Madras High Court
United Industrial Engineers And Ors. vs Sundaram Finance Services Limited on 26 December, 2002
Equivalent citations: 2003(2)ARBLR470(MADRAS), (2003)2MLJ367
ORDER A. Ramamurthi, J.
1. This application is filed by the applicant/plaintiff in C.S. No. 190 of 2002 to dismiss the suit and direct the parties to continue with the pending Arbitration proceedings before the sole Arbitrator Thiru S. Santhanakrishnan, Retired District Judge.
2. The case in brief is as follow :
The present application is filed under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') to dismiss the suit and refer the matter to arbitration before the sole Arbitrator already appointed. There is a valid arbitration clause under the Loan Agreements dated 223.1999, 26.5.1999, 7.6.1999 and 17.5.2000 and the parties to the agreements are bound by the same. Section 8 of the Act very clearly stipulates that if a party before a Judicial Authority before which an action is brought in a matter which is the subject of an arbitration applies to the Court to refer the parties to arbitration the Court shall do so. Further, Section 5 of the Act deals with the extent of judicial intervention and the section stipulates that in matters governed by Part I of the Act, no judicial authority shall intervene. The language of Section 8 is peremptory. The first respondent firm approached the applicant company for certain loans required for the expansion of their business and the particulars of the loan are furnished. The first respondent also entered into 4 loan agreements referred to above and also executed demand promissory notes. The 2nd respondent as Managing Partner has executed the demand promissory notes. Clause 17 of the respective loan agreements indicates that all disputes and/or differences between the borrower and lender shall be settled by the Arbitrator. The arbitration clause was invoked as early as 13.11.2000 and till today the respondents have not filed their counter. They are filing one application after another before the Arbitrator with a view to protract and delay the proceedings. All the issues raised in the present suit have already been raised before the Arbitrator and orders have already been passed. Now, the very same issues form the subject matter of suit. The sole aim of the respondents is to prevent the applicant company from proceeding with the arbitration proceedings. The respondents having availed benefit under the 4 loan agreements, cannot turn around and dispute the validity of the same. The respondents raised a plea, namely, the loan agreements were foisted by the applicant company by fraud, misrepresentation, coercion and undue influence ; the 3rd respondent retired from the partnership and the loan agreement dated 17.5.2002 is not valid ; the respondents apprehend bias and partiality on the part of the sole Arbitrator and they have raised the issue of venue of arbitration in the plaint. The execution of the loan agreements as well as the passing of consideration have been admitted. The respondents are educated, hard core business people, who are well aware of the terms and conditions. There is a valid arbitration clause under the loan agreements and the respondents are bound by it. The partners are jointly and severally liable for the acts of the partnership firm. Hence, the application.
3. The respondents filed a counter-affidavit and denied the various averments. The application filed by the applicant-company under Section 8 of the Act is devoid of any merit and has to be dismissed. There is no binding arbitration agreement and it has been specifically contracted that the parties can file suits or commence any other proceedings in respect of all matters concerning the loan agreement before the Courts in the City of Chennai. The respondents will not get justice from the Arbitrator appointed by the applicant.
The respondents has questioned the very commencement of arbitration proceedings. The sole Arbitrator unilaterally sought to go ahead with the proceedings without consulting with the respondents. The other allegations in the counter relate to merits of the matter and, as such, it is unnecessary to reproduce the same. The change of partners was not properly scrutinized. It is customary and also mandatory that the consent letter of each and every partner must be obtained. No useful purpose would be served by attempting to continue the proceedings before the said Arbitrator, who is highly prejudiced.
The applicant is grossly abusing the process of Court and is guilty for invoking parallel proceedings in order to recover its alleged dues. Neither under the old Act nor under the new Act, the powers of the Court are curtailed. This Court has got ample powers to pass suitable orders prior to initiation of arbitration proceedings or during the course of the same and subsequently to do complete justice between the parties and, as such, the application is liable to be dismissed.
