Bombay High Court
Kishan Swaroop Ashok Kumar And Ors., ... vs The Podar Mills Ltd. And Etc. on 1 August, 1986
Equivalent citations: AIR1987BOM198, 1986(3)BOMCR1, AIR 1987 BOMBAY 198, ILR 1987 BOM 384, (1986) 3 BOM CR 1, (1987) ILR BOM 384, (1986) BANKJ 528
JUDGMENT
1. Appeals Nos. 652 to 657 of 1981 are filed by M|s. Kishan Swaroop Ashokkumar and others, defendant in the six suits filed by the podar Mills Limited , the respondetns in these six appeal and appeal Nos. 735 of 1981 are filed by M|s. Hazarimal Chhogalal and other, defendatn in four suists filed by the respondetns in thse ofur apelas viz. The Piramal Spg. &Wvg. Mills Ltd. These appeals arise out ofg the orders passed by the trial Judge on th notices of motion taken out in their respective suits by the appealt for staying the suyits and for referring the matters to arbitraion of Mill Owners Asociaiton , Bombay. The notices of motion in the six suits firl by the Podar Mills were dismissed by a comon order passed on April 24|28, 1981 while the notices of motion in other four suits filed by The Piramal spg. & Wvg Mills Lrtd. Were dismissed of September 15, 1981 for the reasons given in the order daste April 24|28 1981. As all these appeals involve common question of fact and the indentical question disposed orf by this common judgement.
2. Both the respondent mills sold cloth to the two appellatn firms under different invoices and drew hundies on the appellant firms for the price of the said goods. The hundies were drawn in favour or of the State Bank of India and were duly accepted by the appelalant firms byt they were dishonoured by non-payment. The respondent therefore, filed summary suits under Order 367 Rule 2 of the Code of Civil Prcedrei for recoveing the amounts of the dishonoured hundies. The appellatns were duly served with summons of the suits and they in their appearnace whereupon the respondnets took out sommonses the for judgement and after the appellants were served with these summonses they took out the notices of motion for the aforesaid relief viz. Staying of the suits and reference of the disputes to the arbitration of thee Mills Owners Asociation , Bombay . The lerned trail Judge rejected the notices of motion holding that the hundies were not covered by the scope of the arbitration clause and that ther was no dispute in respect of the goods which were the subject matter of challenge in these appeals.
3. It is an admitted position that he hundies in question were drawn by the respondents in favour of the State Bank of India of and on the appellats who accepted them but dishonoured them non-payment . It is also an asmitted position that the hundies were drawn by the respondents and accepted by the appllants in dicharge of their liability in respect of the goods supplied to them by the respondnets udner various invoices. It is also an admitted position that the respondents are members of the Kill Owners Assocaiation at Bombay, which institution has prescribed a standard form of contract for a sale of goods by the members for contract of for sale of goods by the members mills. The standard contreact form contains the tterms and conditions governing such contracts.
4. Clauses 21 and 22 of the standard contract, which care invoked by the appellants in suport of their notices of motion,m read as follow:
"Clauses 21 : All disputes and questions whatsover which shall arise between the parties hereto out of or in connecion with this agreemtn or as to the construction or applicaiton or the respective rights and obligations of the parties herunder or as to any clause or thing herin contained or any account or a vlauvation to be mad herunder or as to any other matter inany way relating to thse presnts shall be referred to arbitration in accordance witht eh rules of the Mill Owner Asocviation , Bombay for the time being in force regulsting arbitrations wti respect piece goods.
Clause 22: (a) As and when anay such dispute is referred to arbitration in respect of goods under goods dispute are 'no tender' the buyer shall be bound to accept the said gods on payment by the sellers of allowanvces (if any) awarded to the buyers. If, however, the arbitration award is tothe effect that the gods are 'no tender' the buyer shall b e entitled to invoice back te said goods with any penalty the arbitartors may award.
No refernce , however as aforesaid shall be made by the buyer in respect of goods., delivery wherof has not been taken oby him unless hedeposits with theMill Owners Asoviation, Bombay as secutity an amount equivalent to 10% of the total value there reference, if demanded by the seller. If the refernce to arbitration is made by the seller then the arbitration is made by the before proceeding witht h3e refernce a call upon the Buyers to make a deposit as aforesaid, if the Selers request the arbitrators to do so. In case the Buyers refuse to make the deposit, it will bne opn to the arbitrators to ward such penalty tothe seller aganst the buyers as they may think fit.
