Karnataka High Court
The Karnataka Housing Board And Others vs M/S. Vaijanath Tubewells Ltd. Gulbarga on 21 July, 1994
Equivalent citations: AIR1995KANT126, ILR1994KAR2370, 1994(3)KARLJ604, AIR 1995 KARNATAKA 126, (1994) 3 KANT LJ 604
ORDER
1. This petition was listed for admission. The respondent had entered caveat. With the consent of the learned counsel appearing on bpth the sides, the petition was heard on merits and disposed of by this order.
The respondents in Arbitration Case No. 387 of 1992 on the file of the learned Principal Civil Judge, Gulbarga. have presented this petition against the order dated 5-1-1994 directing them to express their choice regarding the arbitrators to refer the dispute for arbitration.
2. The respondent herein is the applicant/ plaintiff in the arbitration case before the learned Civil Judge. That, under the provisions Section 20 of the Arbitration Act (for short 'the Act'), the parties should have beep described as plaintiff and defendants. But, they have been described as petitioner and respondents therein. Hence they are referred to as plaintiff and defendants in this order.
3. The plaintiff filed an application under Section 20 of the Act for an order to refer the dispute between him and the defendants to an arbitrator for arbitration.
4. It is stated in the petition that the plaintiff is a registered partnership firm carrying on the contract business and it entered into a contract with the first defendant in respect of construction of office cum shopping complex of the Karnataka Housing Board, Gulbarga Division. It is the case of the plaintiff that under the terms and conditions of the contract that the plaintiff shall com plete the construction within a period of 15 months including the monsoon extending from 15th June to 15th September and, the defendants were to supply the materials such as cement and steel as required for construc-tion. However due to the non-availability of the materials at the Divisional Stores, the defendants failed to supply cement and steel as and when required and necessary instruc-tions were also not given, for the absence of the required technical personnel at the site and hence the work could not be completed. Further, it is stated by the plaintiff that differences arose between the parties resulting in non-completion of the work entrusted arid as a result the defendants with-held the payment to the plaintiff and the plaintiiff'-company suffered financially. Hence they addressed number of letters to the defendants for making payment at least for the construction done, for which also there was no res-ponse from the defendants ano therefore ultimately they have requested the second defendant to adjudicate on the dispute which was also not acceded to. Therefore they have filed an application under Section 20 of the Act for relief mentioned in the preceding paragraph.
5. The defendants having entered appearance, filed their objections denying the allegations made in the petition. The main objections of the defendants is that there is no dispute as such to be settled by the arbitrator and there is no clause in the agreement to refer the matter to the arbitrator.
6. In view of the aforesaid contentions, the learned Civil Judge formulated a point as to, "whether the plaintiff has made out a case for referring the case to the arbitrator?" and after considering the rival contentions of the plaintiff and the defendants, with reference to Clause 30 of the agreement, passed an order that, the dispute between the parties shall be referred to an arbitrator and directed the defendants to express their choice regarding the arbitrator within 10 days from the date of the order.
7. The defendants being aggrieved by the aforesaid order have presented this petition.
8. The main contention of the defendants in this petition is that the learned Civil Judge has passed the order under revision in violation of sub-section (4) of Section 20 of the Act and therefore the order is unsustainable in law.
9. Elaborating his contention Sri R. S. Hedge, the learned counsel appearing for the defendants, submits that the defendants have disputed the existence of the dispute. They contend that Cl. 30 of the agreement does not spell out on an arbitration agreement. Hence, the order that the dispute shall be referred to arbitration, without recording any finding as to the existence of the arbitration agreement and the dispute and without making an order to file arbitration agreement is unsustainable in law, for it violates Section 20 of the Act. They further-submit that no enquiry has been held by the learned Civil Judge to decide the aforesaid points.
10. Sri R. S. Hegde further submits that where an application is filed under Section 20 of the Act, such application shall be registered as a suit and issues will have to be framed and findings will have to be recorded as required in a suit and the order under revision is unsustainable for want of any enquiry as prescribed in a suit.
