Full Judgment Text
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CASE NO.:
Appeal (civil) 5156 of 2003
PETITIONER:
Hindustan Petroleum Corpn. Ltd.
RESPONDENT:
Vs.
M/s. Pinkcity Midway Petroleums
DATE OF JUDGMENT: 23/07/2003
BENCH:
N Santosh Hegde & B P Singh.
JUDGMENT:
J U D G M E N T
(Arising out of SLP © No.21154 of 2002)
SANTOSH HEGDE, J.
Heard learned counsel for the parties.
Leave granted.
This appeal is filed against the judgment of the High
Court of Punjab & Haryana at Chandigarh delivered in Civil
Revision No.1688 of 2002 on 1.7.2002 whereby the High Court
dismissed the revision petition filed by the appellant herein
against an order made by the Civil Judge, (Senior Division),
Rewari, Haryana, dated 19.2.2002 dismissing the application
filed by the appellant herein under Section 8 read with Section
5 of the Arbitration and Conciliation Act, 1996 (for short ’the
Act’) in a suit pending before it seeking reference of the suit
pending before it to an arbitrator as contemplated under Clause
40 of the Dealership Agreement between the parties.
The facts necessary for disposal of this appeal, briefly
stated, are as follows :
The appellant herein is a company carrying on the
business of manufacture, sale and distribution of petroleum
products which it does through dealers and distributors
appointed by it. The respondent herein is one of such dealers
appointed by the appellant to sell its petroleum products
through a retail outlet at Jaisingpur Khera, National Highway
No.8, District Rewari, Haryana. The said appointment as a
dealer of the respondent is governed by a Dealership
Agreement dated 26.3.1997 executed by the parties. According
to the appellant, Clause 30 of the said agreement empowers it to
stop the supply of its products to a dealer for a period as the
appellant thinks fit, for breach of any of the conditions
contained in the agreement. The appellant also states that this
stoppage of supply of its product is in addition to and without
prejudice to any other right or remedy available to it or others
under the said agreement. The appellant also contends that
under Clause 40 of the said agreement, any dispute of
whatsoever nature between the parties, arising out of or in
relation to the said agreement, will have to be referred to the
sole arbitration of the Chairman and the Managing Director of
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the Corporation who may, as per the said clause, either himself
act as an arbitrator or nominate some other officer of the
appellant to act as an arbitrator. It is also the case of the
appellant that under Clause 20 of the said agreement, the
respondent is not only obligated to comply with the terms and
conditions of the said agreement but is also responsible to
comply with all directions, orders, guidelines etc. issued by the
appellant-Corporation on safe practices and marketing
discipline. The appellant further contends that in this regard as
per the marketing discipline, guidelines issued for the purpose
of prevention of mal-practices, irregularities at retail outlets, the
officers of the appellant are entitled to conduct inspections,
make necessary report and take action thereon. This right of the
Corporation, according to the appellant, is in addition to the
powers of the Government of India and other statutory
authorities as notified in the Notification dated 28.12.1998
issued in exercise of powers conferred under Section 3 of the
Essential Commodities Act, 1955 and Order of 1998 issued
thereon for purposes of checking mal-practices.
The appellant contends that while in exercise of such
power of inspection on 18.11.2001 by the officers of the
Corporation, it was found that there was short delivery of Motor
Spirit (MS) and High Speed Diesel (HSD) in the dispensing
units of the respondent. The said officers also found weights
and measurement seals in the HSD dispensing units tampered
with. Based on the said inspection reports, the appellant states
that on 29.11.2001 a show-cause notice was issued by the
appellant to the respondent in regard to short-delivery and
tampering, as stated above.
In response to the above show-cause notice of the
appellant, it is stated that the respondent submitted its reply and
on consideration of the same, the appellant not being satisfied,
suspended the sales and supply of petroleum products to the
respondent’s retail outlet for a period of 30 days and also levied
a penalty of Rs.15,000/- for the said irregularities committed by
the respondent as per the appellant’s letter dated 16.1.2002.
