Andhra HC (Pre-Telangana)
A. Ramaswamy (Died) And Others vs K. Rama Murthy (Died) And Others on 31 December, 1998
Equivalent citations: 1999(2)ALD13, 1999(2)ALT1
ORDER
N. Y. Hanumanthappa, J
1. This appeal is directed against the order and decree dated 31-7-1992 passed in IA No.1271 of 1991 in OS No.471 of 1990 on the file of the IV Additional Judge, City Civil Court, Hyderabad, rejecting the application filed by the appellants herein under Section 34 of the Indian Arbitration Act, 1940.
2. The reference of the parties in this appeal has been mentioned as arrayed before the Trial Court.
3. Originally this appeal was filed by the appellants 1 to 5 (defendants 1 to 5) against respondents 1 to 2 (plaintiffs 1 and 2). During the pendency of this appeal 1st appellant-1st defendant and 1st respondent-1st plaintiff died. Hence, appellants 6 to 11 were brought on record as legal representatives of the Istappellant-lst defendant and respondents 3 to 10 were brought on record as legal representatives of the 1st respondent-1st plaintiff.
4. Defendants 1 to 5 filed IA No.1271 of 1991 in OS No.471 of 1990 under Section 34 of the Indian Arbitration Act to stay the proceedings pending before the IV Additional Judge, City Civil Court, Hyderabad on the ground that the dispute is covered by the arbitration agreement. In this matter an Arbitrator has been appointed who entered upon the reference and has made an Award and steps are being taken to get the same filed in Court for making it a rule of the Court. The said application was resisted by the plaintiffs who filed OS No.471 of 1990 denying passing of any award.
5. A few facts which are necessary to dispose of this appeal are as follows: The plaintiffs filed OS No.471 of 1990 on the file of the IV Addl. Judge, City Civil Court, Hyderabad for a declaration that the six partnership firms mentioned in the plaint are dissolved or alternatively for a decreedissolving the said firms and for rendition of accounts from the defendants I to 5 or any other defendants who may be found liable to account. In the said suit, the defendants are 16 in number. Defendants I to 5 are appellants herein. All the parties are partners of all the firms. Defendants 1 to 5 represent one group and the plaintiffs represent the other group having interest in all the six partnership firms, namely (1) M/s. Sri Venkateswara Lodge, (2) M/s. Bhasker Picnic Cottage, (3) Veerabhadra Corporation, (4) M/s. Tube Well Company, (5) M/s. Srinivasa Enterprises and (6) M/s. Veerabhadra Trading Corporation. The averments in the plaint are that prior to June, 1997 differences between the plaintiffs on the one hand and the defendants on the other arose. The said dispute was referred to an arbitrator by name V.G. Krishna Murthy. On the reference to the arbitrator, the defendants 1 to 5 proposed a settlement. As per the settlement, defendants 1 to 5 agreed to pay Rs.12,00,000/- to the plaintiffs within a stipulated time in addition to giving the plaintiffs certain interest in certain movable and immovable properties belonging to the firms and called upon the plaintiffs to give up all their interest in the six partnership firms and retire from the said firms. The said offer was accepted by the plaintiffs. Accordingly, an agreement dated 15-6-1987 was entered into incorporating certain terms and conditions. The same is not in dispute. As per the terms of the said agreement, defendants 1 to 5 have to pay a sum of Rs. 12,00,000/- to the plaintiffs and also allow the plaintiffs to carry on business in the sweet house situated as on that day at Lakdikapool in Hyderabad and in turn the plaintiffs have to retire from all the six partnership firms and release and relinquish their respective shares in all the landed properties situated at Gandipet, Yousufguda and Shamirpet. Pursuant to the said agreement, defendants 1 to 5 paid Rs.5,00,000/- to the plaintiffs agreeing to pay the balance amount of Rs.7,00,000/- on or before 15-4-1988 wjth 9% interest p.a. from 15-6-1987. According to Clause 12 of thesaid agreement, if the defendants 1 to 5 failed to honour the terms and conditions of the said agreement including the terms and conditions mentioned in the annexures to the said agreement, the sum of Rs.5,00,000/- paid by the defendants 1 to 5 to the plaintiffs on 15-6-1987 be deemed as forfeited and the plaintiffs resume back all the interest and rights in all the six partnership firms and the other joint properties existing or vested in them before 15-6-1987.
6. The defendants 1 to 5 did not abide by the terms and conditions of the agreement dated 15-6-1987. They failed to pay the balance amount of Rs.7,00,000/- and interest on or before 15-4-1988. Accordingly, a separate agreement was entered on 14-4-1988 whereby time was extended to pay the balance amount of Rs.7,00,000/- upto 15-6-1988. Inspite of the same the balance amount was not paid by the defendants 1 to 5. Thus, they committed breach of conditions of the agreement which resulted in exchange of notices between the parties and ultimately filing of OS No.47l of 1990 for the relief to declare that the plaintiffs resumed all the interest and rights in all the six partnership firms in terms of Clause 12 of the agreement dated 15-6-1987 and they are entitled to get their shares in the assets of the six firms.
7. On service of notices to the defendants earlier one Mr. P. Pratap Reddy, Advocate filed vakalat and later Mr. R. A. Krishna filed vakalat on behalf of the defendants. Two applications were filed by the plaintiffs one for grant of injunction against the defendants and another for appointment of Receiver and they were numbered as IA Nos.952 of 1990 and 953 of 1990 respectively. The said applications were opposed by the defendants 1 to 5 by filing counters. The other respondents did not choose to oppose the said applications. At this stage defendants 1 to 5 filed an application under Section 34 of the Indian Arbitration Act to stay all further proceedings since there is a dispute between the partiesand the same shall have lo be decided by the arbitrator as agreed upon by both the parties.
