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2011 DIGILAW 202 (RAJ)

Jain Travels v. Alwar Zila Dugdh Utpadak Sahakari Samiti Ltd. , Alwar

2011-01-27

MAHESH CHANDRA SHARMA

body2011
Hon'ble SHARMA, J.—This misc. appeal has been filed under Section 39 of the Indian Arbitration Act, 1950 against the order dated 14.11.1995 of the Civil Judge (Senior Division) Alwar in Civil Suit No. 47/94, whereby the application moved by the defendant under Section 34 of the Indian Arbitration Act was allowed and the proceedings in the suit have been stayed. 2. Brief facts of the case are that a suit was instituted in the court of Civil Judge on behalf of the plaintiff-appellant (in short `the plaintiff-firm') for recovery of an amount in the sum of Rs. 40,737/- against the defendants. The plaintiff firm is a duly registered firm with the Registrar of Firms and Sarvashri Atul Jain, Pradeep Jain and Smt. Raj Rani Jain are the partners in the said firm. The plaintiff firm is doing the business of transportation and the defendant has engaged the plaintiff firm for transportation of its goods through an agreement dated 12.2.1994. As per the said agreement, the transportation work was to be initiated with effect from 14.2.1994 and for each trip an amount of Rs. 1900 was fixed by the defendant. The defendant did not pay the due amount to the plaintiff firm and for that a notice was given to the defendant and consequently the plaintiff firm has instituted the suit. After service of the summons, the defendant appeared before the trail court and filed an application under Section 34 of the Indian Arbitration Act for staying the proceedings of the suit on account of existence of clause 7 of arbitration agreement. It was submitted that as per clause 7 of the said agreement any dispute arising out between the parties shall be decided by the Arbitrator and in view of section 34 of the proceedings in the suit was sought to be stayed. After hearing both the parties the learned trial Court allowed the application filed by the defendant. Against the said order dated 14.11.1995 of the Civil Judge (Senior Division) Alwar the plaintiff firm preferred the instant appeal. 3. Mr. R.K. Mathur, Senior Advocate assisted by Mr. Aditya Mathur, contended that the trial Court has committed a serious illegality by staying the proceedings of the suit in view of section 34 of the Arbitration Act. Against the said order dated 14.11.1995 of the Civil Judge (Senior Division) Alwar the plaintiff firm preferred the instant appeal. 3. Mr. R.K. Mathur, Senior Advocate assisted by Mr. Aditya Mathur, contended that the trial Court has committed a serious illegality by staying the proceedings of the suit in view of section 34 of the Arbitration Act. The learned Senior Advocate contended that Section 34 of the Arbitration Act are not attracted in the present case on the ground that a power has been conferred upon the court to stay the legal proceedings where there is an arbitration agreement. He has further contended that as per the definition provided in sub-section (i) of Section 2 of the Arbitration Act "written agreement to be submitted present or future differences of arbitration whether an arbitrator is named therein or not. In the instant case a bare perusal of clause 7 of the arbitration agreement would reveal that it contains only the dispute arising out of the agreement and all questions related to interpretation of the agreement shall be referred to the Managing Director and the decision of Managing Director shall be final and binding to both the parties, this clause does not reflect that there was an arbitration agreement between the parties. He has further contended that there was no arbitration agreement between the parties. The agreement dated 12.2.1994 does not reflect any thing regarding existence of any arbitration agreement and in the absence of any arbitration agreement, the proceedings in the suit could not have been stayed. Mr. R.K. Mathur, Sr. Advocate placed reliance on Union of India vs. Birla Cotton Spinning and Weaving Mills Ltd. ( AIR 1967 SC 688 ). 4. Mr. Manu Bhargava, counsel appearing for the defendant has contended that the suit filed by the plaintiff firm is not maintainable in the eye of law. He has further contended that the plaintiff firm has put signatures on the agreement dated 19.2.1994. By this agreement both the plaintiff firm and the defendant agreed upon clause "7" of the agreement which clearly gives power of arbitration and in view of this agreement the learned Civil Judge has rightly passed the order dated 14.11.1995. Mr. Manu Bhargava in support of this argument placed reliance on Rite Approach Group Ltd. vs. M/s. Rosoboronexport 2006(1) WLC (SC) Civil 175. 5. Mr. Manu Bhargava in support of this argument placed reliance on Rite Approach Group Ltd. vs. M/s. Rosoboronexport 2006(1) WLC (SC) Civil 175. 