In the event of any such dispute referred to arbitration, unless the arbitration award is to the effect that the goods under disspute are: "No tender", the buyer shall be boiund to accpet the said goods witht eh allownace (if any) awarded to the Buyer and take delivery therof after making full payjent. If however, hthe arbitration award is to the effect that the goods are 'no tender', the Buyer shall not be bound to take the delivery of the goods and shall be entitled to receive penalty (if any) that the arbitratior may award".
5. The second defendant Kishanwarupp GArg,who is the partner of both the appellant firms averred in his affidavits in support of the notices of motion in all the suit are the parties were governed by the terms and conditions mentined in the standard contract form incliding the above quoted clauses. This position was not specifically denied by the respondetns in their affidavits opposing the notices of motionl Hence relying on these clauses it was urged by Mrs. Shenoi the learned Counsel for the appellants., that a disputed the main claim itself out of the contracts which contain the arbitration clause as contemplated by section 34 of the Arbitration Act. It was also contended on behalf of the appellants that he appellans were ready and willing to refer the dispute to arbitraion and had taken all the necessary steps towards that end.
6. Section 34 of the Arbitration Act lays down that where any party to an arbitrtion agreement or any person claiming under him commences any leagal proceedings under against any other party to the agreement or any person claiming under him in respect of anymatter agreed to be refereed, 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 preoceedings are pending to stay the proceedings ; and if satisfied that here is no sufficient reason why the matter should not be refered to in accordance with the arbitration agreement and that the applicant was, at te time when the proceedings were commenced and still remains, ready and willing to do all th isngs necessary to the proper conduct of the arbitration, , such authority may make an order staying the proceedings.
7. Analysing Section 34 of the Arbitration Act in Anderson Wright Ltd. v. Moran & co. the Supreme Court laid down the conditions necessary for granting stay under the said proviiosn as follows:
"Thus in order that a stay may be be granted under this secion, it is necessary that the following conditions should be fulfiled:
The proceedings must have been commenced by a party to an arbitrtion agreement aginst any other party to the agreement ;
The legal proceedings which is sought to be stayed must be in respect of a matter agreed to be referred;
The applicant for stay must be aparty to the legal proceedings and the must have taken no step in the proceeding after appearance. It is also necessary that he should satisfy the Court not only that he is but also ws at the commencement of the proceedings ready and willing to do everything necessary is no sufficient why the matter should not be referred to an arbitration in accordance with the arbitration agreement."
8. Elucidating the matter further the Supreme Court went on to observe as follows:
"The first and essential prerequistite to making an orddr os stay under Secion 34 of the Arbitraion ACt is hat here is a bindig arbitration agreement between the parties to the suit which is sought to be stayed. The question whether the dispute in the suit fals within the arbitration clause really presupposes that ther is uch agreement and involves consideration of two matters, viz. (1) what is the dispute in the suit and (2) what disputes the arnitration clause covers?.
9. It is therefore, essental that te dispute which is sought to be referred to arbitration must ralte to or arise out of the contract whch is the subject matter of the suit, sought to bestayed.
10. As rightly contended by Shri Subramamnium, thedispute whch a was raised by the appelaltns in ther affidavits supporty of hteir notices of motion and which they sought to refer matters of the suitw viz. The goods suplied, towards the price of which the hundies in quesion were drawn by the respondents and accepted by the appellants. The avernment in the affidavits in support of the notie of motion are blissfuly silent about the spcific griecance in respect of the gods supplied under the invoices towards the amount of whofch the hundies were given. The avernment in the affidavits are too vague and ralte to the general dealings between the parties during the affidavits are too vague and relate tot he general dealings between the p arties during the perod from 1975-76 to November 1979. So far as the claim for credit of 3% and rebate of 2% mentioned in clauses 'd' and 'e' of the affidavits of Kishanswrup, neither the invoices in question for not the standard contract form provides for such an agreement. The aprticular contracts referred to in the invoice were not produced and theris nothing on record to shw, prima facie, that ther was an agreemtn between the aprties to give any credit or rebate in respect of the goods, towards the price of which the hundies were drawn. Morever as mentioned in clause 'c' of Kishanswarup's made on SEptember 5, 1097 while the goods in question were supplied after that date.
11. A reference in this context can also be made to the registered notice addressed by the appellants M|s. Kishan Swaroop Ashokkumer tot he respondents the Podar Mills Ltd. on September 30, 1980. In this notice M|s. Kihsan Saroop Ashokkumar specified the disputes which the wanted to refer to the arbitration of Mill Owners Association at Bombay. The particualrs of those claism are as follows:
"1) M|s Podar Mills field a false criminal prosecution against our clients shri K.s. GArg, Ashokkumar GArg and Surendrakumar Garg in the Court of Metropolitan Magistrate, Bhoiwada Court, Bombay, bearing case No,.15|IR|79 u|s. 420. Rs. 1,50, 000,00 For transaction betwen November 1978 to Novemebr 1979 about 60 lacs Mills agreed to give 3% rebate being turnover rebate. Rs. 1,80,000,00.
