Allahabad High Court
Hindustan Petroleum Corp. Ltd. And ... vs Kamal Kant Automobiles And Others on 13 February, 2017
Author: Suneet Kumar
Bench: Suneet Kumar
HIGH COURT OF JUDICATURE AT ALLAHABAD AFR Court No. - 33 Case :- WRIT - C No. - 69821 of 2006 Petitioner :- Hindustan Petroleum Corp. Ltd. And Another Respondent :- Kamal Kant Automobiles And Others Counsel for Petitioner :- Vikas Budhwar,Manoj Misra Counsel for Respondent :- SC,Tarun Agrawal Hon'ble Suneet Kumar,J.
Heard learned counsel for the petitioner and learned Standing Counsel.
Petitioner/defendant is seeking rejection of the plaint of Original Suit No. 41 of 2003, Kamalkant Automobiles vs. Kshetriya Nideshak, pending before Civil Judge (Senior Division), Hathras. The controversy arises out of an order dated 28 September 2006, whereby, the court below rejected the application moved under Section 5 read with Section 8 of the Arbitration and Conciliation Act, 1996. (Act, 1996) The plaintiff/respondent a proprietorship firm, was appointed dealer by the petitioner Corporation dealing in petroleum products. The Adulteration Cell carried inspection of the retail outlet on 11 February 2003 and found the unit delivering 250 ml short per 5 litres High Speed Diesel (HSD). Consequently, the retail outlet was suspended. Aggrieved, respondent instituted a suit seeking declaratory reliefs against the inspection and suspension. An ex-parte interim injunction order was passed directing the petitioner to continue the supply of petroleum products in terms of the contract. Petitioner entered appearance and filed an application under Section 8 of the Act, 1996 requesting the court to refer the matter to the arbitrator in terms of Clause 66 of the Dealership Agreement dated 13 April 2002.
The application was, however, dismissed for non prosecution on 19 January 2005. It appears that during pendency of the suit, again routine inspection of the retail outlet was conducted on 15 October 2005, the laboratory report would record that the samples did not meet the prescribed specifications. The respondent firm was put to notice, as to why, the dealership may not be terminated. The respondent filed an application in the pending suit assailing the inspection report and the show cause notice. The court below on the date of filing of the amendment application, along with an application under Section 151 Civil Procedure Code (CPC), passed a restrain order, without issuing notice, directing status quo between the parties.
Petitioner at that stage again filed an application under Section 8 of Act, 1996 contending that the dispute is referable to the arbitration agreement, therefore, the court would have no jurisdiction to proceed with the subsequent cause of action. By order dated 28 September 2006, the trial court rejected the application on merits, inter alia, on the ground that earlier a similar application for the same cause of action was dismissed.
I have heard, learned counsel for the petitioner, learned counsel for the respondent has not put in appearance despite notice.
The facts, inter se, parties is not in dispute.
The question for determination is, as to whether, the trail court was justified in rejecting the application filed under Section 8 of Act, 1996.
Act, 1996 does not in specific terms exclude any category of disputes - civil or commercial - from arbitrability. Section 8 contains a mandate that where an action is brought before a judicial authority in a matter which is the subject of an arbitration agreement, parties shall be referred by it to arbitration, if a party to or a person claiming through a party to the arbitration agreement applies not later than the date of submitting the first statement on the substance of the dispute. The only exception is where the authority finds prima facie that there is no valid arbitration agreement. Section 8 contains a positive mandate and obligates the judicial authority to refer parties to arbitration in terms of the arbitration agreement. While dispensing with the element of judicial discretion, the statute imposes an affirmative obligation on every judicial authority to hold down parties to the terms of the agreement entered into between them to refer disputes to arbitration.
Section 8 uses the expansive expression "judicial authority" rather than "court" and the words "unless it finds that the agreement is null and void, inoperative and incapable of being performed" do not find place in Section 8.
Section 16 empowers the arbitral tribunal to rule upon its own jurisdiction, including ruling on any objection with respect to the existence or validity of an arbitration agreement. Section 16(1)(b) stipulates that a decision by the arbitral tribunal that a contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. Hence, the invalidity of the contract between the parties does not render the arbitration agreement invalid as a consequence of law. This recognises as inhering in the arbitrator the jurisdiction to consider whether the main contract (other than the arbitration clause) is null and void.
