Full Judgment Text
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PETITIONER:
SECURITY & FINANCE (P) LTD. & ANR.
Vs.
RESPONDENT:
DATTARAYA RAGHAV AGGE & ORS.
DATE OF JUDGMENT:
08/11/1968
BENCH:
RAMASWAMI, V.
BENCH:
RAMASWAMI, V.
SHAH, J.C.
GROVER, A.N.
CITATION:
1970 AIR 720 1969 SCR (2) 668
1969 SCC (1) 181
ACT:
Arbitration Act 10 of 1940, s. 35--Civil suit filed
during pendency of dispute before arbitrator--Notice of suit
given under s. 35 to arbitrator and opposite
party--Arbitrator nevertheless recording evidence of
opposite party and giving award--Whether arbitrator and
opposite party guilty contempt of court and s. 3 Contempt of
Courts Act (32 of 1952).
HEADNOTE:
A hire-purchase agreement was entered into between the
appellants and respondent No. 1 Under that agreement a
motor transport truck was made available to respondent No. 1
for doing transport business. The agreement contained an
arbitration clause for settlement of disputes When disputes
arose reference was made to an arbitrator.
Respondent No. 3 a praetising lawyer was named as the
arbitrator. During the pendency of the arbitration
proceedings respondents Nos. 1 and 2 filed a civil suit in
which they claimed a declaration that the hire-purchase
agreement was brought about by fraud and was not binding on
them on various grounds. The suit was registered and the
court ordered summons to be issued to the two appellants. A
notice was also issued by respondent No. 1 to the
appellants and the arbitrator with a copy of the plaint.
When the arbitrator made an award after recording the
evidence of the appellants respondents Nos. 1 and 2 filed an
application under s. 3 of the Contempt of Courts Act on the
allegation on that the appellants and respondent No. 3 had
committed contempt of court in proceeding with the
arbitration reference in spite of the notice under s. 35 of
the Arbitration Act being given and in spite of the
knowledge of the suit which was filed by respondents 1 and
2. The application was contested by the appellants as well
as the arbitrator. The appellants contended that in obeying
the orders of the arbitrator to produce evidence they did
not commit any contempt. Respondent No. 3 denied that he
conducted the arbitration proceedings in order to defeat the
object of the suit. The High Court found the appellants and
respondent No. 3 guilty of contempt of court on the view
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that their conduct had a tendency to bring into contempt the
proceedings before the Civil Court. In appeal to this Court
by certificate,
HELD: The High Court was in error in holding that in the
circumstances of the case the appellants and respondent No.
3 were guilty of contempt of court.
Section 35 of the Arbitration Act does not expressly
prohibit the arbitrator from continuing the hearing of the
reference. Its only effect is that "all further proceedings
in a pending reference shall, unless a stay of proceedings
is granted under s. 34, be invalid". For this consequence
to follow, however. two important and distinct conditions
must be satisfied, namely, (1) that such legal proceedings
must be upon the whole and not merely part of the subject-
matter of the reference and (2) that a notice of such
legal proceeding must be given to the arbitrator. Even on
the assumption that these conditions were satisfied the only
effect is that the further proceedings before the arbitrator
after the receipt of the notice are rendered invalid and
there is no prohibition under s. 35 requiring the arbitrator
not to carry on the arbitration proceedings after the
receipt of the notice. [672 G--673 B]
669
It is well established that an authority holding an
enquiry in good faith in exercise of the powers vested in it
by a statute is not guilty of contempt of court, merely
because a parallel enquiry is imminent or pending before a
court. To constitute the offence of contempt of court
there must be involved some ’act done or writing published
calculated to bring a court or a judge of the court into
contempt or to lower his authority’ or ’something calculated
to obstruct or interfere with the due course of justice or
the lawful process of the court’. [673 C]
Reg. v. Gray [1900] 2 Q.B. 36, Arthur Reginald Perera v.
The King, [1951] A.C. 482, Tukaram Gaokar v. S.N. Shukla,
[1968] 3 S.C.R. 422 and Rizwan-ul-Hasan v. State of Uttar
Pradesh, [1953] S.C.R. 581, 588, applied.
It followed therefore that even if the action of the
appellants and respondent No. 1 in the present case was
assumed to be improper it would not justify the finding that
they were guilty of contempt of court when their action was
in no way calculated to obstruct the course of justice or to
prejudice the trial of the civil suit.
JUDGMENT:
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 49 of
1967.
Appeal from the judgment and order dated August 14, 1964
of the Bombay High Court, Nagpur Bench in Misc. Civil
Application No. 13 of 1963.
Mohan Behari Lal, for the appellants.
V.K. Sanghi and Ganpat Rai, for respondents Nos. 1 and 2.
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought by certificate
from the judgment of the Bombay High Court Nagpur Bench
dated August 14, 1964 by which the appellants were convicted
for contempt of Court of Civil Judge, Junior Division,
Nagpur and sentenced to pay a fine of Rs. 200/- each. By
the same judgment respondent no. 3, Sri Ram Nath Vig was
also convicted for contempt and sentenced to pay a fine of
Rs. 100/-.
