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2006 DIGILAW 839 (GAU)

Hindustan Anitbiotics Ltd. v. Candida Enterprises

2006-09-05

H.N.SARMA

body2006
1. This revision petition arises out of an order dated 21.7.2003 passed by the learned Civil Judge (Senior Division) No. 1. Guwahati in TS No. 85/2003 rejecting the application of the petitioners filed under section 8(1) of the Arbitration and Conciliation Act, 1996, to refer the dispute involved in the suit for adjudication by the Arbitration Tribunal as agreed to by the parties. 2. I have heard Mr. G. Baishya, learned counsel for the petitioner/ defendants and Mr. D. Baruah, learned counsel for the plaintiff/ respondents. 3. The aforesaid Title Suit No. 85/203 w*s filed by the plaintiff/ respondents impleading the present petitioners as defendant Nos. 3, 4 and 5, the defendant Nos. 1 and 2 being the State Bank of India and the Branch Manager, State Bank of India, C & I Division, Panbazar, respectively. 4. To put in short, the pleaded case of the plaintiff/respondents, inter alia, is that the plaintiff/respondent was appointed as C & S agent of the defendant/petitioner for warehousing, forwarding, selling products manufactured and supplied by them from time to time and to that effect a written agreement was executed between the parties on 1.12.1986. The said agreement though was initially for a period of three years, it was extended from time to time. On 25.6.1996, another agreement was executed by and between the parties wherein some of the earlier terms and conditions were amended and some new terms and conditions were incorporated including a term relating to furnishing of Bank Guarantee by the plaintiff in favour of the petitioner/ defendants. In pursuance of that the plaintiff furnished a bank guarantee for Rs. 6,00,000.00 in favour of the petitioner/defendants of the State Bank of India, Guwahati Branch which was also extended from time to time and the same could be invoked by written demand or claim by the petitioner/defendants to the Bank on or before 16.4.2003. It is the further case of the plaintiff that an (sic) amount of the business with the petitioner the plaintiff was entitled to get an amount of Rs. 9,03,076.45 from them and the same has not been paid in spite of demands. On 31.3.2003, the plaintiff came to know that the petitioner/ defendants sought to invoke the bank guarantee dated 17.10.2001 executed in its favour by the plaintiff/respondents. 9,03,076.45 from them and the same has not been paid in spite of demands. On 31.3.2003, the plaintiff came to know that the petitioner/ defendants sought to invoke the bank guarantee dated 17.10.2001 executed in its favour by the plaintiff/respondents. On getting such information, the plaintiff wrote a letter to the petitioners requesting not to invoke the bank guarantee, inasmuch as, they are entitled to an amount of Rs. 11,00,000.00 (approximately) from the petitioner/ defendants. It is also alleged that without settling the dues of the plaintiff/respondents, the petitioner/defendants are trying to invoke the bank guarantee unreasonably for which the aforesaid suit was filed by the plaintiff claiming the following reliefs: (a) Declaration that the purported letter dated 25.3.2003 issued by the Defendant No. 5 on behalf the defendant No. 3 for invocation of the bank guarantee bearing No. C&I/OO learned trial court 1/27 dated 17.10.2001 in favour of the defendant No. 3 company to the defendant Nos. 1 and 2 is illegal, null and void and/or has been duly avoided by the plaintiffs. (b) Declaration that the bank guarantee bearing No. C&I/OO-01/27 dated 17.10.2001 in favour of the defendant No. 3 company cannot be invoked under the present facts and circumstances. (c) Permanent injunction restraining the defendants and each of them from giving any or any further effect to letter date 25.3.2003 issued by the Defendant No. 5 on behalf of the defendant No. 3 to the defendant Nos. 1 and 2 from acting on the basis thereof. (d) Perpetual injunction restraining the respondents and each of them from demanding payment under the said bank guarantee bearing No. C&I/00-01/27 dated 17.10.2001 in favour of the defendant No. 3 company. (e) Pass a decree of costs of suit. (f) Pass a decree for such further order or orders to which the plaintiffs is entitled to under the law and equity.". On the prayer of the plaintiff/respondents, the learned trial court also granted ad interim injunction restraining the petitioner/defendants from invoking the bank guarantee. 5. Summons of the suit having been served, the petitioner/defendants appeared and filed an application under section 8(1) of the Arbitration and Conciliation Act, 1996, ('the Act') for referring the dispute for arbitration. On the prayer of the plaintiff/respondents, the learned trial court also granted ad interim injunction restraining the petitioner/defendants from invoking the bank guarantee. 5. Summons of the suit having been served, the petitioner/defendants appeared and filed an application under section 8(1) of the Arbitration and Conciliation Act, 1996, ('the Act') for referring the dispute for arbitration. In the said application it is stated that the agreement executed by and between the parties which is annexed as plaintiffs document No. 1 in the suit contains an arbitration clause to refer any dispute between the parties in regard or related or arising out of the agreement for adjudication by the Chief Executive of the plaintiffs company as the sole arbitrator, in the event the dispute between the parties is not resolved by mutual trust and goodwill. A written objection was also filed by the plaintiff against the said prayer made by the petitioner/defendants. The learned trial court after hearing the parties vide judgment and order dated 21.7.2003 rejected the prayer of the plaintiff/respondents. It is to be noted herein that the petitioner/ defendants have also filed an application under order 7, rule 11, CPC, for rejection of the plaint which was also rejected by the common impugned order. 