Ordinarily every civil or commercial dispute whether based on contract or otherwise which is capable of being decided by a civil court is in principle capable of being adjudicated upon and resolved by arbitration "subject to the dispute being governed by the arbitration agreement" unless the jurisdiction of the Arbitral Tribunal is excluded either expressly or by necessary implication.
In Booz-Allen and Hamilton Inc. v. SBI Home Finance Ltd.1, Supreme Court, set down certain examples of non-arbitrable disputes such as:
(i) Disputes relating to rights and liabilities which give rise to or arise out of criminal offences;
(ii) Matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights and child custody;
(iii) Matters of guardianship;
(iv) Insolvency and winding up;
(v) Testamentary matters, such as the grant of probate, letters of administration and succession certificates; and
(vi) Eviction or tenancy matters governed by special statutes where a tenant enjoys special protection against eviction and specific courts are conferred with the exclusive jurisdiction to deal with the dispute.
The enforcement of a mortgage has been held to be a right in rem for which proceedings in arbitration would not be maintainable. In Vimal Kishore Shah v. Jayesh Dinesh Shah2, Supreme Court added a seventh category of cases, namely, disputes relating to trusts, trustees and beneficiaries arising out of a trust deed and the Trust Act.
The Court in Skypak Courier Ltd. v. Tata Chemical Ltd3; held that the existence of an arbitration clause will not be a bar to the entertainment of a complaint by a forum under the Consumer Protection Act, 1986, since the remedy provided under the law is in addition to the provisions of any other law for the time being in force. This was reiterated in National Seeds Corporation Ltd. v. M. Madhusudhan Reddy4, and Rosedale Developers Pvt. Ltd. v. Aghore Bhattacharya5.
Hence, in addition to various classes of disputes which are generally considered by the courts as appropriate for decision by public fora, there are classes of disputes which fall within the exclusive domain of special fora under legislation which confers exclusive jurisdiction to the exclusion of an ordinarily civil court. Thus, such disputes are not arbitrable.
In P. Anand Gajapathi Raju v. P.V.G. Raju (Dead)6, Apex Court held that the language of Section 8 is peremptory in nature. Hence, where there is an arbitration agreement, it is obligatory for the court to refer parties to arbitration and nothing remains to be decided in the original action after such an application is made, except to refer the dispute to an arbitrator.
In Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums7, the appellant had appointed the respondent as a dealer for selling its petroleum products through a retail outlet. The dealership agreement contained an arbitration agreement. In the course of an inspection the appellant found a breach of the dealership agreement and sales of petroleum products were suspended. The respondent instituted a suit before the ordinary civil court seeking declaratory reliefs in which the appellant filed an application under Section 8 of Act, 1996. The civil court rejected the application and the High Court in revision affirmed the view. The submission which weighed with the High Court was that the allegation of tampering of weights and of measurement seals could only be adjudicated upon under the Standards of Weights and Measures (Enforcement) Act, 1985 and hence such a dispute was not arbitrable.
In the view of the Supreme Court, the dispute between the parties was clearly referable to the terms of the contract and did not entrench upon the legislative provisions contained in the Standards of Weights and Measures (Enforcement) Act, 1985. The Court observed as follows:
"The courts below in our opinion, have committed an error by misreading the terms of the contract when they came to the conclusion that the only remedy available as against a misconduct committed by an erring dealer in regard to short-supply and tampering with the seals lies under the provisions of the 1985 Act.
Therefore, in our opinion, the courts below have erred in coming to the conclusion that the appellant did not have the legal authority to investigate and proceed against the respondent for its alleged misconduct under the terms of the Dealership Agreement. We are also of the opinion that if the appellant is satisfied that the respondent is indulging in short-supply or tampering with the seals, it will be entitled to initiate such action as is contemplated under the agreement like suspending or stopping the supply of petroleum products to such erring dealer. If in that process any dispute arises between the appellant and such dealer, the same will have to be referred to arbitration as contemplated under Clause 40 of the Dealership Agreement."