11. Sri K. Gopala Hegde, the learned counsel appearing for the plaintiff, raised a preliminary objection as to the maintainability of this petition. He submits that Cl. (iv) of Section 39(1) of the Act provides an appeal against the order made under Section 20(4) of the Act. The petition is therefore not maintainable, as an appeal is allowed against such order. He further submits that Cl. 30 of the agreement spells out an arbitration agreement; and when the learned Civil Judge has made an order to refer the dispute to arbitration under Section 20(4) of the Act, by implication the court is deemed to have made an order that the arbitration agreement be filed. It is his further case that having regard to the pleadings, the Court only after being satisfied of the existence of the dispute, ordered to refer the dispute to the arbitrator; the mere omission to direct the arbitration agreement to be filed would not vitiate the order. From the tenor of the order under revision it can be inferred that the learned Civil Judge has been satisfied as to the existence of the agreement and also the dispute, and therefore to record a finding as such is only an empty formality. He further submits that the defendants having filed the list of arbitrators to be appointed pursuant to the order under revision, are estopped from contending the legality or otherwise of the order. The defendants are therefore, barred by the doctrine of estoppel by acquiescence by their conduct inasmuch as they having appeared before the arbitrator have sought time to file ' their objections. He therefore prays for dismissal of the petition.
12. In reply to the aforesaid contention regarding the maintainability of the petition, Sri R.S. Hegde, the learned counsel for the defendants, would submit that the petition is maintainable as the learned civil Judge has not passed any order for filing the arbitration agreement which alone is appealable under Cl.(iv) of Section 39(1) of the Act. He further submits that the order under revision is in the nature of an interim order to furnish the names of persons for being appointed as arbitrator and and as the dispute has not yet been referred to the arbitrator. It is not even an order under Section 20(4) of the Act, even if it is assumed that an appeal is allowed against the order made under Section 20(4) of the Act.
13. In view of the aforesaid contentions, the following points would arise for consideration-
1. Whether the revision petition is not maintainable against the order under revision?
2. Whether the order under revision deciding to refer the dispute to arbitration on an application under Section 20 of the Act without an order for filing arbitration agreement is invalid, inoperative and unenforceable?
3. Whether the defendants are estopped from challenging the legality or otherwise of the order under revision by virtue of their conduct in filing the list of arbitrators before the Court?
14. POINT No. 1: Sri R.S. Hegde, the learned counsel for the defendants, would argue that cl. (iv) of Section 39(1) of the Act, allows an appeal only against an order filing or refusing to file an arbitration agreement and not against an order under Section 20(4) of the Act, and as the order under revision is not an order corning within the ambit of cl. (iv) of Section 39(1) of the Act, no appeal lies and revision is therefore maintainable. In order to consider the aforesaid contention, it is necessary to extract the relevant provisions, namely Section 39(1)(iv) and Section 20 of the Act and they read as follows:
"39. APPEALABLE ORDERS:
(1) An appeal shall lie from the following orders passed under this Act (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order:
An order:--
(i) to (iii) *** *** *** ***
(iv) filing or refusing to file an arbitration agreement;
*** *** *** ***
20. Application to file in Court Arbitration Agreement:
(1) Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject-matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in Court.
(2) The Application shall be in writing and shall be numbered and registered as a suit between one or more of the parties interested or claiming to be interested as plaintiff or plaintiffs and the remainder as defendant or defendants, if the application has been presented by all the parties, or if otherwise, between the applicant as plaintiff and the other parties as defendants.
(3) On such application being made, the Court shall direct notice thereof to be given to all parties to the agreement other than the applicants requiring them to show cause within the time specified in the notice why the agreement should not be filed.
(4) Where no sufficient cause is shown, the Court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise, or, where the parties cannot agree upon an arbitrator appointed by the Court."
