Karnataka High Court
Manjunath V. Jannu vs Latha M. Ralkar on 25 January, 1988
Equivalent citations: ILR1989KAR2078
JUDGMENT K.A. Swami, J.
1. This appeal is preferred against the order dated 26-9-1987 passed by the learned XIV Additional City Civil Judge, Bangalore, in O.S.No. 2479 of 1987. The learned trial Judge has rejected I.A.III filed under Section 34 of the Arbitration Act (hereinafter referred to as the 'Act') for staying further proceedings in the suit and directing the parties to arbitration as per Clause 13 of the Partnership Deed.
2. The suit is filed by one of the partners for dissolution of the partnership firm and for taking accounts. The first defendant is stated to be the Managing Partner. Fraud and misappropriation of funds are alleged against the first defendant. The first defendant In addition to filing the Caveat, appeared in the suit on 12-6-1987 through a Counsel and sought for time to file objections to I.A.I. filed by the plaintiff for an order of temporary Injunction. Accordingly, the suit was adjourned to 19-6-1987. On 19-6-1987 I.A.III came to be filed by the first defendant for staying the suit in view of the Arbitration clause contained In the Partnership Deed.
3. The trial-Court has rejected the application on the grounds that the arbitration clause is vague; that it is also doubtful whether the reliefs sought for in the suit fall within the scope of "disputes" to be resolved under the Arbitration Clause, in as much as there are serious allegations of fraud and misappropriation of funds of the partnership alleged to have been made by the managing partner-the first defendant, without maintaining the proper accounts, which would give rise to complicated questions.
In addition to this, the trial Court has also held that the first defendant by seeking time to file objections to the application filed by the plaintiff for an order of temporary injunction cannot be held to have submitted to the jurisdiction of the Court for adjudication of the suit; that the filing of the written statement by defendants 2 to 4 does not affect the first defendant to enforce the Arbitration Clause contained in the deed of partnership, and In that event other partners are not entitled to refuse to submit for arbitration.
4. In the light of the arguments advanced on both sides, the following points arise for consideration:
(1) Whether the trial-Court is justified in holding that the Arbitration Clause contained in the Partnership Deed is vague?
(2) Whether the trial-Court is justified in law in holding that the voluntary appearance of the first defendant in the suit and seeking time for filing objections to I.A.No. I filed by the plaintiff for an order of temporary injunction does not amount to submitting to the jurisdiction of the Court for the purpose of adjudication of the suit?
(3) What is the effect of filing of written statement by defendants 2 to 4 on the right of the first defendant to enforce the Arbitration Clause?
Point No. 1:
5. Before us, the learned Counsel for the appellant-the first defendant has produced the Deed of Partnership. Clause-13 therein reads thus:
"In the event of any disputes arising among the parties herein either with regard to the carrying on of the business of the firm or generally arising out of this instrument of partnership, such disputes shall be resolved by referring to arbitration to be carried out in accordance with the provisions of the Indian Arbitration Act, 1940 or any amendment thereof."
6. It is not possible to agree with the reasoning of the learned trial Judge that the Arbitration Clause is vague. The terms of the Arbitration Clause are clear. Any dispute that arises out of the partnership In question among the parties shall have to be resolved by arbitration as per the provisions of the Act. From the Arbitration Clause It is also further clear that no different intention contrary to the provisions of the Act is expressed by the parties to the agreement. On the contrary, ft is specifically stated that:
"Such disputes shall be resolved by referring to arbitration to be carried out in accordance with the provisions of the Indian Arbitration Act, 1940 or any amendment thereof,"
Thus, the Arbitration Clause incorporates the provisions of the Act In It. In other words, the reference to arbitration and the arbitration proceedings are to be in accordance with the provisions of the Act.
7. The reasoning of the learned trial Judge for holding that the Arbitration Clause is vague is as follows:
"In the present case, the question as to how many Arbitrators are to be selected by the parties and in what manner and in the event of difference of opinion arising among the arbitrators whose decision is to be considered as final etc. are not provided in the arbitration clause. In my view, for this reason, the arbitration clause is vague and on account of it difficulties are likely to crop up in the matter of selection of the arbitrators by the parties and settling the disputes by the arbitrators so selected, if they are not able to come to an unanimous decision. So, I feel that it not desirable to refer the disputes for arbitration for this reasons."