4. Heard the learned counsel for the parties.
5. The points that arise for consideration are :
(1) Whether the suit filed by the respondents/plaintiffs can be dismissed ?
(2) Whether the parties can be directed to continue with arbitration proceedings already initiated ?
6. Points : The defendant-company in the suit C.S. No. 190 of 2002, have filed this application under Section 8 of the Act to dismiss the suit and direct the parties to continue with the pending arbitration proceedings before the sole Arbitrator. The respondents/plaintiffs had executed loan agreements dated 22.3.1999, 26.5.1999, 7.6.1999 and 17.5.2000. These agreements contained Clause 17, by which all disputes and/or differences between the borrower and lender shall be settled by the Arbitrator in accordance with the provisions of the Act. Relying upon Clause 17 only, the applicant had already initiated arbitration proceedings as early as 13.11.2000. Admittedly, the respondents have not filed any counter before the Arbitrator, but raised preliminary objections twice and they were considered by the Arbitrator and rejected. Only thereafter, the respondents filed the suit in the year 2002 for a declaration that the loan agreements referred to above entered into between the parties are void, opposed to public policy, sham transaction and vitiated by fraud, manipulation, coercion, undue influence and for a declaration that the arbitration proceedings are without any merit and claimed a sum of Rs. 10,05,000 together with interest at 12% per annum.
7. The learned counsel for the applicant mainly relied upon Section 8 of the Act and the language is peremptory and the matter has to be necessarily referred to arbitration since the execution of the loan agreements is admitted by the respondents and the passing off consideration under the respective loan agreement has also been admitted. The respondents are educated, hard core business people, who are well aware of the terms and conditions. They have derived the benefits under the respective loan agreement. There is a valid arbitration clause under the loan agreements and the respondents are bound by it. The mode of appointment of the Arbitrator had already been agreed to by the parties to the loan agreements and now they cannot challenge the mode of appointment. The loan agreements have been executed by the first respondent, which is a partnership firm consisting of other partners, i.e., respondents 2 to 4. The retirement deed dated 1.4.2000 has been produced to show that the 3rd respondent had retired ; but it is settled principles of law that the partners are jointly and severally liable for the acts of the partnership firm. Section 5 of the Act also stipulates that no judicial authority shall intervene except where so provided. There is a specific embargo on the judicial authority before whom an action is brought in a matter which is the subject of an arbitration agreement. The very object of replacing the Arbitration Act, 1940 with the Act is to reduce the dependence on Courts in order to avoid delay which will in turn encourage trade and commerce.
8. The learned counsel for the respondents, on the other hand, contended that by virtue of Clause 15 in the loan agreement, the parties are entitled to file a suit before the Civil Court. Clause 17 in the loan agreement comes later and when the earlier Clause 15 provides and gives liberty to the parties to file a suit, it is not necessary to refer the same for arbitration. Clause 15 of the loan agreement reads as follows :
"The parties hereunto expressly agree that the Courts in the city of Chennai alone shall have exclusive jurisdiction to entertain any suit(s) or proceedings in respect of all matters concerning this agreement."
The language employed under Clause 15 will clearly establish that the Courts in the City of Chennai alone shall have exclusive jurisdiction to entertain any suit or proceedings in respect of all matters concerning the Agreement. The emphasis is made in respect of all matters and, hence, even if the arbitration proceedings have been initiated already by the applicant, it is always open to the respondents to file a suit challenging the validity of the agreements and also to claim the relief of declaration.
9. The claim has been made by the applicant before the Arbitrator for a sum of Rs. 2.2 crores and odd. For more than one year, the respondents have not chosen to file any counter before the Arbitrator. On the other hand, the respondents have filed preliminary objections and they were considered by the Arbitrator and passed orders. Only thereafter, the respondents have come forward with the suit alleging bias on the part of the Arbitrator and gone to the extent of stating that the loan agreements had been secured by coercion and undue influence. The first respondent is a partnership firm consisting of other, partners, namely, respondents 2 to 4 and they arc educated persons. Now, the short question that has to be decided is whether the parties to the loan agreements can take shelter under Clause 15 or under Clause 17 of the Agreements. The only contention put forward by the respondents is that Clause 15 will have precedent over Clause 17 and, as such, the suit filed by them is proper and correct. But the learned counsel for the applicant contended that when the arbitration proceedings have already been initiated and the respondents had also appeared before the Arbitrator, then Clause 15 looses its significance and moreover the intention of the parties has to be gathered from various circumstances.