8. The said application was opposed by the plaintiffs contending that the same is not maintainable for the reason that it is not in conformity with the provisions of Section 34 of the Indian Arbitration Act. Further, defendants 1 to 5 went on taking time for filing written statement. Thus they are subjected themselves for jurisdiction of this Court.
9. In view of the rival contentions, the Trial Court framed the following points for consideration:
(1) Whether the arbitration proceedings have been taken up by Sri KG. Krishna Murthy and whether he made any Award?
(2) Whether the agreement dated 15-6-1987 can be termed as an Award?
(3) Whether defendants 1 to 5 took any steps in the suit to defend it on merits and therefore are estopped from invoking Section 34 of the Arbitration Act?
(4) Whether this application is not maintainable in as much as no notice was taken out to defendants 5 to 16?
10. Regarding agreement to pay a sum of Rs. 12,00,000/- as per the agreement dated 15-6-1987 and receiving Rs.5,00,000/-on that day and agreeing to receive the balance amount of Rs.7,00,000/- before 15-4-1988 and further entering into second agreement on 14-4-1988 for payment of "balance amount and incorporation of Clause 12 in the agreement, the same are not disputed. The Court below taking the meaning of Award as defined in the Arbitration Act found that Exs.A2 and A3 namely the agreements dated 15-6-1987 and 14-4-1988 cannot be treated as Award or Awards. According to the learned Judge, the said document is merely an agreement between the parties reached with their consent though it has been mentioned in the agreement that a settlement has been reached in the presence of the arbitrator, namely V. G. Krishna Murlhy whom they have chosen as arbitrator. One more reason for the Court below to hold that the same is not an award is that the said document is not signed by the arbitrator. According to the learned Trial Judge, the said document was never intended to be acted upon as an agreement. Further the said document is not an award because the same is not signed by the plaintiffs and the defendants 1 to 5 and also other defendants namely defendants 6 to 16. As such the said document shall be treated as a document containing mutual settlement between the parties. To support his contention that the said document is an award, the learned Counsel for the defendants before the Trial Court placed reliance on some of the authorities, namely Johara Bibi v. Mohammad Sadak Thambi Marakayar, and Pushraj v. dive Mills Company, AIR 1990 Calcutta 180; The Court below found that the principles laid down in the said decisions cannot be made applicable to the document in question so as to treat it as an award. Thus answering held Points 1 and 2 in favour of the plaintiffs. Regarding Point No.3, the Court below looked into the proceedings sheet and found that the case was adjourned to several dates and the defendants 1 to 5 participated in filing objections to the two interlocutory applications filed by the plaintiffs. Though there is no mention in the document that anybody on behalf of the defendants requested time for filing written statement. But their participation itself shall be deemed that they were subjected for jurisdiction of the Court. The Court below took into consideration the authorities relied on by the defendants' Counsel namely; Ramnaresh v. FCl, ; Ratan Cloth House v. Punjab Electricity Board, ; Rachappa Gurudappa Bijapur v. Gurudiddappa Nurandappa, , Ms. Sadhu Singh Ghuman v. FCI, , and Pragati Engineer Pvt. Ltd. v. Tamil Nadu Water Supply andDrainage Board, , while deciding Point No.3 and found that the principles laid down in the above decisions are not applicable to the facts of the case. According to him, the principles laid down by the High Court of Madras in , squarely applies to the case on hand. Thus, the learned Judge held that the application filed by the defendants 1 to 5 under Section 34 of the Arbitration Act is not maintainable. The learned Trial Judge held that this authority can be taken as safe authority for the proposition that when the docket reads that a case is adjourned for filing written statement it is so adjourned only at the request of the defendants who filed vakalat even though it is not specifically mentioned in the docket that the defendants' Counsel took adjournment. Payment of amounts, filing objections to lAs, changing of advocates and lastly filing applications under Section 34 of the Arbitration Act on the day when Sri Krishna, Advocate filed vakalat would show that the defendants 1 to 5 took effective steps to defend the suit on merit and, thus, they are subjected to the jurisdiction of the Court. Accordingly, the learned Judge held Point No.3 and so also Point No.4 in favour of the plaintiffs.
11. Attacking the said findings, this appeal by the defendants 1 to 5. According to the defendants, the reasoning of the Court below to hold that they took effective steps to defend the suit and subjected themselves to the jurisdiction of the Court is quite incorrect. Mere filing objections to the interlocutory applications should not have been construed that they acceded for filing written statement and in that connection they sought time. The trial Court passed the impugned order without properly understanding the scope and effect of Section 34 of the Arbitration Act. The trial Court committed a mistake in proceeding with the case right from the beginning as if the defendants have been subjected for its jurisdiction. The Court below should have noticed that mere changing of the advocatesdoes not change the legal position. The question of subjecting to jurisdiction arises only when the parties who seek to file an application under Section 34 of the Indian Arbitration Act either has filed written statement or requested to file written statement but not in a case where the matter was adjourned from one day to another suo-motu. The Court below failed to appreciate the principles laid down in the authorities cited by the defendants. In support of the above contentions, Sri Prabhakar, learned Counsel for the appellant-defendants relied on the following authorities namely : The Printers (Mysore) Pvt. Limited v. Pothan Joseph", , The Stale of Uttar Pradesh and another v. M/s. Janki Saran Kailash Chandra and another, , Food Corporation of India v. Yadav Engineer and Contractor, AIR 1982 SC 1302, Rachappa Gurudappa Bijapur v. Gurudiddappa Nurandappa, , ITC Ltd., v. George Joseph Fernandas, , M/s. Sadhu Singh Ghuman v. Food Corporation of India, , General Electric Co. v. Renusagar Power Co., , Ramji Dayawala & Sons (P) Ltd., v. Invest Import, , and also the judgment of this Court dated 29-1-1995 made in CRPNo.l718 of 1995.
