Full Judgment Text
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CASE NO.:
Appeal (civil) 3420 of 2006
PETITIONER:
Rashtriya Ispat Nigam Limited & Anr
RESPONDENT:
M/s Verma Transport Company
DATE OF JUDGMENT: 08/08/2006
BENCH:
S.B. Sinha & Dalveer Bhandari
JUDGMENT:
J U D G M E N T
[Arising out of SLP (Civil) Nos. 1136-37 of 2005]
S.B. SINHA, J :
Leave granted.
Interpretation and application of Section 8 of the Arbitration and
Conciliation Act, 1996 (for short, ’the 1996’ Act) is in question in these
appeals which arise out of a judgment and order dated 10.02.2003 passed by
a learned Single Judge of the High Court of Punjab & Haryana, dismissing
the Civil Revision Application filed by the Appellants herein from a
judgment and order dated 03.10.2002 passed by the Civil Judge (Junior
Division), Jalandhar and order dated 15.09.2004 refusing to review the said
order.
FACTS :
The Appellant No.1 is a Public Sector Undertaking. It is engaged,
inter alia, in the business of manufacturing and marketing of iron and steel
products. The Respondent is a partnership firm. It is engaged in the business
of consignment agents. It has its office at Jalandhar. A contract was entered
into by and between the parties hereto in regard to the handling and storage
of iron and steel materials of the Appellant at Ludhiana. The Appellants
contend that one Shri Anil Verma, Partner of the Respondent-Firm had
constituted various firms and companies and obtained several consignment
agency contracts from the Appellant pertaining to Delhi, Faridabad,
Chandigarh and Ludhiana etc. who conspired with certain officials of the
Appellants and obtained payments @ Rs.140/- per M.T. in place of Rs.36/-
per M.T. on a false plea that the Transport Union at Bahadurgarh did not
permit transportation of goods without levy of a fee of Rs.100/- per M.T. on
transportation of such goods. An investigation was conducted by the Central
Bureau of Investigation and a criminal case was initiated against Shri Anil
Verma and the concerned officials of the Appellants. Allegedly, with the
object of presenting a clean image to the Appellants and with a view to
avoid termination of all the contracts by them, a plea was put forth that Shri
Anil Verma had resigned from the partnership firm as also from his other
firms/companies. According to the Appellants, the said Shri Anil Verma
was replaced by his family members as a partner of the said firm but he
continued to be in complete control over the firms/companies. The contract
of the Respondent was terminated by the Appellants on 23.05.2002. On the
same day, a show cause notice was also issued to Shri Anil Verma as to why
he and his firms/companies should not be black listed.
The Respondent-Firm, however, filed a suit being Suit No.122 of
2002 for grant of permanent injunction restraining the Appellants herein
from in any manner blacklisting the Respondent-Firm or terminating the
consignment agency contract. On an application for injunction having been
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filed, the Civil Judge, Junior Division, directed the parties to maintain status
quo in regard to the status of the Respondent-Plaintiff herein qua termination
of the contract as also the order of blacklisting. The Appellants appeared to
have sought for time to file written statement. They also filed a rejoinder to
the counter affidavit to the application for injunction wherein it took a
specific plea that the subject-matter of the suit being covered by the
arbitration agreement entered into by and between the parties, it was not
maintainable. On 07.06.2002, they filed an application under Section 8 of
the 1996 Act, which was rejected by the Civil Judge, Junior Division by an
order dated 03.10.2002, holding :
"The applicants/defendants have already filed a
reply to application u/o 39 Rules 1 and 2 read with Section
151 CPC and sought 15 days time to file written statement
clearly proves that the process of the suit has already
begun and the defendants have already entered into a
defence of the suit meaning thereby they have subjected
themselves to the jurisdiction of the Civil Court. The
defendants have not spelt out as to what is the dispute or
difference between the parties. Rather, they have
straightaway black listed the plaintiff firm, without giving
them any notice regarding any dispute or difference, which
was mandatory. From the perusal of the record, it is very
much clear that there is no dispute or difference between
the present firm and the company with regard to any of the
transactions in the business between both of them. Rather,
the company is at a dispute with a person, who no more
exists as a partner in the plaintiff firm. The company also
wrote appreciation letter to the Plaintiff firm for their
cooperation for achieving the desired targets for the year
2001-02. The same was made possible because of untiring
efforts made by the plaintiff of the present case. In the
present case, the straightaway of black listing the firm is
not justified, even the principal of natural justice goes in
favour of the respondent/plaintiff\005"
A Revision Application filed by the Appellants before the High Court
thereagainst was dismissed by the impugned judgment, inter alia, on the
premise that the application filed by them being not accompanied by the
original arbitration agreement or a duly certified copy thereof, the same was
not maintainable. A Review Application filed thereagainst pointing out that
such certified copy had in fact been filed, however, was not entertained.