Being aggrieved by the said stoppage of supply of
appellant’s product, the respondent filed Civil Suit No.18 of
2000 in the Court of the Civil Judge, (Senior Division), Rewari,
praying, inter alia, for a declaration that the order dated
16.1.2002 is illegal and arbitrary. The respondent along with
the plaint in the said suit also filed an application under Order
39 Rules (1) and (2) of the CPC. Learned Civil Judge was
pleased to stay the suspension of supplies by the appellant to
the respondent while in regard to the penalty, no stay was
granted.
In reply to the plaint filed in the Civil Judge’s Court, the
appellant filed an application under section 8 read with Section
5 of the Act in the said suit praying for referring the dispute
pending before the Civil Court to the arbitrator as per Clause 40
of the Dealership Agreement dated 26.3.1997. Along with that
application, as required under Section 8 of the Act, the
appellant also enclosed a copy of the agreement. In the said
application, the appellant had stated that the action taken by it
was in consonance with the terms and conditions of the
Dealership Agreement, hence, any dispute arising out of the
said action of the appellant could only be referred to the
arbitrator as per Clause 40 of the said agreement.
The learned Civil Judge by his order dated 19.2.2002
dismissed the said application holding that the dispute between
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the parties was not covered by the arbitration agreement. A
revision filed by the appellant in the High Court, as stated
above, against the order of the learned Civil Judge came to be
dismissed by the High Court. It is in the above backdrop that
the appellant is before us in this appeal.
Mr. Mukul Rohtagi, learned A.S.G. appearing for the
appellant-Corporation, contended that the courts below have
seriously erred in coming to the conclusion that the arbitration
clause found in the Dealership Agreement does not apply to a
dispute of the nature which was pending in the suit before the
learned Civil Judge. Learned counsel contended that the courts
below having come to the conclusion that there was an
arbitration clause which is widely worded in the Dealership
Agreement which would ordinarily cover all differences,
disputes, claims etc., could not have further proceeded to
examine whether such a clause would cover the dispute raised
in the suit because such an exercise could only be undertaken
by the arbitrator in view of Section 16 of the Act. In support of
this contention of his, learned counsel placed strong reliance on
a Constitution Bench judgment of this Court in Konkan
Railway Corporation Ltd. & Anr. v. Rani Construction Pvt. Ltd.
[2002 (2) SCC 388]. He further contended that even the finding
rendered by the two courts below that there can be no
arbitration clause in regard to a dispute concerning short-
delivery of Motor Spirit and HSD or the tampering with the
weights and measurement seals because such a dispute can only
be adjudicated in a manner provided for under the Standards of
Weights and Measures (Enforcement) Act, 1985 (the 1985 Act),
and such dispute cannot be gone into in arbitration proceedings,
is wholly erroneous and cannot be sustained. With reference to
the judgment of the High Court, the learned counsel also
contended that the High Court has erred in coming to the
conclusion that a revision petition under Section 115 of the
CPC will not be available to the appellant on the facts and
circumstances of this case.
Mr. Chetan Sharma, learned senior counsel appearing for
the respondent, in reply, contended that the courts below have
justly come to the conclusion that the arbitration clause found
in the Dealership Agreement could not have contemplated an
adjudication by an arbitrator in regard to a dispute arising
between the parties pertaining to short-delivery of the Motor
Spirit and HSD or tampering with the seal because these are the
disputes which have penal consequences, hence, could only be
tried by a competent criminal court on being investigated by an
authorised agency as provided in the 1985 Act. He also
submitted that since the dispute ex facie showed that the same
cannot be adjudicated by an arbitrator, the courts below were
justified in coming to the conclusion that the application filed
under Sections 5 and 8 of the 1996 Act was not maintainable.
Learned counsel also supported the finding of the High Court in
regard to non-maintainability of the revision petition before it.
