Kerala High Court
N.I.I.T. Ltd. vs Manoharan on 2 March, 2005
Equivalent citations: 2005(3)KLT1025
Author: K.T. Sankaran
Bench: K.T. Sankaran
ORDER K.T. Sankaran, J.
1. The defendant, whose application under Section 8 of the Arbitration and Conciliation Act, 1996 was dismissed by the trial court as per the order in I.A.No. 585 of 2004 in O.S.No. 171 of 2003, on the file of the Court of the Subordinate Judge of Thalassery, is the revision petitioner.
2. The suit was filed by the respondent in the revision for realisation of a sura of Rs. 46,03,684/-. The claim is made by the plaintiff under different heads. There was an agreement between the plaintiff and the defendant, executed on 27.2.1995, whereby the plaintiff agreed to act as the franchisee of the defendant. Disputes arose between the parties. It is alleged by the plaintiff that the defendant without authority appointed another franchisee and loss was occasioned to the plaintiff. Clause 16 of the agreement dated 27.2.1995 provides that all disputes and differences arising out of the agreement shall be referred to arbitration. The designation of Arbitrator is also mentioned in the agreement.
3. The suit was filed by the plaintiff as an indigent person. The court fee payable in the suit was Rs. 2,53,485/-. The petition for permission to file the suit as an indigent person was allowed on 25.8.2003. The defendant, who was the respondent in O.P.(Indigent) No. 92 of 2002, the application filed by the plaintiff under Order XXXIII Rule 1, did not appear before court at the stage of the Original Petition even after notice. After O.P. (Indigent) No. 92 of 2002 was allowed, the defendant received summons in the suit and he entered appearance before the trial court. An application was filed as I.A.No. 585 of 2004 by the defendant supported by an affidavit of the counsel appearing for the defendant (a practice which is not so healthy), under Section 8 of the Arbitration and Conciliation Act, 1996 to refer the dispute to arbitration in terms of clause 16 of the agreement dated 27.2.1995.
4. The plaintiff filed objections in I.A.No. 585 of 2004 and contended that apart from the agreement dated 27.2.1995, there are two other agreements dated 21.2.1998 and 22.8.1998. It was pointed out that as per the subsequent agreements, the Arbitrators are different from the Arbitrator mentioned in the agreement dated 27.2.1995. The further contention of the plaintiff is that though enough chances to settle the matter through arbitration were given, the defendant refused to accede to the request and, therefore, the defendant is estopped from filing the present application for referring the dispute to arbitration. The plaintiff stated in paragraph 7 of his objection as follows:
"More over, this plaintiff/ respondent filed this suit as an indigent person. In the said proceedings the petitioner/defendant remained exparte in spite they received notice. It is the bounden duty of the petitioner/defendant to make use of the first opportunity to raise a contention regarding the arbitration."
5. The trial court dismissed I.A.No. 585 of 2004 by the order impugned in this revision. The reasons stated by the court below for dismissing the application are:
(1) The defendant did not raise any objection when the plaintiff filed O.P.(Indigent) No. 92 of 2002 which was converted as the original suit.
(2) The petitioner has not complied with the mandatory requirement of Section 8(2) of the Arbitration and Conciliation Act as he did not produce the original or certified copy of the arbitration agreement and, therefore, the application is not maintainable in law.
6. The counsel for the petitioner Sri. K.C. Santhoshkumar submitted that the grounds stated by the court below for arriving at the conclusion are illegal and unsustainable. The counsel for the respondent, Sri. Ramkumar Nambiar, on the other hand, supported the order and contended that the petitioner did not comply with the mandatory legal requirements as provided under Section 8 of the Act and therefore the application was rightly dismissed by the trial court.
7. As stated above, one of the reasons stated by the court below for dismissing the application is that the defendant should have filed the application at the time when O.P. (Indigent) No. 92 of 2002 was pending and he having not availed that opportunity, the application filed by him after numbering the suit is not maintainable under Section 8(1) of the Act. Section 8(1) of the Act reads thus:
"8. Power to refer parties to arbitration where there is an arbitration agreement (1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration."
The corresponding provision under the Arbitration Act of 1940 is Section 34, which 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 may at any time before Filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to 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."