Under clause (iv) of Section 39(1) of the Act, an appeal is allowed against "an order filing or refusing to file an abritration agreement". It is no doubt true that this order filing or refusing to file arbitration agreement, is referable only to sub-section (4) of Section 20 of the Act. But the section does not indicate that an appeal is allowed against an order made under sub-section (4) of Section 20 of the Act, for sub-section (4) of Section 20 of the Act confers on the court two distinct powers firstly, to make an order for filing or refusing to file the agreement and, secondly, thereafter to make an order of reference to the arbitrator. There is nothing in Section 39 of the Act providing an appeal against an order making reference to the arbitrator. An appeal is allowed only against an order filing or refusing to file an arbitration agreement. To make an order for filing or refusing to file arbitration agreement, the Court shall consider the cause shown by the defendants in the suit. An order to file ah arbitration agreement shall be made only where no sufficient cause is shown, which necessarily compels the court to find out whether the cause shown is sufficient or not and an order directing the agreement to be filed is, therefore, a judicial function of the Court. The order making reference to the arbitrator since being a consequential order, it may be ministerial orjudicial. However, it is clear from Section 39(1)(iv) of the Act, an appeal is allowed only against an order filing or refusing to file an arbitration agreement and not against an order made under Section 20(4) of the Act. It. is relevant to note that Section 34(1) of the Act declares that an appeal shall He from the orders mentioned thereunder and from no others.
15. The Supreme Court in M/s. Dhan-rajamal Govindaram v. M/s. Shamji Kalidas & Co.," , considering the scope of Section 20(4) of the Act has held as follows (at pp 1293-94 of AIR):
"26. But the crux of the argument is that the provisions of sub-section (4) of S. 20 read with sub-section (1), ibid, cannot apply, and the Court, after filing the agreement, will have to do nothing more with it, and this shows that S. 20 is not applicable. This argument overlooks the fact that this is a statutory arbitration governed by its own rules, and that the powers and duties of the Court in sub-section (4) of Section 20 are of two distinct kinds. The first is the judicial function to consider whether the arbitration agreement should be filed in Court or not. That may involve dealing with objections to the existence and validity of the agreement itself. Once that is done, and the Court has decided that the agreement must be filed, the first part of its powers and duties is over. It is significant that an appeal under S. 39 lies only against the decision on this _part of sub-section(4). Then follows a ministerial act of reference to arbitrator or arbitrators appointed by the parties."
(Emphasis by me).
In the light of the aforesaid discussion, now I will consider whether the order under revision falls within the ambit of Cl. (iv) of Section 39(1) of the Act. The operative portion of the order under revision reads as follows:
"That the dispute between the parties shall be referred to an arbitrator who shall be necessarily of the rank of Chief Engineer, other than the respondent No. 2, either in service or retired. The respondents are given 10 days time, to express their choice regarding the arbitrator. For any other details or directions the parties may apply to the Court, as and when occasion arises."
It is seen from the aforesaid order that there is no order to file the arbitration agreement, nor there is any order of reference to the arbirator. By the order under revision, the Court has expressed that the dispute between the parties shall be referred to an arbitrator and the respondents are given 10 days time to express their choice regarding the arbitrator. This order cannot be construed as an order coming within the perview of under cl. (iv) of Section 39(1) of the Act or one made under Section 20(4) of the Act. At the best this order can be construed as 'preliminary' order directing the parties to mention the names of the arbitrators for referring the dispute to the arbitration.
16. The Allahabad High Court in Sharda Prasad v. Khaderan Ram, , in a similar circumstance has held as follows (at p 42 of AIR):
"5. It is admitted that the parties had not agreed to refer the dispute to a named arbitrator either in the agreement or even at a later stage. In view of this, the order obviously cannot be said to be one passed under S. 20(4) of the Act and must be deemed to be an interim order not finally disposed of the application under Section 20 of the Act."
For the reasons aforesaid, it is clear that the order under revision is not an appealable order under C!. (iv) of Section 39(1) of the Act and I therefore answer Point No. 1 in the negative.
17. POINT No. 2. Sri R.S. Hegde, the learned counsel appearing for the defendants, would submit that the order under revision has been made in violation of Section 20 of the Act. It is his contention that the defen-dants-3 in his objections has disputed the existence of the arbitration agreement and the dispute. Where the existence of the arbitration agreement and the existence of dispute between the parties is disputed, the Court to which the application has been filed under Section 20 of the Act, shall first decide, before making an order for filing the agreement and making an order of reference, whether there exists any arbitration agreement between the parties in respect of the subject matter of the dispute, and whether the agreement has been entered into before the institution of any suit with respect to subject matter of the agreement or any part of it; and, that the difference has arisen between the parties to which the agreement applies and that the Court has jurisdiction in the matter. In the absence of decision on these points there cannot be an order to file arbitration agreement and in the absence of which, there cannot be an order of reference. Once that is decided, the Court may order that the arbitration agreement to be filed and shall make a reference to arbitration.
