Karnataka High Court
Nepc-Micon Limited, Chennai vs Perfect Engineering (Mysore) Works, ... on 1 September, 1999
Equivalent citations: 1999(6)KARLJ43
Author: Mohamed Anwar
Bench: Mohamed Anwar
ORDER G.C. Bharuka, J.
1. With the consent of the parties these writ petitions and the appeals have been heard together for final disposal. For the sake of convenience we will be referring to the parties as per their ranks arrayed in the proceedings before the Court below.
2. The petitioner/appellant is the sole defendant in Arbitration Case Nos. 3 and 4 of 1996 purported to have been filed before the Prl. District Judge, Mysore, under Section 8 of the Arbitration and Conciliation Act, 1996 ("1996 Act" for short). In the said cases the plaintiff-respondent had sought for appointment of an arbitrator in terms of the Arbitration Clause and referring of the dispute to the said arbitrator.
3. The plaintiff is a proprietary concern. It had undertaken job work of bending and fabricating ''shell plates" supplied by the defendants. According to him Rs. 12,55,406/- and Rs. 33,03,738/- in two different accounts had fallen due to him on account of the above job work done by him for the defendants. His case before the Court below was that the defendant-Company neither cleared the dues nor had referred the matter to the arbitrator as per the agreement between them. According to the plaintiff the arbitration clause is contained in the purchase order itself, which is to the following effect:
"All disputes are subject to Arbitration and the matter shall be referred to the sole Arbitration of the Chairman of the Company or the person nominated by him on his behalf and the venue of Arbitration will be at Madras. The decision of the Arbitrator described above shall be final and binding on both the parties".
4. The defendant Company on service of notice of the proceedings appeared before the Prl. District Judge, Mysore, and questioned the very jurisdiction of the Court to entertain any application under Section 8 of the 1996 Act, but the same was rejected by the Court below under its order dated 1-12-1997 by holding that it has the jurisdiction to entertain applications filed for appointment of an arbitrator. It is this order which has been assailed in the present writ petitions,
5. Subsequently, the plaintiff filed another application under Section 9 of the 1996 Act requiring the Court below to direct for interim measures for protection of their interests by way of sale of the "shell plates" and the fabricated items and keeping the sale proceeds in deposit with the Court pending final disposal of the above proceedings. The Court below by its order dated 9-4-1999, which has been impugned in the appeals, has allowed the said prayer.
6. Having heard the learned Counsel appearing for the contesting parties and keeping in view the provisions contained in the 1996 Act, following pertinent questions touching upon the jurisdiction of the Prl. District Judge requires to be attended to by us:
(i) Whether the Prl. District Judge can at all entertain an application filed only for the purpose of appointment of an arbitrator and referring the dispute between the parties to him? and
(ii) Whether the Prl. District Judge can entertain an independent application for taking interim measures in terms of Section 9 of the 1996 Act?
7. Earlier to enforcement of the 1996 Act, in India, the law relating to arbitration was governed by the provisions contained in Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. A close look at the provisions of the 1996 Act and those contained in the Arbitration Act, 1940 will clearly show that the two Acts have some material and marked differences between the two. In the case of M/s. Sundaram Finance Limited v M/s. NEPC India Limited, the Supreme Court has held that the provisions of the 1996 Act have to be interpreted and construed independently and in fact reference to the earlier Act may lead to misconstruction. According to their Lordships, the provisions of the 1996 Act have to be interpreted being uninfluenced by the principles underlying in the 1940 Act.
Re: Question No. 18. In order to seek an answer to Question No. 1, it will be useful to first reproduce the provisions contained in Section 8 of the 1996 Act. This section reads thus:
"8. Power to refer parties to arbitration where there is an arbitration agreement.--(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made".
9. No doubt under the 1940 Act, a party to an arbitration agreement had a right to commence the proceedings in the Court by moving an application under Section 20 thereof for appointment of an Arbitrator and simultaneously it could have also moved an application for interim relief under the Second Schedule read with Section 41(b) thereof. But the 1996 Act does not contain any provision similar to Section 20 of the 1940 Act. In the case of M/s. Sundaram Finance Limited, supra, it has been held that:
". . . . Section 8 of the new Act is not in pari materia with Section 20 of the 1940 Act. It is only if in an action which is pending before the Court that a party applies that the matter is the subject of an arbitration agreement does the Court get jurisdiction to refer the parties to arbitration. The said provision does not contemplate, unlike Section 20 of the 1940 Act, a party applying to a Court for appointing an arbitrator when no matter is pending before the Court. Under the 1996 Act appointment of arbitrator/s is made as per the provision of Section 11 which does not require the Court to pass a judicial order appointing arbitrator/s".
