Andhra Pradesh High Court - Amravati
Ca Goliakotwala And Co vs M/S Sri Kailasandha Cotton Syndicate ... on 23 November, 2022
THE HON'BLE Ms. JUSTICE B.S.BHANUMATHI
Civil Revision Petition No.7860 of 2018
ORDER:
This revision, under Article 227 of the Constitution of India, is filed challenging the order, dated 18.09.2018, dismissing I.A.No.2010 of 2017 in O.S.No.373 of 2012 on the file of the Court of the Principal District Judge, Guntur, filed under Order VII Rule 11 and Section 151 CPC to reject the plaint.
2. Heard Sri Avinash Desai, learned counsel appearing for the revision petitioners/defendants and Sri N. Sriram Murthy, learned counsel for respondent/plaintiff.
3. The facts, in brief are as follows:
(a) The suit is filed for recovery of an amount of Rs.43,10,000/-
relying on the business transaction and purchase contract between the plaintiff and the defendant. The suit is contested on various grounds. A detailed written statement was filed by the defendants taking various objections and denying the liability and entitlement of the plaintiff for the claim made apart from taking an objection that the defendants have initiated arbitration proceedings against the plaintiff at Cotton Association under letter dated 30.02.2012 requiring nomination of arbitrator etc. The defendants further objected that in view of existence of arbitration clause, there is no 2 BSB, J C.R.P.No.7860 of 2018 jurisdiction to the civil Court. It is further contended that the suit is filed with a mala fide intention. An award was passed as early as on 01.03.2013. The plaintiff suppressed the arbitration proceedings and filed the present suit, and therefore, the plaint is to be rejected.
(b) The respondent/plaintiff filed counter denying the claim of the defendants and contending that any objection as regards the maintainability of the suit, particularly on the ground of existence of arbitration clause, shall be taken prior to filing of the written statement in the light of Section 8 of the Arbitration & Conciliation Act, 1996. The present application filed at a belated stage of trial seeking rejection of plaint does not deserve consideration and the same is liable to be dismissed.
4. After hearing both the parties, the trial Court dismissed the petition holding that the objection of the defendants as to the claim that the present suit is barred by res judicata will be open for determination on adducing of evidence by both parties during trial as the same is covered by the issues already framed.
5. The aggrieved defendants preferred this revision contending that as per Section 5 of the Arbitration and Conciliation Act, 1996, no judicial authority would intervene in the matters where an arbitration agreement exists, that the arbitral tribunal passed an award dated 13.08.2012, in respect of the disputes between the 3 BSB, J C.R.P.No.7860 of 2018 parties, and therefore, the same would operate as res judicata, as the respondent failed to challenge the award and that the present suit is nothing but abuse of process of law. Hence, the order impugned is liable to be set aside.
6. Learned counsel for the revision petitioners contended that the trial Court ought to have referred the matter to an arbitrator basing on the contention raised by the defendants in the written statement that there is an arbitration clause in the contract basing on which the plaintiff filed the suit. Learned counsel placed reliance on the decision of the Supreme Court in Hindustan Petroleum Corporation Ltd. V. Pinkcity Midway Petroleums1 at paragraph No.14 wherein the decision of Supreme Court in the earlier case in P. Ananda Gajapathi Raju v. P.V.G. Raju [(2000) 4 SCC 539] was referred with regard to the observation that the language of Section 8 is peremptory in nature, and therefore, in case, where there is an arbitration clause in the agreement, it is obligatory for the Court to refer the parties to arbitration in terms of the arbitration agreement and nothing remains to be decided in the original action after such an application is made except to refer the dispute to an arbitrator, and thus, it is mandatory for a civil Court to refer the dispute to an arbitrator, where there exists an arbitral 1 (2003) 6 Supreme Court Cases 503 4 BSB, J C.R.P.No.7860 of 2018 clause in the agreement which is accepted by both parties. Paragraph No.14 of the cited decision reads thus:
"14. This Court in the case of P. Anand Gajapathi Raju and Ors. v. P. V. G. Raju (Dead) and Ors. [2000] 2 SCR 684 has held that the language of Section 8 is peremptory in nature. Therefore, in cases where there is an arbitration clause in the agreement, it is obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action after such an application is made except to refer the dispute to an arbitrator. Therefore, it is clear that if, as contended by a party in an agreement between the parties before the Civil Court, there is a clause for arbitration, it is mandatory for the Civil Court to refer the dispute to an arbitrator. In the instant case the existence of an arbitral clause in the agreement is accepted by both the parties as also by the courts below but the applicability thereof is disputed by the respondent and the said dispute is accepted by the courts below. Be that as it may, at the cost of repetition, we may again state that the existence of the arbitration clause is admitted. If that be so, in view of the mandatory language of Section 8 of the Act, the courts below ought to have referred the dispute to arbitration."
