Full Judgment Text
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PETITIONER:
STATE OF UTTAR PRADESH & ANR.
Vs.
RESPONDENT:
JANKI SARAN KAILASH CHANDRA & ANR.
DATE OF JUDGMENT23/04/1973
BENCH:
DUA, I.D.
BENCH:
DUA, I.D.
ALAGIRISWAMI, A.
VAIDYIALINGAM, C.A.
CITATION:
1973 AIR 2071 1974 SCR (1) 31
1973 SCC (2) 96
CITATOR INFO :
F 1982 SC1302 (13,18,20,22,27)
F 1989 SC 635 (7,9)
F 1990 SC 893 (6)
ACT:
Arbitration Act 1940, S. 34-District Government Counsel
accepting summons along with copy of written statement in
suit for damages for breach of contract against State
Government-Filing memo of appearance and asking for
adjournment-whether in doing so "any other step in the
proceedings" is taken within meaning of s. 34-State
Government’s plea for stay of suit under s. 34 whether could
be entertained in circumstances of case-It was better to
have suit for large sum tried by court rather than by
arbitrator.
HEADNOTE:
The plaintiffs (respondents herein) instituted a suit for
the recovery of damages for breach of contract impleading
the State of U.P. (through the Collector of Bijnor) as the
first defendant, and the Divisional Forest Officer, Bijnor
as the second defendant. The summons in the. suit issued to
the State of U.P. were served on the District Government
Counsel. On September 2. 1966 the said counsel filed an
appearance slip in the court and also put in a formal appli-
cation praying for one month’s time for the purpose of
filing written statement. This prayer was granted. On
October 1, 1966 the District Government counsel filed an
application under s. 34 of the Arbitration Act pleading that
there was an arbitration--clause in the agreement between
the parties to the suit and the State of U.P. being willing
to refer the matter to arbitration the suit should be
stayed. The trial court held that the dispute was subject
to arbitration clause and since the State of U.P. had not
taken any steps in the suit proceedings and had also not
filed the written statement the suit was liable to be
stayed. On appeal the High Court held that the action of
the District Government Counsel in applying for time to file
the written statement amounted to taking a step in the
proceedings within the meaning of s. 34 of the Arbitration
Act. On this view the defendant was held disentitled to
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claim that the suit should be stayed. By special leave the
defendants appealed to this Court.
Dismissing,the appeal,
HELD : (i) Taking other steps in the suit proceedings within
the meaning of s. 34 connotes the idea of doing something in
aid of the progress of the suit or submitting to the
jurisdiction of the court for the purpose of adjudication of
The merits of the controversy in the suit. [37E-F]
A recognised agent like the District Government Counsel can
scarcely be considered to appear voluntarily in a case on
behalf of the Government in the sense of being unauthorised
by his client for the simple reason that he is authorised by
virtue of statute to appeal, act and make applications on
behalf of the Government. Indeed in the present case the
District Government Counsel also filed in the Court the
usual appearance slip. If he wanted time for further
consultations, he could and should have specifically made a
prayer to that effect.
[38C]
The State took the benefit of the adjournment. It would be
somewhat irrational and perhaps incongruous to permit the
State, after having taken the benefit of the adjournment, to
plead that the application for adjournment was not made
on instructions and was unauthorised. [38E]
(ii) The argument that the trial court’s discretion had
been erroneously reversed by the High Court was equally
devoid of merit. If the appellants application was for
adjournment for the purpose of filing the written statement,
then there was no question of any case of discretion by the
trial court. Discretion with regard to stay under s. 34 of
the arbitration Act is to be exercised only when an
application under that section is competent.[38G]
(iii) Keeping in view the long delay after the
commencement of the suit and the fact that the suit was for
a very heavy amount by way of damages for
breach of contract. it would be more satisfactory on the
whole to have the suit tried in a competent court of law in
the normal course rather than by a lay
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arbitrator who was not bound either by the law of evidence
or by the law of procedure. [39B]
United Provinces Government v. Sri Har Nath, A.I.R. 1949
All. 611, Union of India v. Hans Raj Gupta & Co. A.I.R. 1957
All. 91, Punjab State v. Moji Ram, A.I.R 1957 Punjab 223,
State of Himachal Pradesh v. Lalchand Shahi, A.I.R. 1953
H.P. 75. Harbans Lal v. National Fire & General Insurance
Co. Ltd., A.I.R. 1955. Notes on Unreported Cases (Punjab)
4917 (Delhi), The Printers (Mysore) Private Ltd. v. Bothen
Joseph, [1960] 3 S.C.R. 713, Joharimal and others v.