18. With this background, it is to be examined, whether the order under revision has been made in accordance with Section 20(4) of the Act. The defendants in their objections have not disputed the contract between the parties for construction of office cum shopping complex. It is also not disputed that the said contract was made before the institution of the suit. What is disputed by the defendants is the existence of the dispute and the arbitration agreement. The relevant portion of the objection statement filed by defendant-3 in the court below reads as follows:
"4. The petitioner is wrongly claiming the higher rates for each item of the work which is not permissible as per the terms and conditions of the agreement as the petitioner himself has quoted his own rates in the tender and also executed the agreement to that effect to carry out the work at the said rates. Hence the question of paying higher rates to the petitioner does not arise at all which amounts to violation of the terms and conditions of the agreement. There is no dispute as such, to be settled by an Arbitrator as it is the case of the petitioner himself which shows that he has violated the terms and conditions of the agreement. Hence the petitioner is not entitled to claim benefit of the Arbitration Act. There is no provision in the agreement to refer the matter to the Arbitrator."
It is these averments upon which the learned counsel places reliance and states that the defendants have disputed the existence of the dispute and also of the arbitration agreement.
19. Sri B. Gopala Hegde, learned counsel appearing for the plaintiff, argues that the defendants have not denied the existence of the arbitration agreement or the dispute and in the absence of denial of the agreement, the same is deemed to have been admitted and, therefore, the Court was not called upon to record any finding as to the existence or otherwise of the arbitration agreement and the dispute thereunder. He submits that the defendants on the other hand have admitted the agreement but states there is no provision in the agreement for arbitration and, therefore, the said plea shall be construed as an admission regarding the arbitration agreement. I am afraid such a construction cannot be extended, as the defendants say that in the agreement there is no provision to refer the matter to the arbitrator; meaning thereby that in the contract between the parties there is no clause providing for arbitration. In addition to this the parties to the proceeding and the Court have also understood that defendants have disputed the existence of the arbitration agreement. In this context it is material to extract the relevant portion from the order under revision-
"Now we will proceed to consider the agreement itself to see whether any such Arbitration Clause exists between the parties. Clause 30 of the Agreement reads as follows:
'Clause 30: Except where otherwise specified in the contract and subject to powers delegated to him by Government under the Code Rules then in force the decision of the Chief Engineer for the time being shall be final, conclusive and binding on all parties to the contract upon all questions relating to the meaning of the specifications, designs, drawings and instructions hereinabefore (SIC)n-lioned and as to the quality of workmanship, or materials used on the work, or as to any other question, claim, right, matter, whatsoever if any way arising out of, or relating to the contract, designs, drawing, specifications, estimates, instructions, orders, or those conditions, or failure to execute the same whether arising during the progress of the work, or after the completion on abandonment thereof.' Section 20 of the Arbitration Act, "empowcrs a Court to make an order of reference to the Arbitrator to adjudicate where the difference has arisen to which the agreement applies". As it is already stated it is clearly seen from the records that the respondents have avoided to adjudicate the dispute. Wherefore, I am of the opinion that the petitioner has made out a case for referring the dispute to the arbitration."
It is seen from the aforesaid portion of the order that the parties and the court have understood the objections of the defendants that they have disputed the existence of the arbitration clause in the agreement. When the parties have disputed the existence of the arbitration agreement, the Court will have to decide whether there exists any arbitration agreement and its validity if that was also in dispute. In the case on hand, from the order extracted above, it is seen that the Court has not recorded any finding at all as to the existence of arbitration clause or as to the dispute. The Court has proceeded on the point whether the plaintiff has made out a case for referring the dispute to the arbitrator. It is the contention of Sri R.S. Hegde that the very approach of the learned Civil Judge is erroneous and has therefore resulted in miscarriage of justice. The Court ought to have considered the case of the parties as prescribed by Section 20 of the Act. The Court ought to have issued a notice to the defendants to show cause as to why the arbitration agreement should not be directed to be filed. The Court ought to have considered whether the defendants have not shown any cause for the notice issued.