Mr. R.F. Nariman, the learned Senior Counsel appearing on behalf of
the Appellants, inter alia, would submit that the learned Civil Judge and the
High Court committed a serious error in construing the provisions of Section
8 of the 1996 Act, insofar as they failed to take into consideration that :
(1) Section 8 of the 1996 Act cannot be equated with Section 34 of
the Arbitration Act, 1940, (for short, ’the 1940 Act) having
been made in terms of UNCITRAL Model Rules and having
undergone a thorough change.
(2) Filing an opposition to the interim injunction would not
preclude a defendant from filing an application under Section 8
of the 1996 Act.
(3) The High Court committed a serious error in entertaining the
plea raised by the Respondent for the first time before it in
holding that the application filed by the Appellants was not
accompanied by a certified copy of the arbitration agreement.
(4) Despite the fact that attention of the High Court was
specifically drawn that the said finding was factually incorrect
in the review application, the High Court did not address itself
on the said question.
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Mr. Nagendra Rai, the learned Senior Counsel appearing on behalf of
the Respondent, on the other hand, submitted that :
(1) The premise on which the contract was terminated being
de ’hors the conditions of the contract, the same would not be
arbitrable.
(2) The suit having been filed questioning both blacklisting as also
termination of contract being outside the purview of arbitration,
the application under Section 8 of the 1996 Act was not
maintainable.
(3) The Appellants in their rejoinder having disclosed the substance
of the dispute were not entitled to file the said application.
(4) An application for time having been filed to file written
statement, the impugned orders do not suffer from any
infirmity.
The High Court in its judgment, inter alia, held :
(1) No notice having been served upon the Respondent before
passing an order of blacklisting, the same was bad in law.
(2) The Chairman of the First Appellant having not nominated an
arbitrator in terms of the arbitration agreement, the application
under Section 8 of the 1996 Act was not maintainable.
(3) The Appellants having filed the reply to the interim application
of the Respondent and their counsel having made a specific
statement that he wanted to argue on both the applications
together i.e. application under Order 39, Rules 1 and 2 read
with Section 151 of the Code of Civil Procedure as also the
application under Section 8 of the 1996 Act, joined the process
of the suit in their defence and subjected themselves to the
jurisdiction of the Civil Court.
(4) The Appellants have not spelt out the dispute and differences
between the parties and have straightaway blacklisted the
Respondent-Firm.
(5) Anil Verma against whom the allegations had been made
having resigned, the application under Section 8 was not
maintainable.
(6) The original arbitration agreement or the certified copy of the
agreement having not been annexed with the application, the
same was not maintainable.
The 1996 Act makes a radical departure from the 1940 Act. It has
embodied the relevant rules of the modern law but does not contain all the
provisions thereof. The 1996 Act, however, is not as extensive as the
English Arbitration Act.
The 1996 Act was enacted by the Parliament in the light of the
UNCITRAL Model Rules. In certain respects, the Parliament of India while
enacting the said Act has gone beyond the scope of the said Rules.
With a view to appreciate the said question, we may at the outset
notice the provisions of Section 4 of the English Arbitration Act, 1899,
which was bodily lifted in enacting Section 34 of the 1940 Act, in the
following terms :
"4. Power to stay proceedings where there is a
submission.-If any party to a submission, or any person
claiming through or under him, commences any legal
proceedings in any Court against any other party to the
submission, or any person claiming through or under him,
in respect of any matter agreed to be referred, any party to
such legal proceedings may at any time after appearance ,
and before delivering any pleadings or taking any other
steps in the proceedings, apply to that Court to stay the
proceedings, and that Court or a judge thereof, if satisfied
that there is not sufficient reason why the matter should not
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be referred in accordance with the submission, and that the
applicant was at the time when the proceedings were
commenced, and still remains, ready and willing to do all
things necessary to the proper conduct of the arbitration,
may make an order staying the proceedings."