8.1. It is obvious that the learned trial Judge has lost sight of the relevant provisions of the Act. An Arbitration Agreement does not become either vague or unenforceable or invalid merely because it does nut specify the number of arbitrators, manner of their appointment and also as to how the difference among the arbitrators to be solved. As long as Arbitration Agreement does not contain different Intention so as to exclude the application of the provisions of the Act and the First Schedule to the Act, the provisions of the Act and the First Schedule to the Act take care of every thing.
8.2. Section 3 of the Act specifically provides that:
"An arbitration agreement, unless a different intention is expressed therein, shall be deemed to include the provisions set out in the First Schedule in so far as they are applicable to the reference."
Thus, from Section 3 of the Act It is clear that the provisions of the First Schedule to the Act shall be deemed to have been included in the Arbitration Agreement In so far as they are applicable to the Reference, in the absence of a different Intention expressed in the Arbitration Agreement. It is already pointed out chat the Arbitration Clause does not contain any different intention contrary to the provisions contained in the Act and the First Schedule to the Act. Therefore, the "implied condition of Arbitration Agreements" enunciated in the First Schedule to the Act in so far they are applicable to the Reference become part and parcel of the Arbitration Agreement. Para 1 of the First Schedule to the Act provides that unless otherwise expressly provided, the Reference shall be to a sole arbitrator. As the Arbitration Clause does not name the Arbitrator or Arbitrators and does not direct how the Arbitrator or Arbitrators to be selected and it simply provides for a reference to arbitration without either naming the arbitrator or arbitrators or directing how they are to be selected, the reference for arbitration shall have to be, made to a sole arbitrator. Therefore, the Arbitration Agreement in question read with para-1 of the First Schedule to the Act provides that the reference shall be to one arbitrator. Ordinarily the arbitrator/s is/are to be appointed by or with the consent of the parties to the Arbitration Agreement. It is only when the parties to the Arbitration Agreement, do not concur intervention of the Court is sought. In case the parties to the arbitration agreement fail to concur with the appointment of an arbitrator, any party to the arbitration agreement may move the Court under Section 8 of the Act for appointment of an arbitrator after serving the other parties with a written notice to concur In the appointment and if the other parties do not concur in the appointment within the fifteen clear days after service of such notice. The other provisions of the Act and the Second Schedule to the Act take care of the matters connected with Reference, Awards Judgment and Decree in terms of Award. Thus, we are of the view that the learned trial-Judge is not justified in holding that the Arbitration Clause is vague. Accordingly, Point No. 1 is answered in the negative.
Point No. 2:
9. Section 34 of the Act provides that:-
"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 to in accordance with the arbitration agreement and 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 arbitra-
(Underlining by us) tion, such authority may make an order staying the proceedings."
