STATE OF U. P. v. MOHD. RAFIQ KHAN AND CO. — 1995 DIGILAW 363 (ALL)

JUDGMENT D. K. Seth, J. - This appeal arises out of an order dated 21st February, 1985 passed by the learned Civil Judge, Bahraich in R.S. No. 44 of 1984 refusing to grant stay of further proceedings of the suit under Section 34 of the Arbitration Act filed by the appellant herein. 2. The facts leading to the case put in a short compass are as hereinafter. The plaintiff-respondent Mohammad Rafiq had entered into an agreement with the defendant appellant on 26th December, 1980 containing an arbitration agreement. On account of dispute and difference between the plaintiff-respondent and the defendant-appellant the plaintiff on 10th of November, 1983, referred the dispute to the arbitrator being the Superintending Engineer, 40th Circle, Public Works Department, Faizabad, named arbitrator in the said agreement and had lodged his statement of claim. The arbitration appears to have issued notices on 19th February, 1984 to the parties. But no steps were taken either to file the statement of claim or counter-claim by the defendant-appellant before the arbitrator. The plaintiff went on making successive representation to the arbitrator in vain till 17th December, 1984, namely, the date of filing R.S. No. 44 of 1984 aforesaid. It is alleged that even before filing the suit, the plaintiff had issued notices to the arbitrator which failed to attract any response. 3. In the said suit, the defendant-appellant filed application under Section 34 of the Arbitration Act praying for stay of further proceedings of the suit on the ground that the defendant appellant had all along been and was still ready and willing to taken all necessary steps for conduct of the arbitration. The plaintiff-respondent had filed his objections contending, inter alia, that the defendant-appellant was not entitled to any step on account of its own conduct and that the plaintiff respondent was not ready and willing as alleged. 4. The plaintiff-respondent had filed his objections contending, inter alia, that the defendant-appellant was not entitled to any step on account of its own conduct and that the plaintiff respondent was not ready and willing as alleged. 4. By an order dated 22nd February, 1985, the learned Civil Judge was pleased to dismiss the application under Section 34 of the Arbitration Act and refused to grant stay of the suit while holding that the defendant-appellant was not ready and willing to do all that which was required from them and that the arbitrator in spite of several letters issued by the plaintiff requesting him to settle the dispute, did not take any step due to which the plaintiff was compelled to file the suit since the period of limitation for recovery of claim was about to expire. It was also held that it was the discretion of the Court to grant stay and that the present the case should be decided by a court instead of through arbitration. 5. The defendant-appellant had preferred the above appeal on 6th July, 1985 together with an application for stay of further proceedings of the suit - R.S. No. 44 of 1984 pending before the learned Civil Judge Bahraich which was allowed on 10th of March, 1986. 6. Appearing for the appellant Mr. Bhalla contended that since the defendant-appellant was always ready and wiling to take all steps for conduct of arbitration and had filed the application under Section 34 of the Arbitration Act before taking any steps in the suit, the application under Section 34 ought to have been allowed That the plaintiff himself having referred the matter to arbitration he could not maintain the suit, nor he could oppose the application under Section 34 of the Arbitration Act. If the arbitrator had not taken steps in that event the plaintiff ought to have taken recourse to Section 9, 11 or 20 of the Arbitration Act. 7. Learned Counsel for the plaintiff respondent Mr. K. B. Sinha on the other hand submitted that in view of the conduct of the defendant-appellant, the court was right in refusing the grant of stay and that it was the discretion of the court in the matter of grant of stay such circumstances. The learned Civil Judge has rightly decided the case on the reasons given in the Judgment itself which squarely justifies the said order. The learned Civil Judge has rightly decided the case on the reasons given in the Judgment itself which squarely justifies the said order. The appellant Court should not interfere with the said order in the facts and circumstances of the case. He further contended that in the facts and circumstances of the case Section 34 of Arbitration Act cannot be attracted. He contended further that by reason of institution of the suit the Arbitration proceedings has since become invalid. 