Section 34 of the 1940 Act reads as under :
"34.-Power to stay legal proceedings where there is an
arbitration agreement.- Where any party to an arbitration
agreement or any person claiming under him commences
any legal proceedings against any other party to the
agreement or any person claiming under him in respect of
any matter agreed to be referred, any party to such legal
proceedings may, at any time before filing a written
statement or taking any other steps in the proceedings,
apply to the judicial authority before which the
proceedings are pending to stay the proceedings; and if
satisfied that there is no sufficient reason why the matter
should not be referred in accordance with the arbitration
agreement and that the applicant was, at the time when the
proceedings were commenced, and still remains, ready and
willing to do all things necessary to the proper conduct of
the arbitration, such authority may make an order staying
the proceedings."
We may furthermore notice that Section 3 of the Arbitration (Protocol
and Convention) Act, 1937 and Section 3 of the Foreign Awards
(Recognition and Enforcement) Act, 1961 contained similar provisions.
The expression ’steps in the proceedings’, however, used in Article 8
of the Rules and Section 8 of the 1996 Act in contrast to the aforementioned
provisions and in particular Section 34 of the 1940 Act, may be noticed :
Article 8 of the Model Rules is as under :
"(1) A court before which an action is brought in
a matter which is the subject of an arbitration
agreement shall, if a party requests not later than when
submitting his first statement on the substance of the
dispute, refer the parties to arbitration unless it finds
that the agreement is null and void, inoperative or
incapable of being performed.
(2) Where, in such case, arbitral proceedings
have already commenced, the arbitral tribunal may
continue the proceedings while the issue of its
jurisdiction is pending with the court."
Section 8 of the 1996 Act reads as follows :
"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
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thereof.
(3) Notwithstanding that an application has
been made under sub-section (1) and that the issue is
pending before the judicial authority, an arbitration may
be commenced or continued and an arbitral award
made."
Section 8 of the 1996 Act, however, although lifted the first part of the
said Article 8 did not contain the expression contained in the second part
therein. The Indian Parliament has gone beyond the recommendations made
by the UNCITRAL Model Rules in enacting Sections 8 and 16 of the 1996
Act.
The provisions of Sections 8 and 16 of the 1996 Act may be
compared with Sections 45 and 54 thereof. Section 45 deals with New York
Convention, whereas Section 54 deals with Geneva Convention Awards.
The difference can be immediately noticed. Whereas under Sections 45 and
54, the Court exercises its supervisory jurisdiction in relation to arbitration
proceedings, in terms of Section 16 of the 1996 Act, the arbitrator is entitled
to determine his own jurisdiction. We, however, do not mean to suggest that
Part II of the 1996 Act does not contemplate determination of his own
jurisdiction by the arbitral tribunal as we are not called upon to determine
the said question. We have referred to the aforementioned provisions only
for the purpose of comparing the difference in the language used by the
Indian Parliament while dealing with the domestic arbitration vis-‘-vis the
International arbitration.
Section 8 confers a power on the judicial authority. He must refer the
dispute which is the subject-matter of an arbitration agreement if an action is
pending before him, subject to the fulfillment of the conditions precedent.
The said power, however, shall be exercised if a party so applies not later
than when submitting his first statement on the substance of the dispute.
What is the scope and effect of the expression ’substance of the
dispute’ is also in question to which we shall advert to a little later.
The arbitration agreement is contained in clause 44(a) of the contract
entered into by and between the parties which reads as under :-
"If at any time any question, dispute or difference
whatsoever shall arise between the company and the
Consignment Agent upon or in relation to or in
connection with the contract, either party may forthwith
give to the other notice in writing of the existence of such
question, dispute or difference and the same shall be
referred to the adjudication of an arbitrator to be
nominated by the Chief Executive of the Company. The
award of the arbitrator shall be final and binding on both
the parties and the provisions of the Indian Arbitrator
Act, 1940 and the rules thereunder and any statutory
modification thereof shall be deemed to apply to and be
incorporated in this contract."