10. The point for consideration is whether the voluntary appearance of the first defendant in the suit and seeking time for filing objections to I.A.No.I filed by the plaintiff for an order of temporary injunction amount to "taking any other steps in the proceedings." An interlocutory application is a part of the suit. It has no independent existence. A defendant In the suit seeking time, before filing the written statement, to file objections to the interlocutory application filed by the plaintiff for an order of injunction is also a step in the main proceeding - the suit. The test for deciding whether an act of a defendant seeking time to file objections to interlocutory application is a step in the progress of the suit or not, is to find out whether such an act displays an unequivocal intention of the defendant to proceed with the suit and to give up the right to have the matter resolved by arbitration. The application for an order of temporary Injunction filed by the plaintiff is a part of the suit. The filing of the suit itself by the plaintiff indicates an unequivocal intention of the plaintiff to have the dispute settled through the Court and not by arbitration. Similarly, an act of the defendant seeking time to file objections to such an application necessarily amounts to expressing an unequivocal intention to proceed with the suit and to have the suit decided by the Civil Court rather than to have the dispute settled by arbitration under the Arbitration Clause. If the appellant-1st defendant intended not to proceed with the suit and to have the suit claim resolved through arbitration, he would have raised an objection on the basis of Arbitration Clause contained in the Partnership Deed on 12-6-1987 itself or at least stated so and sought for time to file an application under Section 34 of the Act Instead of seeking time to file objections to I.A.No. I filed by the plaintiff for an order of temporary injunction. In addition to this it is also relevant to notice that the expression used in Section 34 is not 'suit' but 'proceedings'. Even if It is construed that an interlocutory application of the nature in question is not an integral part of the suit, it is undoubtedly a proceeding in the suit. The expression 'proceedings' not only covers the suit but also covers the interlocutory applications filed in the suit. Therefore, we are clearly of the opinion that the act of the appellant, the 1st defendant in voluntarily appearing in the suit on 12-6-1987 and specifically seeking time to file objections to the application filed by the plaintiff for an order of temporary injunction, even though such time was sought on an oral application, amounted to taking any other steps in the suit for the progress of the suit. Therefore, it amounted to giving up his right to have the dispute settled in accordance with the arbitration agreement through an Arbitrator and submitting to the Jurisdiction of the Court to have the dispute Involved in the suit adjudicated by the Court.
11. In SUBAL CHANDRA BHUR v. MD. IBRAHIM AND ANR AIR 1943 Calcutta 484. the defendant appeared through a Counsel In the suit and applied for and obtained time to file his affidavit in opposition to the application for appointment of a Receiver filed by the plaintiff and he also applied for and obtained directions and leave from the Court to inspect the books of accounts and records. It was held that the conduct of the defendant clearly implied a statement to the effect that the defendant would proceed to defend the action and would not insist on the right to have the disputes disposed of by arbitration and such an act of the defendant amounted to taking step in the proceeding.
In P. GANNU RAO v. P. THIAGARAJA RAO AND ANR AIR 1949 Madras 582. there was a suit filed on 27-2-1947 by one of the partners against the other partners for dissolution of partnership and for accounts. On the day following the plaintiff filed an Interlocutory application, in which he prayed for an interim injunction pending disposal of the suit restraining defendant-1 from drawing certain amounts and for the appointment of a Commissioner to take an inventory of all documents, account books and vouchers in the premises mentioned in the application or in the alternative for attachment before Judgment of the properties mentioned in Schedule A and B and for the appointment of a Receiver to take possession of all the assets of the firm. There was an ex parte order made on 28th February, 1947 granting Interim Injunction as prayed for and further directing notice to the defendants on the other prayers made in the application. Notice was returnable on 3rd March, 1947. On that date, the first defendant appeared through a Counsel and filed an application seeking time for filing counter-affidavit. Accordingly, time was granted and the order of Interim Injunction was modified at his instance in respect of Item 3 of Schedule-A of the summons and the suit was adjourned to 14th March, 1947. On that date, the first defendant filed an application under Section 34 of the Act. It was held, following the decision in Subai Chandra's case and also several other decisions, that the first defendant in the suit did take a step in the proceedings within the meaning of Section 34 of the Act on 3rd March, 1947 and on 14th March, 1947 when the application came up for hearing. The relevant portion of the Judgment reads thus:
"In the case reported in Subal Chandra v. Md. Ibrahim, I.L.R. (1943) 2 Cal. 298: (A.I.R. (30) 1943 Cal. 484) the case law on the subject is discussed and the view expressed is that a defendant can be said to have taken a step in the proceedings within the meaning of Section 34, if an application is made to the Court by or on his behalf orally or in writing or something in the nature of such application and an acquiescene on the part of the defendant is to be inferred from the application in the Court deciding the dispute between him and the plaintiff. There the application was by the plaintiff for appointment of a receiver. The defendants Counsel applied to the Court orally and obtained an adjournment of the hearing of the plaintiff's application and also obtained certain directions relating to inspection of the books and documents of the firm. Subsequently the defendant applied under Section 34 of the Act of 1940 for a stay of the suit on the ground that the suit was in respect of a matter agreed to be referred to arbitration. It was held that by applying for an adjournment and for directions the defendant had taken a step in the proceedings within the meaning of Section 34 and was not entitled to a stay of the suit."