Mills agreed to give further 2% rebate in if transaction exceeded 2 lac per month. Turnover was 60 lac between November 78 to Bovember 1979. Rs. 1,20,000,00.
My clients purchased Prt. Handkerchiefs of 20 lacs but same were misprinted, misized, seconds and lot of printing defecfs and short lengh packed in full length without rebate, total further rebate agreed by the mills 10% on valule of Rs. 20,00,000,00.
My clients purchased special 1..34 cms. Blouse piece multiple out of dyed polynosic cotton cambric of about 100 bales of Rs. 3 lacs being odd cut of 0.65 to 1.34 cms. Director Vinay Poddar Sales Manager Shri D. P. Kanodia agreed a rebate of 15% on value of 3 lacs . Rs. 45,000,00.
Obviously the first claim does not arise out of the contracts in question. As observed above the invoice and the standard contrat form are silent in respectof the next two claims while claims Nos. 4 and 5 relate tothe printed handkerchiefs and blouse pieces purchsed by the applellant M\s. Podar Mills Ltd. Ashokkumar from M\s Podar Mills Ltd. udner various contracfs. Admittedly these uder are not the goods towards the price of which the hundies in question were accepted by the appellant. There is also nothing on record to show that the dispute allegeldyl reaised by the appellants sin other foru appeals relateed to the goods towards the price of whch the hundies which are the subject matter of the foru suits filed by te respondents in the last four appeals viz. Piramal Spg. Wvg. Mills Ltd. were drawn. The disputes sought to be raised byt e appellants do not covered by the arbitration cluse, even assuming that the appellants can invoke the arbitration clause in the summary suits filed by the respondents.
12. The basic question, however is whether in a summary suit based on a hundi the defendatn fcan invoke the arbitration clause contained int eh contract, under which the goods for the p rice of which the hundies were dran, were suppled .The Supremet Court accepting the test laid down in this behalf in Heyman v. DArwins Ltd, 1942 AC 356 laid down in A. M. Mair & Co. v. Gordhandas SAgarmull, that where a party has to have recourse to the contraft to establish his case, it is a dipute under the contract. As mentioned abvoe the suits out of which these appeals arise that are summary suits based on the negotiable instrumetns vizx the hundies. It is also pertinent to not int his contexct that the hundies were drawn in favour of ht State Bank of India and were endorsed in favour of the respondetn who thus becamde the holders in due course of the hudies. It will also be seen from the hundies that the gfoods were received by the appellants before the hundies were drawm./ There is also nothing to show that by a subsequent agreement the liabiliyt of the appellants to pay the amount of the hundies was conditional upon the appellants to pay the satisfying themselves of the quality and quantity of the goods supplied. The liability acepted by the appelants under the hundies was absolute and the discharge of th liabiliyt to pay for the goods was unconditonal Hence not only it was not open for the respondetnts to a fall back on the original ncotnracts for the recovery of the price nor it was opwn for the appellans to raise any dispute in respect of th quality and quantity of the goods, or in respect in of any counter claim arising out of the terms of the contracts udner which goods in question were supplied. This position flows from Secion 32 of thte Negotiable Instrumetns ACt which lays downtaht in the absence of a contract to the contrary, the maker of a promissory note and the acceptor before maturity of the bill of exchange are bound to pay the amount thereof at maturity according tot he apparent tenor to of the note of or acceptance respectively, and the acceptor of a bill of exchange at or after maturity is bound to pay the amount therof the to holder on demand.
13. Somewhat identical question fell for consideration of the Division Bench of Lahore High Court in RAdha Bihari Diwan sigh v, haffer & sons, AIR 1922, Lah 353 in an appeal from an order refusing to stay the proceedings a in a suit under Rule 18 of the second schedule of the Code of Civil Procedure (which is analogous to secion 34 of the ARbitraiton Act). In that case that the appellants firm placed indent for purchase of 10 bales of white shirting of certain specified qualified witht he respsondent firm . After the shipmetn of goods the appellans drw tow bills of exchange against the buyer at 60 day' sight. These bills we presented by the National Bank of India, Limited, Delhi, to the appellants who accepted tem but subsequently refused to pay them upon maturity. The responsent firtm accordingly sued them and their claim was based in the first instance, upon the accepted but unpaid bnills, and in the alternative they sued for the price for the goods and for certain expenses. Clause 15 of the indent form provided that if any claim or dipspute arose in connection with the contract, unless amicable settlement could be attived at,it must be referred to arbitrtionin Delhi, in accordacne witht he Survery and ARbitration Rules of the Delhi Hindustani Mercantile Rules of the Delhi Hindustani Mercantile Association. Relying upon this clause the appellants sought reference of the dispute of toe arbitarion and stay of the suit. The trial court rejected the prayer and in appeal the Division Bench confirmed that order holding as follows:
"It is not denied that the hbills of exchange were accepted by the defendatnt fir,m. Secion 32 of the Begotiable Instrum,ents Act lays down that int he absences of a contract to the contray the acceptor before maturity of the a bill of exchange is bound to pay the amount thereof at maturity, according tothe apparent tenor of the acceptance. The suit as brought upon the accepted, but unpaid, bills of exchange is therefore, a suit governed by this secion and is not a suit for damages or for the price of the goods at all".