The scope and purport of such a clause was considered in Heyman
and Another v. Darwins Ltd. [(1942) 1 All ER 337] and it was stated :
"The answer to the question whether a dispute falls
within an arbitration clause in a contract must depend on
(a) what is the dispute, and (b) what disputes the
arbitration clause covers. To take (b) first, the language
of the arbitration clause in this agreement is as broad as
can well be imagined. It embraces any dispute between
the parties "in respect of " the agreement or in respect of
any provision in the agreement or in respect of anything
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arising out of it. If the parties are at one on the point that
they did enter into a binding agreement in terms which
are not in dispute, and the difference that has arisen
between them is as to their respective rights under the
admitted agreement in the events that have hampered \026
e.g. as to whether the agreement has been broken by
either of them; or as to the damage resulting from such
breach; or as to whether the breach by one of them goes
to the root of the contract and entitles the other party to
claim to be discharged from further performance; or as to
whether events supervening since the agreement was
made have brought the contract to an end so that neither
party is required to perform further \026 in all such cases it
seems to me that the difference is within such an
arbitration clause as this. In view, however, of phrases to
be found in the report of some earlier decisions, the
availability of the arbitration clause when "frustration" is
alleged to have occurred will require closer
consideration."
In the instant case, the existence of a valid agreement stands admitted.
There cannot also be any dispute that the matter relating to termination of
the contract would be a dispute arising out of a contract and, thus, the
arbitration agreement contained in clause 44 of the contract would be
squarely attracted. Once the conditions precedent contained in the said
proceedings are satisfied, the judicial authority is statutorily mandated to
refer the matter to arbitration. What is necessary to be looked into therefor,
inter alia, would be as to whether the subject-matter of the dispute is covered
by the arbitration agreement or not.
Section 34 of the repealed 1940 Act employs the expression ’steps in
the proceedings’. Only in terms of Section 21 of the 1940 Act, the dispute
could be referred to arbitration provided parties thereto agreed. Under the
1940 Act, the suit was not barred. The Court would not automatically refer
the dispute to an arbitral tribunal. In the event, it having arrived at
satisfaction that there is no sufficient reason that the dispute should not be
referred and no step in relation thereto was taken by the applicant, it could
stay the suit.
Section 8 of the 1996 Act contemplates some departure from Section
34 of the 1940 Act. Whereas Section 34 of the 1940 Act contemplated stay
of the suit; Section 8 of the 1996 Act mandates a reference. Exercise of
discretion by the judicial authority, which was the hallmark of Section 34 of
the 1940 Act, has been taken away under the 1996 Act. The direction to
make reference is not only mandatory, but the arbitration proceedings to be
commenced or continued and conclusion thereof by an arbitral award remain
unhampered by such pendency. [See O.P. Malhotra’s ’The Law and
Practice of Arbitration and Conciliation’, 2nd Edition, pp. 346-347]
Scope of the said provision fell for consideration before a Division
Bench of this Court in P. Anand Gajapathi Raju and Others v. P.V.G. Raju
(Dead) and Others [(2000) 4 SCC 539], wherein this Court held :
"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
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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. 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."
In Smt. Kalpana Kothari v. Smt. Sudha Yadav and Others \026 [(AIR
2002 SC 404], this Court observed :
"\005No doubt, at the appellate stage, after filing a written
application for dismissal of the applications filed by the
appellants under Section 34 of the Arbitration Act, 1940,
as not pressed in view of the repeal of the 1940 Act and
coming into force of the 1996 Act and getting orders
thereon, the appellants herein have once again moved the
High Court under Section 8 of the Act, with a request for
stay of proceedings before the High Court as well as the
trial court, but the application came to be rejected by the
learned Judge in the High Court that no such application
could be filed, once the application earlier filed under the
1940 Act was got dismissed as not pressed and also on
the ground of estoppel, based on the very fact. We are of
the view that the High Court did not properly appreciate
the relevant and respective scope, object and purpose as
also the considerations necessary for dealing with and
disposing of the respective applications envisaged under
Section 34 of the 1940 Act and Section 8 of the 1996
Act. Section 34 of the 1940 Act provided for filing an
application to stay legal proceedings instituted by any
party to an arbitration agreement against any other party
to such agreement, in derogation of the arbitration clause
and attempts for settlement of disputes otherwise than in
accordance with the arbitration clause by substantiating
the existence of an arbitration clause and the judicial
authority concerned may stay such proceedings on being
satisfied that there is no sufficient reason as to why the
matter should not be referred to for decision in
accordance with the arbitration agreement, and that the
applicant seeking for stay was at the time when the
proceedings were commenced and still remained ready
and willing to do all things necessary to the proper
conduct of the arbitration. This provision under the 1940
Act had nothing to do with actual reference to the
arbitration of the disputes and that was left to be taken
care of under Sections 8 and 20 of the 1940 Act. In
striking contrast to the said scheme underlying the
provisions of the 1940 Act, in the new 1996 Act, there is
no provision corresponding to Section 34 of the old Act
and Section 8 of the 1996 Act mandates that the judicial
authority before which an action has been brought in
respect of a matter, which is the subject-matter of an
arbitration agreement, shall refer the parties to arbitration
if a party to such an agreement applies not later than
when submitting his first statement. The provisions of the
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1996 Act do not envisage the specific obtaining of any
stay as under the 1940 Act, for the reason that not only
the direction to make reference is mandatory but
notwithstanding the pendency of the proceedings before
the judicial authority or the making of an application
under Section 8(1) of the 1996 Act, the arbitration
proceedings are enabled, under Section 8(3) of the 1996
Act to be commenced or continued and an arbitral award
also made unhampered by such pendency. We have to
test the order under appeal on this basis."
