbitration. The readiness and willingness to do all things necessary for the arbitration cannot be presumed from the mere fact that the defendant moves an application for stay of proceedings : instead the defendant must make a clear statement that he was ready and is still willing for the adjudication of the dispute through arbitration. 5. In Anderson Wright Ltd. v. Moran and Co. (AIR 1955 S C 53) the Supreme Court, held that before proceedings in a suit are stayed under S. 34 of the Act it is necessary that four conditions should be fulfilled (1) the proceedings in the suit must have been commenced by a party to agreement against the defendant who is also a party to the agreement; (2) the legal proceedings which are sought to be stayed must be in respect of the matter agreed to be referred; (3) the application for stay must be by a party to the legal proceedings and he must have taken no steps in the proceedings after appearance: and it is necessary that the applicant should satisfy the court that not only he was ready but also that he was at the commencement of the suit willing to do all things necessary for the proper conduct of the arbitration and (4) the court must be satisfied that there is sufficient reason why the matter should not be referred to arbitration in accordance with the arbitration agreement. Unless all the four conditions are satisfied the defendant cannot possibly ask the court to order stay of the proceedings under S. 34 of the Act and the court would be justified in refusing to stay the proceedings in the suit. The Supreme Court reiterated these principles in Food Corporation of India v. Thakur Shipping Co., (AIR 1975 S C 469). The Supreme Court again held that an applicant for stay of legal proceedings as contemplated by S. 34. Arbitration Act, must satisfy the court not only that he is but also that he was at the commencement of the proceedings ready and willing to do every thing necessary for the proper conduct of the arbitration. The readiness and willingness must exist not only when the application for stay was made but also at the commencement of the legal proceedings. 6. The next question which then arises is whether the defendants were ready and willing to do all things necessary to the proper conduct of the arbitration as required by S. 34. This is a question of fact which is to be determined on the material on record. Learned counsel for the plaintiff-respondent urged that in the absence of any affidavit filed by the appellants containing an averment that they were ready and willing to do everything necessary for the proper conduct of the arbitration at the commencement of the proceedings in the suit or that they are still willing for the adjudication of the dispute through arbitration the defendant's application under S. 34 must be rejected. He placed reliance on the Middle East Trading Co. v. New National Mills Ltd., ( AIR 1960 Bom 292 ). In that case a learned Single Judge held that an application under S. 34 of the Act must state in the application all the necessary conditions as required by S. 34 of the Act. We are in respectful agreement with the observations made by Datar. J. but we do not agree with the extreme proposition of law that an affidavit must be filed in support of the application made under S. 34 of the Act or that the averments must be a detailed one or that in the absence of an affidavit the application should be rejected. J. but we do not agree with the extreme proposition of law that an affidavit must be filed in support of the application made under S. 34 of the Act or that the averments must be a detailed one or that in the absence of an affidavit the application should be rejected. In N. C. Padmanahhan v. S. Srinivasan, ( AIR 1967 Mad 201 ) there was no averment regarding the readiness and willingness of the defendants either at the time of the commencement of the proceedings or thereafter that they were ready and willing to do everything necessary for the proper conduct of the arbitration proceedings, therefore, it was held that the proceedings in the suit could not he staved. The learned Judge, however, made observation that in the absence of clear averments in the affidavit regarding willingness of the defendants their readiness could not be a matter of implication. Similar view was taken by Patna High Court in Sass Construction and Power Co. Ltd. v. Fertiliser Corporation of India, ( AIR 1979 Pat 14 ). These authorities hold that there should be a clear statement in the application made under S. 34 of the Act giving out the four conditions precedent as laid down in the section, and there should further be an affidavit containing all the necessary averments to show in unambiguous terms that the defendant was ready and willing at the commencement of the proceedings to do all things necessary for the proper conduct of the arbitration. These authorities further lay down that in the absence of any affidavit or requisite averments the proceedings cannot he stayed under S. 34 of the Act. 7. Learned counsel for the appellants drew our attention to a Division Bench decision of the Madhya Pradesh High Court in Sansar Chand Deshraj v. State of Madh. Pra., (AIR 1961 Madh Pra 322). In that case, it was held that since the defendant in his reply had clearly drawn attention of the Court to the subsistence of the arbitration agreement and further as he had pointed out that the arbitration proceeding was the appropriate remedy for the plaintiff to follow, it was implicit in the objection raised by the defendants that they were ready to get the dispute decided by arbitration. The Division Bench did not lay any stress on the filing of any affidavit in support of the application. The Division Bench did not lay any stress on the filing of any affidavit in support of the application. In Sri Venkateshwar Construction v. Union of India, (AIR 1974 Andh Pra 278) a Division Bench held that the observation made in the Middle East Trading Co. v. New National Mills Ltd., ( AIR 1960 Bom 292 ) (supra) and in N. C. Padmanabhan v. S. Srinivasan, ( AIR 1967 Mad 201 ) (supra) that the defendant should satisfy the court about his readiness and willingness even prior to the commencement of the suit by means of an affidavit goes far beyond the scope of S. 34, and the Bench did not agree with the observations made in the aforesaid two cases. 