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2012 DIGILAW 3194 (MAD)

Union of India v. Rajesh Damani

2012-07-20

K.RAVICHANDRA BAABU

body2012
ORDER 1. The Revision petitioners are the defendants in O.S.No.6112 of 2003 on the file of the 17th Assistant City Civil Court at Chennai. They are aggrieved against the condition imposed in the order passed by the Court below in I.A.No.2096 of 2009 dated 3.8.2009 wherein and whereby their application filed under Order 9 Rule 13 CPC read with Section 151 CPC was allowed subject to the condition that the petitioners should deposit a sum of Rs.One lakh on or before 4.9.2009. 2. The short facts for deciding the issue in this Civil Revision Petition are as follows:- The respondent herein filed the said suit against the petitioners herein for declaration and for payment of certain sums. The said suit came to be filed before the Court below on 16.7.2003. On receipt of the notice from the Court, the petitioners herein filed I.A.No. 9425 of 2004 under Section 8 of the Arbitration and Conciliation Act, 1996 for referring the parties to arbitration by specifically contending that Clause 2900 of the Indian Railway Standard Conditions of Contract provides for referring such disputes for Arbitration. The said application came to be filed by the petitioners on 10.6.2004. The trial court dismissed the said application on 23.11.2006. Challenging the said order, the petitioners filed C.R.P(PD) No.2941 of 2007 before this court. When the said Civil Revision Petition was pending, the suit itself came to be decreed ex-parte on 8.10.2007 for the reason that the petitioners herein have not filed the written statement. Therefore, the petitioners filed I.A.No.2096 of 2009 on 31.10.2007 seeking to set aside the ex-parte decree by specifically stating that the rejection of their earlier application filed under Section 8 of the Arbitration and Conciliation Act was under challenge before this court in C.R.P.(PD)No. 2941 of 2007. 3. When their application filed under Order 9 Rule 13 was pending, the said Civil Revision Petition filed before this court came to be allowed on 18.6.2008, thereby referring the matter for arbitration by directing the petitioners herein to appoint an arbitrator. 3. When their application filed under Order 9 Rule 13 was pending, the said Civil Revision Petition filed before this court came to be allowed on 18.6.2008, thereby referring the matter for arbitration by directing the petitioners herein to appoint an arbitrator. After the said order was made by this court, the petitioners herein filed further affidavit before the Court below by enclosing the copy of the order passed in the said Civil Revision Petition and sought for setting aside the ex-parte decree passed against them by taking note of the subsequent development of the order passed in the Civil Revision Petition, as the entire matter has been referred to the arbitration. However, the Court below did not take into consideration of the order passed in C.R.P.No. 2941 of 2007 and on the other hand proceeded to consider the matter as if the petitioners /defendants did not file the written statement in spite of granting of time. However, the court below allowed the said interlocutory application subject to the condition that the petitioners should deposit a sum of Rs.One lakh within a stipulated time. It is also a fact that in the meantime an execution petition was filed by the respondent herein, which is said to be still pending. Aggrieved against imposing of the said condition made in the said order passed by the Court below in I.A.No. 2096 of 2009 dated 3.8.2009, the present Civil Revision Petition came to be filed before this court. 4. Mr.V.G.Suresh Kumar, learned counsel appearing for the petitioners would argue that when the application filed by the petitioners under Section 8 of the Arbitration and Conciliation Act 1996 came to be allowed by this Court in C.R.P.No.2941 of 2007 on 18.6.2008, the trail Court has got absolutely no justification to impose any condition much less the one imposed under the order impugned in this Civil Revision Petition. According to the learned counsel, once the matter is referred to the arbitration proceedings as contemplated under the Arbitration and Conciliation Act 1996 in pursuant to an application filed under Section 8 of the said Act, the civil court has got no jurisdiction to proceed with the matter and consequently the order passed by the Court below imposing the condition to deposit Rs. One lakh is totally unwarranted and without jurisdiction. One lakh is totally unwarranted and without jurisdiction. The learned counsel contended that the only course left open to the Court below is only to set aside the ex-parte decree and terminate the proceedings as the entire dispute is referred to the arbitration. 