See also Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway
Petroleums [(2003) 6 SCC 503].
The High Court, in our opinion, proceeded on a wrong premise. It
posed unto itself wrong question. It refused to interfere in the matter
opining that no notice had been served by the Chairman of the First
Appellant in terms of the arbitration agreement. For maintaining an
application under Section 8 of the 1996 Act, service of notice under the
arbitration agreement was not mandatory. The said stage was yet to be
reached. What was necessary was existence of an arbitration agreement.
So far as the question of blacklisting is concerned, an error was
committed by the High Court in opining that the Respondent-Firm had been
blacklisted without issuing any notice. In fact, from a perusal of the notice
dated 23.05.2002, it appears, upon recital of the relevant facts, it was stated :
"6. In view of the above, before taking a final decision
on black listing you and debarring you from participating
in tenders floated by RINL, VSP or entering into any
agreement with RINL, VSP, you are hereby calling upon
to explain as to why you should not be black listed and
debarred as mentioned above. You may submit your
explanation within seven days of receipt of this notice.
In case we do not receive your explanation within the
above mentioned period, it will be presumed that you
have nothing to say in the matter and decision on further
suitable action will be taken accordingly."
No final decision had, therefore, been taken. The basic question was
whether there had been breaches of contract on the part of the Respondents.
The contention of the Respondent before the trial court had been that the
order of blacklisting had arisen from the terms of the contract itself, as
would appear from the following averments :
"14. That the plaintiff have learnt that the defendants
without following the basic principles of natural justice
are intending to terminate the consignment agency
contract of the plaintiff and to blacklist the plaintiff on
alleged ground that one of Ex-partner of the plaintiff is
claimed to be guilty of misrepresentation of overcharging
the freight by misrepresentation from the different
company. Anyhow this is no ground to do so."
The principal grievance of the Plaintiff-Respondent was the action on
the part of the Appellants terminating the contract. Grounds on which the
order of termination were based, had been questioned in the plaint. Such
contentions could well be raised before the Arbitrator.
Shri Anil Verma was also acting on behalf of the partnership firm. It
has not been found that he had no authority to represent the firm. His
subsequent resignation as a partner was irrelevant for the purpose of
consideration in regard to the maintainability of the application under
Section 8 of the 1996 Act.
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Filing of a reply to the injunction application could also not have
been a ground to refuse to entertain the plea taken by the Appellants that the
suit should be referred to arbitral tribunal particularly when in its reply to
injunction application, the appellant categorically stated :
"1. That the present application under Order 39
Rules 1 and 2 read with Section 151 CPC is liable to be
dismissed on the short ground that the plaintiff has
himself admitted the existence of the arbitration clause
and therefore, the present application under Order 39
Rules 1 and 2 read with Section 151 CPC is not
maintainable and consequently the order of this Hon’ble
Court is liable to be vacated."
Thus, they did not submit themselves to the jurisdiction of the court.
They did not waive their right. They in effect and substance questioned the
jurisdiction of the court in proceeding with the matter. In fact, in its
application filed under Section 8 of the 1996 Act, the Appellant raised a
contention that the suit was liable to be dismissed and the order of injunction
vacated in view of the arbitration clause.
