Calcutta High Court
Saha And Gupta Enterprise vs Indian Oil Corporation Ltd. And Ors. on 21 June, 2007
Equivalent citations: 2008(1)ARBLR102(CAL), 2007(3)CHN781
Author: Sanjib Banerjee
Bench: Sanjib Banerjee
JUDGMENT Sanjib Banerjee, J.
1. The petitioner was appointed a handling contractor by the first respondent. The relevant agreement contained an arbitration clause.
2. Upon disputes having arisen, the petitioner instituted a suit in the Malda Court seeking a declaration that the first respondent's attempt to terminate the agreement was invalid and an injunction restraining the first respondent from giving any effect to the notice of termination. In such suit, the first respondent applied for rejection of the plaint on the ground that the Malda Court did not have the authority to receive such suit. Such application was based on the forum selection clause found in the agreement at Clause 20.
3. Such application was dismissed by an order of February 7, 2001. The first respondent thereafter applied, inter alia, Under Section 8 of the Arbitration and Conciliation Act, 1996 for the disposal or dismissal of the Malda suit on the ground that there was an arbitration agreement between the parties and adjudication of the disputes under the agreement could only be by way of such arbitration. The petitioner resisted such application. An order was passed on July 3, 2003 dismissing such application with reasons that appear to be ex facie alarming. It is the reading of the learned Judge that Clause 19 of the agreement did not specifically mention that the matter should be referred to the Arbitrator in case of termination of contract. On such specious reasoning the learned Judge dismissed the respondents's application. It is also necessary to note that in the previous pages the learned Judge recorded that the plaintiff in that suit, the petitioner herein, had contested such application by filing a written objection and by "denying the material allegations of the petition...".
4. Prior to the rejection of the application, Under Section 8 of the 1996 Act, the petitioner herein applied to the Director (Marketing) who is also a possible Arbitrator in terms of the agreement or, otherwise, the appointing authority. The one sentence relevant in the letter of February 21, 2003 issued by the petitioner in that regard is as follows: "we on the basis of the contract want to appoint you as Arbitrator".
5. It is the petitioner's case that the respondents or the appointing authority issued no reply to such letter of February 21, 2003 and, as such, the procedure envisaged under Clause 19 of the agreement failed, giving a right to the petitioner to apply to the Chief Justice's designate Under Section 11(6) of the 1996 Act. The petitioner submits that the despite Clause 19 not specifying the time within which time the appointing authority had to act, since elsewhere in Section 11 of the Act, the period of 30 days is indicated, such reasonable time should also be read into Section 11(6) of the Act as has been recognised by the Supreme Court.
6. It appears that the present petition was moved on February 16, 2004 and some time thereafter an order was obtained for reference of the disputes to arbitration. The date on which the application was filed is significant. Following the reversal that the respondents suffered in the Malda Court, on July 3, 2003 a civil revisional application was made before this Court. Understandably, an order was passed on January 22, 2004 by which the petitioner's suit and all the proceedings thereunder were stayed. It appears that such revisional application was returnable on February 16, 2004 when the order of stay of the petitioner's suit was extended. The respondents submit that such order of stay has been continued and now remains extended till disposal of the revisional application which is still pending.
7. The matters relating to the institution of the Malda suit, the respondents' attempts to resist the suit and to assert the arbitration agreement, found no mention in the petition. The petitioner is as simple as they come; the arbitration agreement has been referred to, the appointing authority has been blamed for not acting with reasonable despatch and the claim in the footnote of the appointing authority having lost his jurisdiction to name an Arbitrator. The fundamental principles, however, have to be remembered. For one, arbitration is consensual. Both parties have to agree for the jurisdiction of the Court to be ousted. Again, merely because there is an arbitration agreement, the jurisdiction of the Court is not to be ousted. Upon a party acting in breach of the arbitration agreement it is for the other to assert it if one acts in breach and the other that does not assert the arbitration agreement, the parties waive the arbitration agreement and the ouster of the Civil Court is washed away.
8. In this case, the petitioner has filed the suit in Malda Court in breach of the arbitration agreement. The first respondent, as defendant in that suit, resisted the suit by filing an application in the nature of demurrer. The first application was in furtherance of Clause 20 of the agreement. The second application, for enforcing the arbitration agreement, was also filed at a stage before the respondents herein submitted their first statement on the substance of the dispute in the suit. Section 8 does not recognise any disqualification on the part of a party setting up an arbitration agreement other than having already submitted its first statement on the substance of the dispute. The application made by the respondents herein before the Malda Court for disposal of the suit on the ground that there was an arbitration agreement appears to have been perfectly in order. It is on record that the petitioner resisted it. Upon the petitioner having resisted such application, the petitioner could no longer enforce the arbitration agreement. It would be completely opposed to public policy and, indeed, a gross abuse of the process if the petitioner were permitted to assert that it had a right to maintain the suit and thereafter change tack upon the suit having been stayed to assert that it could fall on the arbitration agreement. Even this could have been countenanced if the petitioner had offered unconditionally, and at the first instance, to withdraw the suit filed in Malda Court. This the petitioner has not.
9. Instead, the petitioner has to justly the institution of the suit, its resistance to the respondents' application for reference of the disputes to arbitration by referring to the provisions of the 1996 Act and by asserting that in making the first application for dismissal of the suit on the allegation that the Malda Court lacked authority to receive it, the respondents herein lost the right to assert the arbitration agreement at the first instance.
10. The petitioner has cited the judgments reported at 2006(1) SCC 419; 2004(3) ALR 158; 2006(1) SCC 417 in support of its contentions. In the first, a three paragraph judgment of which the first two paragraphs consists of two-word sentences, it has been held that even if a Civil Court found a suit before it to be not maintainable on the ground that parties had agreed to go to arbitration, it could treat the interlocutory application in such suit to be an application Under Section 9 of the 1996 Act and proceed to pass an order on merits thereon. This case does not further the present petitioner's case. Even if the present petitioner's interlocutory application in the Malda suit were to be treated as an application Under Section 9, it would be necessary for the Malda Court to first hold that there was an arbitration agreement or it would be necessary for the petitioner herein to concede before the Malda Court that the arbitration agrement asserted by the respondents should be adhered to. This the petitioner has not, and this the petitioner has not even at this stage by offering to jettison the Malda suit. The petitioner still insists that its Malda suit should proceed.
11. In the second cited judgment, one of a Single Judge of this Court, paragraphs' 13 and 14 have been relied upon. It appears from such paragraphs that no application Under Section 8 of the 1996 Act had been filed in that case where the party resisting the proceedings was seeking to set up an arbitration agreement. It was also noticed in such judgment that a statement on the merits of the disputes had already been furnished.
12. In the other case, the Supreme Court has, in a part of the paragraph 4 of the reported judgment, referred to the scope of Section 8 of the 1996 Act and it has been held that Section 8 can be used only in furtherance of the arbitration agreement and not to resist the arbitral proceedings. There is no dispute with such proposition and the same cannot take the petitioner's case forward. In this case, the petitioner in instituting the suit evinced its intention of giving up the arbitration agreement to which it was a party; in resisting the respondents' application Under Section 8, it stood its ground. In making this application, it appeared that the petitioner had probably been better advised, but in not offering first to unconditionally withdraw the Malda suit, the petitioner is precluded from proceeding with this petition.
13. The petition is dismissed. The petitioner will pay costs.
14. Urgent photostat certified copy of this order be supplied to the parties, if applied for, subject to compliance with all requisite formalities.