12. On the other hand Sri Anantha Reddy learned Counsel appearing for the respondent-plaintiffs supported the order and decree passed by the Court below. According to him, the said order is a well considered one. At no time Award was passed. Exs.A2 and A3 are mere agreements. Though they were made before an arbitrator the same were not signed by the arbitrator and as such it lacks characteristics of award. Filing of vakalat and taking time to file objections by the defendants in OS No.471 of 1990 and adjourning the case for different dates and finally imposing costs of Rs.20/- for filing written statement will all go to show that there was a request on the part of the defendants 1 to 5 seeking time to file written statement and thus, they were subjected for jurisdiction to the Court and as such the application filed under Section 34 of the Arbitration Act was not maintainable which was rightly rejected by the Court below. To support his contention, the learned Counsel placed reliance on the following authorities namely: Super Thermal Power Project, Karimnagarv. Gouriselti Satyavathi, Registered Firm, 1997 (3) ALD 235; Ms. Coramandal Marketing (India) Pvt. Ltd., v. AP. Lighting Ltd., 1995 (2) ALT 326 (DB); K. Malla Reddy v. Soma Srinivas, , A. Chinna Ramanatham Naidu v, B. Subbarami Reddy, (DB), Kuchipudi Bapidneedu v. Kommareddi Anita, (DB), J. Sreenivasalu Chettiar v. Parlhasarathi Naidu, , Malleshappa Yellappa Kulkar v. Y.B. Kolkar & Sons, . The learned Counsel for the respondents-plaintiffs also placed reliance on the decision which was relied by the learned Counsel for the defendants in Rachappa Gurudappa v. Gurusiddappa Nuraniappa, (supra).
13. In order to appreciate the rival contentions of both the parlies it is proper to extract Section 34 of the Arbitration Act, 1940, Clause 12 of the Agreement and the relevant portions in the authorities relied upon by both the parties.
14. Section 34 of the Arbitration Act, 1940 reads as follows:
"34. Power to stay legal proceedings where there is an arbitration agreement:
Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred any party to such legal proceedings at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial aulhority before which the proceedings are pendingto stay the proceedings and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings.
Clause 12 of the Agreement dated 15-6-1987 reads as follows:
"It is further agreed between the parties that in the case the 1 st party fails to honour the terms and conditions hereby agreed including terms of conditions in the annexures by paying of the balance of Rs.7/- lakhs and other stipulations on or before 15-4-1988, the sum of Rs.5/- lakhs now paid by the 1st party shall be forfeited by the 2nd party and the 2nd party shall resume back all his rights and interests in all the firms and in other joint properties as existing to them before 15-6- i 987. And in case the 2nd party fails to honour the terms and conditions and ofher stipulations and further fails to execute the retirement deeds and release deeds in favour of the 1st party the 1st party shall be entitled to remove the 2nd party from all the firms and also have the right of specific performance of the terms and conditions hereto agreed upon and shall also have the right to recover back the sum of Rs.5/-lakhs together with interest at 6% per annum."
15. As per Section 34 of the Act where a party to an arbitration agreement commences legal proceedings, the other party to such proceedings, at any time, before filing a written statement or taking any other steps in the proceedings-apply to judicial authority before which the proceedings are pending to stay the proceedings. But if a party after putting appearance has either filed written statement or even taken time to file written statement, he is not entitled to seek stay of proceedings as by that act either directly or indirectly he will have subjected himself io the jurisdiction of the Court. But before filing written statement or seeking time to file written statement if a party files any objections to interlocutory applications, it will not prevent that party from seeking stay of proceedings by filing separate application. The scope and aiming of Section 34 of the Indian Arbitration Act can be properly understood by referring to the various authorities referred to above herein whose portions extracted hereunder. The principles laid down in alt the authorities arc either similar or reiteration of the principles in the earlier decisions. Though not necessary to extract the relevant portions in each decision as it amounts to duplication. But the relevant portions of each authority is extracted hereunder on the request of both sides.
16. In the Printers (Mysore) Pvt. Lid v. Pothan Joseph case (supra), the Supreme Court while dealing with scope of Section 34 of the Arbitration Act 1940 held as follows:
"Section 34 of the Act confers power on the Court to stay legal proceedings where there is an arbitration agreement subject to the conditions specified in the section. The conditions thus specified are satisfied in the present case, but the section clearly contemplates that even though there is an arbitration agreement and the requisite conditions specified by it are satisfied, the Court may nevertheless refuse to grant stay if it is satisfied that there are sufficient reasons why the matter should not be referred in accordance with the arbitration agreement. In other words the power to stay legal proceedings is discretionary, and so a party to an arbitration agreement against whom legal proceedings have been commenced cannot by relying on the arbitration agreement claim the stay of legal proceedings instituted in a Court as a matter of right. It is, however, clear that the discretion vested in the Court mustbe properly and judicially exercised. Ordinarily where a dispute between the parties has by agreement between them to be referred to the decision of a domestic tribunal the Court would direct the parties to go before the Tribunal of their choice and stay the legal proceedings initiated before it by one of them. As in other matters of judicial discretion so in the case of the discretion conferred on the Court by Section 34 it would be difficult and it is indeed inexpedient, to lay down any inflexible rules which should govern the exercise of the said discretion. No test can indeed be laid down the automatic application of which will help the solution of the problem of the exercise of judicial discretion. As was observed by Bowen L.J. in Gardner v. Jay (1885) 29 Ch D.50 at p.58" that discretion, like other judicial discretion must be exercised according to common sense and according to justice."
