CROMPTON GREAVES v. TOSHIBA an and LAMPS LTD. — 1986 DIGILAW 116 (KER)

Judgment :- 1. Respondent herein filed a suit under S.20 of the Arbitration Act, 1940 (for short 'the Act') praying that the Arbitration agreement dated 15-11-1967 (Ext. Al) be filed and that the disputes or differences between the parties be referred to arbitration to any arbitrator to be appointed by the Court. Appellant herein, defendant in the suit, filed written statement opposing grant of reliefs. Overruling his contentions, the trial court held that reliefs under S.20 of the Act are to be granted and directed production of the Arbitration agreement. This Judgment is now challenged by the defendant. Parties will be referred to in this judgment by their rank in the trial court. 2. Both parties are private limited companies. Plaintiff is a manufacturer of electric lamps of various types. Defendant is engaged in purchase and sale of electric lamps and other goods. Under Ext. Al dated 15-11-1967 the parties entered into an agreement by which the plaintiff agreed to sell to the defendant and the defendant agreed to buy from the plaintiff 80 percent of the production of electric lamps for a period of five years with option to the defendant to increase or reduce the purchase by 10 percent. The agreement was agreed to continue to be in force until either party terminates the same by one year's notice. Clause.23 of the agreement states: "In the event of any dispute or differences arising out of this agreement either on the construction of or in respect of accounts and transactions or otherwise relating to these presents such dispute or differences shall be referred to Arbitration by the Associated Chambers of Commerce and Industry, India in accordance with the Arbitration Rules of the said Chambers and this clause shall be considered to be an Agreement for Arbitration under the Indian Arbitration Act 1940 and any statutory modifications thereof. The costs of such arbitration shall be borne equally by the parties." The Associated Chambers of Commerce and Industry would be referred to in this judgment as 'ASSOCHAM'. Some of the terms of the agreement were modified by the parties, as per letters, minutes and discussion. There were claims and counter claims. They were also settled. The modifications and the settlement are contained in Exts. A2 to AS letters sent by the defendant to the plaintiff all dated 9-3-1974. Some of the terms of the agreement were modified by the parties, as per letters, minutes and discussion. There were claims and counter claims. They were also settled. The modifications and the settlement are contained in Exts. A2 to AS letters sent by the defendant to the plaintiff all dated 9-3-1974. Plaintiff alleges that the defendant has violated several terms and conditions of the agreement and failed to lift the stipulated quantity of goods during the period May, 1975 to September. 1975 and totally failed to lift any goods from 1-10-1975 onwards causing heavy loss to the plaintiff. Plaintiff urged other claims also against the defendant. Plaintiff repeatedly wrote to the defendant to reimburse the loss and later invoked the arbitration clause. Defendant took the stand that there was no dispute to be referred to arbitration. Plaintiff wrote Ext. A14 letter to ASSOCHAM requesting it to take appropriate proceeding for arbitration. ASSOCHAM sent Ext. A13 reply stating that it had no machinery to conduct proceedings. Thereupon, plaintiff filed the present suit under S.20 of the Act. Meanwhile, defendant filed a suit O. S.992/75 against the plaintiff on the original side of the Bombay High Court seeking money decree. Present plaintiff, by a motion, sought stay of the suit under, S.34 of the Act. Affidavits of the rival parties are Exts. B1 and B2. Ext. A 16 evidences order of the High Court in the following terms: "Heard Counsel. Letter dt. 5-8-78 tendered, taken on file. P. C.: Notice of Motion dismissed. Costs of Notice of Motion to be Costs in the Cause." 3. Learned counsel for the appellant urged the following contentions at the Bar: 1. S.20 of the Act is inapplicable to the facts of the case and therefore cannot be invoked. 2. Clause.23 of Ext. Al proceeds on the fundamental basis that ASSOCHAM has rules of procedure and the parties entered into the arbitration clause under a mutual mistake. Actually no rules exist. Therefore, Clause.23 cannot be enforced. 3. A new arbitrator cannot be appointed in view of S.8 (1) (b) of the the Act. 4. Ext A1 agreement has undergone several modifications and therefore Clause.23 does not survive. 5 Relief under S.20 cannot be allowed in view of the provisions of S.35 of the Act. 6. Actually no rules exist. Therefore, Clause.23 cannot be enforced. 3. A new arbitrator cannot be appointed in view of S.8 (1) (b) of the the Act. 4. Ext A1 agreement has undergone several modifications and therefore Clause.23 does not survive. 5 Relief under S.20 cannot be allowed in view of the provisions of S.35 of the Act. 6. In the facts and circumstances of the case relief under S.20 cannot be allowed as it would lead to conflict of findings. 