For deciding the question whether the courts below were
justified in coming to the conclusion that they could go into the
question of the existence or validity of the arbitration
agreement, we will have to first consider the relevant clauses
found in the Dealership Agreement. Clause 40 of the said
agreement reads thus :
"40. Arbitration
(a) Any dispute or difference of any nature
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whatsoever any claim, cross-claim, counter-claim
or set off or regarding any right, liability, act,
omission or account of any of the parties hereto
arising out of or in relation to this agreement shall
be referred to the Sole Arbitration of the Chairman
& Managing Director of the Corporation who may
either himself act as the Arbitrator or nominate
some other Officer of the Corporation to act as the
Arbitrator. The dealer will not be entitled to raise
any objection to any such arbitrator on the ground
that the Arbitrator is an officer of the Corporation.
(b) In the event of the Arbitrator to whom the
matter is originally referred being transferred, he
shall be entitled to continue the arbitration
proceedings notwithstanding his transfer unless the
Chairman & Managing Director at the time of such
transfer or at any time thereafter, designates
another Officer to act as Arbitrator in his place in
accordance with the terms of this agreement.
(c) In the event of the arbitrator, to whom the
matter is originally referred vacating his office or
being unable or refusing to act for any reason, the
Chairman & Managing Director at the time of
vacation of office or inability or refusal to act,
shall designate another Officer to act as Arbitrator
in accordance with the terms of this agreement.
(d) The Arbitrator newly nominated by the
Chairman & Managing Director under Clauses (b)
or (c) above shall be entitled to proceed with the
reference from the point at which it was left by his
predecessor.
(e) It is an express term of this contract that no
person other than the Chairman & Managing
Director or a Director nominated as aforesaid shall
act as Arbitrator. If for any reason, Chairman &
Managing Director is unable or unwilling or
refuses or fails to act as an Arbitrator or nominate
an Arbitrator then the matter shall be referred to
the Director (Marketing) who shall appoint a
Officer of the Corporation to act as an Arbitrator.
It being fully understood and agreed by and
between the parties hereto that the vacancy should
not be supplied within the meaning of sub-section
1(b) of section 8 of the Arbitration Act, 1940 (Act
No.10 of 1940).
(f) The award of the Arbitrator so appointed
shall be final conclusive and binding on all parties
to the agreement subject to the provisions of the
Arbitration Act, 1940.
(g) The award shall be made in writing and
published by the Arbitrator within 12 months after
entering upon the reference or within such
extended time not exceeding one further year as
the parties shall agree in writing. The parties
hereto shall be deemed to have irrevocably given
their consent to the Arbitrator to make and publish
the award within the period referred to
hereinabove and shall not be entitled to raise any
objection or protest thereto under any
circumstances whatsoever.
(h) It is hereby expressly agreed that the powers
of the Arbitrator appointed in the matter
hereinabove mentioned shall include the power to
make interim award/awards as the circumstances
of the case may justify to appoint a receiver,
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commissioner or custodian by whatever name
called to take possession of the property in dispute
during the pendency of the proceedings and
subject to such final order as may be passed by the
Arbitrator and shall also have the power to issue
such further orders from time to time as he may
deem fit, on an application being made to him by
any of the parties to the dispute where it is
apprehended that the property to which it relates is
in danger of being wasted, damaged, deteriorated
or parted with or rights of other parties are likely to
be created thereon.
(i) The Arbitrator shall be at liberty to appoint,
if necessary, any accountant or engineer or other
technical person to assist him and to act on the
opinion taken from such person.
(j) The Arbitrator shall be entitled to direct
anyone of the parties to pay the costs of the other
party in such manner and to such extent as the
Arbitrator may in his discretion determine and
shall also be entitled to require on or both the
parties to deposit funds in such proportion to meet
the Arbitrator’s fees and expenses as and when
called upon to do so.
(k) The venue of the Arbitration shall be as
decided by the Arbitrator."
A perusal of this clause clearly shows that the parties to
the Dealership Agreement had agreed to refer their dispute
arising out of the agreement, of whatever nature it may be, to an
arbitrator as contemplated in that agreement. Section 8 of the
Act in clear terms mandates that a judicial authority before
which an action is brought in a matter which is the subject of an
arbitration agreement to refer such parties to arbitration, the
language of this Section is unambiguous.