This aspect of the matter was considered by this Court in Food
Corporation of India & Anr. v. Yadav Enginner & Contractor [1983 (1) SCR
95]. Therein this Court opined that interlocutory proceedings are only
incidental proceedings to the main proceedings and, thus, any step taken in
the interlocutory proceedings does not come within the purview of main
proceedings, stating :
"\005When ex parte orders are made at the back of the party
the other party is forced to come to the court to vindicate
its right. Such compulsion cannot disclose an unambiguous
intention to give up the benefit of the arbitration
agreement. Therefore, taking any other steps in the
proceedings must be confined to taking steps in the
proceedings for resolution of the substantial dispute in the
suit. Appearing and contesting the interlocutory
applications by seeking either vacation thereof or
modification thereof cannot be said to be displaying an
unambiguous intention to acquiesce in the suit and to
waive the benefit of the arbitration agreement. Any other
view would both be harsh and inequitous and contrary to
the underlying intendment of the Act. The first party which
approaches the court and seeks an ex parte interim order
has obviously come to the court in breach of the arbitration
agreement. By obtaining an ex parte order if it forces the
other party to the agreement to suffer the order, or by
merely contesting be imputed the intention of waiving the
benefit of arbitration agreement, it would enjoy an
undeserved advantage. Such could not be the underlying
purpose of Section 34. Therefore, in our opinion, to
effectuate the purpose underlying Section 34 the narrow
construction of the expression "taking any other steps in
the proceedings" as hereinabove set out appears to advance
the object and purpose underlying Section 34 and the
purpose for which the Act was enacted.
The expression ’first statement on the substance of the dispute’
contained in Section 8(1) of the 1996 Act must be contra-distinguished with
the expression ’written statement’. It employs submission of the party to
the jurisdiction of the judicial authority. What is, therefore, is needed is a
finding on the part of the judicial authority that the party has waived his
right to invoke the arbitration clause. If an application is filed before
actually filing the first statement on the substance of the dispute, in our
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opinion, the party cannot be said to have waived his right or acquiesced
himself to the jurisdiction of the court. What is, therefore, material is as to
whether the petitioner has filed his first statement on the substance of the
dispute or not, if not, his application under Section 8 of the 1996 Act, may
not be held wholly unmaintainable. We would deal with this question at
some details, a little later.
Our attention, however, was drawn by the learned counsel for the
Respondent to The State of Uttar Pradesh and Another v. M/s. Janki Saran
Kailash Chandra and Another [(1973) 2 SCC 96], which was distinguished
in Food Corporation of India (supra), inter alia, stating that the view taken
therein did not run counter to the view the court had taken.
In Janki Saran Kailash Chandra (supra), an application for time to file
written statement was considered to be a step in the proceedings. We have
noticed hereinbefore the respective scope of Section 34 of the 1940 Act vis-
‘-vis the scope of Section 8 of the 1996 Act. In view of the changes brought
about by the 1996 Act, we are of the opinion that what is necessary is
disclosure of the entire substance in the main proceeding itself and not
taking part in the supplemental proceeding.
By opposing the prayer for interim injunction, the restriction
contained in sub-section (1) of Section 8 was not attracted. Disclosure of a
defence for the purpose of opposing a prayer for injunction would not
necessarily mean that substance of the dispute has already been disclosed in
the main proceeding. Supplemental and incidental proceeding are not part
of the main proceeding. They are dealt with separately in the Code of Civil
Procedure itself. Section 94 of the Code of Civil Procedure deals with
supplemental proceedings. Incidental proceedings are those which arise out
of the main proceeding. In view of the decision of this Court in Food
Corporation of India (supra), the distinction between the main proceeding
and supplemental proceeding must be borne in mind.
We may notice that a distinction has been made between supplemental
proceedings and incidental proceedings by one of us in Vareed Jacob v.
Sosamma Geevarghese and Others [(2004) 6 SCC 378].
This aspect of the matter came up for consideration before this Court
again in Sadhu Singh Ghuman v. Food Corporation of India & Ors. [(1990)
2 SCC 68], wherein it was categorically stated that seeking a direction to the
plaintiff to produce the original agreement does not amount to submit to the
jurisdiction of the court, which decides the case on merits, opining :
"\005The right to have the dispute settled by arbitration has
been conferred by agreement of parties and that right
should not be deprived of by technical pleas. The court
must go into the circumstances and intention of the party
in the step taken. The court must examine whether the
party has abandoned his right under the agreement. In the
light of these principles and looking to the substance of
the application dated January 4, 1985, we cannot form an
opinion that the defendants have abandoned their right to
have the suit stayed and took a step in the suit to file the
written statement."