5. In Union of India vs. Birla Cotton Spinning and Weaving Mills Ltd. their Lordships of the Apex Court in paras 3, 4, 5, 6, 7, 8 and 9 held as under: "3. The only contention raised in the appeal is that the terms of the arbitration agreement include a dispute relating to a refusal to meet the obligations arising under the contract even though the refusal was not founded, on any right arising under the terms of the contract. The arbitration agreement is contained in clause 21, which in so far as it is material provides: In the event of any question or dispute arising under these conditions or any special conditions of contract or in connection with this contract (except as to any matters the decision of which is specially provided for by these conditions) the same shall be referred to the award of an arbitrator to be nominated by the purchaser and an arbitrator to be nominated by the Contractor, or in case of the said arbitrators not agreeing then to the award of an Umpire to be appointed by the arbitrators in writing before proceeding on the reference and the decision of the arbitrators, or in the event of their not agreeing, of the Umpire appointed by them shall be final and conclusive and the provisions of the Indian Arbitration Act, 1940, and of the Rules thereunder and any Statutory modification thereof shall be deemed to apply to and be incorporated in this contract." The arbitration clause is wide and includes not only disputes arising under the covenants of the contract but also to disputes under conditions general or special or in connection with the contract. But before an order for stay of a proceeding may be made under Section 34 of the Arbitration Act, the following conditions must co-exist: (i) there must be a subsisting and binding arbitration agreement capable of being enforced between the parties; (ii) the subject-matter in dispute in the proceeding sought to be stayed must be within the scope of the arbitration agreement; and (iii) the petition must be made to the judicial authority by a party to the arbitration agreement or some person claiming under him at the earliest stage or the proceeding i.e., before the filing of the written statement or taking any other step in the proceeding. The judicial authority may, if these conditions exist, grant stay, if it is satisfied that the party applying is and has also been at all material times before the proceedings were commenced ready and willing to do all things necessary for the proper conduct of the arbitration and there is no sufficient reason for not referring the matter in accordance with the arbitration agreement. 4. The evidence recorded by the trial Court discloses that there was no dispute between the Company and the Union arising under the contract on which the suit was filed. The Union accepted liability to pay the amount claimed by the Company in the suit. The Union still declined to pay the amount asserting that an amount was due from the Company to the Union under a distinct contract. This amount was not sought to be set-off under any term of the contract under which the Company made the claim. The dispute raised by the Union was therefore not in respect of the liability under the terms of the contract which included the arbitration clause, but in respect of an alleged liability of the Company under another contract which it may be noted had already been referred to arbitration. The Union had no defence to the action filed by the Company: it was not contended that the amount of Rs. 10,625 was not due to the Company under the contract relied upon by the Company. For enforcement of the arbitration clause there must exist a dispute: in the absence of a dispute between the parties to the arbitration agreement there can be no reference. 5. 10,625 was not due to the Company under the contract relied upon by the Company. For enforcement of the arbitration clause there must exist a dispute: in the absence of a dispute between the parties to the arbitration agreement there can be no reference. 5. It was urged that mere refusal by the Union to pay the amount due to sufficient to raise a dispute "in connection with the contract" within the meaning of clause 21 of the Arbitration agreement. We are unable to agree with that contention. A dispute that the Union is not liable to pay this price under the terms of the contract is undoubtedly a dispute under the contract, and in any event in connection with the contract. But a plea that the Union though liable to pay the amount under the terms of the contract will not pay it because it desires to appropriate it towards another claim under another independent contract cannot reasonably be regarded as a dispute "under or in connection" with that contract under which the liability sought to be enforced has arisen. 6. The decision of the Calcutta High Court in Uttam Chand Saligram vs. Jewa Mamooji on which reliance was placed by the Union does not, in our judgment, support any such proposition. In that case an award of the arbitrator was challenged on the ground that it was without jurisdiction, there being no dispute between the parties, the party applying having admitted his liability under the contract. Rankin, J, held that though the existence of a dispute was an essential condition for the arbitrator's jurisdiction, the dispute may be either in the acknowledgement of the debt or as regards the mode and time of satisfying it. In that case the Court held that the defence of the applicant applying for vacating the award was that he was not under any obligation to pay the amount due. This is clear from the observation made on P. 540 where the learned Judge observed: "...but in truth the petitioner's later letters to the Chamber, his petition itself in para 5, 6 and 12, para 6 of the affidavit filed in this behalf in reply all show conclusively that he was withholding payment under a claim of right so to do. That the claim has little substance makes his case so much the worse." The Union is however not seeking to withhold payment under a claim of right so to do. What the Union contends is that under the contract they are liable to pay the amounts due but they will not pay because they have another claim unrelated to the claim in suit against the Company. 