20. From the reading of Section 20 as extracted above, it is clear that the Court, in which an application under Section 20 of the Act has been filed, shall have to first decide the disputed questions such as existence of the arbitration agreement and the dispute thereunder etc , before making any order of referenice under sub-section (4) of Section 20 of the Act. In the absence of any finding on any of the aforesaid points wherever they are disputed, there cannot be any order to file arbitration agreement. In the absence of any order to file arbitration agreement, the order referring the dispute to the arbitration is invalid.
21. Sri B. Gopal Hegde, learned counsel for the plaintiff, submits that the arbitration agreement need not be actually filed in Court. Even the absence of a prayer for a direction to file arbitration agreement in the application under Section 20 of the Act would not vitiate the proceedings, if the Court considers all aspects and makes an order to refer the dispute to arbitration. Directing to file an arbitration agreement is incidental to the proceeding under Section 20 of the Act. He sought to derive support for his submission from the decision of the Supreme Court in Everest Co-owners v. M. P. State Warehousing Corporation, . The said decision is not applicable to this case as the facts are clearly distinguishable. In the aforesaid case, the agreement was not disputed. The relevant part in the aforesaid case makes it very clear that the principle laid down therein cannot be extended to this case. The relevant part reads as under (at p. 843 of AIR):
"In our opinion even this, assuming it to be the correct translation of the proceedings on that day, does not advance the case of the respondent. It will be seen that there is no mention in this note of any objection by the counsel for the respondent that the agreement was inadmissible. The agreement itself was not denied and it is clear that it provides for the appointment of arbitrators and this was obviously so whether both parties agreed or not. The circumstances also make it clear that there were disputes between the parties regarding the extent of damages to the premises during the tenancy by the respondent. Though there was no formal prayer, requesting that the arbitration agreement be filed, there was clearly a valid application under Section 20."
It is not the case of the defendants that the application is defective nor the agreement is inadmissible. The case of the defendants is one of absence of arbitration agreement and that of the dispute. Where the parties dispute the existnece of an agreement and the dispute thereunder, the Court shall decide whether there exists an arbitration agreement and the dispute thereunder and shall direct the arbitration agreement to be filed. This is an arbitration proceeding with the intervention of the Court. In such proceedings, the first thing, to give jurisdiction to the arbitrator appointed by the parties under the arbitration agreement or by the Court, is to make an order for filing arbilration agreement first and thereafter to pass an order of reference. A Division Bench of Calcutta High Court in Sunil Mukherji v. Union of India, has held as follow (at pp. 44 and 45 opf AIR) :
"15. It is well settled that if the Court passes any order without jurisdiction the order is nullity and is void. As the order in the instant case of Mallick, J. appointing the Arbitrators was passed without jurisdiction, the said order is void and is a nullity and the Arbitrators appointed by the said order, therefore, acquire no jurisdiction to adjudicate upon the disputes. The arbitrators therefore, clearly lacked jurisdiction to enter upon the reference and to proceed with the same and to make any Award. The Award made by the Arbitrators must necessarily be held to be one without jurisdiction and a nullity."
22. Sri B. Gopal Hedge, learned counsel for the plaintiff, submits that Clause 30 of the agreement is an arbitration clause. Where Clause 30 is admitted by the defendants, there is no need for the court to record a finding as to the existence of the arbitration agreement, if the court holds that Clause 30 spells out an arbitration agreement. In this context, he derives support from the decision of the Supreme Court in Rukminibai Gupta v. Collector, Jabalpur, , wherein the purport and intent of Cl. 15 of the lease between the appellant and State of Madhya Pradesh came up for consideration. Cl. 15 of the said lease as extracted in the decision reads as follows (at p. 480 of AIR):
"15. Wherever any doubt, difference or dispute shall hereafter arise touching the construction of the these presents or anything herein contained or any matter or things connected with the said lands or the working or non-working thereof or the amount of payment of any rent or royalty reserved or made payable hereunder in the matter in difference shall be decided by the lessor whose decision shall be final."