(Para 7) In exercising its discretion under Section 34 the Court should not refuse to stay the legal proceedings merely because one of the parlies to the arbitration agreement is unwilling to go before an arbitrator and in effect wants to resile from Ihe said agreement, nor can stay be refused merely on the ground that the relations between the parties to the dispute have been biltered or that the proceedings before the arbitrator may cause unnecessary delay as a result of the said relations It may not always be reasonable or proper to refuse to stay legal proceedings merely because some questions of law would arise in resolving the dispute between the parties. On the other hand, if fraud or dishonesty is alleged against a party it may be open to the party whose character is impeached to claim that it should be given an opportunity to vindicate its character in an open trial before the Court rather than before the domestic tribunal, and in a proper case the Court may consider that fact as relevant for deciding whether stay should be granted or not. Similarly, if complicated questions of law or constitutional issues arise in the decision of the dispute and the Court is satisfied that it would be inexpedient to leave the decision of such complex issues to the arbitrator, it may, in a proper case, refuse to grant stay on that ground; indeed, in such cases the arbitrator can and may state a special case for the opinion of the Court under Section 13(b) of the Act. Thus, the question as to whether legal proceedings should be stayed under Section 34 must always be decided by the Court in a judicial manner having regard to the relevant facts and circumstances of each case.
(Para 8) where the discretion vested in the Court under Section 34 has been exercised by the trial Court the appellate Court should be slow to interfere with the exercise of the said discretion. In dealing with the matter raised before it at the appellate stage the appellate Court would normally not be justified in interfering with the exercise of discretion under appeal solely on the ground that if it had considered the matter at the trial stage it would have come to a contrary conclusion. If the discretion has been exercised by the trial Court reasonably and in a judicial manner the fact that the appellate Court would have taken a different view may not justify interference with the trial Court's exercise of discretion. As is often said, it is ordinarily not open to the appellate Court to substitute its own exercise of discretion for that of the trial Judges; but if it appears to the appellate Court that in exercising its discretion the Court has acted unreasonably or capriciously or has ignored relevant facts and has adopted an unjudicial approach then it would certainly be open to the appellate Court - and in many cases it may be its duty - to interfere with the trial Court's exercise of discretion. In cases falling under this classthe exercise of discretion by the trial Court is in law wrongful and improper and that would certainly justify and call for interference from the appellate Court.
These principles are well established but, as has been observed by Viscount Simon L.C. in Charless Osenlon & Co.
v. Johnston, (1942) AC 130 at p. 138"
the law as to the reversal by a Court of appeal of an order made by a Judge below in the exercise of his discretion is well established, and any difficulty that arises is due only to the application of well settled principles in an individual case."
(Para 9)
17. In State of UP. v. Janki Saran (supra), the Supreme Court held as follows:
"The legal position with respect to the scope and meaning of Section 34 of the Arbitration Act admits of little doubt, the language of this section being quite plain. When a party to an arbitration agreement commences any legal proceedings against any other party to the subject-matter thereof, then the other party is entitled to ask for such proceedings to be stayed so as to enable the arbitration agreement to be carried out. It is, however, to be clearly understood that the mere existence of an arbitration clause on an agreement does not by itself operate as a bar to a suit in the Court. It does not by itself impose any obligation on the Court to stay the suit or to give any opportunity to the defendant to consider the question of enforcing the arbitration agreement. The right to institute a suit in some Court is conferred on a person having a grievance of a civil nature, under the general law. It is a fundamental principle of law that where there is a right there is a remedy, Section 9 of the Code of Civil Procedure confers this general right of suit on aggrieved person except where the cognizance of the suit is barred either expressly or impliedly. A party seeking to curtail this general right of suit has todischarge the onus of establishing his right to do so and the law curtailing such general right has to be strictly complied with. To enable a defendant to obtain an order staying the suit, apart from other conditions mentioned in Section 34 of the Arbitration Act, he is required to present his application praying for stay before filing his written statement or taking any other step in the suit proceedings. In the present case, the written statement was indisputably not filed before the application for stay was presented. The question is whether any oilier step was taken in the proceedings as contemplated by Section 34 and it is this point with which we are directly concerned in the present case. Taking other steps in the suit proceedings connotes the idea of doing something in aid of the progress of the suit or submitting to the jurisdiction of the Court for the purpose of adjudication of the merits of the controversy in the suit.
18. In Food Corporation of India v. Yadav Engineer and Contractor (supra) the Supreme Court held as follows:
"When in breach of an arbitration agreement a party to the agreement rushes to the Court, unless a clear case to the contrary is made out the approach of the Court should be to hold parties to their bargain provided necessary conditions for invoking Section 34 arc satisfied. One of the conditions to be satisfied before an order under Section 34 can be obtained is that the party to the legal proceeding has at any time before filing a written statement or taking any other steps in the proceedings applied to the judicial authority for stay of proceedings.
General words "taking any other steps in the proceedings" just follow the specific expression "filing a written statement" and both are used for achieving the same purpose. Therefore, the latter general expression must be construed ejusdem generis with the specific provision just preceding to bring out the ambit of the latter. Therefore, unless the step alleged to have been taken by the party seeking to enforce arbitration agreement is such as would display an unequivocal intention to proceed with the suit and acquiesce in the method of resolution of dispute adopted by the other party, namely, filing of the suit and thereby indicate that it is has abandoned its right under the arbitration agreement to get the dispute resolved by arbitration, any other step would not disentitle the party from seeking relief under Section 34. Contesting the application for interim injunction or for appointment of a Receiver or for interim relief by itself without anything more would not constitute such step as would disentitle the party to an order under Section 34 of the Act."
19. In Rachappa Guruadappa v. Gurusiddappa Nuraniappa (supra), the Supreme Court held as follows:
"In view of Section 34 of the Arbitration Act in order to have the proceedings in the suit stayed, there must be an arbitration agreement between the parties covering the disputes in question. The section stipulates that in order that stay may be granted under the section, it is necessary that the following conditions are fulfilled.