This Court in the case of P. Anand Gajapathi Raju & Ors.
v. P. V. G. Raju (Dead) & Ors. [2000 (4) SCC 539] 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.
The question then would arise: what would be the role of
the Civil Court when an argument is raised that such an
arbitration clause does not apply to the facts of the case in
hand ? Learned counsel for the appellant contends that it is a
matter which should be raised before the arbitrator who is
competent to adjudicate upon the same and the Civil Court
should not embark upon an inquiry in regard to the applicability
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of the arbitration clause to the facts of the case. While learned
counsel appearing for the respondent contends that since the
applicability of the arbitration clause to the facts of the case
goes to the very root of the jurisdiction of the reference to
arbitration, this question will have to be decided by the Civil
Court before referring the matter to arbitration even in cases
where there is admittedly an arbitration clause. The answer to
this argument, in our opinion, is found in Section 16 of the Act
itself. It has empowered the Arbitral Tribunal to rule on its own
jurisdiction including rule on any objection with respect to the
existence or validity of the arbitration agreement. That apart, a
Constitution Bench of this Court in Konkan Railway (supra)
with reference to the power of the arbitrator under Section 16
has laid down thus :
"It might also be that in a given case the
Chief Justice or his designate may have
nominated an arbitrator although the period
of thirty days had not expired. If so, the
Arbitral Tribunal would have been
improperly constituted and be without
jurisdiction. It would then be open to the
aggrieved party to require the Arbitral
Tribunal to rule on its jurisdiction. Section
16 provides for this. It states that the
Arbitral Tribunal may rule on its own
jurisdiction. That the Arbitral Tribunal may
rule "on any objections with respect to the
existence or validity of the arbitration
agreement" shows that the Arbitral
Tribunal’s authority under Section 16 is not
confined to the width of its jurisdiction, as
was submitted by learned counsel for the
appellants, but goes to the very root of its
jurisdiction. There would, therefore, be no
impediment in contending before the
Arbitral Tribunal that it had been wrongly
constituted by reason of the fact that the
Chief Justice or his designate had nominated
an arbitrator although the period of thirty
days had not expired and that, therefore, it
had no jurisdiction." (emphasis supplied)
It is clear from the language of the Section, as interpreted
by the Constitution Bench judgment in Konkan Railway (supra)
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 concerned Arbitral Tribunal. 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.
In the normal circumstances, the above finding of ours
should have sufficed to dispose of this appeal before us. But in
view of the categoric findings given by the two courts below in
regard to the non-applicability of Clause 40 of the Dealership
Agreement to the facts of the case, and also in view of the
arguments addressed before us, we are constrained to examine
the correctness of the findings of the two courts below to avoid
multiplicity of proceedings.
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It was argued before the courts below as also before us
that the mis-conduct, if any, pertaining to short-supply of
petroleum products or tampering with the seals would be a
criminal offence under the 1985 Act. Therefore, the
investigation into such conduct of the dealer can only be
conducted by such officers and in a manner so specified in the
said Act, and it is not open to the appellant to arrogate to itself
such statutory power of search and seizure by relying on some
contractual terms in the Dealership Agreement. It is further
argued that such disputes involving penal consequences can
only be tried by a court of competent jurisdiction and cannot be
decided by an arbitrator.
Having considered the above arguments addressed on
behalf of the respondent as also the findings of the courts
below, we are of the opinion that the same cannot be accepted
because the appellant is neither exercising the power of search
and seizure conferred on a competent authority under the 1985
Act nor does the Dealership Agreement contemplate the
arbitrator to exercise the power of a criminal court while
arbitrating on a dispute which has arisen between the
contracting parties. This is clear from the terms of the
Dealership Agreement. In our opinion, the findings of the
courts below in this regard run counter to the clauses of the said
Agreement, as could be seen from the following clauses of the
Dealership Agreement which read thus :
"20. Dealer to comply with provisions of
Acts, Rules & Regulations
(a) The Dealer shall at all times faithfully, promptly
and diligently observe and perform and carry out at
all times, all directions, orders, rules, terms and
conditions as may be issued by the Corporation or
its representatives from time to time on safe
practices and marketing discipline and for the
proper carrying on of the Dealership of the
Corporation.