7. Learned counsel further stated that mere stating of the fact of existence of the arbitration clause in the contract in the written statement is sufficient to apply Section 8 of the Arbitration & Conciliation Act, 1996 ('the Act') since the said provision does not prescribe any format of application contemplated therein. He further contended that though the present petition was filed under Order VII Rule 11 CPC, the interest of justice demands to treat the 5 BSB, J C.R.P.No.7860 of 2018 application as one under Section 8 of the Act, as mere quoting of wrong provision of law is not the criterion and that the Court ought to have directed the plaintiff to approach the arbitrator. In this regard, learned counsel placed reliance on the decision of High Court of Delhi in Sharad P. Jagtiani v. Edelweiss Securities Limited2 and Parasramka Holdings Pvt. Ltd. V. Ambiene Private Ltd. and others3.
8. In Sharad P. Jagtiani (1 supra), it was held at paras 18, 19 & 22 as follows:
"18. In my opinion, it matters not that the counsel for the defendant while drafting the written statement, instead of using the words "refer the parties to arbitration" used the words "that the Court lacks jurisdiction to entertain and decide the suit in view of the arbitration agreement". It is the substance of the plea and not the nomenclature which matters and just like citing of wrong provision of law, in The Bombay Metal Works (P) Ltd. Vs. Tara Singh MANU/DE/8698/2006 : 131 (2006) DLT 327 has been held by the Division Bench of this Court to be not an obstacle for granting the relief, so can non use of the language as used in the statute not be a ground to hold that inspite of the Court being informed of the Arbitration Agreement, not to refer the parties to arbitration.
19. Reference may further be made to:-
(A) Eastern Media Ltd. Vs. R.S. Sales Corporation 137 (2007) DLT 626 where it was held that where a written statement is filed but with strings attached, by challenging the maintainability of the suit in view of the arbitration agreement, 2 2014 AD (Delhi) 681 3 2018(2) ARBLR 498(Delhi) 6 BSB, J C.R.P.No.7860 of 2018 in such circumstances, the preliminary objection in the written statement can be treated as an application under Section 8.
Though the said judgment was considered in R.R. Enterprises but not followed since in that case the plaintiff had given his no objection for the matter to be referred to arbitration. In my respectful opinion, merely because in that case the plaintiff had agreed to reference to arbitration, would not take away from what was held as aforesaid therein.
B. Roshan Lal Gupta Vs. Parasram Holdings Pvt. Ltd. 157 (2009) DLT 712 where also it was held that a plea by way of preliminary objection in written statement, contesting the jurisdiction of Civil Court to proceed with the suit for arbitration even though referring to Section 5 and not Section 8 of the Arbitration Act, is a plea within the meaning of Section 8 of the Act and the defendant cannot be said to have waived or abandoned the arbitration.
C. APL Polyfab Pvt. Ltd. Vs. Technology Information, Forecasting and Assessment Council MANU/DE/3186/2011 negativing the plea in opposition to a petition under Section 11 of the 1996 Act of the petitioner therein having lost his right to invoke arbitration by, in a suit filed by the opposite party, having not filed a separate application under Section 8 though having taken the plea of Section 8 in the written statement. However I must mention that the same learned Single Judge subsequently in V.M. Mehta Vs. M/s. Ultra Agro Securities Pvt. Ltd. MANU/DE/3135/2013, following R.R. Enterprises (supra) held the plea of Section 8 in the written statement to be not sufficient.
D. G.K.C. Projects Ltd. Vs. Unitech Machines Ltd. MANU/DE/0146/2014 where, following Roshan Lal Gupta supra, a plea of Section 8 contained in the written statement was held to be tenable.
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BSB, J C.R.P.No.7860 of 2018
22. I am therefore of the view that the defendant, inspite of having not filed an application under Section 8, but in view of the preliminary objection in the written statement, even though not referring to Section 8 and not expressly seeking the relief of reference to a arbitration, has invoked Section 8 of the Act and it is the bounden duty of this Court to refer the parties to arbitration."