6. Challenging the impugned order Mr. Baishya submits that the parties having agreed to refer the dispute for arbitration of the Chief Executive of the company, in the event of their failure to resolve the dispute by mutual trust and goodwill, and the petitioner/defendants having such prayer by filing an application in compliance of the provisions of section 8(1) of the Act, the learned trial court was duty bound to refer the same for arbitration and that not having done the learned trial court acted illegally and with material irregularity failing to exercise its jurisdiction, it requires interference by this court. Mr. Baishya in support of his contention has referred to the decisions of the Apex Court rendered in Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums, (2003) 6 SCC 503 and Sukanya Holdings (P.) Ltd. v. Jayesh H. Pandya and Another, (2003) 5 SCC 531 . 7. Par contra Mr. Mr. Baishya in support of his contention has referred to the decisions of the Apex Court rendered in Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums, (2003) 6 SCC 503 and Sukanya Holdings (P.) Ltd. v. Jayesh H. Pandya and Another, (2003) 5 SCC 531 . 7. Par contra Mr. Baruah submits that the suit in question having been filed challenging the action of the petitioner/defendants to invoke bank guarantee dated 17.10.2001 executed in favour of the petitioner/ defendants guaranteed by the State Bank of India, the dispute raised in the suit does not relates to the dispute as referred to in the agreement (plaintiffs document No. 1) and that apart, the defendant Nos. 1 and 2 not being the parties to the said agreement, the dispute raised in the suit cannot be referred to the Arbitrator. Mr. Baruah, also referred to the decisions of the Apex Court rendered in the case of SBP & Co. v. Patel Engineering Ltd. and Another, (2005) 8 SCC 618 and Sukanya Holdings (P.) Ltd. (supra). However, Mr. Baruah does not deny the existence of the arbitration clause in the agreement. 8.1 have carefully considered the rival submissions made by the learned counsel for the parties and also perused the records available before me. In the conspectus of rival submissions made by the parties, vis-a-vis, the pleadings, it is to be considered, whether the arbitration clause mentioned in the agreement also embraces the present suit. For ready reference, the related arbitration clause contained in Para - 25 of the agreement is quoted herein below. "(25) Should there be any dispute between the company and the agency in regard to or relates to or arising out of this Agreement, the party shall try to resolve the dispute in mutual trust and goodwill. In the event of such dispute or difference is not settled amicably by negotiation the same shall be referred to the Chief Executive of the company as the sole arbitrator and the matter settled as per the rules of Indian Arbitration Act. The decision of the arbitrator shall be final and binding on both the parties." 9. A careful reading of the plaint discloses that the basis of the claim of the plaintiff is the agreement by which they were appointed as C&S agent by the petitioner/defendants. The claim made by the plaintiff regarding the alleged outstanding dues amounting to Rs. The decision of the arbitrator shall be final and binding on both the parties." 9. A careful reading of the plaint discloses that the basis of the claim of the plaintiff is the agreement by which they were appointed as C&S agent by the petitioner/defendants. The claim made by the plaintiff regarding the alleged outstanding dues amounting to Rs. 9,03,076.45 arising out of the service rendered them as the agent of the petitioners appointed as per the said agreement container, the arbitration clause. That apart, the bank guarantee in question was also executed in terms of the agreement arrived at by and between the parties. That being the position, the basis of demand made by the petitioners to invoke the bank guarantee executed in its favour by the plaintiff and the suit filed by the plaintiff challenging the said demand, is the aforesaid agreement executed by the parties. Accordingly, the arbitration clause is squarely applicable for deciding the dispute involved in the suit. Although the State Bank of India has been impleaded as party defendant in the suit, the main reliefs claimed in the suit are against the present petitioners and in fact, no tangible relief has been claimed against the bank. The bank has not appeared and contested the present petition. No. fraud has also been alleged against any of the defendants in the suit. On such overall considerations, Mr. Baruah has no legs to stand. 10. It is already noted that the only ground for filing of the suit is that the petitioner/defendants have not paid the outstanding dues payable to the plaintiff/respondents. Such a condition is not incorporated in the bank guarantee, the bank guarantee in question is an unconditional one. The said bank guarantee cannot be said to be out side the scope of the agreement arrived at between the parties which also contained the arbitration clause. In such a matter, the agreement is to be considered in its widest amplitude and contents and also would include the question of existence and effect of arbitration agreement and, thus, going to the root of the dispute raised in the suit. The said agreement between the parties cannot be ignored including the suit, rather the whole basis of the claim of the plaintiff is their right that flows from the said agreement. The said agreement between the parties cannot be ignored including the suit, rather the whole basis of the claim of the plaintiff is their right that flows from the said agreement. In view of the statements made in the pleadings wherein no allegation is made against the bank, it would cause no hindrance for the court in exercising the power under section 8(1) of the Act. 11. In the case of Hindustan Petroleum (supra) the Apex Court at paragraph 14 of the judgment has held as follows : "This court in the case of P. Anand Gajapathi Raju v. PVG Raju has held that the language of section 8 is peremptory in nature. Therefore, in cases where there is an arbitration clause in the agreement, it is obligatory for the court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action after such an application is made except to refer the dispute to an arbitrator. Therefore, it is clear that if, as contended by a party in an agreement between the parties before the civil court, there is a clause for arbitration, it is mandatory for the civil court to refer the dispute to an arbitrator. In the instant case the existence of an arbitral clause in the Agreement is accepted by both the parties as also by the courts below but the applicability thereof is disputed by the respondent and the said dispute is accepted by the courts below. Be that as it may, at the cost of repetition, we may again state that the existence of the arbitration clause is admitted. If that be so, in view of the mandatory language of section 8 of the Act, the courts below ought to have referred the dispute to arbitration." 