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1989 DIGILAW 168 (HP)

INDIAN OIL CORPORATION v. DEVINDER CHAUDHARY

1989-11-17

P.C.BALAKRISHNA MENON

body1989
ORDER P. C. Balakrishna Menon, C.J. - This revision petition by the first defendant is against the order of the lower court dismissing his application for stay of the suit under S. 34 of the Arbitration Act, 1940. 2. The plaintiff had entered into three agreements with the first defendant, the Indian Oil Corporation, for transport of L.P.G. Cylinders from Jullundur to Bilaspur and also from Jullundur to Nangal. All these agreements are on identical terms. Clause 35 of the agreement contained a provision for arbitration of all disputes arising out of the contract to be referred to the Sole Arbitration of the Director, Marketing of the first defendant Corporation or some other officer of the Corporation who may be nominated by the Director. As per the terms of the agreement, the plaintiff had furnished bank-guarantee to the tune of Rs. 22,500/- in respect of each of the three contracts. The second defendant is the Bank of India who had provided the bank-guarantee on behalf of the plaintiff. The suit is for a permanent injunction to restrain the first defendant the Indian Oil Corporation from raising any demand against the second defendant-Bank in respect of the guarantee furnished by it. There is also a prayer restraining the second defendant Bank from releasing the amount covered by the guarantee in favour of the first defendant. 3. The suit was filed on 1-5-1987 and on the same date the court below passed an ex-parte interim order restraining the second defendant Bank from releasing the bank-guarantee in favour of the first defendant. The suit and the interlocutory application were adjourned to 13-5-1987 and on that day it was noticed that summons in the suit was not served on the first defendant. Second defendant even though served had not attended the Court to contest the interlocutory application for injunction. The lower Court, therefore, made the interim injunction absolute against second defendant and directed the issue of fresh summons to the first defendant. The case was posted to 22-6-1987. On that day the first defendant appeared through counsel. The suit was adjourned to 15-7-1987 for the written statement of the first defendant and for the reply to the application for temporary injunction. On 15-7-1987 the first defendant filed the present application under S. 34 of the Arbitration Act for stay of the suit invoking the arbitration clause in the agreement between the parties. The suit was adjourned to 15-7-1987 for the written statement of the first defendant and for the reply to the application for temporary injunction. On 15-7-1987 the first defendant filed the present application under S. 34 of the Arbitration Act for stay of the suit invoking the arbitration clause in the agreement between the parties. The court below has dismissed the application on 30-11-1988 on the ground that the second defendant Bank is not a party to the arbitration agreement. It is against this that the first defendant has come up in revision. 4. The second defendant Bank is only a guarantor for the first defendant, with respect to the security to be furnished in terms of the agreement between the plaintiff and the first defendant. The relief prayed for in the main is also against the first defendant by way of an injunction restraining the first defendant from raising any demand for release of the amount covered by the bank-guarantee in terms of the agreement between the parties. The second defendant Bank, can, therefore, be treated only as a formal party in the suit for obtaining effective relief against the first defendant. The court below was, therefore, wrong in its view that the suit cannot be stayed under S. 34 of the Arbitration Act for the reason that the second respondent is not a party to the Arbitration agreement. 5. Learned counsel for the plaintiff-respondent Kumari Kamlesh Sharma has raised another point in support of the impugned order passed by the court below. According to the learned counsel, the first defendant appeared through counsel on 22-6-1987 and the court below on that day adjourned the case to 15.7.1987 for the written statement of the first defendant. There is nothing in the order-sheet to indicate that the counsel for the first defendant, prayed for time to five written statement nor is there anything to show that he had taken any other steps in the proceeding. Learned counsel for the respondent relies on the following passage from State of Uttar Pradesh v. M/s. Janki Saran Kailash Chandra (AIR 1973 SC 2071). "......... In the present case the written statement was indisputably not filed before the application for stay was presented. Learned counsel for the respondent relies on the following passage from State of Uttar Pradesh v. M/s. Janki Saran Kailash Chandra (AIR 1973 SC 2071). "......... In the present case the written statement was indisputably not filed before the application for stay was presented. The question is whether any other step was taken in the proceeding as contemplated by S. 34 and it is this point with which we are directly concerned in the present case. Taking other steps in the suit proceedings connotes the idea of doing something in aid of the progress of the suit or submitting to the jurisdiction of the Court for the purpose of adjudication of the merits of the controversy in the suit". Based on these observations, learned counsel urges that the first defendant appearing through counsel had submitted to the jurisdiction of the court when that court adjourned the case to 15.7.1987 for the written statement of the first defendant. A latter decision of the Supreme Court General Electric Co. v. Renusagar Power Co. ((1987) 4 SCC 137), has considered the meaning of the expression in S. 34 of the Arbitration Act ...... "at any time before filing a written statement or taking any other steps in the proceedings ..." and it is held that the step in the proceedings should relate to something done for the purpose of the adjudication of the subject matter of dispute in the suit. It is also observed that submission to the jurisdiction of the court to exclude Sec. 34 of the Arbitration Act should be such as to manifest an unequivocal intention to abandon the right of arbitration under the agreement between the parties. The Supreme Court after considering the decision in AIR 1973 SC 2071 (supra) observed at page 155 as under : "Thus we see that it is the view of this court that a step in the proceeding which would disentitle the defendant from invoking Section 34 of the Arbitration Act should be a step in aid of the progress of the suit or submission to the jurisdiction of the court for the purpose of adjudication of the merits of the controversy in the suit. The step must be such as to manifest the intention of the party unequivocally to abandon the right under the arbitration agreement and instead to opt to have the dispute - resolved on merits in the suit". The step must be such as to manifest the intention of the party unequivocally to abandon the right under the arbitration agreement and instead to opt to have the dispute - resolved on merits in the suit". The first defendant admittedly has not filed any written statement in the suit. I am satisfied that the first defendant has also not taken any other steps in the proceedings within the meaning of S. 34 of the Arbitration Act before he filed the application for stay of the suit. The impugned order, therefore, cannot be sustained. It is accordingly set aside and the suit is stayed under S. 34 of the Arbitration Act. The revision is allowed as indicated above. The parties will suffer their respective costs. Revision allowed.