8. In order to resolve the contentions of the parties we may refer to the scheme of the Arbitration Act. The scheme of Arbitration Act proceed on the basis that instead of approaching the Court the parties may settle their dispute by agreement between themselves through an arbitrator of their choice. Such a proposition is an option to the parties who might confine themselves to the agreement or take resort to the judicial process through Court. But there cannot be any contract enforceable in law which prevents any party from initiating any legal proceeding as contemplated in Section 28 of the Contract Act read with Section 14(2) of the Specific Relief Act. In Section 41(b) of Specific Relief Act it has been provided that there cannot be any injunction restraining any person from initiating any legal proceeding. Therefore, even if an agreement is entered into for referring the dispute to Arbitration the same altogether does not preclude the right of a party to approach the Court. Therefore, in the Arbitration act such agreement has been protected to the extent as laid down in the Arbitration Act. 9. The legislative history of the arbitration clearly shows that suit was never barred. Only to protect the agreement between the parties certain restrictions and guidelines have been engrafted in the from of legislation. However, even if the dispute was settled by agreement between the parties still then the legislation provides for approval of court and also various protections in case of disputes and differences, Inasmuch as even when an award is passed without the aid of the court by reason of agreement between the parties the same is required to be approved by stamp of the Court in the form of a decree to be passed on the award. 10. 10. The said principle has been confirmed by reason of incorporation of Sec. 35 of the said Act, wherein it has been provided that upon initiation of a legal proceeding in respect of the whole of subject-matter between all the parties to the reference a pending reference becomes invalid as soon the notice is given to the arbitrator or umpire unless stay under Section 34 is granted. Initiation of suit by any of the parties in spite of pendency of the arbitration proceeding has never been barred but has been made subject to Section 34 and 35 of the said Act. Therefore, we hold that the filing of the suit in the instant case by the plaintiff-respondent is in no way bad. 11. Looking into the provision of Section 34 of the Arbitration Act, it appears that the situation is conceived in a condition where the plaintiff, instead of referring the dispute to arbitration, rushes to the court without giving opportunity to the defendant to refer the dispute to arbitrator, though the defendant was ready and willing before and on the commencement of the proceeding being the date of the institution of the suit. In such case, the defendant, who was ready and willing to take all steps for conduct of the arbitration, before taking any steps in the suit, may resort to Section 34 for stay of the proceedings of the suit. 12. In the present case, the facts are peculiar in themselves. Inasmuch as the plaintiff had referred the dispute to arbitration and had lodged his claim before the named arbitrator on 11th October, 1983. By reason of the provisions of Section 37(3) of the Arbitration Act, arbitration commences as soon one of the parties gives notice requiring that the difference be submitted to the person named and designated in the agreement. Therefore in the present case, the arbitration was commenced on 11th October, 19893 as soon the plaintiff had lodged his claim and the notice thereof was served upon the defendant-appellant by the arbitrator which is said to have been issued on 9th February, 1984. It is an admitted position that the defendant-appellant did not take any steps to file their counter-statement even till on 6th February, 1985. There is no dispute that the application under Section 34 was made before any steps in the suit were taken by the defendant-appellant. It is an admitted position that the defendant-appellant did not take any steps to file their counter-statement even till on 6th February, 1985. There is no dispute that the application under Section 34 was made before any steps in the suit were taken by the defendant-appellant. Now the plaintiff-respondent who himself had referred the arbitrator had instituted the suit being R.S. No. 44 of 1984, thereby declining by conduct and implication to proceed with the arbitration, or in other words had abandoned his right to get the dispute settled through arbitration as agreed between the parties. 