Considering the purport and intent of the afore-said clause, the Supreme Court has held as follows (at p. 481 of AIR):
"5. The first question is whether Clause 15 which we have extracted above spells out an arbitration agreement between the parties. A quarry lease is granted under the relevant Minor Mineral Rules by the State Government. The State is thus the lessor and the one who takes the quarry lease is the lessee. As required by Article 299 of the Constitution/ all contracts made in exercise of the executive power of the State shall be expressed to be made by the Governor of the Slate and shall be executed on behalf of the Government by such persons and in such manner as he may direct or authorise. Lease has been accordingly executed. It is thus a contract. This contract incorporates Clause 15 which we have extracted hereinabove.
6. Does Clause 15 spelt out an arbitration agreement? Section 2(a) of the Arbitration Act, 1940, defines 'arbitration agreement' to mean a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not. Clause 15 provides that any doubt, difference or dispute, arising after the execution of the terms of the lease deed or anything therein contained or any matter of things connected with the said lands or the working or non-working thereof or the amount or payment of any rent or royalty reserved or made payable thereunder, the matter in difference shall be decided by the lessor whose decision shall be final. The reference has to be made to the lessor is the Governor. His decision declared final by the terms of the contract. His decision has to be in respect of a dispute or difference that may arise either touching the construction of the terms of the lease deed or disputes or differences arising out of the working or non-working of the lease or any dispute about the payment of rent or royalty payable under the lease deed. Therefore, Clause 15 read as a whole provides for referring future disputes to the arbitration of the Governor. Arbitration agreement is not required to be in any particular form. What is required to be ascertained is whether the parties have agreed that if disputes arise between them in respect of the subject matter of contract such disputes shall be referred to arbitration, then such an agreement would spell out an arbitration agreement. A passage from Russell on Arbitration, 19th Edn., p. 59, may be referred to with advantage :
If it appears from the terns of the agreement by which a matter is submitted to a person's decision that the intention of the parties was that he should hold an inquiry in the nature of a judicial inquiry and hear the respective cases of the parties and decide upon evidence laid before him, then the case is one of an arbitration.
In the clause under discussion there is a provision for referring the disputes to the lessor and the decision of the lessor is made final. On its true construction it spells out an arbitration agreement."
Relying on this decision Sri B. Gopal Hegde, the learned counsel, submits that Clause 30 of the agreement in the case spells out an arbitration agreement and therefore, even though there is no express finding recorded by the Court, the order is not vitiated and the order is therefore sustainable.
23. Opposing this contention, Sri R. S. Hegde, the learned counsel for the defendants, submits that such a clause will not spell out an arbitration agreement and in support of his contention he sought to derive support from the decision of the Supreme Court in M/s... Prabartak Commercial, Corporation Ltd. v. the Chief Administration, Dandakaranya Project, , That in the said case disputes arose between the parties in respect of rate of payment. The appellant contended that it was entitled to be paid the rates prescribed under the contract for hard granite chips and not the rates under the schedule for hard stone chips. The dispute between the parties was referred by the Court in terms of Section 20 df the Act. Notwithstanding the objections filed by the respondents that there is no arbitration agreement in respect of the said dispute, the arbitrator however entered upon the reference and made the award. A preliminary decree was directed to'be made, despite objections filed by the respondent under Section 33 of the Act. In thef appeal filed under Section 39(1)(iv) of the Act, a question came up for consideration that whether Clause 13(a) of the agreement spells out arbitration agreement. Cl. 13(a) of the said agreement reads "in the event of a dispute the decision of the Superintending Engineer of the circle shall be final." However Cl. 14 admittedly an arbitration clause has specifically excluded Cl. 13(a) relating to the rates from the purview of Cl. 14. The High Court held that Ct. 14 containing arbitration agreement has no application to the dispute in question which fell under Cl. 13(a) which would not spell out an arbitration agreement. Relying on this decision, Sri R. S. Hegde submits that Cl. 30 in this case is similar to Clause 13(a). Therefore Clause 30 cannot be treated as an arbitration agreement. From the facts narrated above it is clear that the contention of Sri R. S. Hegde, has no strength to stand. Clause 13(a) is not treated as an arbitration agreement, as it was specifically excluded from the purview of arbitration by Clause 14 of the agreement.