(b) The Dealer shall observe and comply with the
provisions of Petroleum Act, 1934, Explosives
Act, 1884, Weights & Measures Act, 1976, etc.,
and all rules and regulations made thereunder.
(c) The Dealer shall faithfully observe and perform all
the obligations, duties and requirements under the
licences required or obtained for running the
dealership and shall promptly renew all licences
from time to time.
(d) The Dealer shall be solely responsible for any
breach or contravention by them, their employees,
of any Acts, rules, regulations or bye-laws of the
Central and/or State Governments and/or
Municipal, Local and/or other authorities as may
be applicable to the Retail Outlet business and the
Corporation shall not be responsible in any manner
for any of the liabilities arising out of non-
compliance by the Dealer, their employees, their
agents and sub-agents.
(e) The Corporation will obtain in its name a storage
licence from the Controller of Explosives for the
storage of petroleum products at the said premises
and the dealer shall faithfully observe and perform
all the terms and conditions of such licence(s).
(f) The dealer shall obtain any or every licence(s)
necessary for the storage/sale of petroleum and
other products at the said premises required under
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any Central/State Government or local enactment
for the time being in force and shall faithfully
observe and perform all the terms and conditions
for such licence(s) and shall promptly renew the
same from time to time.
(g) The dealer shall be solely responsible for any
breach or contravention by them, their servants or
agents of any laws, rules, regulations or bye-laws
passed or made by the Central and/or State
Government and/or Municipal local and/or other
Authorities as may be applicable from time to time
to the business including without prejudice to the
generality of the foregoing. The concerned
Authorities respectively appointed under the
Petroleum Act, Payment of Wages Act, Shops &
Establishment Act, Factories Act and the
Workmen’s Compensation Act or any statutory
modifications or re-enactments of the said statutes
or rules and the Corporation shall not be
responsible in any manner for any liability out of
non-compliance by the dealer with the same. The
dealer shall at all times indemnify and keep
indemnified the Corporation against all actions,
proceedings, claims and demands made against it
by the Central and/or State Government and/or
Municipal Local and/or other Authorities and/or by
any customer of the product and/or any other third
party as a result of or in consequence of any act or
omission of whatsoever nature of the dealer, his
servants or agents, including, without prejudice to
the generality of the foregoing, any accident or
loss or damage arising out of the storage, handling
and/or sale of the products or attributable to the
use of the said premises for the aforesaid purposes
whether or not such act or omission or accident or
loss or damage was due to any negligence, want of
care or skill or any misconduct of the dealers, their
servants or agents.
(h) The dealer shall indemnify and save harmless the
Corporation from all losses, damages, claims, suits
or actions which may arise out of or result from
any injury to any person or property or from
violation of any statutory enactments, rules or
regulations or other written orders or other laws or
caused by or resulting from non-observance by the
dealer of the provisions of this Agreement."
A perusal of various sub-clauses of this Clause of the
Dealership Agreement shows that the dealer is under an
obligation to faithfully, promptly and diligently observe and
perform and carry out at all times all directions, orders, rules,
terms and conditions of safe practices and marketing discipline
while carrying on the dealership of the appellant. Clause 20 of
the said Agreement also requires the dealer to observe and
comply with the provisions of the Petroleum Act, Explosives
Act, the Weights and Measures Act, 1976 and the rules and
regulations made thereunder.
Clause 30 of the Agreement reads thus :
"30. Corporation’s right to stop/suspend
Petrol/Diesel/Lubricants supply.