14. In that case that the appellant invoked Section 43 of the Negotiable Instruments Act to urge that either the bills of exchange were accepted without consideration or for a consideration which subsequently failed, and that, therefore, the appeallants were not lianle. The leaned Judfes acceptd the position that it was open for the appellants to show that the bills of exchange were accepted without consideration or to raise any other defence which they maybe advised to; do, but prima facie the respondent firm had a good caser under SEcion 32 of the Negotiable Instrument Act, and , hecne there a was no justification for interfering with the order refusing to stay the suit. No doubt in that case int eh indent itself the appelant had bound themselves to accept the bills prsentaitonand pay at maturity notwithstanding any objections they may have regading any objecion they may have regarding or on account of any variation whatever from the terms of the indent , such objection to be settled by arbitration as provided for. The learned Judges held that even if such objection was taken it msut be setteled by arbitration in the way subsequently provided but the accepted drafts must be paid at maturity whether there a be any objection or not.
15. The decision fo the Allahabad High Court in Diraj Lal v Sir Jacob Behrenes & sons, AIr 1933 All 74 is more to the point. In that case the parties had enterd into an agreement known as 'C.I.F. contract in terms of which the defendatn appellants purchased cloth from the plaintiff. Several orders were placed by the defendant appellants with the respondent and the respondents despatched goods after the bills of exchange drawn by the respondents deirecting t5he appellants to pay tot he Characted Bank of Cawnpore a sum representing the cost to of goods, freight and insurance etc. were accepted by the appellants but when the tme came for honouring the accepted bills and taking delivery of the goods the appellants refused to do so and hence the resspondetns instituted a suit for recovery of the amount due on bills of exchange accepted by the appellants. The appellants relying on a clause int eh agreement applied under Secion 129 of the Arbitration Act for stay of the suit. The trial Judge rejected the application on various grounds , one of which was that t suit was based on accepted of goods delivered, under the contract which contwained the abitraion clasuse. Upholding the order of tehe trial Court the learned Judges of the Allahabed High Court held as follows:
"The defendants accepted the bills before maturity. The effect of such a transaction ordinarily is that the defendant liability to the plaintiff for the invoice value of the goods is discharged, and a liability tot he Bank under the bills is substituted therefor. The defendant could not be liable to b oth, that is to the plaintiff for the price of goods and to the bank for acceptance for the bills under s. 32, Negotiable Instruments Act, which clearly provides that the acceptor before maturity of a bill of exchange is bound to pay the amount thereof at maturity according to the apparent tenor of acceptance".
16. In that case by virtue of Clause 3 of the agreement the respondents were empowered to claim the invoice value in spite of the acceptance of the bills. Discussing the effect of this clause the learned Judges observed further as follows:
"It is, of course, implied that if the selers elect to sue of the invoice value on the basis of the original contract they would secure of for the buyers immunity against any claim onteh basis on the of bill and, conversely, if the buyers' acceptance of the bill is enforced, they are contract. But for cl ( c) the legal position would have been only this: after acceptance followed by maturity ofht billthe buyers would have been liable only to the bank which alone owuldb be liable to the sellers according to the terms of the agreement between them, under which the sellers derw the bill tof exchange in faouver of the bank. The sellers have however reserved to themselves an alternative remdely to themselves an attlernative remedy of faling back on the original conssideration. It is only if they avail themselves of this remedy and th er claim is constested that adispute will rise out of a contract enterd into in connexion with this agreeement', within the meaning of the arbitration clause quoted above marked (d). If on the other hand, the duit is based on the bill and a dispute arises insuch situ it cannot be said to arise out of anu cojtract between the parties " in connexion with the agreement" nit it arises between one of the parties to it and third person in connexion with the acceptance of the bill, a transaction collateral to but not arising out of the agreement".