10. The learned counsel for the applicant relied on the decision in Ramkishorelal v. Kamalnarayan, that relating to ascertainment of intention of parties, the Court must consider document as a whole and also take into account circumstances under which particular words were used, importance of status and training of parties, document disposing of properties and conflict between different parts. Rule of harmonious construction have to be followed.
11. Reliance is also placed on P. Anand Gajapathi Raju v. P. V.G. Raju, that the language under Section 8 is peremptory and Court is under an obligation to refer parties to arbitration. The effect on civil suit of reference to arbitration under Section 8 also has been dealt with. It was held that once matter is referred to arbitration, proceedings in civil action stand disposed of. There is no question of study of such proceedings pending the conclusion of arbitration. After reference all rights, obligations and remedies of parties would be governed by the new Act, including the right to challenge the award. Section 5 clearly brings out the object of the Act, which is the encouragement of expeditious and less expensive resolution of disputes with minimum interference of the Court. Section 8 dealing with reference of parties to arbitration must be construed bearing in mind the object of the Act. The same view has been reiterated in India Cements Capital Finance Limited v. Kwality Spinning Mills Limited, also.
12. It has been held in Wellington Associates Limited v. Kirit Mehta, Ors., that, "Section 7 postulates an agreement which makes the appointment of an Arbitrator mandatory and it does not cover stipulation where parties agree that they "may" file a suit in case of dispute or "may" enter into arbitration proceedings-Words and Phrases-"may".
The interpretation of Deeds and Documents :
Disputed clause should be read with other cognate clauses to find the true intention of the parties."
13. The learned counsel for the respondents relied on the very same decision Wellington Associates Ltd.'s case (supra), wherein it was observed as follows:
"If one looks at the fact that Clause 4 precedes Clause 5, one can see that under Clause 4 parties desired that in case of disputes, the Civil Courts at Bombay are to be approached by way of a suit. Then follows Clause 5 with the words, "it is also agreed" that the dispute "may" be referred to arbitration implying that parties need not necessarily go to the Civil Court by way of suit but can also go before an Arbitrator. Thus, Clause 5 is merely an enabling provision as contended by the respondents".
This decision cannot be made applicable to the case on hand because in the case cited above, it is only referred as "may", whereas in the present case, under Clause 17 of the agreement the language employed is "shall".
14. The learned counsel for the respondents also relied on Dhannalal v. Kalawatibai and Ors., wherein it was held as follows :
"Choice ought to lie with plaintiff to choose most suitable forum, unless a rule of law excludes access to a particular forum or permitting such choice would be opposed to public policy or would be an abuse of process of law."
15. It is, therefore, clear from the aforesaid decisions that the intention of the parties places a vital role in deciding the issue, whether the parties can have remedy through Civil Court or through arbitration. So far as this case is concerned, although Clause 15 precedes Clause 17, the intention of the parties is evidently clear and moreover, the applicant had already initiated arbitration proceedings as early as 13.11.2000 and only after a period of two years, the respondents taking advance of Clause 15, have approached the Civil Court on flimsy grounds, thereby indicating that the only aim of the respondents is to delay and defeat the right of the applicant because, they have to pay more than Rs. Two crores. Under the circumstance, I am of the view that there is no force in the contention of the respondents and on the other hand, the parties have to be necessarily directed to continue with the arbitration proceedings instead of continuing the suit filed belatedly.
16. Hence, the application is allowed and the suit is dismissed. The parties are directed to continue with the pending arbitration proceedings. The respondents are directed to file counter within four weeks from today and the sole Arbitrator is directed to complete the proceedings without further delay.