Notwithstanding anything to the
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contrary herein contained the Corporation
shall be at liberty upon a breach by the
dealer of any covenant in this Agreement to
stop and/or suspend forthwith supply of
Petrol/Diesel/Lubricants and other products
to the dealer and/or sales for such period or
periods as the Corporation may think fit, and
such right of stoppage and/or suspension
shall be in addition to and/or without
prejudice to any other right or remedy
available to the Corporation under this
Agreement. The dealer shall not be entitled
to claim any compensation or damage from
the Corporation on account of any such
stoppage and/or suspension of supply."
A perusal of this Clause shows that if the dealer commits
a default in complying with the obligations enumerated in
Clause 20 of the Agreement, the appellant is entitled to stop or
suspend supply of its petroleum products to such a dealer
without prejudice to other remedies available under the
Agreement. This right of the appellant to take action against an
erring dealer under the terms of the Agreement is de hors the
proceedings that may be available to be initiated against an
erring dealer under the provisions of various other enactments
referred to in Clause 20 of the said Agreement including under
the provisions of the 1985 Act. This right of the Corporation to
suspend the supply of petroleum products to an erring dealer is
a right exercised under the terms of the contract and is
independent of the statutory provisions of the various Acts
enumerated in Clause 20 of the Agreement. The courts below,
in our opinion, have committed an error by misreading the
terms of the contract when they came to the conclusion that the
only remedy available as against a misconduct committed by an
erring dealer in regard to short-supply and tampering with the
seals lies under the provisions of the 1985 Act. The courts
below have failed to notice that when a dealer short-supplies or
tampers with the seal, apart from the statutory violation, he also
commits a misconduct under Clause 20 of the Agreement in
regard to which the appellant is entitled to invoke Clause 30 of
the Agreement to stop supply of petroleum products to such
dealer. The power conferred under the Agreement does not in
any manner conflict with the statutory power under the 1985
Act nor does the prescribed procedure under the 1985 Act in
regard to search and seizure and prosecution apply to the power
of the appellant to suspend the supply of its petroleum products
to an erring dealer. The power exercised by the appellant in
such a situation is a contractual power under the agreement and
not a statutory one under the 1985 Act. The existence of dual
procedure; one under the criminal law and the other under the
contractual law is a well-accepted legal phenomenon in the
Indian jurisprudence.
Therefore, in our opinion, the courts below have erred in
coming to the conclusion that the appellant did not have the
legal authority to investigate and proceed against the respondent
for its alleged misconduct under the terms of the Dealership
Agreement. We are also of the opinion that if the appellant is
satisfied that the respondent is indulging in short-supply or
tampering with the seals, it will be entitled to initiate such
action as is contemplated under the agreement like suspending
or stopping the supply of petroleum products to such erring
dealer. If in that process any dispute arises between the
appellant and such dealer, the same will have to be referred to
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arbitration as contemplated under Clause 40 of the Dealership
Agreement.
This brings us to consider the last question involved in
this appeal, namely, the maintainability of the revision petition
before the High Court under Section 115 of the CPC. The High
Court by the impugned order has come to the conclusion that its
jurisdiction to entertain a revision petition would only be
available if the order impugned is such that if it is allowed to
stand, it would occasion failure of justice or cause an
irreparable injury to a party against whom the said order is
made. In support of this finding, the High Court has relied upon
certain judgments of this Court. Having perused the said
judgments, we are of the opinion that the findings given in
those judgments do not apply to the facts of this case at all. We
have come to the conclusion 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 failed to exercise its jurisdiction
vested in it under Section 115 of the C.P.C. 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. For the said reason, we are of the
opinion that the High Court has erred in coming to the
conclusion that the appellant was not entitled to the relief under
Section 115 CPC.
For the reasons stated above, this appeal succeeds and the
impugned orders of the courts below are set aside. The
application filed by the appellant under Sections 8 and 5 of the
Act is allowed. Consequently, the trial court is directed to refer
the dispute pending in Civil Suit No.18 of 2002 before it to
arbitration, as prayed for by the appellant in the said
application. The interim order passed by the High Court shall
stand vacated.
The appeal is allowed with costs