Fatehchand and others A.I.R.1960, Raj. 67, Anderson Wright
Ltd., v. Morarn & Co. A.I.R. 1955 S.C. 53. Sarat Kumar Ray
v. Corporation of Calcutta, I.L.R. 34 Cal. 443, Adward
Hadbons v. Juggilal, A.l.R . 1943 Bom. 222, Roop Kishore v.
U.P. Government A.I.R. 1945 All. 4, Ford’s Hotel Co. Ltd. v.
Lartlet, [1896] A.C.I (H.L.) and J.N. Shalu & Co. v.
Hirachand, A.I.R. 1954, Bom. 174, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1701 of
1971.
Appeal by special leave from the judgment and order dated
February 10, 1971 of the Allahabad High Court in F.A. from
Order No. 187 of 1967.
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G. N. Dikshit and O. P. Rana, for the appellants.
Mohan Behari Lal, for the respondents.
The, Judgment of the Court was delivered by
DUA J.-In this appeal by special leave the State of U.P. and
the Divisional Forest Officer, Bijnor (defendants in the
trial court in the plaintiff-respondents’ suit) challenge
the judgment and order of a learned Single Judge of the
Allahabad High Court, allowing the plaintiff-respondents’
appeal and setting aside the order of the trial court
staying the suit under s. 34 of the Arbitration Act.
The plaintiffs had instituted a suit for the recovery of Rs.
69,556.27 by way of damages for breach of contract
impleading the, State of U.P. (through the Collector of
Bijnor as the first defendant and the Divisional Forest
Officer, Bijnor as the second defendant. The summons in the
suit issued to the State of U.P. were served on the District
Government Counsel. On September 2, 1966 the said counsel
filed an appearance slip in the court and also put in a
formal application praying for one month’s time for the
purpose of filing written statement. This prayer was
granted. On October 1 1966 the District. Government
counsel filed an application under s. 34 of the Arbitration
Act pleading that there was an arbitration clause In the
agreement between’ the parties to the suit and the State of
U.P. being willing to refer the matter to arbitration tie
suit should be stayed. The trial court held that the
dispute was subject to arbitration clause and since the
State of U.P. had not taken any steps in the, suit
proceedings and had also not filed the written statement the
suit was liable to be stayed. So holding the application of
the State Government was allowed and the suit stayed.
On appeal by the plaintiff the High Court relying on two
of its earlier decisions in United Provinces Government v..
Sri Har Nath(1) and Union of India v. Hans Raj Gupta & Co.
(2), held that action of
(2) A.I.R. 1957 All. 91
(1) A.I.R. 1949 All, 611.
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the District Government Counsel in applying for time to file
the written statement amounted to taking a step in the
proceedings within the meaning of S. 34 of the Arbitration
Act. On this view the defendant was held disentitled to
claim that the suit should be stayed. The appeal was
accordingly allowed and the order of stay set aside.
In this Court Shri G. N. Dikshit learned counsel for the
State of U.P. strongly contended that the District
Government Counsel had no instructions to ask for
adjournment for the purpose of filing the written statement
and, therefore, his action in applying for adjournment for
that purpose cannot bind the State of U.P. with the result
that application for stay of proceedings in the suit under
S. 34 of the Arbitration Act could not be held to be
incompetent. It was also contended that the trial court
having granted stay in its discretion the High Court was in
error in reversing that order and setting it aside on
appeal. According to this submission the discretion had
been exercised by the trial court which could not be.
considered to be either unreasonable or contrary to any
recognised principles and the High Court should, therefore,
have upheld it.