5. Per contra, Mr. H.Kishore, the learned counsel appearing for the respondent would contend that the ex-parte decree came to be passed much prior to the order passed by this court in C.R.P.No. 2941 of 2007 and therefore the Court below has rightly directed the petitioners herein to deposit Rs. One lakh for allowing their application to set aside the ex-parte decree. He has also pointed out that in pursuant to the decree passed ex-parte, the respondent as decree holder has filed E.P.No. 2518 of 2008 and the same is pending. He further pointed out that even though this court has directed the petitioners in the said Civil Revision Petition to take steps for appointment of an arbitrator within the time stipulated, the petitioners have not done anything and therefore, the order passed by the Court below does not warrant any interference by this court. 6. Heard the learned counsel appearing for the respective parties. 7. The point for consideration in this Civil Revision Petition is as to whether a civil court is entitled to deal with a matter on merits and pass orders, once the matter has been referred to the arbitration in pursuant to an application filed under Section 8 of the Arbitration and Conciliation Act 1996. In other words, the question to be answered is as to whether the civil court has got jurisdiction over the dispute between the parties, once the matter, which is covered under the arbitration agreement, has been referred to the arbitration in pursuant to an application filed under Section 8 of the said Act. 8. Admittedly in this case, the petitioners as defendants filed a petition under Section 8 of the said Act on 10.6.2004 itself seeking for referring the matter to the arbitration in view of the existence of an arbitration clause 2900 of the Indian Railway Standard Conditions of Contract. Though the said application came to be dismissed by the trial Court on 23.11.2006, the same was challenged by the petitioners before this court in C.R.P.No. 2941 of 2007. Though the said application came to be dismissed by the trial Court on 23.11.2006, the same was challenged by the petitioners before this court in C.R.P.No. 2941 of 2007. Ultimately the said Civil Revision Petition came to be allowed by this court on 18.6.2008 thereby referring the entire dispute to the arbitration. No doubt, it is true that, in between, the said suit itself came to be decreed ex-parte on 8.10.2007 and the petitioners herein have filed I.A.No. 2096 of 2009 seeking for setting aside the exparte decree. It is also stated by the petitioners that after the order was passed in the said Civil Revision Petition, they also brought the said fact to the knowledge of the Court below by filing an affidavit. 9. Therefore, what is to be seen in this case is as to whether the Court below is justified in passing the conditional order for setting aside the ex-parte decree and in doing so whether it has exceeded its jurisdiction in passing such conditional order, especially when the very dispute itself has already been referred to the arbitration by this court in C.R.P.No. 2941 of 2007 dated 18.6.2008. 10. In this case, it is the categorical stand of the petitioners as defendants that the entire dispute is liable to be referred for arbitration as contemplated under Clause 2900 of the Indian Railway Standard Conditions of Contract. Therefore, based on such contention, they immediately filed an application under Section 8 of the Arbitration and Conciliation Act seeking for reference of the matter to the arbitration. In effect, by filing such an application under Section 8 of the said Act, the petitioners sought for shifting the jurisdiction from the Civil Court to Arbitral Tribunal. As the said application ultimately came to be allowed by this court in C.R.P.No. 2941 of 2007 the net result is that the action which was brought in the said suit by the respondent as plaintiff, which was the subject matter of an arbitration clause, is now shifted from the jurisdiction of the civil court to the jurisdiction of the Arbitral Tribunal. Even though an ex-parte decree came to be passed, when the Civil Revision Petition itself was allowed thereby referring the matter for arbitration, the decree passed in the meantime either ex-parte or on merits by the civil court can not be sustained, as the same has to be treated as the one passed without jurisdiction. 