24. Sri R. S. Hegde submits that irrespective of the nature and contents of the clause, the Court has not recorded any finding as to the existence of a dispute between the parties. From the reading of Clause 30 it cannot be said that it is a clause by itself. It is subject to the other provisions of the contract. As the clause begins with the expression "except where otherwise specified in the contract", the Court has failed to take notice of all these aspects and further failed to record a finding whether the said clause spells out an arbitration agreement and whether there is any dispute in respect of the subject matter of the said clause between the parties.
25. In the facts and circumstances of this case, it is not just and proper to decide whether there exists an arbitration agreement in the light of the decisions of the Supreme Court without considering the other clause of the agreement in this revision. The Court has failed to record a finding whether Clause 30 of the Agreement spells out an arbitration agreement, and if so, whether there is any dispute between the parties. It is not the case of the plaintiff that his claim for payment was denied by the defendants. It is his case that defendant-2 did not take any action to adjudicate upon the dispute and the defendants have not made any arrangements to pay his money. It may be at best an inaction on the part of the defendants. Inaction by itself cannot be termed as denial of the rights of the plaintiff. In these circumstances it is not possible to hold that the order under revision has been made in accordance with sub-section (4) of Section 20 of the Act. I therefore, answer point No. 2 in the affirmative.
26. POINT No. 3 : Sri B. Gopal Hegde, the learned counsel for the plaintiff, submits that the defendants are estopped from challenging the order under revision for having filed the list of persons for appointing as arbitrator and participated in the proceedings before the arbitrator after appointment. His contention is that, the defendants have acquiesced with the order of reference and therefore they are estopped by acquiescence from challenging the correctness of the orders under revision. In this context he relied on the decision of the Supreme Court in Prasun_Roy v. The Calcutta Metropolitan Development Authority, wherein the appellant had challenged the correctness of the order of the High Court setting aside the earlier order of the High Court on the ground of acquiescence. That was a case in which by order dated 8-12-1986* a learned single Judge of Calcutta High Court has set aside the order dated 19-4-1983 of another learned single Judge on the ground inter alia that the first learned Judge has acted without jurisdiction. That, by order dated 19-4-1983, an advocate by name Sri Amitav Guha was appointed as the Arbitrator in place of the arbitrators earlier appointed. The parties to the proceedings, pursuant to the said order participated in the proceedings before the arbitrator and got extension of the arbitration proceedings at least 14 times; the arbitration had held 74 sittings which were attended by both the parties and their counsel; the arbitrator had made orders on three I. As in favour of the appellant; and the respondents thereafter, filed an application to set aside the order dated 19-4-1983 on the ground of want of jurisdiction. In those circumstances, the Supreme Court has held as follows (at p. 207 of AIR) :
"4. In the year 1985 the respondent-1 challenged the validity of the order of appointment of arbitrator passed by the iearned Judge where she acted on the basis of the findings mentioned hereinbefore.
5. Can a party be permitted to do that ? In Arbn. Japiter General Insce. Co. Ltd. y, Corpn. of Calcutta, P. B. Mukherji, as the iearned Chief Justice then was, observed :
"It is necessary to state at the outset that Courts do not favour this kind of contention and conduct of an applicant who participates in arbitration proceedings without protest and fully avails of the entire arbitration proceedings and then when he sees that the award has gone against him he comes forward to challenge the whole of the arbitration proceedings as without jurisdiction on the ground of a known disability of a party. That view of the Court is ably stated by the Editor of the 15th Edition of the Russell on the Law of Arbitration at page 295 in the following terms :
'Although a party may by reason of some disability be legally incapable of submitting matters to arbitration that fact is not one that can be raised as a ground for disputing the award by other parties to a reference who were aware of the disability. If one of the parties is incapable the objection should be taken to the submission. A party will not be permitted to lie by and join in the submission and then if it suits its purpose attack the award on that ground. The presumption in the absence of proof to the contrary will be that the party complaining was aware of the disability when the sumission was made.'