9. He further submitted that since the ground required to seek the relief under Section 8 of the Act was taken in the written statement itself, mere filing of the present petition some time thereafter, does not vitiate the requirement of compliance of Section 8 of the Act, and therefore, it must be treated as sufficient compliance of the provision under Section 8 of the Act. In this regard, he placed reliance on the decision in N.C.C Ltd. and others v. The State of A.P and others4 (C.M.A.No.153 of 2016, decided on 30.11.2016) wherein, at paragraph No.32 it was held as follows:
"It may be noted that Section 8(1) stipulates in no uncertain terms that a party who seeks to raise an objection thereunder to an action brought before a judicial authority must apply no later than when submitting his first statement on the substance of the dispute. In the present case, the 2 nd defendant Corporation filed its written statement in 2015 but long prior thereto, it filed the subject I.A. under Order 7 Rule 11(d) CPC in which it raised, amongst other grounds, the applicability of Section 8 of the Act of 1996. The trial Court, however, was of the opinion that as the defendants had not filed a separate 4 MANU/AP/0676/2016 8 BSB, J C.R.P.No.7860 of 2018 application under Section 8 of the Act of 1996 they could not be permitted to raise such an objection under Order 7 Rule 11(d) CPC. This pedantic approach was not warranted in the light of the broad language in which Section 8(1) of the Act of 1996 is couched. It is sufficient if the aggrieved party 'applies' to the judicial authority, be it in whatever form or manner, under Section 8(1) of the Act of 1996, but before submitting the first statement on the substance of the dispute. Filing of a separate application under Section 8(1) of the Act of 1996 is therefore not mandatory."
10. On the other hand, learned counsel for the respondent/ plaintiff submitted that since the present petition is filed under Order VII Rule 11 CPC, except the contents of the plaint and the documents annexed thereto, nothing else can be looked into, and therefore, the contents of the written statement cannot form basis for the relief sought in the present application. He placed reliance on the decision of the High Court in T.Mahaboob Basha v. Dowlath Bee and another5 and the decision of the Supreme Court in Bhau Ram v. Janak Singh and others6, wherein it was held at paragraph No.8 as follows:
"The law has been settled by this Court in various decisions that while considering an application under Order VII, Rule 11 CPC, the Court has to examine the averments in the plaint and the pleas taken by the defendants in its written statements would be irrelevant.
xxx.5
2022 (5) ALD 49 (AP) 6 AIR 2012 SUPREME COURT 3023 9 BSB, J C.R.P.No.7860 of 2018 The above view has been once again reiterated in the recent decision of this Court in The Church of Christ Charitable Trust and Educational Charitable Society, represented by its Chairman v. M/s. Ponniamman Educational Trust represented by Chairperson/Managing Trustee, 2012 (6) JT 149.
11. He further contended that the power under Order VII Rule 11 CPC to reject the plaint is drastic to terminate the civil action at the threshold, and therefore, the condition precedent to exercise power under Order VII Rule 11 CPC cannot be stringently applied and that the averments in the plaint have to be read as a whole to appreciate whether it discloses a cause of action and whether the suit is barred and at that stage, the stand of the defendant in the written statement cannot be looked into. In this regard, learned counsel for the petitioner submitted that even as per the contents of the plaint, since the petitioner relied on the very same agreement which contains a clause in the arbitration, the trial Court ought to have allowed the petition and directed the plaintiff to approach the arbitrator.
12. Learned counsel for the respondent further submitted that an issue was already framed in the suit 'whether the suit is maintainable in view of the arbitration award, dated 13.08.2012, passed in favour of defendants for Rs.60,26,120/- against the plaintiff?' (issue No.3) and the same requires trial, and it is 10 BSB, J C.R.P.No.7860 of 2018 premature to seek the rejection of the plaint on the very same issue. He further placed reliance on the decision of this High Court in V.Narasimha Reddy and others v. Sara Abdul Gafoor and others7 at paragraph No.10, which reads as under:
"....10. ......A Defendant who takes the plea of res judicata has to plead the particulars of the earlier proceedings, indicate the purport thereof, and satisfy the Court that the issue involved in the suit filed afterwards, was decided earlier, as between the same parties by a competent Court of law. By its very nature, this exercise needs oral and documentary evidence."
Drawing analogy from the said decision, he would submit that the issue involves mixed questions of fact and law, and therefore, the same cannot be decided earlier to the trial.
13. Learned counsel further vehemently contended that without filing petition under Section 8 of the Act, the maintainability of the suit cannot be questioned though the subject matter is arbitrable and placed reliance on the decision of a Division Bench of this High Court in N.V.S Naidu v. Sri Surya Teja Constructions (P) Ltd., Hyderabad8, wherein an issue similar to the one framed in this case was framed in that case and at paragraph No.14, it was held as follows:
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2011 (5) ALD 381 8 2015 (6) ALD 435 (DB) 11 BSB, J C.R.P.No.7860 of 2018
"14. We have given earnest consideration to the facts, the evidence and the submissions made. We have carefully gone through the oral and documentary evidence brought on record. And, after elaborate discussion in paragraphs 15 to 17, it was held that the suit is maintainable.