(i) The proceedings must have commenced by a party to an arbitration agreement against any other party to the agreement;
(ii) The legal proceeding, in this case the suit, which is sought to be stayed must be in respect of a matter agreed to be referred;
(iii) The applicant for stay must be a party to the legal proceeding, the suit in this case;
(iv) The applicant must have taken no steps in the proceeding after appearance;
(v) The applicant must satisfy that only the applicant was at the time when the proceedings were commenced, ready and willing to do everything necessary for the proper conduct of the arbitration; and
(vi) The Court must also be satisfied that there was no sufficient reason why the matter should not be referred to arbitration.
Thus, Section 34 requires that the application for stay of legal proceedings must be filed before the filing of the written statement or taking any other step in the proceeding. In order to be entitled to stay under Section 34 of the Act, it is imperative to find out whether "any other steps in the proceedings" have been taken before making an application for stay apart from written statement. "Some other step" mentioned in the section must indisputably by such step as would manifestly display an unequivocal intention to proceed with the suit and to give up the right to have the matter disposed of by arbitration. The expression "taking any other steps" in the proceedings does not mean that every step in the proceedings would come in the way of enforcement of the arbitration agreement.
Where the Counsel appearing for the party to the suit had sought adjournment "specifically for filing written statement" and obtained time for more than one occasion for such purpose, subsequent application for stay of suit would not be maintainable. It was not only the time taken to consider whether written statement should be filed as a defence to the plaint to enter into an arena of controversy, but it was time taken to have the matter decided by the suit. The party evinced an intention to have the matter adjudicated by the Court."
20. In ITC Ltd. v. G.J. Fernandes (supra), the Supreme Court held as follows:
"Where in an application under Section 34 of the Act an issue is raised as to the validity or existence of the contract containing the arbitration clause, the Court has to decide first of all whether there is a binding arbitration agreement, even though it may involve incidentally a decision as to the validity or existence of the parent contract. The Court has to bear in mind that a contract is an agreement at law and that it is for the parties to make their own contract and not for the Court to make one for them. Court is only to interpret the contract. The stipulation in the contract have, therefore, to be examined in the light of the dispute raised in the pleadings of the suit. If it is found that the dispute raised in the suit is outside or independent of the contract it follows that the arbitration clause will not encompass that dispute. However, as the parties were free to make their own contract they were also free to have agreed as to what matters would be referred to arbitration....."
21. In M/s. Sadhu Singh Ghuman v. Food Corporation of India (supra), the Supreme Court held as follows:
"The expression " a step in the proceedings" which would disentitle the defendant from invoking Section 34 of the Arbitration Act is not every step taken by him in the suit. It should be a step to abandon the right to have the suit. The step must have been consciously taken with a view to submit to the jurisdiction of the Court for the purpose of adjudicating the controversy on the merits.
Where in a suit for recovery of money the defendant only sought a direction to the plaintiff to produce the original agreement and other documents so that they may file written statement, however it was not stated that they would file the written statement and they never took any other step submitting to the jurisdiction of the Court to decide the case on merits, it cannot be said that the defendants have abandoned their right to have the suit stayed and took a step in the suit to file the written statement. The right to have the dispute settled by arbitration, conferred by agreement of parties, should not be deprived of by technical pleas. The Court must go into the circumstances and intention of the patty in the step taken."
22. In General Electric Co. v. Renusagar Power Co. (supra), the Supreme Court held as follows:
"A step in the proceeding which would disentitle the defendant from invoking Section 34 of the Arbitration Act should be a step in aid of the progress of the suitor submission to the jurisdiction of the Court for the purpose of adjudication of the merits of the controversy in the suit. The step must be such as to manifest the intention of the party unequivocally to abandon the right under the arbitration agreement and instead to opt to have the dispute resolved on merits in the suit. The step must be such as to indicate an election or affirmation in favour of the suit in the place of the arbitration. The election or affirmation may be by express choice or by necessary implication by acquiescence. The broad and general right of a person to seek redressal of his grievances in a Court of law is subject to the right of the parties to have the disputes settled by a forum of mutual choice. Neither right is insubstantial and neither right can be allowed to be defeated by any manner of technicality. The right to have the dispute adjudicated by a civil Court cannot be allowed to be defeated by vague or amorphous mis-called agreements to refer to arbitration. On the other hand, if the agreement to refer to arbitration is established, the right to have the dispute settled by arbitration cannot be allowed to be defeated on technical grounds."
23. In Ramji Dayawala & Sons (P) Ltd v. Invest Import (supra), the Supreme Court held as follows:
"If the application for stay filed by a party purported to be under Section 34 of the Arbitration Act granting of stay of the suit is within the discretion of the Court......
If Section 34 of the Arbitration Act, 1940, is attracted, ordinarily the approach of the Court would be to see that people arc held to their bargain. Therefore, the party who in breach of arbitration agreement institutes an action before the Court, the burden would be on such party to prove why the stay should be refused. On the other hand, if the application is under Section 151 CPC invoking inherent jurisdiction of the Court to grant stay, the burden will be on the party seeking stay to establish facts for exercise of discretion in favour of such party.
When parties by contract agree to arrange for settlement of their dispute by a Judge of their choice, by procedure of arbitration voluntarily agreed upon ordinarily the Court must hold the parties to their bargain. As a corollary, if a party to a subsisting arbitration agreement in breach or violation of the agreement to refer dispute to arbitration approaches the Court, the Court would not lend its assistance to such a party and by staying the suit compel the party in breach to abide by its contract. When the parties have agreed to an arbitration by a foreign arbitral tribunal the case for stay would be stronger than if there was a domestic arbitration agreement. This proceeds oil the assumption that parties not only soughtand agreed upon the forum for resolution of dispute but also the law according to which the dispute would be resolved. However Ihis is not an absolute rule. Granting or refusing to grant stay is still a matter within the discretion of the Court. How discretion would be exercised in given case would depend upon various circumstances."