Waiver of a right on the part of a defendant to the lis must be gathered
from the fact situation obtaining in each case. In the instant case, the court
had already passed an ad interim ex pare injunction. The Appellants were
bound to respond to the notice issued by the Court. While doing so, they
raised a specific plea of bar of the suit in view of the existence of an
arbitration agreement. Having regard to the provisions of the Act, they had,
thus, shown their unequivocal intention to question the maintainability of
the suit on the aforementioned ground.
The submission of the learned counsel for the Respondents that the
two different causes of action having been raised, namely, illegal
termination of contract and blacklisting of the firm, Section 8 of the 1996
Act was not attracted is devoid of merit; inasmuch as according to the
Respondents themselves, both the causes of action arose out of the terms of
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the contract. What was necessary was to consider the substance of the
dispute. Once it is found that the dispute between the parties arose out of the
contract, Section 8 of the 1996 Act would be attracted.
Furthermore, as noticed hereinbefore, the High Court committed a
manifest error in holding that the Respondent-Firm had been blacklisted
without any notice as only a notice to show cause in that behalf had been
issued. A final decision in regard to blacklisting of the Respondent-Firm
was yet to be taken. The Respondents could file their show cause and could
have satisfied the authorities of the Appellant No.1 that no case has been
made out for blacklisting.
Reliance placed by the learned counsel on Sukanya Holdings (P) Ltd.
v. Jayesh H. Pandya and Another [(2003) 5 SCC 531] is misplaced..
Therein, not only a suit for dissolution of the firm was filed, but a different
cause of action had arisen in relation whereto apart from parties to the
arbitration agreement, other parties had also been impleaded. In the
aforementioned fact situation, this Court held :
"Secondly, there is no provision in the Act that when
the subject-matter of the suit includes subject-matter of
the arbitration agreement as well as other disputes, the
matter is required to be referred to arbitration. There is
also no provision for splitting the cause or parties and
referring the subject-matter of the suit to the arbitrators.
It was further stated :
"The next question which requires consideration is \027
even if there is no provision for partly referring the
dispute to arbitration, whether such a course is possible
under Section 8 of the Act. In our view, it would be
difficult to give an interpretation to Section 8 under
which bifurcation of the cause of action, that is to say, the
subject-matter of the suit or in some cases bifurcation of
the suit between parties who are parties to the arbitration
agreement and others is possible. This would be laying
down a totally new procedure not contemplated under the
Act. If bifurcation of the subject-matter of a suit was
contemplated, the legislature would have used
appropriate language to permit such a course. Since there
is no such indication in the language, it follows that
bifurcation of the subject-matter of an action brought
before a judicial authority is not allowed.
Secondly, such bifurcation of suit in two parts, one to
be decided by the Arbitral Tribunal and the other to be
decided by the civil court would inevitably delay the
proceedings. The whole purpose of speedy disposal of
dispute and decreasing the cost of litigation would be
frustrated by such procedure. It would also increase the
cost of litigation and harassment to the parties and on
occasions there is possibility of conflicting judgments
and orders by two different forums."
Such a question does not arise herein as the parties herein are parties
to the arbitration agreement and the question in regard to the jurisdiction of
the arbitrator, if any, can be determined by the arbitrator himself in terms of
Section 16 of the 1996 Act.
Strong reliance has been placed by Mr. Rai on a decision of this Court
in Union of India v. Birla Cotton Spinning and Weaving Mills Ltd. [AIR
1967 SC 688] contending that when the dispute arises de’ hors the
agreement, Section 8 of the 1996 Act would not be applicable. The said
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decision has no application in the instant case as a finding of fact was
arrived at therein that the Union of India had withheld payment of a large
sum of money on the specious plea that some amount in relation to another
contract was due to it. The submission of the respondent therein was that no
such contract had been executed by it. In the fact situation obtaining therein,
this Court held :
"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."
Such is not the case here.
For the foregoing reasons, we are of the opinion that the application
filed by the Appellants under Section 8 of the 1996 Act was maintainable.
Before parting with the case, we may notice a disturbing state of
affairs. Mr. Nariman made a statement before us that in view of the order of
status quo passed by the learned Civil Judge, the Respondents have not only
been working for the full term of five years contemplated under the
agreement but also for the extended the period of ten years, to which they
were not entitled. The order of injunction passed by the learned Trial Judge
is not before us. The contention raised by Mr. Nariman if correct, we are
sure that corrective measures shall immediately be taken by the court
concerned.
For the reasons aforementioned, the impugned judgments cannot be
sustained which are set aside. The appeals are allowed with costs. Counsel
fee is quantified at Rs.15,000/-.