xxx xxx xxx "The fact that on that occasion he mentioned that he was going to apply for stay of proceedings under Section 34 will not affect the position so far as Section 34 of the Act is concerned. On the authorities discussed above, I have no doubt that the defendant in this case who now applies for stay of proceeding in the suit did take a step in the proceedings within the meaning of Section 34 both on 3rd March 1947 and on 14th March 1947 when Application No. 631 of 1947 in O.S.No. 89 of 1947 came on for hearing. The wording of the Section is general inasmuch as reference is made to a step in the "proceedings" and not a step in the "suit". The interlocutory application in the suit will certainly come under the category of proceedings and since the defendant did take a step in the proceedings he is precluded from applying under Section 34 of the Act for stay of the suit."
No doubt, in NURUDDIN ABDULHUSSEIN v. ABU AHMED ABDUL JALLI the decision in Subal Chandra's case was discussed and distinguished. But, the decision In Nuruddin Abdulhusseln's case solely depended upon Rule 117 of the Bombay High Court Rules, under which it was obligatory on the defendant to file an appearance, the consequence of non-appearance being that the suit would be set down as undefended. Therefore, it was held that filing of an appearance was equivalent to the filing in of the slip attached to the default summons in a County Court in England, which was held not to be a step in the proceedings in AUSTIN AND WHITELY, LIMITED v. S. BOWLEY AND SON (1913) 108 L.T. 921. The facts in Nuruddin Abdulhussein's case were that there was a notice of motion for stay of the suit on the ground that there was a valid agreement for reference to arbitration. It was resisted on the plea that the defendant had taken a step in the proceedings, in that he had filed an unconditional appearance in Court. Therefore, the question that arose for consideration was as to whether filing of an unconditional appearance was a step in the proceedings in the light of Rule 117 of the Bombay High Court Rules and the decision in Austin and Whitely Limited v. S. Bowley and Son. On the facts of the case it was held that filing an appearance in Court was not an application of any kind, but was an act which was incumbent upon the defendant to resist by virtue of Rule 117 of the Bombay High Court Rules for preventing the suit from being set down as being undefended and therefore it was not a step in the proceedings. Thus, it is clear that the decision in Nuruddin Abdulhusseln's case turned on the facts of that case and Rule 117 of the Bombay High Court Rules. Therefore, it cannot be applied to the case on hand.
In DELUXE FILM DISTRIBUTORS LTD. v. SUKUMAR KUMAR a suit was instituted by the plain-tiff to recover a large sum of money on the basis of the distribution agreement relating to cinema film subsisting between the parties. The plaintiff made an application for Judgment for a sum on the basis of an admission contained in the letter of the defendant's solicitor to the plaintiff. In such an application the defendant's attorney made an oral application for extension of time to file the affidavit of the defendant. Following the decision in Subal Chandra's case and also the decision in KARNANI INDUSTRIAL BANK v. SATYA NIRAN JAN SHAW AIR 1924 Calcutta 789. It was held that an oral application for extension of time in an application for Judgment on admission also amounted to taking steps in the proceedings so as to disentitle the defendant from making an application for stay under Section 34 of the Act.
In DUNICHAND SONS AND CO. v. FORT GLOSTER INDUSTRIES LTD . Division Bench considered as to what amounted to taking any other steps in the proceedings. In that case the contract between the parties contained an Arbitration Clause. However, a suit was filed on 19th June, 1961 in the Court asking for a decree for a sum of Rs. 10,750/-, alternative for an enquiry Into damages, for a declaration that the tender by the defendant of the delivery order and the mate's receipt dated February 7, 1961 was wrongful and Invalid and for other reliefs. The summons was served on the defendant on 27th June, 1961. On 17th July, 1961 the defendant executed a warrant of attorney in favour of Messrs. Khaitan and Company. This warrant was filed before the Registrar on the 18th July, 1961 and on the same day appearance was entered in the suit on behalf of the defendant. On the 17th July, 1961 even before the warrant was filed, an application was taken out under Section 34 of the Act and It was made returnable on the 24th July, 1961. The notice of the application was served on the solicitors of the plaintiff on the same day. Under these circumstances, it was (sic) after the amendment to Section 34 of the Act it was not necessary to put in appearance to make an application for stay under Section 34 of the Act, as an application could be made to the Court entitled, "In the matter of arbitration proceedings" that the entering of appearance by itself did not amount to a step in the proceedings and therefore a stay should be granted.