7. The decision of the Calcutta High Court in Chundanmull Jhaleria vs. Clive Mills Co. Ltd. 2 on which also reliance was placed does not assist the Union. In that case the Court decided that an arbitration clause in a contract, by which the parties thereto agree to refer their dispute to arbitration, may be wide enough to include a dispute whether the contract itself has or has not been frustrated, but in the present case we are not concerned about any dispute relating to frustration of the contract. 8. The principle of the decision of the House of Lords in Heyman vs. Darwins Ltd. 3 on which reliance was placed on behalf of the Union has also no application. It was held in that case that when an arbitration clause in a contract provides without any qualification that any difference or dispute which may arise "in respect of" or "with regard to" or "under the contract" shall be referred to arbitration, and the parties are at one in asserting that they entered into a binding contract, the clause will apply even if the dispute involves an assertion by one party that circumstances have arisen, whether before or after the contract has been partly performed, which have the effect of discharging one or both parties from all subsequent liability under the contract, such as repudiation of the contract by one party accepted by the other, or frustration of the contract. Viscount Simon, L.C., observed in that case: "An arbitrational clause is a written submission, agreed to by the parties to the contract, and, like other written submissions to arbitration, must be construed according to its language and in the light of the circumstances in which it is made. Viscount Simon, L.C., observed in that case: "An arbitrational clause is a written submission, agreed to by the parties to the contract, and, like other written submissions to arbitration, must be construed according to its language and in the light of the circumstances in which it is made. If the dispute is whether the contract which contains the clause has ever been entered into at all, that issue cannot go to arbitration under the clause, for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission. Similarly, if one party to the alleged contract is contending that it is void ab initio (because, for example, the making of such a contract is illegal), the arbitration clause cannot operate, for on this view the clause itself also is void. But, in a situation where the parties are at one in asserting that they entered into a binding contract, but a difference has arisen between them whether there has been a breach by one side or the other, or whether circumstances have arisen which have discharged one or both parties from further performance, such differences should be regarded as differences which have arisen "in respect of," or "with regard to", or "under the contract", and an arbitration clause which uses these, or similar, expressions should be construed accordingly." But the Union is not seeking to go to arbitration on a dispute between the parties about a breach committed by one side or the other or whether circumstances have arisen which have discharged one or both parties from further performance. It is a case in which in substance there is no dispute between the parties "under", "in connection with", or even "with regard to" the contract. The plea raised by the Union for stay of the suit was frivolous. It is somewhat surprising that the plea should have been raised and persisted in, and even after going to arbitration in the other case have been brought up to this Court involving large costs to the public exchequer. 9. The appeal therefore fails and is dismissed with costs." 6. The Apex Court held that in substance there is no dispute between the parties "under", "in connection with", or even "with regard to" the contract. It was held that the plea raised by the Union for stay of the suit was frivolous. 9. The appeal therefore fails and is dismissed with costs." 6. The Apex Court held that in substance there is no dispute between the parties "under", "in connection with", or even "with regard to" the contract. It was held that the plea raised by the Union for stay of the suit was frivolous. 7. The case cited by the learned counsel for the defendant is not applicable to the instant matter. The said case related to Arbitration and Conciliation Act, 1996. 8. After having heard both the parties and considering the arguments raised by the parties and further the principles laid down by the Apex Court in the cited case quoted above, I am of the view that the order dated 14.11.1995 deserves to quashed and set aside. The order dated 14.11.1995 is quashed and set aside with the direction to the trial Court to decide the application of the defendant as a fresh in the light of the judgment of the Apex Court within a period of three months from the date of appearance of the parties. The parties are directed to appear before the trial Court on Feb. 21, 2011. The parties are directed to bear their own costs.