13. Now it is the question as to whether in such circumstances, the provisions of Section 34 could be attracted where the arbitration has already commenced and one of the parties to the agreement having not responded and the arbitrator having not taken any steps. To our reading of Section 34 of the Arbitration Act, it is also applicable in such a case where the arbitration has already commenced. Inasmuch as in such a case, if the defendant herein would have filed the suit, the plaintiff herein could have sought protection of Section 34. Now plaintiff itself having initiated the arbitration, it abandoned the same and filed the suit and in such case, the defendant, if was ready and wiling to take steps for conduct of the arbitration, he is also eligible to resort to the provisions of Section 34 of the Arbitration Act. 14. In our view, the said provisions of Section 34 has been engrafted to keep the parties bound by their agreements and abide by a wholesome judicial principle. Therefore, if any of the parties to the agreement, even after initiating proceedings, himself wants to resile from agreement, the other party can very well keep him bound to the agreement. This interpretation, in our view, preserves or protects integrity and conduct of the parties to an agreement enforceable in the domain of accepted judicial process which honors the method of settling dispute by agreement through arbitration, with the aid of judicial approval through courts as embodied in the Arbitration Act. Therefore, we are unable to agree with the contention raised by the learned Counsel for the plaintiff-respondent. In the facts and circumstances of the case. The defendant-appellant can maintain the application under Section 34 of the Arbitration Act, the provisions whereof is attracted in the present case. 15. Therefore, we are unable to agree with the contention raised by the learned Counsel for the plaintiff-respondent. In the facts and circumstances of the case. The defendant-appellant can maintain the application under Section 34 of the Arbitration Act, the provisions whereof is attracted in the present case. 15. The learned Civil Judge had referred to the decision in the case of State Bank of Bikaner and Jaipur v. Devki Narain Bhatia ( AIR 1977 Raj 76 ), and the case of Steel Plant Private Ltd. v. Swastik Alloy Steel Limited ( AIR 1978 Cal 386 ), in order to draw inspiration in support of his reasoning to explain that the stay of the proceedings of the suit under Sec. 34 of the Arbitration Act is a judicial discretion of the court and that the same cannot be comprehended by any inflexible rule and that it is dependable on the relevant facts in each case. 16. It is an established principle, as laid down through various judicial decisions that : "That power to stay legal proceedings under Section 34 is discretionary, and so a party to an arbitration agreement against whom legal proceedings have been commenced cannot, by relying on the arbitration agreement, claim the stay of legal proceedings instituted in a court, as a matter of right. However, the discretion vested in the Court must be properly and judicially exercised. Ordinarily the court would direct the parties to go before the tribunal of their choice and stay the legal proceedings instituted before it by one of them. It would be difficult, and it is indeed inexpedient to lay down any inflexible rules which should govern the exercise of the said discretion." as has been enunciated in the case of The Printers (Mysore) Private Ltd. v. Pothan Joseph. ( AIR 1960 SC 1156 ). 17. In the case of Shalimar Paints v. Omprakash, ( AIR 1967 CAL 372 ) it was laid down that the possibility of a claim being barred by limitation, if referred to arbitration a stay of the suit, it is a relevant material consideration in exercising the discretion under Section 34 but it was not an absolute principle that in such cases stay may be refused nor stay could not be refused as a matter of course in every case but it depends on the facts of each case. 18. 18. There is no doubt that the court has discretion and that has to be exercised judicially and taking into consideration the various factors and materials pressed before the court depending on the facts and circumstances of each case. If it appears that the trial Court had exercised its discretion judicially on the basis of the materials placed before it, it should not be interfered with lightly. Such a contention finds support from the passage below from the case of The Printers (Mysore) Private Ltd., (supra) : "It is ordinarily not open to the appellant Court to substitute its own exercise of discretion for that of the trial Judge; but if it appear to the appellate Court that in exercising its discretion the trial Court has acted unreasonable or capriciously or has ignored relevant facts and has adopted an unjudicial approach then it would certainly be open to the appellate Court and in many cases it may be its duty to interfere with the trial Court's exercise of discretion. In cases falling under this class the exercise of discretion by the trial Court is in law wrongful and improper and that would certainly justify and call for interference from the appellate Court." 