4. Sub-S. (1) of S.20 reads: "Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject matter of the agreement or any part of it and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in court." 5. Chapter II of the Act containing S.2 to 19 deals with arbitration without intervention of a court. Chapter III containing S.20 deals with arbitration with intervention of a court where there is no suit pending. Chapter IV containing S.21 to 25 deals with arbitration in suits. S.8 deals with power of court to appoint arbitrator or umpire in cases where all the parties do not, after differences have arisen, concur in the appointment or appointments or if the appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply the vacancy. Any party to an arbitration agreement could apply to the court under S.20 to have the agreement filed in Court. This provision applies only where parties have entered into arbitration agreement before the institution of any suit with respect to the subject matter and where differences have arisen to which the arbitration agreement applies. S.21 states that where in any suit all the parties interested agree that any matter in difference between them in the suit shall be referred to arbitration, they may at any time before judgment is pronounced apply in writing to the Court for an order of reference. 6. S.21 states that where in any suit all the parties interested agree that any matter in difference between them in the suit shall be referred to arbitration, they may at any time before judgment is pronounced apply in writing to the Court for an order of reference. 6. The argument of learned counsel is that since the defendant has filed a suit in the Bombay High Court in regard to a difference which has arisen in regard to the implementation of Ext. Al agreement as modified, S.20 will not apply. According to the learned counsel, S.20 will apply only when there is no suit pending and not merely when an arbitration agreement precedes the institution of suit. We are unable to agree with this submission. Wherever there is arbitration agreement, parties have recourse to two remedies, either under Chapter II or under Chapter III. The remedy under Chapter II arises under S.8 and the remedy under Chapter III arises under S.20. Conditions requisite for application of S.20 (1) are: (a) persons must have entered into an arbitration agreement. (b) entering into the arbitration agreement must have been before the institution of any suit with respect to the subject matter of the agreement or any part of it. (c) a difference has arisen to which the agreement applies. If these three conditions exist in a given case, parties may invoke S.8, if it applies, or instead of proceeding thereunder, may apply to a court under S.20 (1) of the Act. This does not mean that S.20 (1) can be invoked only if no suit had been filed at any time. S.20 (1) can be invoked if no suit has been instituted; it can be invoked even if suit has been instituted, provided the arbitration agreement was entered into before the institution of the suit or the suit does not relate to the subject matter of the arbitration agreement. The inhibiting factor is not the pendency of the suit at the time S.20 (1) is invoked; it is the fact that the arbitration agreement came into existence before institution of any such suit. The fact that a suit has been instituted after the parties entered into an arbitration agreement should not render S.20 (1) inapplicable. The inhibiting factor is not the pendency of the suit at the time S.20 (1) is invoked; it is the fact that the arbitration agreement came into existence before institution of any such suit. The fact that a suit has been instituted after the parties entered into an arbitration agreement should not render S.20 (1) inapplicable. Heading of the section "arbitration with intervention of a court where there is no suit pending" is inartistically worded and does not really reflect the import and purport of S.20. 7. Learned counsel for the appellant placed reliance on a decision of the Supreme Court in Ramvallabh v. Dwarka Das (AIR 1966 S.C. 402). That was a case where pending suit parties entered into an agreement to refer the dispute to arbitration and to withdraw the suit. The Supreme Court held that the agreement was conditional on the withdrawal of the suit and the suit was immediately withdrawn and therefore it must be deemed that there was no suit pending when the agreement was entered into. In other words, even this decision would support the interpretation we are placing on S.20 viz., that the section applies where an arbitration agreement had been entered into before a suit of the nature described in the section is instituted. Learned counsel also placed reliance on the decision of the Supreme Court in Union of India v. Om Prakash (AIR 1976 S.C.1745). The Supreme Court held that in case of arbitration without intervention of court, the court has no jurisdiction after appointing an arbitrator under S.8 (2) to proceed further to make a reference of the dispute to the arbitrator. We do not think this decision has any relevance to the facts of the present case. 8. In this case, the arbitration agreement was entered into before the institution of any suit by anyone