24. The learned Counsel for the respondents placed-feliance on the following decision in support of his contentions:
The relevant portions of the authorities on which the learned Counsel for the respondents placed reliance are as follows:
In Super Thermal Power Project v. Gourisetti Satyavathi (supra), the High Court of A.P. held as follows:
"Arbitration Act, 1940 - Section 34 - Stay of suit - Suit filed by contractor questioning the appointment of sole arbitrator by the Corporation - Corporation after having appeared in the suit took several adjournments for filing written statements - Subsequently application filed by Corporation under Section 34 for stay of the suit - Held the application is not maintainable as the Corporation has surrendered to the jurisdiction of the Court."
25. In M/s. Coramandal Marketing (India) Pvt. Ltd, v. A.P. Lighting Ltd (supra) the Division Bench of High Court of A.P. held as follows:
"Suit for recovery of certain amount due to plaintiff as per settlement of disputes mutually by plaintiff and defendant as per terms or original agreement which led to execution of subsequent agreement acknowledging in writing defendant's liability to pay the amount but only requiring time for payment - No dispute with regard to amount claimed - No dispute between parties regarding terms and conditions of original contract relating to breach or performance of contract -Suit not based on original contract Containing arbitration clause - No dispute therefore exists between parties which can be referred to Arbitrator under Arbitration Clause included in original agreement -Existence of dispute is an essential condition for referring it to arbitration -No grounds to stay the suit as required by defendant - Dismissal of application filed by defendant for stay of suit proceedings and for referring the dispute to arbitration - Sustainable."
26. In K. Malla Reddy v. Soma Srinivas (supra), the High Court of A.P. held as follows:
The discretion conferred upon the Court under Section 34 should be exercised to judicious and judicial manner but not in an arbitrary or unreasonable or capricious manner. Having regard to the nature of the discretion contemplated under Section 34 the possibility of the appellate authority taking a view different from the one taken by the inferior Court is not certainly a circumstance warranting interference with the order passed by the Court below under Section 34 subject ofcourse to the condition that the order passed by the Court below should always be reasonable and proper and it must be shown to have been one arrived at after having taken into consideration all relevant facts and circumstances of the case eschewing from out of the consideration those that are not relevant and germane for the disposal of the case.
.....
Having regard to the point of time before which Section 34 can be invoked the application thereunder has to be filed before filing the written statement or any step taken in connection therewith and also before taking any other steps in the proceedings. The expressions "proceedings" as well as "legal proceeding" as occurring in Section 34 are comprehensive to take within their ambit any steps taken by the person claiming the benefit of Section 34 either in the main suit or in the interlocutory proceedings arising therefrom."
27. In "A. Chinna Ramanatham Naidu v. B. Subbarami Reddy" (supra), the Division Bench of High Court of A.P. held as follows:
"Partnership Act, 1932, Section 34, 43 and 44 and Partnership Deed, Clause 13 -Dissolution of partnership at Will - Stay of proceedings of a suit filed by a partner - A partner of firm not barred from filing a civil suit where dissolution of firm is sought on numerous grounds even though firm may be dissolved by any partner at his option by giving notice in writing - Section 43 does not bar initiation of such suit - Where allegations are levelled against a chosen arbitrator by a partner, such partner cannot be prevented from approaching civil Court inspite of a clause stipulating reference of disputes to named arbitrators - Stay of further proceedings in a suit filed for dissolution of partnership cannot be sought on the ground that arbitrators are chosen by parties and a date is fixed by arbitrators to decide the matter - Appellate Court shall not interfere with discretionary order of Court below unless it is wrongful and improper - Order of Court below rejecting stay petition filed by defendant is neither improper nor unreasonable -Order of Court below sustainable."
28. In Kuchipudi Bapineedu v. Kommareddi Anitha (supra), the Division Bench of this Court held as follows:
"The scope of Section 34 of the Act is limited. It can be invoked to stay the judicial proceedings, to compel the other party to act in accordance with the arbitration agreement and refer the dispute to arbitration. Once the matter has been referred to arbitration and the arbitrator has passed his award, Section 34 of the Act is out of place."
29. In J. Sreenivasalu Chettiar v. V. Parthasarathi Naidu (supra), the Supreme Court held as follows:
"Where the defendant though fully aware of his right to invoke the provisions of Section 34 for resolving the dispute by reference to arbitration, chose to instruct his Counsel to appear before the Court and pray for time for filing the written statement which was also granted by the Court, the defendant's act would be a clear manifestation of a desire on his part to take almost the first step in the suit indicating that he intended to go on with the suit and not to resort to the arbitration provision and submit to the jurisdiction of the Court by participating in the proceeding, which would disentitle him from invoking the procedure under Section 34, for seeking a stay of the further proceedings in the suit."
30. In Malleshappa Yellappa v. Y.B. Kolkar and Sons (supra), the Karnataka High Court held as follows:
"Arbitration Act (1940), Section 34 -Agreement containing abitration clause -Suit filed by party in respect of dispute -Defendant engaging Counsel and Vakalatnama filed by him - Time taken by defendant for more than once to file written statement - Stay of suit sought by defendant - Held, defendant lost his right to seek for stay of suit by his conduct which indicated that he was not interested to have matter decided by civil Court."
For and against rival contentions and the scope of Section 34 of the Indian Arbitration Act it is useful to refer to some more following authorities of different High Courts.