19. In the case of U.P. Co-operative Federation Ltd. v. Sunder Bros. Delhi, ( AIR 1967 SC 249 ) the same view was taken in the following expression : "Where the discretion veste in the Court under Section 34 has been exercised by the lower Court, the appellate Court would be slow to interfere with the exercise of their discretion. In dealing with the matter raised before it at the appellate stage the appellate Court would normally not be justified in interfering with exercise of the discretion under appeal solely on the ground that if it had considered the matter at the trial stage it may have come to a contrary conclusion. If the discretion has been exercised by the trial Court reasonably and in a judicial manner the fact that the appellate Court would have taken a different view may not justify such interference with the trial Court's exercise of discretion. If it appears to the appellate Court that in exercising its discretion the trial Court has acted unreasonably or capriciously or has ignored relevant facts, then it would be open to the appellate Court to interfere with the trial Court's exercise of discretion." 20. If it appears to the appellate Court that in exercising its discretion the trial Court has acted unreasonably or capriciously or has ignored relevant facts, then it would be open to the appellate Court to interfere with the trial Court's exercise of discretion." 20. Referring to the above decisions in the case of State Bank of Bikaner and Jaipur (supra), it was held : "A discretion is vested in the learned lower Court to refuse the stay of the suit on an application under Section 34 of the Indian Arbitration Act having been made after taking into consideration all the relevant facts up to the filing of the application. It cannot be, thus, said that the discretion vested in the learned lower Court has been exercised capriciously or arbitrarily. A Court of Appeal shall not ordinarily interfere with the exercise of such a discretion unless it is established that the discretion so vested in the learned lower court has been exercised arbitrarily or capriciously." 21. Similar view was also taken in the case of Steel Plant Private Ltd. (supra) : "A principle which is well settled and supported by decisions both in England and in India is that the power conferred upon the court to stay the legal proceedings is entirely a matter of discretion. It is further well settled that the discretion must be exercised judicially. It is difficult and inexpedient to lay down any inflexible rules which should govern the exercise of the said discretion. It is not possible to lay down any formula or test the automatic application of which will help to solve the problem of the exercise of judicial discretion. At the same time when discretion has been so exercised it will not be interfere with readily. The fact that the appellate Court would have taken a different view if the decision had vested with them would not justify interference with the trial Court's exercise of discretion. In other words, it is not ordinarily open to the appellate Court to substitute its own exercise of discretion for that of the trial Court Judge. Reference may be made for the aforesaid proposition to the case of Charles Osenthon and Company v. Johnston, 1942 AC 190; Evans v. Bartlam, 1937 AC 473 Russet on Arbitration, 8th Edition, page 150, Printers (Mys) Pvt. Ltd. v. P. Joseph, AIR 1960 SC 1156 ." 22. Reference may be made for the aforesaid proposition to the case of Charles Osenthon and Company v. Johnston, 1942 AC 190; Evans v. Bartlam, 1937 AC 473 Russet on Arbitration, 8th Edition, page 150, Printers (Mys) Pvt. Ltd. v. P. Joseph, AIR 1960 SC 1156 ." 22. It was further held in the case of Steel Plant Private Ltd. (supra) that : "It is an established principle that a party wanting to stay the proceedings should apply promptly and if it does not the same affords a ground on which the discretion is liable to be exercised by the court against him. It is also equally established that application for stay must show not only that he is now but also he was at the time of the commencement of the proceedings ready and willing to do everything necessary for the proper conduct of the arbitration." 23. In similar circumstances Supreme Court in the case of Anderson Wright Ltd. v. Moran and Co., (AIR 1965 SC 53) took the view : "We think that in this case at this stage, nearly ten years after the institution of the suit, we should not remand this proceeding to the High Court for determination of the same question over again. In our view, power under Section 34 to stay the proceedings where there is an arbitration agreement is not enforced as a matter of course. The Court may be satisfied in a particular case having regard to the circumstances that the matter should not be referred in accordance with the arbitration agreement. Having regard to the considerable delay that has taken place since the institution of the proceeding and the fact that questions as to custom of the market fall to be determined and also of the fact that the liability any of Morans under Section 230 of the Contract Act has to be ascertained in the light of surrounding circumstances, we think this is a case in which the hearing of the suit, in the interest of both the parties should of by the arbitrator." 