17. In the ultimate analysis the learned Judges spelt out their view of the case as follows:
"The draft was drawn in favour of the Chartered Bank, and it a was the Chartered Bank who has in the first instances a right to recover the sum due on the draft formt he acceptor. Had the Bank sued on the acceptance, clearly the acceptors could not have pleaded that under an agreemt between thjemselves and a third party, namely, the sellers of the goods, they had a right to refger the matter to arnitration. No question as to the nature a of the goods arose between the present appellants and the Chartered Bank, and there was no agreement between them conteining any c;ause authority a reference to arbitration. The Chartered Bank endorsed the bills of exchange to the plaintiffs, and the plaintiff in bringing this suit onthe bais of the bills sof exchange are in the position of the Chartered Bank and therefore entitled to framde the suit accordingly. There postition in this respect is the same as that of a total stranger to whom the Bank might ednorse the bills. A suit brought by them for the proce of the goods will bring into operation the arbitration clauses of the agreement between themselves as sellers and the defendant as buyers. But there is no agreement and no arbitration clause which can come into fornce as between the plaintiff as holder and the defendsant as acceptors of the bills of exchange".
18. As mentioned above all the hundies in question in these suits were drawn in favour of the State Bank of india and were endorsed tot he respondent by the bank. Moreover the repondnets have based there claims on the hundies and have not alternatively claimed the proce of the goods, which obvuously they could nt have done as in the original contracts was not have done as in the present cases, the option to fall back ont eh original contracts was not reserved. The ratio of the decision in Dhiraj lal v. Sir Jacob Behrns& Sons , is therefore, clearly applicable to he facts tot he present case.
19. The Full Bench of the Madras High Court in Moolchand Kevalchand Daga v. Kissindoss Girdhardoss, took the view that Section 34 of the Arbitration Act of 1940 has no applicaiton to a suit based on a promissory note executed a on settlement of disputes udner a contract with an arbitration clause. In that case it was contended on behalf of the defendacne respondennts that there would be vlid defence to the clsim because the contract was in the natureof a wagering contract which could not be enforced .The Full Bench observed that they were not concerned with the defences so far ad the question of applicability of Section 34 of the Arbitration Act was concerned , and that in their opinion Secion 34 had no application tot he case.
20. Mrs. Shenoi the learned coinsel for the appellants placed strong reliance on the decision of a single Judge of the Calcutta High Court in the case of Pench Valley Coal v. Indain Cable Co., . In that case a suit was filed agaisnt the applicant defendant for certain amount under Order 37 of the Civil Procedure Code basing the claim on certain hundies drawn and accepted by the applicant in respecnt of certain goods delivered agisnt Challans by the plaintiff respondet. The goods were delivered under certain contracts containing arbitration clausess. The applicant filed na applciaiton under secion 34 of the Arbitratuion Act for stay of suit. The contention of the applicant was that the goods delivered were defective and were not delivered in time and as such the discharged or obligation for payment was made wrongfully and was liable to be refunded. It was held that the arbitration clauses were wide enough to include a dispute arising in respect of a discharge of the obligation for payment and the application was maintainable. In arriving at this decision the learned Judge distinguished on facts the decision of the Supreme Court inCommr. Of Income tax Bombay south, Bombay v. Ogale Glass Works Ltd. and in Ramlal Onkarmal Firm v. mohanlal jogani Rice & ATTa Mills, and expressed his opinion without giving any reasoning worth the name in support of his opinion. The impact of the provisions contained in section 32 of te Negotaibnle Instruments Act was not consered as all. As a matter of fact int eh hwole juegement there is no reference to the said provison which materially altered the position of the parities in the suit viz. That the suit was not a suit between the seller and a buyer but a suit the drawer acceptor thereof . I am therefore unable to accept the ratio of this defcison which is quite contrary to the weight of the decision quoted above. It is , therefore, crystal clear that section 34 pf the Arbitration Act cannot have any application to the suits in questions as they are framed.
21. It is also difficult to accept the claim that the appellants were ready and willing, at the commencement of the proceedings to refer to the disputes to arbitration.it will be seen from the correspondence produced on record that the appellant took stpes for referring the matter to arbitraion only after they were served with the summonses of suit. They also did not take out the notices of motion after they were served wsith the summonses of suit. They also did not take out the notices of motion after they were served withthe summonses but they did so only after they were served with summons for judgement.
22. In he result, therefore, the appeals must fail and are dismissed . The appellants shall pay costs in Appeal Nos. 652, 653 654, 655, 656 and 657 of 1981 tot he respondent and bear their own. In rest of the appeals there shall be no order as to costs.
23. Appeals dismissed.