The counsel relied in support of his submission on Punjab
State v. Moji Ram(1). In that case on the date fixed by the
trial court for appearance of the defendant, the Government
pleader, with one Kartar Singh Sub-Divisional Officer,
appeared and asked for time to :file written statement as
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instructions with a copy of the plaint had not been
received. Adjournment was granted and a date was fixed for
filing the written statement. On the adjourned date the
Government pleader filed an application for stay of the suit
under s. 34 of’ the Arbitration Act. On these facts the
High Court observed that the Government pleader had merely
acted as a volunteer and asked for adjournment on the
assumption that in due course he would receive instructions
from the Government. The Government as a defendant,
therefore, could not be said to have taken any step in the
proceedings. The application for adjournment in those
circumstances was held really to amount to a prayer to get
time to discover the exact nature of the suit and nothing
more. The application thus could not be said to have been
made with a view to taking a step in the proceedings within
the contemplation of S. 34 of the Arbitration Act. Reliance
was next placed on State of Himachal Pradesh v. Lalchand’
Shahi(2) where- it was observed by the learned Judicial
Commissioner that no person can be deemed to take any step
in a proceeding who is not aware of what the proceedings are
and, the prayer for adjournment of the case made by a
counsel, who up till the moment of making the request for
adjournment had received no instructions from his client,
did not amount to taking of a step in the proceeding within
S. 34 of the Arbitration Act. Harbans Lal v. National Fire
& General’ Insurance Co. Ltd.(3) is also a decision by a
learned single Judge. of the Punjab High Court. In that
case the branch office of the de-
(2) A.I.R. 1953 H. P. 75..
(1) A.I.R. 1957 Punjab 223.
(3) A. 1. R. 1955 Notes on Unreported Cases (Punjab) 4917
(Delhi)
4-L944SupCI/73
34
fendant company had only received the summons of the suit
filed by the plaintiff, a day previous to the date of
appearance. It was observed by the learned single Judge
that presumably it was in the circumstances necessary to
obtain instructions from the head office of the Company and,
therefore, a mere oral application for an adjournment for
filing a written statement could not be regarded as a step
in the proceedings which disentitled the defendant company
from applying for stay under s. 34 of the Arbitration
Act. In The Printers (Mysore) Private Ltd. v. Pothen
Joseph() it was observed that where discretion under s. 34
of the Arbitration Act has been properly and judiciously
exercised by the trial court the appellate court would not
be justified in interfering with such exercise of discretion
merely on the ground that it would have taken a contrary
decision if it had considered the matter at the trial stage.
If, however, it appears to the appellate court that the
trial court had exercised its discretion unreasonably or
capriciously or had ignored relevant facts or had approached
the matter injudiciously it would be the appellate court’s
duty to interfere. Shri Dikshit did not submit that the
earlier decisions of the Allahabad High Court in the cases
of Sri Har Nath (supra) and Hans Raj Gupta & Co. (supra)
laid down an erroneous rule of law. His contention on the
other hand in substance was that where the counsel without
any instructions asks for ad adjournment, though ostensibly,
for filing the written statement, the prayer, if it is
likely to affect his client prejudiciously, should be const
rued to mean as if it was for seeking time merely to
get instructions, so that the client’s interests do not
suffer. This, he added, is a matter to be decided on the
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facts and circumstances of each case. He cited Joharitnal
and others v. Fatehchand and others (2 ) as enunciating
correct test in such cases, specifically relying on the
following observations at page 71 in para 23 :-A
"On principle and judicial authority, we
consider that the following propositions
maybe easily deduced:
An application for time to file written
statement or any other similar application
should not be treated as a matter of law a
step in the proceedings. In order to
constitute a " step", it must be of such a
nature as to lead the Court to the conclusion
that the party prefers to have his rights and
liabilities determined by the Civil Court
rather than by the ,domestic forum upon which
the parties might have agreed. It must
display an unequivocal intention to proceed
with ,the suit and to abandon the right to
have the matter disposed ,of by arbitration.
