Madras High Court
Uc Mas Mental Arithmetic (India) vs Banu Arjun on 10 July, 2008
Equivalent citations: AIR 2009 (NOC) 41 (MAD.), 2009 AIHC (NOC) 368 (MAD.)
Bench: M.Chockalingam, R.Subbiah
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 10-7-2008 CORAM THE HONOURABLE MR.JUSTICE M.CHOCKALINGAM AND THE HONOURABLE MR.JUSTICE R.SUBBIAH O.S.A.No.253 of 2004 UC MAS Mental Arithmetic (India) Pvt. Ltd., No.A1-1857, 13th Main Road 6th Avenue, Anna Nagar West Chennai 600 040. Represented by its Managing Director Basheer Ahamed .. Appellant vs 1.Banu Arjun 2.Shaarada K.Sriram 3.V.Lakshmi 4.Bhuvaneswari 5.Nirmala 6.Shobana Ganesh .. Respondents Original side appeal preferred under Order XXXVI Rule 11 of the O.S. Rules read with Clause 15 of the Letters Patent against the order passed by this Court in Application No.4740 of 2003 in C.S.No.674 of 2003 dated 6.3.2004. For Appellant : Mr.P.Sinthamathar For Respondents : Mr.V.Bhiman for M/s.Sampathkumar Associates for RR1 to 6 JUDGMENT
(Judgment of the Court was delivered by M.CHOCKALINGAM, J.) This appeal challenges an order of the learned Single Judge of this Court allowing Application No.4740 of 2003 filed by the respondents 1 and 2 seeking to refer the parties to arbitration.
2.The appellant/plaintiff sought the reliefs mentioned in the plaint, alleging that the plaintiff is a registered company, incorporated under the Companies Act, having its office in Madras in the stated address. It is also registered under the Trade and Merchandise Marks Act, 1958, and it has got its exclusive right of the copy right in respect of the syllabus issued by UC MAS. In or about August 2000, the defendants 1 and 2 approached the plaintiff with a proposal to take a Franchise Centre in UC MAS. Accordingly, a franchise agreement was entered into on 28.8.2000, which would be operative for a period of three years. Prior to this agreement, the first defendant wanted to become a Course Instructor in UC MAS, and as such, there was a Course Instructor Agreement entered into between the first defendant and the plaintiff on 26.7.2000 for a period of five years. Further, both the defendants 1 and 2 pursuant to the terms contained in the franchise agreement as well as the instructor's agreement, they were to engage and employ suitable person or persons to be the Course Instructors at the respective Centre. Accordingly, the plaintiff trained the defendants 3 to 6 as Course Instructors. Four separate agreements as found in document Nos.15 to 18 filed along with the plaint, were entered into between the defendants 3 to 6 and the plaintiff, and thus, the defendants were discharging their duties till 25.7.2003. While the matter stood thus, all of a sudden, on 25.7.2003, the defendants 1 to 6 sent the letters of alleged termination, discharge and surrender of their respective agreements, suo moto. On receipt of the same, immediately a reply was sent on 27.7.2003, by a telegraphic notice speaking of the responsibility and stating that there were no reasons exist to terminate the same, and hence, it could be talked between the parties; but, they failed to do so. On the contrary, they sent a common reply on 5.8.2003 and 12.8.2003 respectively, wherein they not only reiterated the termination, but also refused to meet the plaintiff. Despite the repeated requests and reminders with no avail, the plaintiff has come forward with this suit for the reliefs of declaration, permanent injunction and also for recovery of damages as set out in the plaint.
3.After the initiation of the suit, the defendants 1 to 6 entered appearance; but, they did not file even the first written statement, and they made an application in Application No.4740 of 2003 seeking an order of Court to direct the plaintiff to resolve the dispute by arbitration. The appellant/plaintiff was given an opportunity to file his counter. The trial Court took up the matter for enquiry. On considering the materials available and submissions made, the learned trial Judge thought that it is a fit case for sending the matter to arbitration and accordingly, allowed the application. Aggrieved over the same, the plaintiff has brought forth this appeal before this Court.
4.The question that would arise for determination is whether it is a fit case where the parties could be referred to arbitration.
5.Advancing the arguments on behalf of the appellant, the learned Counsel made emphasis on the pleadings and also the reliefs sought for. He would submit that the plaintiffs have sought for a declaration that the defendants 1 to 6 were not entitled to start and conduct a similar and identical concept of UC MAS India, a permanent injunction that they should be restrained from conducting a similar and identical concept of UC MAS India and also a direction to the defendants 1 to 6 to pay a sum of Rs.10,58,321/- to the plaintiff either jointly or separately towards damages, which was worked out on different heads as found in the plaint, and thus, all the reliefs in respect of which the suit has been filed, cannot be decided by arbitral proceedings since there are mixed questions of facts and law.
6.The learned Counsel would further add that in the instant case, the agreement between the plaintiff on the one hand and the defendants 1 and 2 on the other hand was entered into on 28.8.2000, which was to be in force for a period of three years; that the other defendants 3 to 6 have entered into four different agreements on different dates; but, the defendants 1 and 2 have issued a common notice terminating the said agreement, on 25.7.2003, which was even prior to the period as found in the agreements; that the defendants 3 to 6 have also sent letters on the same date terminating the agreements; that according to the defendants, the agreements were actually terminated; that if to be so, having terminated and abandoned the agreement, the defendants were not entitled to enforce the arbitral clause as found in the agreement entered into between the parties, since on the day when they filed the plaint before the Court, even according to the defendants, there was no agreement at all, and it was also not in force; and that so long as it was not one in force and ceased to exist according to the defendants, they could not invoke the arbitral clause.