11. No doubt Section 9 of the said Act empowers the Court to pass certain orders as interim measures either before or during arbitral proceedings or at any time after the making of the award but before it is enforced. But such exercise could be done only for the purposes contemplated therein that too by the "Court" as defined under Section 2(e) of the said Act and not by all civil courts. Thus, it is undoubtedly clear from the scheme of the said Act that such civil courts loose their jurisdiction once the matter is referred to the Arbitral Tribunal. 12. At this juncture it is useful to refer the decision rendered by the Hon'ble Supreme Court reported in 2006 (1) SCC 417 ( Ardy International (P) Ltd. and Another Vs. Inspiration Clothes & U and Another), wherein their Lordships have held at paragraph 4 as follows:- "4. We have extensively heard the learned counsel for both the sides and at the end of the day we are satisfied that the whole proceedings were started, continued and concluded under misconception of law. In the first place, Section 8 is not intended to restrain arbitration proceedings before an Arbitral Tribunal. The situation contemplated by Section 8 can arise only at the first instance of an opponent and defendant in a judicial proceeding, or, at the highest, suo motu at the instance of the judicial authority, when the judicial authority comes to know of the existence of an arbitration agreement. In either event, there is no question of the court under Section 8 of the 1996 Act restraining the arbitral proceedings from commencing or continuing. In fact, Section 8 is intended to achieve, so to say, the converse result...." (emphasis supplied) 13. Likewise in another decision reported in 2000 (4) SCC 539 ( P.Anand Gajapathi Raju and Others Vs. P.V.G.Raju (Dead) and others) the Hon'ble Supreme Court has held at paragraph 8 as follows:- "8. ... The language of Section 8 is peremptory. In fact, Section 8 is intended to achieve, so to say, the converse result...." (emphasis supplied) 13. Likewise in another decision reported in 2000 (4) SCC 539 ( P.Anand Gajapathi Raju and Others Vs. P.V.G.Raju (Dead) and others) the Hon'ble Supreme Court has held at paragraph 8 as follows:- "8. ... 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...." (emphasis supplied) 14. In another decision reported in 2003 (6) SCC 503 (Hindustan Petroleum Corporation., Ltd Vs. Pinkcity Midway Petroleums), the Hon'ble Apex Court has held at paragraph 24 as follows:- "24. .... We have come to the conclusion that that the civil court had no jurisdiction to entertain a suit after an application under Section 8 of the Act is made for arbitration. Therefore, we are of the opinion that the trial court erred when it rejected the application of the appellant filed under Sections 8 and 5 of the Act. In such a situation, refusal to refer the dispute to arbitration would amount to failure of justice as also causing irreparable injury to the appellant..." (emphasis supplied) 15. From the reading of the above decisions of the Hon'ble Apex Court, it is seen that the Civil Court has no jurisdiction to continue the proceedings after an application under Section 8 of the said Act was made for referring the matter for arbitration. From the reading of the above decisions of the Hon'ble Apex Court, it is seen that the Civil Court has no jurisdiction to continue the proceedings after an application under Section 8 of the said Act was made for referring the matter for arbitration. In fact in the decision reported in 2006 (1) SCC 417 ( Ardy International (P) Ltd. and Another Vs. Inspiration Clothes & U and Another), the Hon'ble Apex Court has categorically observed that Section 8 is intended to achieve the converse result restraining the civil court proceedings from commencing or continuing, when the judicial authority comes to know of the existence of an arbitration agreement. Therefore, the Court below ought to have allowed the application of the petitioners, without imposing any condition by taking note of the fact that the entire matter was already referred to arbitration in pursuant to an order passed by this court in the Civil Revision Petition. Consequently, the Court below ought to have dropped the entire proceedings in a manner known to law as contemplated under the Code of Civil Procedure, as the Hon'ble Supeme Court has categorically observed in the decision reported in 2000 (4) SCC 539 ( P.Anand Gajapathi Raju and Others Vs. P.V.G.Raju (Dead) and others) thatnothing remains to be decided by the trial Court once the matter was referred to the arbitration. Even though the Court below has allowed the application to set aside the exparte decree, in my considered view, imposing a condition to deposit Rs.One lakh would be totally beyond its purview and jurisdiction, especially under the circumstances stated supra. 