(2)The test, however, should not be
subjective and a party cannot be entitled to
say that he had no actual knowledge of the
right under the arbitration agreement and that
in fact he did not intend to give up his
right. On the other hand, the test must be
objective and a person shall be deemed to have
taken a step under S. 34 of the Act, if it can
be held that he could have actual or
construction knowledge of his right in
(1) [1960]3 S.C.R. 13.
(2) A.I.R. 1960 Raj. 67.
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the event of the exercising due diligence and
that in spite of that he participated in the
proceedings of the Court.
(3)Prima facie, an application for time to
file written statement should raise a
presumption that the defendant had actual or
constructive knowledge of his right and that
he acquiesced in the method adopted by the
plaintiff. The presumption, however, is not
absolutely irrefutable and can be rebutted by
showing that even constructive knowledge
cannot be imputed to the defendant. It is,
however, not proper and fair to lay down
that.the presumption can be rebutted only on
the ground that the defendants did not receive
the copy of the plaint. In rare and
exceptional cases, it may be rebutted by other
circumstances, such as appearance of a Gov-
ernment counsel without getting instructions
in a particular case to appear. It is not
desirable to enumerate the exhaustive list of
the circumstances and to make generalization
and each case should be considered on its own
facts and circumstances."
Passing reference was also made by the appellant’s counsel
to an unreported decision of this Court in Anderson Wright
Ltd. v. Moran Co. Ltd. C.A., 452 of 1959 decided on
December 1, 1961. That case had earlier come up to this
Court when the essential requirements of s. 34 of the
Arbitration Act were analysed and stated : Anderson Wright
Ltd. v. Moran & Co. Ltd.(1). The case was remanded to the
High Court for a fresh decision of the appeal from the order
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of stay made by the trial court after ’determining the
question whether the plaintiff was in fact a party to the
agreement. Incidentally, it may be pointed out that in that
case this Court on appeal against the judgment and order of
the High Court made after remand declined to stay the suit
having regard to the considerable delay since the institu-
tion of the proceedings and to the fact that questions
relating to custom of the market and the liability of Moran
(plaintiff) under S. 230 of the Contract Act have to be
determined. Power to stay was not considered enforceable as
a matter of course. It was said there -
"We think that in this case at this stage,
nearly ten year after the institution of the
suit. we should not remand this proceeding to
the High Court for determination of the same
question over again. In our view, power under
s. 34 to stay the proceedings where there is
an arbitration agreement is not enforced as a
matter of course. The Court may be satisfied
in a particular case, having regard to the
circumstances that the matter should not be
referred ’in accordance with the arbitration
agreement. Having regard to the considerable
delay that ha,; taken place since the
institution of tile proceeding and the fact
that questions as to custom of the market fall
to be determined and also of the fact that the
liability if any of Morans under S. 230 of the
Contract Act has to be ascertained in the
light of the surrounding circumstances,
(1) A.I.R. 1955 S. C. 53.
36
we think this is a case in which the hearing
of the suit, in the interest of both the
parties should not be held up but the dispute
should be tried in the civil court instead of
by the arbitrator."
Shri Dikshit submitted that just as a Counsel cannot bind
his client by his admission and the client can disown it,
similarly the appellant in this case can disown the act of
his counsel as unauthorised in seeking adjournment for
filing a written statement, on the ground that no
instructions had been issued to the Counsel to make such a
prayer.
Shri Mohan Behari submitted in reply that there was no
material on the record that the counsel applying for
adjournment on behalf of the State had no instructions. The
counsel, according to the submission, must be presumed to
have been duly empowered to take all steps that were
necessary to be taken in the court in connection with the
proceedings on the date he appeared and filed his appearance
slip in the Court. Shri Mohan Behari also relied on Sarat
Kumar Ray v. Corporation of Cakutta(1), Adward Hadbons v.