The change in the words used in the present Act is quite significant. Under the 1940 Act, an application for reference was required to be filed "at any time before filing a written statement or taking any other steps in the proceedings". Under Section 8 of the present Act, the expression used is "not later than when submitting his first statement on the substance of the dispute". The expression "substance of the dispute" could have reference only to the merits of the case. It cannot be said that any proceeding like an application under Order XXXIIIR. 1 and the proceedings therein, preceding the commencement of the suit, would come within the expression 'dispute' under Section 8(1) of the Act. A 'dispute' could only be the dispute between the parties which is sought to be resolved in the suit and matters connecied therewith and not a dispute as to whether the plaintiff should be allowed to file the suit as an indigent person. The question to be resolved in the indigent O.P. is whether the plaintiff should be allowed to institute the suit widiout paying court fee or whether the plaintiff should be compelled to pay court fee initially itself. Such questions have no relevance to the question to be tried and decided in the suit and, therefore, those matters cannot be termed as disputes coming within the purview of Section 8(1) of the Act. The purpose of the expression "not later than when submitting his first statement on the substance of the dispute" occurring in Section 8(1) is that a party requesting for reference to arbitration must make use of the first opportunity to have the reference and he cannot be permitted to protract the proceedings and take such a contention at a belated stage after taking his defence in the suit.
8. Application for permission to file the suit as an indigent person and the relief to be granted therein are really matters between the court and the plaintiff. On many occasions, the defendant may not have any interest or concern in such proceedings. It is also well settled that payment of court fee is a matter between the plaintiff and the State and the defendant has no say in the matter except when that question relates to the jurisdiction of the Court. It is true that the defendant is entitled to point out that the plaintiff is not an indigent person and to produce materials to show that he is not such a person. That does not mean that the defendant is bound to appear in the case at the stage of an application under Order XXXIII Rule 1. It is well settled that even if the defendant does not appear, the Court is not bound to grant the relief in the suit. Even when the defendant is ex pane, the Court is bound to consider the merits of the case and see whether the relief could be granted to the plaintiff. [See Haridas v. Madhavi Amma 1987 (2) KLT 701; Chart Vijayan v. Achuthan Vasu 1973 KLT 849 and Kochuvelu v. Varkey 1968 KLT 462]. The defendant can remain ex pane reposing full confidence in Court and he cannot be blamed for nonappearance at a stage at which he does not want to contest. It would not and should not result in any disadvantage or prejudice to him in respect of any matter unconnected with the proceeding in which he did not appear and contest. If the petition for permission to file the suit as an indigent person is allowed, the defendant is not visited with any civil consequences. No liability would be cast on him, even if he does not appear at that stage. Therefore, the view taken by the Court that, since the defendant did not appear in the case at the stage of O.P.(Indigent) No. 92 of 2002, and move the application for reference to arbitration, he is precluded from filing the present application, is absolutely unsustainable and illegal.
9. The expression "not later than when submitting his first statement" on the substance of the dispute was considered by the Gujarat High Court in the decision in Varun Seacon Ltd. v. Bharat Bijlee Ltd. . It was held therein that mere filing of an application for adjournment to file written statement would not debar the defendant from prosecuting application under Section 8 of the Act. With reference to the change brought out in the New Act, the Gujarat High Court held thus:
"Now, the underlined words in Sub-section (1) of Section 8 make a clear departure from the legal position as contained in Section 34 of the Old Act, under which if the defendant had filed an application for adjournment for filing written statement, it was treated as taking a step in the suit proceedings and therefore, it was held that in such a case the suit was not required to be stayed at the instance of a defendant who had displayed an intention to proceed with the suit and acquiesce in the method of resolution of dispute adopted by the plaintiff, namely filing of the suit and thereby indicated that it had abandoned its right under the arbitration agreement to get the dispute resolved by arbitration. Realizing that such an interpretation was bringing about anomalous results and frustrating the laudable object of the arbitration law, the legislature has advisedly made a clear departure from the earlier position and, therefore, now a party is disentitled from getting stay of the suit only if the party has earlier submitted its statement on the substance of the dispute, that is, if earlier the defendant has filed its reply on merits."
In P. Anand Gujapathi Raju and Ors. v. P.V.G. Raju (dead) and Ors. the Supreme Court held that the language of Section 8 is peremptory and it is obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement. An application before Court under Section 8 mainly brings to the Court's notice that the subject matter of the action before it is the subject matter of an arbitration agreement. In a recent decision of the Supreme Court in Travancore Devaswom Board v. Panchami Pack Pvt. Ltd. 2005 (1) KLT 690 (SC), while considering the provisions of Section 16(2) of the Act, it was held that the participation of a party in the preliminary sitting before the Arbitrator would not make any difference. It was held "the language of the Section, therefore, leaves no room for doubt that mere participation in the proceedings would not tantamount to an acceptance of the jurisdiction of the Arbitrator to arbitrate the dispute between the parties". Section 16(2) of the Act provides that a plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea because that he has appointed, or participated in appointment of, an Arbitrator. Though the words used in Section 16(2) are not identical with the words in Section 8(1), a comparative study of Section 8 and 16 of the 1996 Act and the provisions of the 1940 Act would make it clear that the law makers were in favour of a liberal approach in the matter of reference to arbitration and thought of taking away the too rigid conditions. Section 5 of the Act which states that notwithstanding anything contained in any other law for the time being in force, in matters governed by Part I of the Act, no judicial authority shall intervene except so provided in that part, makes the position clear. The purpose and intent of the Act clearly would be to promote resolution of disputes by arbitration and not to take any matter out of the purview of arbitration which is required to be settled by arbitration.