8. The question is whether the defendant's application for stay of the suit must fail for want of an affidavit. Section 34 does not require filing of any affidavit, instead it requires the court to satisfy itself about the readiness and willingness of the defendant to do all things necessary for the arbitration at the time when the proceedings were initiated as well as at the time when the application for stay is made. By what process and in what manner the court should satisfy itself cannot be laid down exhaustively. There is no provision under the Act or under any rule requiring an applicant under S. 34 to file application in a specified form or to file an affidavit in support thereof. The court may satisfy itself merely on the averments contained in the stay application or it may examine the defendant or it may act on the statement of the counsel for the defendant. In an appropriate case the court may require the defandant to file affidavit also. The basic requirement is that the court should be satisfied that the defendant was ready and willing to get the matter adjudicated through arbitration at the time of the commencement of the suit and is still ready and willing. If a defendant makes all the necessary averments in the application, it is open to the court to be satisfied even without an affidavit. But if the court is not satisfied on the basis of mere averments made in the application, it is not open to the appellate court to interfere with the discretion exercised by the trial court. If a defendant makes all the necessary averments in the application, it is open to the court to be satisfied even without an affidavit. But if the court is not satisfied on the basis of mere averments made in the application, it is not open to the appellate court to interfere with the discretion exercised by the trial court. It is not possible to lay down any exhaustive principle on the basis of which court should satisfy itself. It is for the court before which the application is trade under S. 34 to satisfy itself of the existence of the necessary conditions precedent as prescribed under S. 34 of the Act. 9. In the instant case, the defendant- appellants did not file any affidavit in support of their application made under S. 34 of the Act. Paragraph 7 of the application merely stated: "7 That the agreement dated 26-8-1972 to refer the matter to arbitration is still binding upon the parties and the defendant applicant is entitled to get the matter in dispute in the present suit settled through arbitration and consequently the proceedings in this suit are liable to be stayed." Apart from the aforesaid averment the application filed by the appellants did not contain any averment that they were ready and willing to do all things necessary to the proper conduct of the arbitration at the time the suit was filed as well as the time when that application was made. In the absence of any such averment in the application one of the necessary condition as required by S. 34 of the Act was not satisfied. The proceedings in the suit therefore could not be stayed. 10. We do not agree with the view taken by the trial court that since the defendant- appellants had not made an application before the court under S. 8 of the Act for appointment of arbitrator, it must be presumed that the appellant was not ready and willing for the proper conduct of the case at the time of the commencement of the suit. A mere inaction on the part of the defendants to take recourse to S. 8 does not justify a finding that the defendants were not ready or willing to get the matter adjudicated through arbitration. A mere inaction on the part of the defendants to take recourse to S. 8 does not justify a finding that the defendants were not ready or willing to get the matter adjudicated through arbitration. The plaintiff had raised a claim for money against the defendants and the matter had been referred to arbitration by both the parties and if the arbitrator refused to give the award, the aggrieved party should have approached the Court under S. 8 for appointment of another arbitrator or to supply vacancy. In the instant case, the plaintiff was the aggrieved party. The defendants had no doubt raised a counter claim against the plaintiff but they had not approached the civil court by means of a suit for obtaining relief. Therefore the plaintiff should have taken steps for the filling up of the vacancy. The trial court erred in holding that defendants should have approached the court for arbitration. Even though the trial court's finding on this question is not sustainable in law but the appellants cannot succeed in the appeal as they have failed to show that they were ready and willing at the commencement of the proceedings and that they are still ready and willing to do all things necessary for arbitration. 11. For the reasons stated above we are not inclined to interfere with the trial court's. order. The appeal fails and is accordingly dismissed, but there will be no order as to costs.