12. In the same judgment, the Apex Court in paragraph-16 referring to the Constitutional Bench judgment in Konkan Railway (2002) 2 SCC 338 has held : "It is clear from the language of the section, as interpreted by the Constitution Bench judgment in Konkan Rly. that if there is any objection as to the applicability of the arbitration clause to the facts of the case, the same will have to be raised before the Arbitral Tribunal concerned. that if there is any objection as to the applicability of the arbitration clause to the facts of the case, the same will have to be raised before the Arbitral Tribunal concerned. Therefore, in our opinion, in this case the courts below ought not to have proceeded to examine the applicability of the arbitration clause to the facts of the case in hand but ought to have left that issue to be determined by the Arbitral Tribunal as contemplated in clause 40 of the Dealership Agreement and as required under sections 8 and 16 of the Act.". 13. Section 8 of the Act has been held to be peremptory in nature by the Apex Court in the case of P. Anand Gajapathi Raju v. PVG Raju, (2000) 4 SCC 539 , wherein in paragraph 8, the Apex court: has held as follows : "In the matter before us, the arbitration agreement covers all the disputes between the parties in the proceedings before us and even more than that. As already noted, the arbitration agreement satisfies the requirements of section 7 of the new Act. The language of section 8 is peremptory. It is, therefore, obligatory for the court to refer the parties to arbitration in terms of their arbitration agreement. Nothing remains to be decided in the original action or the appeal arising therefrom. There is no question of stay of the proceedings till the arbitration proceedings conclude and the award becomes final in terms of the provisions of the new Act. All the rights, obligations and remedies of the parties would now be governed by the new Act including the right to challenge the award. The court to which the party shall have recourse to challenge the award would be the court as defined in clause (e) of section 2 of the new Act and not the court to which an application under section 8 of the new Act is made. An application before a court under section 8 merely brings to the court's notice that the subject-matter of the action before it is the subject-matter of an arbitration agreement. An application before a court under section 8 merely brings to the court's notice that the subject-matter of the action before it is the subject-matter of an arbitration agreement. This would not be such an application as contemplated under section 42 of the Act as the court trying the action may or may not have had jurisdiction to try the suit to start with or be the competent court within the meaning of section 2(e) of the new Act." 14. The cases cited by Mr. Baruah not being related to a issue with which are faced in this present petition are of no help to him. The ratio of these cases are not applicable in the facts of the instant case. 15. The finding of the learned trial court that the bank guarantee is outside the purview of the arbitration clause is per se misinterpretation of the scope and magnitude of the said agreement, the basis of the claim made in the suit being the entitlement of the defendants to certain amount from the plaintiff as C&S agent appointed as per the said agreement. The language of clause 25 is of wide magnitude. The dispute in question not having mutually settled by the parties on the face of the filing of the suit, the same is required to be referred for adjudication by the sole arbitrator as referred in the arbitration clause and the arbitration clause 25 of the agreement would be squarely applicable to settle the dispute raised in the suit. 16. The plaintiff having filed the said application before the learned trial court under section 8(1) of the Act, in the suit before the first statement, in view of the legislative mandate as contained in section 8(1) of the Act, it is incumbent upon the learned trial court to refer the dispute for adjudication by the sole arbitrator. The learned trial court has completely misdirected the issue involved and illegally rejected the prayer for referring the dispute to arbitrator. 17. The learned counsel for the petitioner not having seriously raised the issue relating to rejection of the plaint under order 7, rule 11, CPC. I do intend to discuss the same any more. 18. In view of the aforesaid discussions, the impugned order cannot be sustained and accordingly, it is set aside and quashed. 17. The learned counsel for the petitioner not having seriously raised the issue relating to rejection of the plaint under order 7, rule 11, CPC. I do intend to discuss the same any more. 18. In view of the aforesaid discussions, the impugned order cannot be sustained and accordingly, it is set aside and quashed. The dispute shall be referred to the arbitration to be decided by way of arbitration in terms of clause 25 of the agreement. 18. In the result, the impugned order is set aside and quashed and the revision petition stands allowed. The Registry is directed to send down the LCRs forthwith and the learned trial court, who on receipt of the LCRs shall immediately refer the dispute for arbitration, by passing necessary consequential order in the suit. No costs.