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2006 DIGILAW 108 (HP)

Pawan Sharma v. Tarkeshwar Shah

2006-04-20

V.K.GUPTA

body2006
JUDGMENT V.K. Gupta, C.J. 1. In this petition filed under Article 227 of the Constitution of India, the petitioner has challenged the correctness and validity of the order dated 12th April, 2004 passed by the then learned Sub Judge (1), Shimla. By this impugned order, the learned Court below, while allowing an application filed by the respondent under Section 151 of the Code of Civil Procedure, recalled the order dated 7th April, 1998 passed by his order dated 7th April, 1998 passed by his predecessor. By this order dated 7th April, 1998 the Court had, based upon the agreement of the parties referred the disputes between the parties to an agreed Arbitrator, namely, Shri J.S. Bhogal, Advocate. Brief facts leading to the filing of this petition are as under: 2. Civil Suit No. 17/1 of 1997 was filed by respondent Shri Tarkeshwar Shah against the petitioner Shri Pawan Kumar Sharma for obtaining a decree of permanent prohibitory injunction. In this suit the petitioner-defendant before filing written statement filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (1996 Act, for short) praying for the stay of the said suit as well as for reference of the disputes forming the subject matter of the suit to arbitration because with respect to the subject matter of the suit the parties had executed an agreement in which, under Clause (10), it was provided that the disputes between the parties shall be referred to the arbitration of an Arbitrator to be mutually appointed by both the parties. Vide order dated 9th January, 1998, filed under Section 8 of 1996 Act by the petitioner-defendant. In the course of this order, even though it was not strictly required to be done the learned Court below directed the parties to appoint the Arbitrator by their mutual agreement and thereafter to place the matter before the appointed Arbitrator for arbitration in accordance with law. In the course of the said order, it was also mentioned that a reference has to be made by the Court to the Arbitrator after his appointment by the parties based on their agreement. For this purpose, despite allowing the application, the Court below fixed the case for a next date. 3. In the course of the said order, it was also mentioned that a reference has to be made by the Court to the Arbitrator after his appointment by the parties based on their agreement. For this purpose, despite allowing the application, the Court below fixed the case for a next date. 3. Before I proceed any further, I must very clearly and unambiguously state that the learned Court below was not at all required, under the Scheme of 1996 Act, particularly in terms of Section 8 thereof, to either direct the parties to appoint the Arbitrator or to take upon itself the burden of making a reference of the disputes to the appointed Arbitrator. This perhaps was a procedure and practice in vogue under the earlier Act, namely, the Arbitration Act, 1940 but as far as 1996 Act is concerned, the limited jurisdiction, the only power of a Civil Court whenever an application under Section 8 of the Act was received and had to be disposed of was to "refer the parties" to arbitration. Section 8 for ready reference may be reproduced hereunder, which reads thus: 8. Power to refer parties to arbitration where there is an arbitration agreement.-(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration. (2) The application referred to in Sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof. (3) Notwithstanding that an application has been made under subsection (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made. 4. A bare reading of Section 8 (supra) clearly suggests that whenever a Judicial Authority seized of a judicial matter, such as a Civil Court seized of a Civil Suit is approached by a party in that matter with the submission and a prayer that with respect to the subject matter of the judicial matter an arbitration agreement stands executed between the parties, such a Judicial Authority may refer the parties to arbitration. "Referring the parties" to arbitration and making a "reference of the disputes to the Arbitrator" are two distinct situations. "Referring the parties" to arbitration and making a "reference of the disputes to the Arbitrator" are two distinct situations. Yes, under Section 20 of the Arbitration Act, 1940 and under some other related provisions of that repealed law, the Civil Court had the jurisdictibn to make a reference of disputes to the Arbitrator but under the Scheme of 1996 Act, particularly based upon Section 8 thereof, the limited jurisdiction of a Court seized of a suit is to dispose of the suit, if and when, upon being approached by a party in that suit, it is satisfied that the subject matter of the suit is also the subject matter of an arbitration agreement between the parties. On such satisfaction being recorded, the only jurisdiction vesting in the Civil Court while disposing of the suit is, on the same date to make a formal order of referring the parties to arbitration. Under this Scheme, therefore, it is no part of the Court's duty to adjourn the matter to some other date to enable the parties to report to the Court about the appointment of the Arbitrator and then to make a reference of disputes to the Arbitrator. This is not the intention of the Legislature which can be gathered or spelt out by a reading of 1996 Act. The legislative intent is very clear. It only suggests that once under Section 8 the Court has disposed of the suit by observing and holding that the subject matter of the suit is covered by an arbitration agreement it merely "refers the parties to arbitration". Thereafter it is for the parties and the parties alone, in terms of stipulations contained in the arbitration agreement to start the process of having the disputes adjudicated upon by the mechanism and through the medium of arbitration and in that process to take steps for the appointment of the Arbitrator(s). 