Judggilal(2) and Roop Kishore v. U.P. Government(3) in
addition to the two Allahabad judgments referred to in the
impugned judgment, for the submission that the prayer for
adjournment for filing a written statement is a step in aid
as contemplated by s. 34 of the Arbitration Act. In Roop
Kishore’s case (supra), it was emphasised that the whole
burden should be upon the defendant to establish the
circumstances which would lead to the result that effect
should not be given to the prima facie meaning of the appli-
cation for adjournment. In that case reference in support
of the view adopted was made inter alia to Sarat Kumar Ray
(supra) and Ford’s Hotel Co. Ltd. v. Larlet(4). J. N. Shah
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& Co. v. Hirachand(5) is a case where in a summary suit the
defendant has filed an affidavit in reply setting out
defences and had asked for leave to defend and that was held
to amount to a step in proceedings. In Dr. V. R. Vaidra v.
Union of India (C.R. 347/67) decided by the Bombay High
Court on April 1, 1970 reported in 1970 Maharashtra Law
Journal (notes of case) at p. 12 (Case No. 20), in
accordance with the summons the counsel for the defendant
prayed for adjournment for filing a written statement. On
the next day, the defendant applied for stay under s. 34 of
the Arbitration Act. The court stayed the suit. This
order was affirmed on appeal. On revision, the High Court
set aside these orders and declined stay. It was observed
that the counsel must be deemed to have prayed for
adjournment for filing a written statement under
instructions and it was not open to the defendant to say
that there were no instructions to that effect. The fact
that the vakalatnama was not filed when adjournment was
prayed for, was considered inconsequential. It was also
added that the discretion in the matter of stay had to be
exercised on sound judicial principles.
In our view, there is no serious infirmity in the impugned
judgment of the High Court and we are unable to find any
cogent ground
(1) I.J.P,. 34 Cal,. 443. (2) AJ.R. 1943 Bom. 228.
(3) A.I.R. 1945 All. 24. (4) (1896) A.C. 1. (H. L.)
(5) A.I.R. 1954 Bom, 174.
37
for interference under Article 136 of the Constitution. The
legal position with respect to the scope and meaning of s.
34 of the Arbitration Act admits of little doubt, the
language of this section being quite plain. When a party to
an arbitration agreement commences any legal proceedings
against any other party to the said agreement with respect
to the subject matter thereof, then the other party is
entitled to ask for such proceedings to be stayed so as to
enable the arbitration agreement to be carried out. It is,
however, to be clearly understood that the mere existence of
an arbitration clause in an agreement does not by itself
operate as a bar to a suit in the court. It does not by
itself impose any obligation on the court to stay the suit
or to give any opportunity to the defendant to consider the
question of enforcing the arbitration agreement. The right
to institute a suit in some court is conferred, on a person
having a grievance of a civil nature under the general law.
It is a fundamental principle of law that where there is a
right there is a remedy. Section 9 of the Code of Civil
Procedure confers this general right of suit on aggrieved
person except where the cognizance of the suit is barred
either expressly or impliedly. A party seeking to curtail
this general right of suit has to discharge the onus of
establishing his right to do so and the law curtailing such
general right has to be strictly complied with. To enable a
defendant to obtain an order staving the suit apart from
other condition mentioned in s. 34 of the Arbitration Act,
he is required to present his application praying for stay
before filing his written statement or taking any other step
in the. suit proceedings. In the present case the written
statement was indisputably not filed before the application
for stay was presented. The question is whether any other
step was taken in the proceeding as contemplated by s. 34
and it is this point with which we are directly concerned in
the present case. Taking other steps in the suit
proceedings connotes the idea of doing something in aid of
the progress of the suit or submitting to the jurisdiction
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of the court for the purpose of adjudication of the merits
of the controversy in the suit.