It appears that a hire-purchase agreement was entered
into between the appellants and respondent no. 1 on or
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about August 12, 1959. Under that agreement a motor truck
was made available to respondent no. 1 for doing transport
business. The hire-purchase agreement contained an
arbitration clause for settlement of disputes arising
between the parties. It appears that subsequently disputes
did arise between the parties and a reference was made to an
arbitrator to settle the disputes. Resportdent no. 3, Sri
Ram Nath Vig who is a practicing lawyer in Delhi was the
person named as arbitrator in the arbitration agreement
itself and the dispute was submitted to him on or about June
25, 1962 at the instance of the appellants. Thereafter the
arbitrator gave notice of the reference and invited
statements of the parties. He fixed the hearing of the
arbitration matter before him on July 17, 1962. The case
of respondent no. 1 is that he did not receive notice of
this date from the arbitrator and 4Sup. C.I./69--10
670
therefore he did not appear on the date fixed. The
arbitrator adjourned the hearing of the reference to another
date, namely, August 29, 1962. The contention of respondent
no. 1 is that he was not given intimation of this date also
but this point is controverted by the respondents.
Respondents nos. 1 and 2 filed a Civil Suit in the Court of
Civil Judge, Senior Division, Nagpur on August 30, 1962.
In this suit they claimed a declaration that the hire-
purchase agreement was brought about by fraud and was not
binding on them on various grounds. The suit was registered
and the court ordered summons to be issued to the two
appellants. Meanwhile, the arbitrator postponed the hearing
of the reference to September 15, 1962 and it is alleged
that he issued fresh notices to the parties on September
1, 1962. The hearing was again adjourned to October 23,
1962 and it is said that resportdent no. 3 made an award on
October 24, 1962. It has been found by the High Court that
on October 18, 1962 a notice was issued by respondent no. 1
to the appellants and the arbitrator with ’a copy of the
plaint. This notice was received by the appellants on
October 22, 1962. In spite of this notice, evidence was
recorded by the arbitrator on October 23, 1962 and he made
the award on the next day directing respondent no. 1 to
pay Rs. 20,400/-. The allegation of the arbitrator is that
he received the notice sent on October 18, 1962 on the next
day of the award i.e., on October 25, 1962. It appears that
in the civil suit filed by respondents 1 and 2 which was
registered as Civil Suit no. 657 of 1962 on the file of the
Civil Judge, Junior Division, the first date of hearing was
fixed, on October 15, 1962. On that date the appellants
filed an application under s. 34 of the Arbitration Act for
staying the proceedings before the court. No progress was
made in the suit which was adjourned to November 6, 1962 and
again to November 28, 1962 at the instance of the
appellants. Finally on November 28, 1962 the arbitrator
informed respondent no. 1 that he had made the award. On
these facts respondents 1 and 2 filed an application under
s. 3 of the Contempt of Court’s Act for action being taken
,against the two appellants, respondent no. 3 and one more
person. According to respondents 1 and 2 the appellants
and respondent no. 3 had committed contempt of court in
proceeding with the arbitration reference in spite of notice
under s. 35 of the Arbitration Act being given and in spite
of the knowledge of the suit which was filed by respondents
1 and 2. The application was contested by the ’appellants
as well as the arbitrator. The case of the appellants was
that the suit itself was not sustainable and they were
unaware that participation in the arbitration proceedings
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after receipt of notice was precluded by law and that they
honestly and bona fide believed that they were not
expected to take any action after the receipt of the notice
without direction from the arbitrator. It was for the
arbitrator to take a decision in the matter and ’if the
arbitrator decided to pro-
671
ceed with the arbitration, they only obeyed the orders of
the arbitrator and therefore had not committed any contempt.
The defence of respondent no. 3 was that in completing the
arbitration and giving his award he was only performing his
duty. He denied that it was necessary for him to await the
result of the stay application alleged to have been made by
respondent no. 1 in the Nagpur Court as he was of the view
that the subject-matter in the Nagput Court was not the
whole subject-matter under arbitration, Respondent no. 3
denied that he had any bias or that he conducted the
arbitration proceedings in order to defeat the object of the
suit and to place an impediment in the conduct of the suit.
The High Court rejected the contention of the appellants and
of respondent no. 3 and held that the action of the
appellants in participating in the arbitration proceedings
and the conduct of respondent no. 3 constituted contempt of
court as the conduct of respondent no. 3 and of the
appellants had a tendency to bring into contempt the
proceedings before the Civil Court.
It is necessary at this stage to set out the relevant
provisions of the Arbitration Act (X of 1940). Sections 32,
33, 34 and 35 are to the following effect:
"32. Notwithstanding any law for the
time being in force, no suit shall lie on any
ground whatsoever for a decision upon the
existence, effect or validity of an
arbitration agreement or award, nor shall any
arbitration agreement or award be set aside,
amended, modified or in any way affected
otherwise than as provided in this Act."
"33. Any party to an arbitration
agreement or any person claiming under him
desiring to challenge the existence or
validity of an arbitration agreement or an
award or to have the effect of either
determined shall apply to the Court and the
Court shall decide the question on affidavits:
Provided that where the Court deems it
just and expedient, it may set down the
application for hearing on other evidence,
also, and it may pass such orders for
discovery and particulars as it may do in a
suit."