Thus, from the facts of Dunlchand's case it is clear that the defendant except putting in an appearance did not take any step in the suit. He did not even seek time in the suit. On the contrary on 17-7-1961 itself even prior to the warrant was filed before the Registrar on 18-7-1961 he filed an application under Section 34 of the Act. Therefore, the decision in Dunlchand's case also turned on the facts of that case, as such it cannot be applied to the case on hand.
In AMRITRAJ KOTHARI v. GOLECHA FINANCIERS the defendant appeared in the suit filed by the plaintiff in breach of the arbitration agreement and opposed the application filed by the plaintiff for extention of Injunction and further got the time extended for filing affidavit. Following the decision in Subal Chandra's easel and dissenting from the view expressed by the High Court of Madhya Pradesh in SANSARCHAND DESHARAJ v. STATE OF MADHYA PRADESH it was held thus:
"Interlocutory proceeding is a proceeding in the suit itself and any step taken in the proceeding is a step taken in the suit. Arbitration Act empowers the Court to pass suitable interim orders in respect of matters agreed to be adjusted by arbitration. The aggrieved party may come before the Court for interlocutory deed pending adjustments of disputes by arbitration. In such a case when a party institutes a suit in breach of the arbitration agreement the suit is liable to be stayed on the application of the defendant in that behalf. If in such a suit the plaintiff wrongfully obtains an interim order in the suit itself the defendant cannot contest the interlocutory application, because by so contesting the application he would be taking step in the proceeding thereby debarring himself from taking advantage of the private arbitral Tribunal. The aggrieved defendant is not however without a remedy. In such a case he is empowered to apply under the Arbitration Act itself to have the hazard if any, removed. I respectfully differ from the Madhya Pradesh High Court in their view that provision in the Arbitration Act for interim relief indicates that taking part in such interlocutory application does not amount to taking step in the proceedings. In ray Judgment it indicates just the reverse. The machinery has been provided in the Arbitration Act itself to give interlocutory relief by way of appointing a Receiver or by injunction. In ray Judgment the power given in the Act includes the power to remove the receiver or vacate injunction if wrongfully passed in a suit stayed by the Court."
Thus, the view expressed by us accords with the views expressed in and We accordingly answer Point No. 2 in the negative and hold that the act of the appellant-1st defendant in voluntarily appearing in the suit on 12-6-1987 and specifically seeking time to file objections to the application filed by the plaintiff for an order of temporary injunction, even though such time was sought on an oral application, amounted to taking any other steps in the suit for the progress of the suit. Therefore, the appellant-1st defendant was disentitled to an order staying the proceedings of the suit under Section 34 of the Act.
Point No. 3:
12. In view of our answer to Pointy No. 2, it is not necessary to record any finding on Point No. 3 as the appeal has to fail Irrespective of the fact whether the point is answered in favour of the plaintiff or the first defendant. We accordingly hold that it is not necessary to record any finding on Point No. 3.
13. Learned trial Judge has also held that having regard to the allegations made against the first defendant as to mis-appropriation of partnership funds, fraud, not maintaining of proper accounts and working detrimental to the Interest of the firm. It is doubtful whether the dispute raised in the suit falls within the scope of the Arbitration Clause. We are of the view that it is not necessary to go into the correctness of this reasoning of the learned trial-Judge in view of our finding on Point No. 2.
14. For the reasons stated above and not on the reasons stated by the learned trial Judge the appeal fails. It is accordingly dismissed.