6. Mr. Kacher submitted that this principle could be invoked only in a situation where the challenge is made only after the making of an award, and not before. We are unable to accept this differentiation. The principle is that a party shall not be allowed to blow hot and cold simultaneously. Long participation and acquiescence in the proceeding preclude such a party from contending that the proceedings were without jurisdiction."
In the light of the aforesaid decision, Sri B. Gopal Hegde, submits that the defendants having acquiesced with the order of reference are estopped from contending that the reference is without jurisdiction.
27. Per contra, Sri R. S. Hegde, the learned counsel appearing for the defendants, submits that, the decision of the Supreme Court in the case of Prasun Roy is not applicable to this case as the facts are distinguishable. The Supreme Court in the aforesaid case has held that "long participating and acquiescence in the proceeding precludes such a party from contending that the proceedings were without jurisdiction." In view of the fact that the parties in the aforesaid case have participated in the proceedings before the arbitrator for 72 sittings after obtaining 14 extensions of arbitration proceedings and after having obtained an unfavourable order on three interlocutory applications, the Supreme Court has held that such challenge is impermissible. As the facts of this case are different and as the defendants have challenged the order of reference even before the filing of counter-statement before the Arbitrator, the principle laid down by the Supreme Court in Prasun Roy's case cannot be extended to this case.
28. In view of the aforesaid contentions, it is useful to note the events on the basis of which the defendants are alleged to have acquiesced with the order and participated in the proceedings. That pursuant to the order under revision dated 5-1-1994, the defendants filed a memo dated 24-1-1994, furnishing the names of persons, in compliance with the order dated 5-1-1994, to consider any one among them for being appointed as an arbitrator. By order dated 11-2-1994 the learned Civil Judge appointed one Sri C. B. Lakshman Rao, retired Chief Engineer, as Arbitrator. The learned Civil Judge by his communication dated 9-3-1994 addressed to Sri C. B. Lakshman Rao, informed him that he was appointed as the sole arbitrator in the aforesaid case and asked him to make the award in writing on or before 30-6-1994. Pursuant to the aforesaid appointment, the arbitrator issued notice to the plaintiff and the defendants informing them that he has entered reference with effect from 21-3-1994 and called upon the plaintiff to submit his statement of claim with a copy to the defendants within 20 days from the date of receipt of the communication. He further directed the defendants to submit their counter-statement with a copy to the plaintiff within 20 days from the date of receipt of the statement of claim. The first meeting was held on 30-3-1994 by which time the defendants have presented this before this Court on 28-3-1994 calling in question the correctness of the order under revision. In the tight of the aforesaid facts, can it be said that the defendants have acquiesced with the arbitration proceedings ? It is true that a party shall not be allowed to blow hot and cold simultaneously. It is also true that long participation and acquiescence in [he proceedings preclude such a party from contending that the proceedings were without jurisdiction. However in the instant case, the facts are different. The parties have no doubt furnished the list of persons for appointing the arbitrator. It cannot be construed that the defendants have submitted to the jurisdiction of the arbitrator as they have challenged the correctness of the order of reference even before commencement of the first sitting of the arbitrator. It has been held that, the courts, after considering the cause shown by the defendants in the proceedings under Section 20 of the Act, shall make an order for filing arbitration agreement. In the absence of an order to file arbitration agreement, the order of reference to arbitration is without jurisdiction. When the reference itself is without jurisdiction, mere filing a memo furnishing of the names of persons for appointing an arbitrator, in the facts and circumstances of this ease, in my considered view, cannot be said that the defendants have acquiesced with the arbitration proceedings and therefore I answer point No. 3 in the negative.
29. In the result, I make the following order -
(i) The revision petition is allowed.
(ii) The order dated 5-1-1994 passed by the learned Principal Civil Judge, Gulbarga, in Arbitration Case No. 387/92 is set aside.
(iii) The matter is remitted to the learned Civil Judge to consider the application of the plaintiff afresh and dispose of the same in accordance with law and in the light of the observations made in this order.
(iv) In the circumstances of the case, the parties to bear their own costs.
30. Revision allowed.