"34. 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
672
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
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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
proceeding."
"35. (1 ) No reference nor award shall
be rendered invalid by reason only of
commencement of legal proceedings upon the
subject-matter of the reference, but when
legal proceedings upon the whole of the
subjectmatter of the reference have been
commenced between ’all the parties to the
reference and a notice thereof has been given
to the arbitrators or umpire all further
proceedings, in a pending reference shall,
unless a stay of proceedings is granted under
section 34, be invalid.
(2) In this section the expression
’parties to the reference’ includes any
persons claiming under any of the parties and
litigating under the same title."
In our opinion, the High Court was in error in holding
that in the circumstances of this case the appellants and
respondent no. 3 were guilty of contempt of court. It is
not disputed that there was an arbitration clause in the
agreement between the appellants and respondent no. 1 and
in terms of the arbitration clause respondents 1 and 2 had a
fight to refer the dispute to the arbitrator. It is also
not disputed that a reference to the arbitrator was made by
respondents 1 and 2 long before the institution of the civil
suit. It is also apparent that in view of the admitted
existence of the hire purchase agreement containing an
arbitration clause the remedy of respondent no. 1 was to
move the Civil Court under s. 33 of the Arbitration Act
challenging the existence or validity of the ,arbitration
agreement and to have its effect determined. It was
contended on behalf of the appellants that a separate suit
was barred under s. 32 of the Arbitration Act. We do not
wish to express any opinion on this point in the present
case. Even on the assumption that the suit filed by
respondents nos. 1 and 2 in the Nagpur Court is competent,
the question arises whether the arbitrator was bound to stay
the proceedings beforehim after he got notice from
respondents 1 and 2 of ’the institution of the civil suit.
Section 35 of the Arbitration Act does not expressly
prohibit the arbitrator from continuing the hearing of the
reference but the only effect of s. 35 is that "all further
proceedings in a pending reference shall, unless a stay of
proceedings is granted under s. 34, be invalid". For this
consequence to follow, however, two important and distinct
conditions must be satisfied, namely, (1) that such legal
proceedings must be upon
673
the whole and not merely part of the subject-matter of the
reference, and (2) that a notice of such a legal
proceeding must be given to the arbitrator. We do not wish
to express any opinion as to whether these conditions were
satisfied in this case. But even on the assumption that
these conditions were satisfied the only effect is that the
further proceedings before the arbitrator after the receipt
of the notice are rendered invalid and there is no
prohibition under s. 35 requiring the arbitrator not to
carry on the arbitration proceedings after the receipt of
the notice.
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It is well-established that an ’authority holding an
inquiry in good faith in exercise of the powers vested in it
by a statute is not guilty of contempt of court, merely
because a parallel inquiry is imminent or pending before a
court To constitute the offence of contempt of court, there
must be involved some ’act done or writing published
calculated to bring a court or a judge of the court into
contempt or to lower his authority’ or ’something calculated
to obstruct or interfere with the due course of justice or
the lawful process of the court--(See Reg. v. Gray(1) and
Arthur Reginald Perera v. The King(2). In Tukaram Gaokar v.
S.N. Shukla(3), it was held by this Court that the
initiation and continuance of proceedings for imposition of
penalty on the appellant for his alleged complicity in the
smuggling of gold under s. 112(b) of the Sea Customs Act,
1962 did not amount to contempt of court though his trial
in a criminal court for offences under s. 135(b) of that Act
and other similar offences was imminent ’and identical
issues would arise in the proceedings before the customs
authorities and in the trial before the criminal court.
In Rizwan-ul-Hasan v. The State of Uttar Pradesh(4)
this Court stated:
"As observed by Rankin, C.J. in
Anantalal Singha v. Abred Henry Watson [(1931)
58 Cal. 884 at 895], the jurisdiction in
contempt is not to be invoked unless there is
real prejudice which can be regarded as a
substantial interference with the due course
of justice and that the purpose of the court’s
action is a practical purpose and it is
reasonably dear on the authorities that the
court will not exercise its jurisdiction upon
a mere question of propriety."
It follows therefore that even if the action of the
appellants and respondent no. 1 in this case is assumed to
be improper it will not justify the finding that they were
guilty of contempt of court when their action was in no way
calculated to obstruct the course of justice or to prejudice
the trial of the Civil suit.
(1) [1900] 20.B. 36.
(2) [1951] A.C. 482.
(3) [1968] 3 S.C.R. 422.
(4) [1953] S.C.R. 581,588,
674
For these reasons we hold that this ,appeal should be
allowed and the judgment of’ the High Court of Bombay,
Nagpur Bench dated August 14, 1964 should be set aside and
the conviction and sentences imposed on the appellants
should be quashed. The arbitrator, respondent no. 3 has not
flied an appeal but in view of our finding with regard
to the appellants it is necessary that the conviction of
respondent no. 3 and the sentence imposed upon him should
also be quashed. The fines, if already paid by respontdent
no. 3 and the ,appellants should be refunded.
G.C. Appeal allowed;
675