24. Now on the basis of our above discussion, in the facts and circumstances of the case at hand, it appears to us that the defendant-appellant was never ready and willing to take all steps necessary for conducting the reference. Now on the basis of our above discussion, in the facts and circumstances of the case at hand, it appears to us that the defendant-appellant was never ready and willing to take all steps necessary for conducting the reference. In asmuch as it is the admitted position that the defendant-appellant had never referred the dispute to the arbitration nor had made any attempt for the purpose. On the other hand, when the plaintiff-respondent had referred to the arbitration, the defendant-appellant, in spite of receipt of notice issued on 19th February, 1984, did not take any steps for arbitration till the filing of the suit on 17th December, 1984. Admittedly even on 6th July, 1985, the defendant-appellant had not lodged his statement of claim or counter-claim before the arbitrator. It is admitted by Mr. Bhalla appearing for the defendant-appellant that even till today they have not filed statement of claim or counter-claim before the arbitrator. The stay of further proceedings of the suit was granted on 10th March, 1986. Since then the defendant-appellant has not taken any steps in the arbitration. These facts clearly indicate the conduct of the defendant-appellant with reference to its readiness and willingness to take all necessary steps in the arbitration. Though, however, it is not necessary to look into the conduct of the appellant after the filing of the application under Section 34 of the Arbitration Act, but still we find that there was nothing on the record except a mere assertion in the application under Section 34 of the Arbitration Act that the defendant-appellant was ready and willing to take all steps necessary for the conduct of the arbitration. Admittedly the defendant-appellant did take no steps in spite of being called upon to do so not only by the plaintiff but also by the arbitrator, at least, according to its own averment made in the affidavit, till 6th July, 1985. The learned trial Court has exercised its discretion in the matter, though on different reasons, it is not for the appellate Court to implant its discretion over of the trial Court's discretion as has been laid down in the case of Printers (Mysore) Private Ltd. (supra) and in the case of U.P. Co-operative Federation Ltd. (supra). 25. The learned trial Court has exercised its discretion in the matter, though on different reasons, it is not for the appellate Court to implant its discretion over of the trial Court's discretion as has been laid down in the case of Printers (Mysore) Private Ltd. (supra) and in the case of U.P. Co-operative Federation Ltd. (supra). 25. In fact nowhere it is found that the defendant-appellant had over showed from its conduct that it was ready and willing to take all necessary steps as is necessary in view of Section 34 of the Arbitration Act. 26. IT is contended that since arbitrator did not take steps, it was open to the plaintiff respondent to invoke the provisions of Section 9 or Section 11 or Section 20 of the Arbitration Act, as the case may be. From a reading of the Arbitration Act, we find that even if there is an arbitration agreement, the institution of the suit for the same cause of action is nowhere barred under the law. However, the same might be subject to Sections 34 and 35 of the Arbitration Act. Therefore, there is no bar in fining a suit by the plaintiff-respondent who himself had initiated the arbitration proceedings and was unable to get any response wherefor he had abandoned his right and elected to proceed in the form of a regular suit. There cannot be any restriction on the right of the election of a party to elect the method or process or forum to vindicate its right in either of the available forums. Section 34 of the Arbitration Act does not imply any such restriction. 27. In view of the above, we do not process to interfere with the order of the learned trial Judge in the facts and circumstances at hand is peculiar in its nature inasmuch as since the commencement of the arbitration on 11th October, 1983, till today, the arbitration has not proceeded beyond issuing the notice on 19th February, 1984 and the defendant-appellant has not taken any steps therein in spite of having obtained stay of further proceedings of the suit on 10th March, 1986 and in the meantime the claim having already been time-barred, for being further referred to any arbitrator since the named arbitrator had failed and neglected to proceed whereas the suit has also become quite old. We are, therefore, unable to agree with the contention of the learned Counsel for the defendant-appellant to allow the appeal. 28. In the result, the appeal is dismissed without any order as to costs. The learned Civil Judge, however, is directed to dispose of the suit as expeditiously as possible without granting any adjournment to either of the parties unless it is extremely necessary, preferably within a period of one year from the date of the receipt of the records which ware directed to be sent down to the learned Court below forthwith. Appeal dismissed.