10. A plain reading of Section 8 of the 1996 Act and the law declared by the Supreme Court, it is clear that the Court can refer the parties to arbitration only if there is an action pending before it and any of the parties to the suit brings it to the notice of the Court that the dispute is subject to an arbitration agreement. In the present case admittedly no suit or action regarding subject-matter of the arbitration agreement was pending before the Court below. Therefore the Prl. District Judge was not competent to entertain any petition for appointment of an arbitrator and consequently for referring the dispute to him for arbitration.
11. It is of utmost important to note that under the scheme of the 1996 Act, an application simpliciter for referring the matter to an arbitrator is entertainable only by the concerned Chief Justice of the High Court or any person or institution designated by him, as has been specifically contemplated under Section 11 thereof. This jurisdictional issue is fairly fortified by sub-section (6) of Section 11, which reads as under:
"11. Appointment of arbitrators.--
(1).. . to (2)....
(4) If the appointment procedure in sub-section (3) applies and--
(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or
(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.
(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.
(6) Where, under an appointment procedure agreed upon by the parties,--
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
(7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justice or the person or institution designated by him is final.
(8) .... .... .... ....
(9) .... .... .... ....
(10) The Chief Justice may make such scheme as he may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-section (5) or sub-section (6) to him".
12. The Hon'ble Chief Justice of the High Court of Karnataka exercising his powers under sub-section (10) of Section 11 of the 1996 Act, under Gazette notification dated 12-12-1996, has published a scheme called "Appointment of Arbitrators by the Chief Justice of Karnataka High Court Scheme, 1996".
13. In the above view of the matter, in our opinion, the Court below has miserably erred in assuming jurisdiction under Section 8 of the Act for entertaining the prayer made by the plaintiff for a direction to appoint an arbitrator in terms of the above noticed arbitration clause. Accordingly the impugned orders dated 1-12-1997 are quashed and consequently the proceedings in Arbitration Case Nos. 3 and 4 of 1996, to the extent it relates to the above prayers, being inherently without jurisdiction, are held to be ab initio void.
Re: Question No. 214. So far as the second order dated 9-4-1998 is concerned, this is referable to Section 9 of the Act. By this order the Court below in order to protect the interest of the plaintiff has directed for sale of the raw materials as well as the fabricated items which are lying in the stockyard of the plaintiff and deposit of the sale proceeds in fixed deposits. The reasons which have prevailed with the Court below in passing such an order is to be found in paragraph 12 of the impugned order. The Court below found it necessary to pass the said order because neither the defendant-company was ready to pay the amounts claimed by the claimant nor it was ready to furnish any bank guarantee. The Court was also of the opinion that "if the articles are allowed to lie till the final disposal of the matter, definitely the price of the articles would come down and it may not be useful for any purpose for any one in future on account of change of design from time to time".
15. The question for our consideration is as to whether under the facts and circumstances of the case, by way of an interim measure, the Court below could have at all passed an order for sale of the goods in question.
16. Section 9 of the Act empowers the Courts to direct for taking appropriate interim measures even before the commencement of the arbitral proceedings. The scope and ambit of this provision has been clearly explained by the Supreme Court in the case of M/s. Sundaram Finance Limited, supra. For the present purposes we may reproduce hereunder only the relevant provision of the said section:
"9. Interim measures etc. by Court.--A party may, before or during arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with Section 36, apply to a Court.--
(i) .... .... .... ....
(ii) for an interim measure of protection in respect of any of the following matters, namely.--
(a) the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;
(b) securing the amount in dispute in the arbitration;
(c) .... .... .... ....
(d) .... .... .... ....
(e) .... .... .... ....
and the Court shall have the same power for making orders as it has for the purpose of, and in relation to, any proceedings before it".
17. The defendants have objected to the passing of the impugned order directing sale as an interim measure on two counts namely (i) if the Court had no power to entertain the application purported to have been filed under Section 8 for appointment of the arbitrator, then it cannot as well pass any order or entertain any application for directing interim measures; (ii) even otherwise under the facts and circumstances of the case, the Court has erred in passing the order for sale of the 'shell plates' and the fabricated materials which are of iron and steel, since those were not liable to speedy and natural decay.
18. So far as first objection is concerned it is worthwhile to refer to the definition of "Court" under clause (e) of Section 2 of the Act, which reads as under:
"2. Definitions.--(1) In this part, unless the context otherwise requires,--
(a) to (d)....