16. The Hon'ble Supreme Court has also in one case considered the power and jurisdiction of the courts in arbitral matters in a decision reported in 2007 (7) SCC 125 ( Adhunik Steels Ltd., Vs. Orissa Manganese and Minerals (P) Ltd., ) and observed that the process of arbitration is dependent on the underlying support of the courts who alone have the power to rescue the system when one party seeks to sabotage it. The relevant paragraph 12 is extracted hereunder:- "12. The power and jurisdiction of courts in arbitral matters has been the subject of much discussion. The relationship between courts and Arbitral Tribunals have been said to swing between forced cohabitation and true partnership. The relevant paragraph 12 is extracted hereunder:- "12. The power and jurisdiction of courts in arbitral matters has been the subject of much discussion. The relationship between courts and Arbitral Tribunals have been said to swing between forced cohabitation and true partnership. The process of arbitrtion is dependent on the underlying support of the courts who alone have the power to rescue the system when one party seeks to sabotage it. The position was stated by Lord Mustill in Coppee Lavalin N.V. Vs. Ken-Ren Chemicals & Fertilisers Ltd. ( 1995 (1) AC 38) Lloyd's Rep at p.116 (All ER pp.459j-460a) "(T)here is plainly a tension here. On the one hand the concept of arbitration as a consensual process, reinforced by the ideal of transnationalism leans always against the involvement of the mechanisms of State through the medium of a municipal court. On the other side there is the plain fact, palatable or not, that it is only a court possessing coercive powers which can rescue the arbitration if it is in danger of foundering..." 17. The above said observation made by the Hon'ble Apex Court regarding the role of the courts makes it clear that Courts are bound to support the process of arbitration as and when such process is sought to be frustrated by any party. Otherwise, it is needless to say, that the intention of the legislation of the Arbitration and Conciliation Act would get defeated and the object sought to be achieved would be a day-dream for ever. 18. A question may arise as to why an application need to be filed by the petitioners seeking to set aside the exparte decree when they are already armed with an order of reference of dispute to Arbitral Tribunal of the entire dispute. Certainly, there cannot be two parallel proceedings on the same subject matter by two different forums. Therefore, when the civil court's jurisdiction is taken away by referring the matter to the Arbitral Tribunal, the decree passed by the trial court either ex-parte or on merits should necessarily be set aside as it should not stand in the way of getting the matter decided by the Arbitral Tribunal. 19. Moreover, the respondent has also filed an execution petition and admittedly, the same is pending. 19. Moreover, the respondent has also filed an execution petition and admittedly, the same is pending. The petitioners have rightly chosen to file an application to set aside the exparte decree and consequently they are also entitled to get the same set aside and consequently get the entire proceedings before the Court below dropped in a manner known to law by taking out appropriate application. At this juncture, it must be noted that the scheme of the Arbitration and Conciliation Actdoes not contemplate reversal of the proceedings to the civil court for its adjudication under any circumstances once the matter is referred to the Arbitration from civil court. Therefore, by taking note of all the facts and circumstances, I am of the view that the order passed by the Court below in imposing the condition is not just and proper and consequently the same is liable to be set aside in sofar as imposing of the condition for payment of Rs. One lakh is concerned. 20. In the result, the Civil Revision Petition is allowed and the order of the Court below insofar as imposing the condition to deposit Rs.One lakh is set aside and consequently, the application filed by the petitioners in I.A.No.2096 of 2009 in O.S.No.6112 of 2003 under Order 9 Rule 13 C.P.C. is allowed. The connected miscellaneous petition in M.P.No.1 of 2009 is closed. No costs.