31. In Mary Manharlal v. Wadhwa Sales Corpn., Nagpur, , the Nagpur Bench of Bombay High Court held as follows:
"An act or step in the civil suit in order to disentitle the party applying for stay of civil suit from claiming relief of stay must be such as would display an unequivocal intention to proceed with the suit and to abandon the benefit of the arbitration agreement. The matter depends upon the facts and circumstances of each case and not merely on the fact whether by an application the party seeks positive relief or not or whether the application is made before or after the application under Section 34."
32. In Bhanwarlal and Anr. v. Insaf Ali and Anr, , the High Court of Rajasthan held as follows :
"The matter whether the party has taken any step within the meaning of Section 34 of the Act by seeking an adjournment for filing a written statement will have to be decided in the light of facts and circumstances of each case but one has to start with a presumption that seeking of an adjournment by a defendant for the purpose of filing a written statement is a 'step' as contemplated by Section 34. In such a case Court has to see whether the defendant has been able to rebut the presumption by cogent evidence to the contrary."
33. In Ram Naresh Kumar Singh v. Food Corporation of India Ltd. Patna, , the Patna High Court held as follows:
"The real test for determining whether an act is a step in the proceeding is not so much the question as to whether it is an application filed by the defendants, but whether the act displays an unequivocal intention to proceed with the suit and to give up the right to have the matter disposed of by arbitration.Where a suit was filed by A against Food Corporation of India and its officers for a claim arising out of a contract and on the day fixed for filing written statement the officers of the Corporation sought for an adjournment for filing it as it had to obtain statements of facts from the relevant department and on a further date made an application under Section 34 then in the circumstances it could not be said that the Corporation or its officers had waived their right to file an application under Section 34 or had taken a step in the suit proceedings with a view to contest the suit on merits and abandon their right to have the merits and abandon their right to have the matter disposed of by arbitration. In such a case, it also could not be said that the Corporation was not ready to do everything necessary for the proper conduct of the arbitration."
34. Similar is the view taken by the Division Bench of Allahabad High Court in the case of Shri Ram Shah v. Mastan Singh, . Their Lordships further held that merely filing objections against an injunction application made by the plaintiff in a suit instituted by him cannot be construed as a step in the proceedings by the defendants so as to preclude him from claiming the 'benefit of Section 34. in other words, such conduct of the defendant cannot be regarded as conclusive as to his intention not to proceed with the arbitration but to defend himself in the suit itself.
35. In Brij Gopal Binani v. Sreelal Binani, , the Calcutta High Court held as follows:
"The conduct of the parties after the application had been made for stay of the suit, would be irrelevant for considering whether any steps had been taken in the proceeding so as to disentitle the applicant from obtaining a stay under Section 34. Furthermore, by making the submissionas to who should be the Receiver a party does not evince an intention to submit to the jurisdiction of the Court for adjudication of the disputes by the Court nor does the party indicate any intention not to insist on the arbitralion. So also step in aid, should be such an over act which will indicate that the party intends to submit to the jurisdiction of the Court for adjudication of the dispuies between the parties involved in the suit."
36. In State of Gujarat v. The Ghanshyam Salt Works, , the Gujarat High Court held as follows:
"Arbitration Act (1940), Section 34 : Stay of suit - Step in the proceeding - Ex parte injunction order against Government -Government Counsel filing application contesting injunction application and asking for time to file reply to injunction application - It does not amount to taking of a step in the proceedings, and , Dissented from"
37. In Bhonrilal Hiralal v. Prabhu Dayal, , the Rajasthan High Court held as follows:
"If a defendant merely appears for the purpose of contesling any interlocutory application in order to protect his rights from any ex parte order being passed on such application and requests the Court for giving a hearing before passing an ex parte order, he cannot be said to have submitted to the jurisdiction of the Court for the purpose of adjudication of the merits of the controversy in the suit."
38. Regarding "steps in the proceedings" in the commentary of Russel on Arbitration 20th Edition at page 174 the following has been held not to be "steps in the proceedings".
"The granting of a fiat on a petition of right. Defendant's solicitors writing for further time to deliver defence. Filing affidavits in reply to plaintiffs affidavits in support of a motion for a receiver in a partnership action. Filing affidavits and contesting proceedings for an interlocutory injunction : "the statute contemplates some positive act by way of offence on the part of the defendant rather than merely parrying a blow by the plaintiff, particularly where the attack consists in asking for an interlocutory injunction."
39. All the authorities cited above without any differentiation suggest on the same lines that a person can seek for stay of proceedings of suit pending before civil Court at any time before riling written statement or taking any other steps in the proceedings. The power to grant stay or staying the proceedings by the Court is the discretionary one and a person seeking it cannot claim as a matter of right. The discretion vested in the Court shall be exercised properly and judiciously. The request for stay cannot be refused merely that one of the parties refuses to go before the arbitrator or on the ground that if it is referred may cause unnecessary delay. Request for stay can be refused if the Court feels that the issues involved are all complicated questions of law or constitutional issues. A party is entitled to seek, stay of proceedings provided he has not taken other steps in the suit proceedings.' "The other steps" have been explained by the Supreme Court in the above decisions to the effect that taking other steps means an idea of doing something in aid of the progress of the suit or submitting to the jurisdiction of the Court for the purpose of adjudication on the merits of the controversy in the suit. The steps so mentioned shall suggest an unequivocal intention on the part of the person seeking stay to proceed with the suit on merits and himself acquiescing in the method of resolution of dispute adopted by the other party. Thus, filing of written statement or even seeking time to file written statement itself constitutes taking other steps. However, a step in the proceedings does not mean that every step taken in the suit shall constitute a step in the proceeding. On the other hand it shall be a step voluntarily abandoning right to have suit. The parties should have taken the steps consciously with a view to submitting to the jurisdiction of the Court for the purpose of adjudicating the controversy on the merits. However, participating in the interlocutory application by opposing the said application by filing objections itself would not constitute such step as would disentitle the party to an order under Section 34 of the Act. The right to refer to arbitration once it is established cannot defeat it on technical grounds. The burden to establish that proceedings deserve to be stayed will be on the person who seeks stay, and establishes arbitration agreement. Sometimes the existence of an alternative remedy of referring the dispute to the arbitration shall be gathered from the attendant circumstances and analysing all factors. From the principles laid down in the authorities referred to above, it is clear that an appellate authority though empowered to interfere in the discretionary orders passed by the subordinate Court but such a power cannot be exercised automatically but it can be exercised only when it is shown that the order complained of is arbitrary, perverse or capricious and it is shown that interference is just and , proper.