5. Based upon the aforesaid observations, even though it was no part of the Court's duty to adjourn the matter to a subsequent date after allowing Section 8 application for enabling the parties to appoint Arbitrator and to report to the Court and then to refer the disputes to arbitration, the Court on 7th April, 1998 passed the following order: Heard. The Learned Counsels for the parties have suggested the name of Sh. J.S. Bhogal Advocate to be appointed as Arbitrator on their behalf. Heard. As Sh. The Learned Counsels for the parties have suggested the name of Sh. J.S. Bhogal Advocate to be appointed as Arbitrator on their behalf. Heard. As Sh. J.S. Bhogal Advocate - has been named as sole Arbitrator, therefore, the dispute be referred to the Arbitrator. The parties are directed to file the agreement before the Arbitrator, who will proceed with the case accordingly, as per law. If the dispute is not solved the parties may again approach the court by filing objection etc. according to law. The present suit is accordingly disposed of with the direction that Ahlmad shall issue appropriate orders to the Arbitrator. It be consigned to the record room after completion. 6. As is evidently clear the order dated 7th April, 1998 was passed based upon the agreement between the parties. The arbitration agreement between the parties reads as under: 10. That this is hereby mutually agreed between the parties hereto that whenever there shall be any dispute regarding measurement of the constructed work, payment etc. the matter shall be referred to the Arbitrator mutually agreed both the parties and the decision/Award by will be binding upon both the parties. 7. The agreement clearly stipulated that the Arbitrator was to be appointed by the parties by their mutual consent, based upon their mutual agreement. Even though the Court had no obligation to adjourn the matter beyond 9th January, 1998, even if it did so, it could at best be called as a superfluous act on the part of the Court, not strictly having been prescribed by the Statute but nonetheless, because the parties based upon their agreement had reported to the Court that they had appointed Shri J.S. Bhogal, Advocate as the sole Arbitrator, no illegality can be found in the order dated 7th April, 1998 because by that order the Court merely passed a formal order of referring the disputes to the Arbitrator. The fact remains that the parties themselves had mutually agreed, in accordance with the mandate of the arbitration agreement to appoint Shri J. S. Bhogal, Advocate as the sole Arbitrator. In this background, therefore, Section 11 of 1996 Act had no application because Sub-section (2) of Section 11 clearly stipulates that subject to Sub-section (6) thereof the parties are free to agree on a procedure for appointing an Arbitrator. In this background, therefore, Section 11 of 1996 Act had no application because Sub-section (2) of Section 11 clearly stipulates that subject to Sub-section (6) thereof the parties are free to agree on a procedure for appointing an Arbitrator. The procedure the parties had clearly prescribed in the arbitration agreement when they agreed that by their mutual agreement they shall be appointing the Arbitrator. If, based upon such procedure, the parties had mutually agreed to appoint Shri J.S. Bhogal, Advocate, there was absolutely no scope for interference by the Chief Justice under Section 11 of 1996 Act. 8. The learned Court below, therefore, was wholly unjustified in taking a patently erroneous view, based upon its gross misinterpretation of Section 11 of 1996 Act that the reference of disputes to Shri J.S. Bhogal, Arbitrator by the Court vide its order dated 7th April, 1998 was illegal and that in the facts and circumstances of the case the only mode of appointment of the Arbitrator was by taking recourse to Section 11 of the Act. As I have already observed, in the facts and circumstances of this case, particularly based upon the arbitration agreement between the parties and the fact that the parties had actually mutually agreed to appoint Shri J.S. Bhogal as the sole Arbitrator, there was absolutely no scope for interference by the Chief Justice under Section 11 of the Act. 9. By the impugned order the learned Court below not only recalled the order dated 7th April, 1998 but it also restored, in effect and substance the suit between the parties. This was wholly impermissible tinder law because once Section 8 application was allowed by the Court, the civil suit stood disposed of. Hence there was no question of the suit being restored, irrespective of whether the Arbitrator was rightly appointed or not rightly appointed. 10. Based upon the aforesaid observations, I have no hesitation in holding that the learned Court below erred in law in passing the impugned order which it had no jurisdiction to pass. The impugned order accordingly is set aside with all consequences. The arbitration proceedings before Shri J.S. Bhogal, Advocate shall stand revived. 10. Based upon the aforesaid observations, I have no hesitation in holding that the learned Court below erred in law in passing the impugned order which it had no jurisdiction to pass. The impugned order accordingly is set aside with all consequences. The arbitration proceedings before Shri J.S. Bhogal, Advocate shall stand revived. Since the matter has already taken a long time, I direct that the learned Arbitrator shall restart the arbitration proceedings from the stage at which these were stopped because of the interference of the Court and ensure that the arbitral award is passed without any delay. The petition is allowed. No order as to costs. CMP No. 260 of 2004. 11. In view of the disposal of the main petition, this application shall stand disposed of.