According to the appellant (State of U.P.). the District
Government Counsel is authorised by the Code of Civil
Procedure to receive summons on behalf of the State : vide
ground No. 3 in the petition for special leave. Indeed, the
District Government counsel was in fact so served. It is
not the appellant’s case that the summons were not
accompanied by a copy of the plaint in accordance with law
and, therefore. the District Government Counsel. was not
aware of the nature of the case. A copy of the plaint,
therefore. must be held to have been duly served on the
District Government Counsel who under Order XXVII. Rule 2
of the Code of Civil Procedure was authorised to act for the
Government and was deemed to be the recognized agent by whom appea
rances, acts and applications could be made or done on
behalf of the Government. The District Government Counsel
in the present case was thus fully empowered to appear and
act for and on behalf of the Government and also to make
applications on its behalf. If the said counsel wanted time
for the purpose of having fuller instructions, he could have
asked for it specifically, for he was
38
not a layman ignorant about the legal position but a
professional lawyer retained by the Government for the
purpose of acting and pleading on behalf of the Government
as a recognised agent. He, however, chose instead to ask
for time specifically for filing written statement and this
act he purported to do on behalf of the State Government
which he was fully empowered to do. The State took benefit
of his appearance and his successful prayer for adjournment
of the case by one month for the purpose of filing the
written statement. In those circumstances, it is hardly
open to the State Government to plead that the District
Government Counsel was not authorised to seek adjournment on
its behalf for this purpose. An oblique suggestion thrown
on behalf of the appellant that the District Government
Counsel had merely volunteered to appear without
instructions, presumably taking the cue from the decision of
the, Punjab High Court in the case of Moji Ram (supra) is
merely to be stated to be rejected. A recognized agent like
the District Government Counsel can scarcely be considered
to appear voluntarily in a case on behalf of the Government
in the sense of being unauthorised by his client for the
simple reason that he is authorised by virtue of statute to
appear, act and make applications on behalf of the
Government. Indeed in the present case the District
Government Counsel also filed in court the usual appearance
slip. If he wanted time for further consultations, he could
and should have specifically made a prayer to that effect.
It is, however, idle to contend that he can be considered to
have merely volunteered without authority to appear and ask
for time for filing the written statement. The argument of
appearance by a recognized agent as a mere volunteer is
extremely difficult to appreciate. The State, as already
observed, took the benefit of the adjournment. It will be
somewhat irrational and perhaps incongruous to permit the
State, after having taken the benefit of this adjournment,
to plead that the application for adjournment was not made
on instructions and was unauthorised. To accede to the
State Government the right to do so would clearly be unjust
to the opposite party which could have rightfully objected
to the adjournment, had there been any indication that the
prayer was not being made on instructions from the State
Government. September 2, 1966 was fixed in the summons for
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filing written statement. Failure to do so would have
entailed consequences prejudicial to the State Government.
Those consequences were avoided by making an application for
extension of time for filing written statement which must
have been understood by the opposite party. as also by the
court, to be on instructions by the State Government.
The argument that the trial court’s discretion has been
erroneously reversed by the High Court is equally devoid of
merit. If the appellant’s application was for adjournment
for the purpose of filing written statement, then there is
no question of any exercise of discretion by the trial
court. Discretion with regard to stay under S. 34 of the
Arbitration Act is to be exercised only When an application
under that section is otherwise competent. Incidentally it
is worth noting that even the order of the trial court is
not included by the appellant in the paper book and we do
not know the reasoning of that court for
39
granting stay. But on the view that we have taken that
omission is of little consequence.
Finally, as a result of the decision of the High Court the
only consequence is that the suit will now have to be tried
by a competent court on the merits in accordance with law.
Keeping in view the Icing delay after the institution of the
suit and the fact that the suit is for a very heavy amount
by way of damages for breach of contract, it will, in our
opinion, be more satisfactory on the whole to have the suit
tried in a competent court of law in the normal course
rather than by a lay arbitrator who is not bound either by
the law of evidence or by the law of procedure. This course
can certainly in no way be considered unjust or prejudicial
to the appellant as to require interference by this Court.
This appeal accordingly fails and is dismissed with costs.
G.C. Appeal dismissed.
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