40. From the facts narrated it is clear that there is no dispute as to the relationship between the parties, their carrying on transactions in several links, including the existence of Exs.Al, A2 and A3. The plaintiffs are disputing Ex.A3 on the ground that the same is not signed. But from the information furnished it is clear that the said document was prepared in presence of the arbitrator. The same was signed by both parties approving the terms therein. Its non-compliance has given rise to seeking to refer the matter to the arbitration. The plaintiffs sought to impress upon the Court that the application filed by the defendants 1 to 5 under Section 34 of the Act, in OS No.471of 1990 on the file of the IV Additional Judge, City Civil Court, Hyderabad is not maintainable on the ground that the defendants have taken steps to file written statement. It is relevant to extract hereunder the relevant order sheet in the said case.
"25-7-1990 : Sri P. Pratap Reddy filed vakalat for Dl to D5 summons of DIG. D12 returned served for correct address. Summons of the following defendants are returned unserved with endorsement as follows:
D14 out of station.
DI5 wrong address D16 wrong address D7 wrong address D8 wrong address D9 affixed D13 wrong address.
Presiding Officer is on other duty call on 12-9-1990.
12-9-1990 : Issue fresh summons to D6 to D16 for their appearance and written statement of Dl to D5 call on 31-10-1990.
31-10-1990 : Due to curfew case posted to 7-12-1990.
7-12-1990 : Issue fresh summons to D6 to D16 for their appearance and written statement of Dl to D5 call on 14-3-1991.
14-3-1991 : Issue fresh summons to D6 to D16 for their appearance and written statement of Dl to D5 call on 18-4-1991.
18-4-1991 : Sri A. V. Venkat Rao, filed vakalat for D8. D14 called absent no representation. Hence D14 is set ex parte. Service on D6 held sufficient. D6 called absent and hence D6 is set Exparte. Issue fresh summons to others for their appearance and WS of Di to D5 and D8 call on 10-7-1991.
10-7-1991 : Await summons. Call on 31-7-1991. Call for report.
31-7-1991 : Put up report or summons of D6, D9, D13 and D16. For written statement Dl to 5 and 6 finally call on 26-8-1991.
26-8-1991 : For written statement of Dl to D5 and D8 finally call on 8-10-1991 on payment of Rs.20/- as costs by each of parties. Put up note on summons of D7, D9, D13 and D15.
8-10-1991 : Sri R.A. krishna filed vakalat for D1 to D5. For WS of D1 and D6 finally call on 19-11-1991. Putup report on summons of D7, D9, D13 and D15. Today Sri R.A. Krishna filed Section 34 Arbitration petition on behalf of D1 to D5.
19-11-1991 : Call with IA 1271 of 1991 on 18-12-1991. Put up note as ordered on 8-10-1991.
sd.
IV Additional Judge, City Civil Court, Hyderabad."
A reading of the order sheet discloses that at no point of time there was any specific request on the part of the defendants for seeking time to file written statement. When such a request was not made merely because the case went on adjourning from one day to another suo-motu even mentioning that defendants to pay costs of Rs.20/- does not suggest or indicate that defendants have sought time to file written statement. As mentioned earlier, to hold that party seeking stay had taken other steps it shall denote that there shall be actual participation on merits. The specific case of the appellants is that both the parties had agreed that in the event of any differences or disputes among themselves, then such a dispute shall be referred to an arbitrator for his decision. Exhibits Al to A3 clearly establishes existence of dispute and requirement to refer to an Arbitrator. Having accepted to approach arbitrator for decision, it is not open for the respondents to resile from such an agreement on mere technicalities. Inspite of absence of such specific request for filing written statement and the defendants not subjecting themselves directly or indirectly to the proceedings in the Court and not agreeing to be heard on merits on several issues but the trial Court refusing to stay the proceedings and referring the matter to the arbitrator is a clear case of incorrectly exercising the jurisdiction conferred on it. Further the order is not a judicious one. As such the same deserves to be corrected. The authorities relied upon by the appellants support their case in toto while the authorities relied upon by the respondents in view of the undisputed facts, in no way helpful to them. Because, neither the appellants had filed written statement nor sought time to file written statement. They did not take other steps so as to say that they subjected themselves to the proceedings before the civil Court. Suo-motu adjournments cannot be held that the appellant took time to file written statement. All that they did was mere filing objections to interlocutory applications filed seeking temporary injunction or appointment of receiver. Participation in disposal of such interlocutory applications cannot be equated to an act of taking other steps. This Court being the appellate Court and having found that the order of the Court below is not a just and reasonable one, on the other hand it is arbitrary, perverse and contrary to the well settled principles of law mentioned above, we feel it is a fit case to interfere in such an illegal order.
41. Accordingly this appeal is allowed and the order under challenge is set aside and IA No.1271 of 1991 in OS No.471 of 1990 dated 31-7-1992 on the file of the IV Additional Judge, City Civil Court, Hyderabad is allowed. No costs.