In a more recent judgment of Supreme Court in Sundaram Finance Ltd. v. T. Thankam,8, the same position in regard to the mandate of Section 8 has been reiterated. The earlier decisions including Branch Manager, Magma Leasing and Finance Ltd. v. Potluri Madhvilata9, emphasizing the mandate of Section 8, have been reaffirmed. Supreme Court has held:
"Once an application in due compliance of Section 8 of the Arbitration Act is filed, the approach of the civil court should be not to see whether the court has jurisdiction. It should be to see whether its jurisdiction has been ousted. There is a lot of difference between the two approaches. Once it is brought to the notice of the court that its jurisdiction has been taken away in terms of the procedure prescribed under a special statute, the civil court should first see whether there is ouster of jurisdiction in terms or compliance of the procedure under the special statute. The general law should yield to the special law - generalia specialibus non derogant. In such a situation, the approach shall not be to see whether there is still jurisdiction in the civil court under the general law. Such approaches would only delay the resolution of disputes and complicate the redressal of grievances and of course unnecessarily increase the pendency in the court."
The position that emerges is that successive decisions of the Supreme Court have given effect to the binding precept incorporated in Section 8. Once there is an arbitration agreement between the parties, a judicial authority before whom an action is brought covering the subject matter of the arbitration agreement is under a positive obligation to refer parties to arbitration by enforcing the terms of the contract. There is no element of discretion left in the court or judicial authority to obviate the legislative mandate of compelling parties to seek recourse to arbitration.
Supreme Court in its recent decision rendered in A Ayyasamy vs. A Paramasivam and others10 has revisited the law on Section 8 and has opined that where the parties to the suit have already entered into an agreement and have agreed to get their dispute settled by an arbitrator, the civil court would not have jurisdiction to entertain and proceed with the suit even in cases where one of the party alleges fraud.
Having regard to the statement of law, in the given facts of the case it is not disputed by the respondent in the counter affidavit, that the dispute is referable to Clause 66 of the Dealership Agreement. The objection of the respondent plaintiff is that one of the defendant to the suit filed written statement and thereafter, the contesting defendant i.e. the petitioner filed an application under Section 8 of Act, 1996, therefore, it is contended that the application is not maintainable. Further, it is contended that the earlier application was dismissed for non prosecution, therefore, the second application under Section 8 was barred by resjudicata.
The learned counsel for the petitioner would urge that the Dealership Agreement is between the petitioner Corporation and the respondent firm, no other defendant is a party to the agreement. Petitioner have not filed written statement but had filed an application under Section 8. The application filed in 2003 was subsequently dismissed for non prosecution, however, in compliance of the ex parte injunction, supply was maintained by the Corporation. The firm again in 2005 breached the agreement, consequently, proceedings were initiated for termination of the Dealership Agreement. It is at that stage the subsequent application under Section 8 was filed by the petitioner which was rejected by the impugned order.
The facts that emerge is that between the contesting parties there is a valid Dealership Agreement, upon breach redressal mechanism is provided under the arbitration clause. The agreement is alleged to have been breached by the respondent firm twice. For the first cause of action the suit was instituted and for the second cause of action the plaint was sought to be amended. Petitioner filed an application under Section 8 in the first instance and subsequently at the state of filing of the amendment application seeking amendment of the plaint. The trial court did not pass any order on the earlier application under Section 8 which, however, later got dismissed for non prosecution and was the basis to reject the subsequent application. In my opinion, the trial court was in error in rejecting the application under Section 8 of Act, 1996. The dismissal of an earlier application in default would not operate as resjudicata. The second application was filed for a separate cause of action i.e. for breach of agreement in 2005. Taking a case that there was no subsequent cause to seek an amendment of the plaint, even then the second application under Section 8 was maintainable upon the first application being dismissed in default. Petitioner had not filed written statement, the statement was filed by the Adulteration Cell which is not party to the Dealership Agreement and is a separate wing of the Government of India. The written statement filed by the second respondent (first defendant) i.e. Anti Adulteration Cell, therefore, would not bind the petitioner.
For the law and reasons stated herein above, the writ petition succeeds, accordingly, allowed. The impugned order dated 29 September 2006 rejecting the application filed under Section 8 of Act, 1996 is set aside and quashed; the application is, accordingly, allowed, consequently, the plaint of Suit No. 41 of 2003 (Kamalkant Automobiles vs. Kshetriya Nideshak), pending before Civil Judge (Senior Division), Hathras is rejected. The right of the parties to take recourse in terms of the arbitration agreement is kept open.
No cost.
Order Date :- 13.2.2017 S.Prakash