of the parties. Assuming that the suit in the Bombay High Court is with respect to the subject matter of the agreement or any part of it, since the agreement preceded the institution of the suit, S.20 (1) is attracted. If it be that the suit in the Bombay High Court is not with respect to the subject matter of the agreement or any part of it, then also since the agreement had been entered into before the institution of any suit of the nature described in the provision, S.20(1) is attracted. If it be that the suit in the Bombay High Court is not with respect to the subject matter of the agreement or any part of it, then also since the agreement had been entered into before the institution of any suit of the nature described in the provision, S.20(1) is attracted. We therefore reject this contention. 9. No doubt, Clause.23 of Ext. A1 contemplates reference to arbitration of ASSOCHAM in accordance with the arbitration rules of ASSOCHAM. It may be that the parties thought that ASSOCHAM had framed arbitration rules. But we do not think that existence of rules could be deemed to be a condition precedent or the foundation for the agreement incorporated in Clause.23. If no rules had been framed, it is open to the arbitrator to devise rules of procedure. We are not satisfied that absence of rules vitiates the agreement or is a factor to be taken into consideration in deciding whether to grant or decline the relief. 10. Arguments have been advanced before us on the basis that ASSOCHAM is not prepared to enter a reference. Therefore, it would be necessary for the court to appoint a new arbitrator in terms of S.8 (1) (b) of the Act. Under this provision, if any appointed arbitrator neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy. Therefore, the court will have the jurisdiction to appoint a new arbitrator unless either party establishes that "the arbitration agreement does not show that it was intended that the vacancy should not be supplied". The object of the legislation is to promote arbitration. Provision in S.8 (1) (b) is intended to advance this legislative object. The provision empowers the court to appoint a fresh arbitrator on being satisfied, among other things, that the arbitration agreement does not show that it was intended that the vacancy should not be supplied. The provision is drafted with great care. The court is not to be satisfied that "the arbitration agreement shows that it was intended that the vacancy should be supplied". The provision is drafted with great care. The court is not to be satisfied that "the arbitration agreement shows that it was intended that the vacancy should be supplied". What the provision requires is that the court should be satisfied that "the arbitration agreement does not show that it was intended that the vacancy should not be supplied". Normally, if the parties intended that the vacancy should not be supplied, it is for them to say so in the agreement. In the absence of any such expression of any such intention in the agreement, the court has to presume that the parties did not intend that the vacancy should not be supplied. Clause.23 of Ext. Al does not say that any vacancy should not be supplied. We therefore hold that there is no inhibition against appointment of a new arbitrator. 11. What we have indicated above is supported by observations of the Supreme Court in V/O. Tractoroexport v. Tarapore & Co. (AIR 1971 SC 1) and Union of India v. Raghunath Singh & Co. (AIR 1980 S.C.103). In the former case, the Supreme Court observed: "Ordinarily, a party which has entered into a contract of which an arbitral clause forms an integral part should not receive the assistance of the Court when it seeks to resile from it" In the latter case, the Supreme Court observed: "The court had no power to supply the vacancy under S.8(1) (b) only if the arbitration agreement did show that the parties did not intend to supply the vacancy. If no such intention could be culled out from the arbitration clause, the court could supply the vacancy." 12. It is true that subsequent to Ext. Al agreement, parties have entered into further agreements, as reflected in Exts. A2 to A5 in modification of some of the terms of the original agreement. But none of these modifications relates to Clause.23 of Ext. Al. The fact that some aspects of the original agreement unconnected with the arbitration clause have been modified cannot render the arbitration clause non est. 13. S.34 deals with power to stay legal proceedings where there is an arbitration agreement. But none of these modifications relates to Clause.23 of Ext. Al. The fact that some aspects of the original agreement unconnected with the arbitration clause have been modified cannot render the arbitration clause non est. 13. S.34 deals with power to stay legal proceedings where there is an arbitration agreement. Where a party to an arbitration agreement commences any legal proceedings against any other in respect of any matter agreed to be referred to arbitration, any party to the proceedings may at any time before filing written statement or taking any other steps, apply to the court before which the proceedings are pending to stay the proceedings and the court, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was at all times ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings. S.35 deals with effect of legal proceedings on arbitration. Sub-s. (1) states that no reference nor award shall be rendered invalid by reason only of the commencement of legal proceedings upon the subject matter of the reference, but when legal proceedings upon the whole of the subject matter of the reference have been commenced between all the parties to the reference and the notice thereof has been given to the arbitrators, all further proceedings in a pending reference shall, unless a stay of proceedings is granted under S.34, be invalid. 