(e) "Court" means the Principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any Civil Court of a grade inferior to such Principal Civil Court, or any Court of Small Causes".
According to the above definition a Court for the purpose of Section 9 will be a Principal Civil Court of original jurisdiction in a district who could have the jurisdiction to decide the questions forming the subject-matter of the arbitration, if the same had been the subject-matter of a suit. According to Section 14 of the Karnataka Civil Courts Act, 1964 the District Court is deemed to be the Principal Civil Court of original jurisdiction within the local limits of its jurisdiction. Under sub-section (2) of the said section, subject to the provisions of the Code of Civil Procedure, 1908 the jurisdiction of a Civil Court shall extend to all original suits and proceedings of a civil nature. Therefore the Principal District Judge has to be held as a Court within the meaning of clause (e) of Section 2 of the 1996 Act and therefor it had the jurisdiction to pass orders pertaining to interim measures in terms of Section 9 of the 1996 Act, irrespective of the fact that it had no jurisdiction to appoint arbitrator under Section 8 of the said Act on an application filed merely for the said purpose.
19. In the case of M/s. Sundaram Finance Limited, supra, the Supreme Court has elaborately considered the scope and purpose of Section 9 of the 1996 Act as well. It has been held that (see para 20):
(i) A party to an arbitration agreement can approach the Court for interim relief not only during arbitration proceedings but even before commencement of the arbitral proceedings;
(ii) If an application is so made the Court will first have to be satisfied that there exists a valid arbitration agreement and the applicant intends to take the dispute to arbitration.
(iii) Once the Court is so satisfied it will have the jurisdiction to pass orders under Section 9 giving such interim protection as the facts and circumstances warrant.
20. In the facts of the present case as noticed above, since there is an arbitration agreement between the parties for referring their disputes to an arbitrator and the plaintiff himself had approached the Court with a prayer for referring the disputes to such an arbitrator, the Court below has acted within its jurisdiction in entertaining an application for passing appropriate orders by way of an interim measure. Therefore, the first objection raised on behalf of the defendant cannot be of much avail to it.
21. So far as the second objection is concerned there appears to be substance in it. Even under Section 9 of the Act the Court concerned can exercise the powers of making orders therein as it is for the purpose of, and in relation to, any proceedings before it. Therefore the question is that if the plaintiffs would have filed a money suit before the Court below for recovery of their alleged dues, then, whether the Court could have passed any order for sale of the articles which were in the custody of the plaintiff. The answer has to be necessarily in negative since under Rule 6 of Order 39 of the CPC, the order for sale can be passed only if it is shown that the goods intended to be sold are subject to speedy and natural decay or for any other just and sufficient cause. The Court below has not addressed itself on either of the said aspects which are condition precedent for directing an interim sale in terms of Rule 6 of Order 39 of the CPC.
22. For the said reasons the second order which has been questioned in the appeals cannot also be allowed to stand. The same is accordingly set aside. Anyhow keeping in view the nature of the disputes between the parties and existence of an arbitration agreement for resolution thereof, in our opinion, the interest of both the parties has to be appropriately safeguarded. Accordingly, we direct the plaintiff to ensure preservation of raw materials and finished goods till any further orders arc passed by any Court/concerned arbitrator.
23. Despite holding and directing as above, since the plaintiff has admitted the existence of arbitration agreement and had approached the Court for appointment of an arbitrator and referring the matter to him for commencement of arbitration proceedings, we direct that the party should submit to the arbitrator in terms of Clause 9 of the Arbitration Agreement within four weeks from today. This direction is in consonance with the view expressed by the Supreme Court in the case of M/s. Sundaram Finance Limited, supra, wherein it has been held that, while passing an order under Section 9 giving any interim protection the Court concerned should ensure that effective steps are taken to commence the arbitral proceedings (see para 20).
24. To sum up,--
(i) The impugned order dated 1-12-1997 questioned in Writ Petition Nos. 24390 and 24391 of 1998 is quashed.
(ii) The impugned order dated 9-4-1999 assailed in M.F.A. No. 2873 of 1999 and M.F.A. No. 2911 of 1999 is set aside.
(iii) The contesting parties are directed to submit to the arbitrator in terms of Clause 9 of the Arbitration Agreement noticed above within four weeks from today.
(iv) The plaintiff will ensure preservation of raw materials and finished goods which are in his possession till any further orders are passed by any Court/concerned arbitrator.
25. Subject to the above findings and directions these writ petitions and appeals are allowed. Anyhow there will be no order as to costs.