10. The second ground on which the Court below rejected the application is that the petitioner did not produce the original or "certified copy" of the arbitration agreement. It is not disputed that the arbitration agreement was produced before court by the plaintiff himself. The plaintiff relied on the agreement dated 27.2.1995 and on two other subsequent agreements. The originals of the three agreements were produced by the plaintiff along with the plaint. The requirement of Section 8(2) for the production of the original arbitration agreement or duly certified copy thereof is only to ensure that there is an arbitration clause and to ascertain whether the Arbitrator is named and other allied matters. The requirement would be satisfied if the agreement is before court. It is not relevant whether the plaintiff produced it or the defendant produced it. Whoever produced the document, the fact remains that the document is before Court. When the original document is before Court, the Court below was not justified in dismissing the application on the ground that the defendant who made the application for reference did not produce the original or certified copy of the agreement. Such a stand would be too technical and it would tend to defeat the very purpose of the Act. In I.T.C. Classic Finance Ltd. v. Grapco Mining and Co. Ltd. and Anr. , xerox copies of the agreements were produced before Court. The agreements were relied upon by the plaintiff as well as the defendants. It was also not in dispute that the copies were true copies of their originals. The Calcutta High Court held that production of xerox copies of the agreement containing the arbitration clause would constitute sufficient compliance of the requirement of Section 8(2) of the Act.
11. It is well settled that a document of title or any other document which is required to be produced as per law must be a document which is admissible under the Indian Evidence Act. Xerox copies of the documents are not admissible in evidence. (See Selvin Joseph v. Vijayan 1999 (3) KLT 898. An application for reference of a dispute to arbitration is not a matter where any right or title of the contesting parties is attempted to be established or denied. An agreement containing an arbitration clause would be relied on by a party to contend that the matter requires reference to arbitration. By accepting the plea for reference or by rejecting it, the Court is not deciding upon any right, title or interest of the parties in respect of any property or matter. The decision on such an application would have the consequence of only deciding the forum where the parties are to litigate. Too rigid an interpretation on the wording of Section 8(2) and to hold that even if the plaintiff has produced the arbitration agreement, the defendant also should produce the original or certified copy of the arbitration agreement, would defeat the purpose and object of the Act. In the case on hand, it is not necessary to consider the question whether xerox copies are admissible since the original agreement itself was produced before Court by the plaintiff.
12. In Parampal Singh and Ors. v. Punjab State Ware House Corporation, Chandigarh Ors. a similar situation was considered and it was held that the requirement of Section 8(2) that the original of the arbitration agreement or duly certified copy thereof should be produced along with the application for referring the matter to Arbitrator cannot be interpreted to mean that if the copy of the same was produced earlier though by the other party, the application should be dismissed. In Refrigeration & Appliances and Ors. v. Jayaben Bharatkumar Thakkar and Ors. 2000 (2) Arb.L.R.850 (SC), the Supreme Court had occasion to deal with a question of maintainability of an application under Section 8, where along with the application the original or certified copy of the agreement was not produced. The trial court had rejected the application and High Court had confirmed that order. When the matter came up for hearing before the Supreme Court the counsel for the respondents gave up the objection as another application was already moved by the appellant before the trial court under Section 8 of the Act. The Supreme Court, therefore, allowed the appeal and set aside the orders impugned and remanded the application to the trial court for fresh consideration along with the subsequent application filed by the appellant therein.
13. I, therefore, hold that the application filed by the Revision Petitioner (I.A.No. 585 of 2004) satisfies the requirement of Sub-sections (1) and (2) of Section 8 of the Arbitration and Conciliation Act.
For the reasons mentioned above, the Civil Revision Petition is allowed and the order impugned is set aside. The counsel for the respondent submitted that the respondent has raised other contentions as well on the merits of the application for reference and the trial court having not considered those objections, the matter requires fresh consideration by the trial court, in view of the above finding rendered by this Court. He submitted that even on the merits, the application is liable to be dismissed. The submission made by the counsel for the respondent is reasonable and just. Therefore, the matter is remanded to the trial court for fresh disposal in accordance with law. The trial court shall pass orders in I.A.No. 585 of 2004, after affording sufficient opportunity of being heard to the parties and in the light of the findings rendered above. Parties shall appear before the lower court on 28.3.2005.