14. Argument of learned counsel for the appellant is that a suit having been filed in the Bombay High Court by one of the parties to the agreement and the motion of the other party for stay under S.34 of the Act having been rejected, any further reference of the dispute to arbitration would be invalid. We do not think S.35 supports this argument. The purport of S.35 is that no reference shall be rendered invalid by reason only of commencement of legal proceedings upon the subject matter of reference. Therefore the fact that one of the parties has instituted a suit in the Bombay High Court shall not render invalid any reference. Sub-s. (1) which lays down this principle has engrafted an exception to this principle. Therefore the fact that one of the parties has instituted a suit in the Bombay High Court shall not render invalid any reference. Sub-s. (1) which lays down this principle has engrafted an exception to this principle. When legal proceedings upon the whole of the subject matter of the reference have been commenced between all the parties to the reference and the notice thereof has been given to the arbitrator, all further proceedings in a pending reference shall, unless a stay of proceedings is granted under S.34, be invalid. Learned counsel for the appellant, would invoke this exception. This exception will apply only where the suit in the Bombay High Court involves "whole of the subject matter of the reference". The whole of the subject matter of the reference proposed in the present suit is not the subject matter of the suit in the Bombay High Court. Even according to the appellant, the suit in the Bombay High Court may involve only a small aspect of the claim put forward by the plaintiff in this case, though even this is disputed by the plaintiff. We therefore find that S.35 is not attracted to the facts of the case. 15. Learned counsel for the appellant finally contended that sub-s.(4) of S.20 contemplates relief being granted only where no sufficient cause is shown and in this case there is sufficient cause for not invoking S.20. The main cause relied on by the learned counsel is the suit in the Bombay High Court. We are told by both parties that written statement has not yet been filed in the Bombay suit. As per our directions, photostat copy of the plaint in the Bombay suit has been produced before us. We have been taken through that plaint and the various disputes said to be referred to arbitration in the present suit. We find that the claim in the Bombay suit relates only to two items settled by the parties in Ext. A3 letter. Para.1.1 of Ext. A3 states that Rs. 3,62,723/- has to be paid by the plaintiff to the defendant. Para.2.1 states that Rs. 2,78,639 has to be paid by the defendant to the plaintiff. Para.3 which deals with the claim put forward by the defendant in regard to defective supply of goods states that the plaintiff should replace defective materials worth Rs. 1,93,135.38. A3 states that Rs. 3,62,723/- has to be paid by the plaintiff to the defendant. Para.2.1 states that Rs. 2,78,639 has to be paid by the defendant to the plaintiff. Para.3 which deals with the claim put forward by the defendant in regard to defective supply of goods states that the plaintiff should replace defective materials worth Rs. 1,93,135.38. The plaint in the Bombay suit claims only major part of the amount due to the defendant under Para.1.1 and 3. Claims being put forward by the plaintiff and sought to be referred to arbitration do not relate to or affect the claim put forward in the Bombay suit. Thus, the arbitration proceedings will not be proceedings parallel to the Bombay suit and there is no likelihood of conflict of findings. 16. Parties intended their disputes to be settled by arbitration. They decided upon ASSOCHAM as the arbitrator evidently because ASSOCHAM represents a large number of manufacturers and businessmen in the country. There is no case that ASSOCHAM has any particular legal expertise in regard to the matter dealt with in Ext. Al. Therefore, it cannot be said that a new and competent arbitrator, cannot be appointed or, if appointed, cannot do justice to the cause. On a consideration of the entire facts and circumstances of the case, we are of opinion that interests of justice require that the disputes raised by the plaintiff should be decided by a competent arbitrator. We therefore find no ground to interfere with the judgment of the court below. Appeal is dismissed with costs. Dismissed.