14. For the purpose of better understanding, the provisions of Order VII Rule 11 CPC and Section 8 of the Act are noted herein below:
Order VII Rule 11 CPC:
11. Rejection of plaint.- The plaint shall be rejected in the following cases:--
(a) where it does not disclose a cause of action;
(b) where the relief claimed is undervalued, and the plaintiff, on being required by the court to correct the valuation within a time to be fixed by the court, fails to do so;
(c) where the relief claimed is properly valued, but the plaint is written upon paper insufficiently stamped, and the plaintiff, on being required by the court to supply the requisite stamp paper within a time to be fixed by the Court, fails to do so;
(d) where the suit appears from the statement in the plaint to be barred by any law;
(e) where it is not filed in duplicate;
(f) where the plaintiff fails comply with the provision of Rule 9.
Provided that the time fixed by the court for the correction of the valuation or supplying of the requisite stamp papers shall not be extended unless the court, for reasons to be recorded, is satisfied that the plaintiff was prevented by any cause of an exceptional nature from 12 BSB, J C.R.P.No.7860 of 2018 correcting the valuation or supplying the requisite stamp papers, as the case may be within the time fixed by the court and that refusal to extend such time would cause grave injustice to the plaintiff."
"Section 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.
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made."
15. A perusal of the provision in Section 8 of the Act makes it very clear that existence of an arbitration clause in the agreement ipso facto does not oust the jurisdiction of a civil Court because inspite of existence of such a clause, if the defendant does not seek the relief under Section 8 of the Act before the time stipulated therein, later on, he cannot seek such relief. Thus, it is abundantly clearly that mere existence of an arbitration clause does not take away the right of the parties to the contract to institute a civil suit. The defendant has right to ask the Court to refer the parties to 13 BSB, J C.R.P.No.7860 of 2018 arbitration. Such right is also limited to a particular stage before the case proceeds further. Thereafter, even if a defendant wishes, he cannot even ask. A defendant can forgo the right and allow the suit to continue also. Thus, there is no absolute bar on a civil Court and a plaint cannot be rejected.
16. Of course, there is no format prescribed for filing an application under Section 8 of the Act. However, in one form or the other, the relief available under Section 8 of the Act should be claimed by the defendant not later than when submitting his first statement on the substance of the dispute. Therefore, if the defendant does not seek to refer the parties to arbitration, the Court does not, on its own, refer the matter. According to the petitioner, since the existence of arbitration clause is mentioned in the written statement and that the civil Court has no jurisdiction, it can be treated as an application by the defendant seeking reference of the parties to arbitration. It does not reflect the intention of the defendants to seek the Court to refer the parties to arbitration. What all can be culled out from such statement in the written statement is that the defendants are denying the jurisdiction of the civil Court to deal with the matter.
17. As already noted, mere existence of the arbitration clause does not take away the jurisdiction of the civil Court. As can be 14 BSB, J C.R.P.No.7860 of 2018 inferred from the language used in Section 8(1) of the Act, it is not possible to appreciate the arguments advanced in this regard. If the intention of the legislation is to completely take away the jurisdiction of a civil Court on mere existence of an arbitration clause in the contract for reference of the dispute to an arbitrator, the legislation might have used different language, by which the right is conferred on the defendant to challenge the civil Court's jurisdiction at any time. In the decision in N.C.C Ltd. and others (6 supra), cited by the petitioner, petition under Order VII Rule 11(d) CPC, like the one in the present case, was filed, but argued to grant the relief under Section 8(1) of the Act. But the fact remains that such an application was filed within the time stipulated under Section 8(1) of the Act, whereas, in the present application, written statement was filed in March 2013 and the petition was filed in the year 2017, and therefore, the said decision cannot help the petitioner to support the application in the present case because even if the petition filed in the year 2017 under Order VII Rule 11(d) CPC is treated as one filed under Section 8 of the Act, the same is filed far beyond the filing of the written statement and that itself is a ground to reject the application filed under Section 8(1) of the Act. In that case, pleadings in written statement are not treated as enough form to apply for reference under Section 8 of the Act. Either in the written statement or in the petition in the 15 BSB, J C.R.P.No.7860 of 2018 present case, the relief claimed is not for reference of the parties to arbitration and it is only to reject the plaint to put an end to dispute before civil Court. There is no dispute about settled proposition of law that an application filed under Order VII Rule 11(d) CPC can be disposed of, basing only on the averments in the plaint and the documents annexed thereto, but not the defence raised in the written statement or the documents filed by the defendant.
18. Thus, there is no merit in the contention of the revision petitioners. Even for examining the contention of maintainability of the suit on the ground of existence of an arbitration clause, since an issue in this regard was framed vide issue No.3 referred above, which needs to be tried since it is a mixed question of fact and law, it cannot be taken up as a ground to reject the plaint under Order VII Rule 11 (d) CPC. Therefore, the trial Court has rightly dismissed the petition.
19. Accordingly, the Civil Revision Petition is dismissed.
There shall be no order as to costs.
Miscellaneous petitions pending, if any, shall stand closed.
________________ B.S BHANUMATHI, J 23-11-2022 RAR