7.Added further the learned Counsel that in the instant case, the application itself was filed only by the defendants 1 and 2; that the defendants 3 to 6 have not joined; that the agreements were entered into by all the six defendants; that all these agreements were referred to in the plaint; that cause of action was also against all the defendants; that further, the reliefs of declaration, permanent injunction and also damages have been asked for against all the defendants jointly; and that the reliefs sought for insofar as the defendants 1 and 2, could not be split.
8.Added further the learned Counsel that in that application, seeking an order of the Court to refer the party to arbitration, the defendants 3 to 6 were shown as respondents; that they have not given any consent for allowing the application and not even stated no objection; that it is pertinent to point out that all the defendants have appeared before the Court through the same Counsel, and under such circumstances, the defendants 1 and 2 cannot make an application leaving the other defendants; that the subject matter of the suit cannot be split either, or a few of the parties cannot be allowed to make an application leaving the other; and that on that ground, the application was to be dismissed.
9.The learned Counsel would further submit that in the instant case, it is true that there was an arbitral clause in the agreement entered into between the plaintiff and the defendants 1 and 2, but for that agreement, the defendants 3 to 6 were not parties; that added circumstance was that the defendants have not filed the written statement within the stipulated time; that the time given for filing the written statement, has actually elapsed long back; and that if to be so, the contention that they have made attempt to file written statement has got to be discountenanced since before filing the written statement, they have made the instant application.
10.Added further the learned Counsel that it was the plaintiff at the earliest called for a talk so that the matter could be compromised; but, the defendants did not pay heed to; that on the contrary, they made the plaintiff to make a suit before the Court; that they appeared through a Counsel; that even without filing the written statement in time, they have filed the application; and that on that ground also, it has got to be dismissed.
11.The learned Counsel would further submit that the trial Court has not adverted its attention on any one of the above aspects; that on the contrary, it has found that the agreement was a subsisting one, and within the period, they have come forward; that the provisions of the Arbitration Act are mandatory; that since the application was filed under Sec.8 of the Arbitration and Conciliation Act, the mandatory provision has got to be strictly followed; that though Sec.8 makes it a mandate for sending the matter to arbitration, the arbitral clause in view of the subject matter as mentioned above, cannot be invoked in the instant case; and that under the circumstances, the appeal has got to be ordered setting aside the order of the learned Single Judge.
12.In support of his contention, the learned Counsel for the appellant relied on the following decisions:
(i)1999 SAR (CIVIL) 44 (M/S.RICKMERS VERWALTUNG GMB. H V. THE INDIAN OIL CORPORATION LTD.);
(ii)2001(3) CTC 269 (H.G.OOMOR SAIT AND ANOTHER V. O.ASLAM SAIT) and
(iii)2003 (2) CTC 431 (SUKANYA HOLDINGS PVT. LTD. V. JAYESH H.PANDYA AND ANOTHER).
13.Contrary to the above, the learned Counsel appearing for the respondents would submit that the order of the learned trial Judge has got to be sustained; that in the instant case, it is true that there was an agreement entered into between the defendants 1 and 2 and the plaintiff and also other defendants on different dates as found therein; that it is an admitted position that even in that agreement entered into between the parties, there is an arbitration clause; that as per clause No.16 to the agreement, any dispute that arose between the parties under the agreement should be determined by a single arbitrator to be appointed by the parties; that the parties have actually agreed for referring the matter to arbitration; that apart from that, all the defendants 1 to 6 have got a common defence which they have actually given out from the very commencement when they issued the notice terminating their respective agreements; that this was brought to the notice of the learned trial Judge; and that once all the defendants have common plea, there cannot be any impediment in sending the matter to arbitration.
14.Placing reliance on Sec.8 of the Arbitration and Conciliation Act, the learned Counsel for the respondents would submit that whenever an application is filed when the matter is pending before the Court, it is mandatory that the matter must be referred to arbitration; that in the instant case, actually the appellant as plaintiff has filed the suit, and the defendants have entered appearance, and the first written statement has not yet been filed; that all the above matters were actually found in the plaint and the reliefs sought for could be a subject matter of arbitration; that there is no need for splitting the matter since all the defendants have got a common defence; that after considering the factual and legal position, the learned trial Judge has come to the correct conclusion, and hence, the order of the learned trial Judge has got to be sustained.
15.In support of his contention, the learned Counsel relied on the following decisions:
(i)AIR 2000 SUPREME COURT 1886 (P.ANAND GAJAPATHI RAJU AND OTHERS V. P.V.G.RAJU (DIED) AND OTHERS);
(ii)AIR 2003 SUPREME COURT 2881 (HINDUSTAN PETROLEUM CORPN. LTD. V. PINKCITY MIDWAY PETROLEUMS) and
(iii)(2007) 5 MLJ 1010 (SC) (INDIA HOUSEHOLD AND HEALTHCARE LTD. V. LG HOUSEHOLD AND HEALTHCARE LTD.); and
(iv)(2007) 6 MLJ 984 (SC) (AGRI GOLD EXIMS LTD. V. SRI LAKSHMI KNITS & WOVENS AND OTHERS).
16.The Court paid its anxious consideration on the factual submissions made and also the legal submissions made in support of the respective contentions.
17.Admittedly, the plaintiff and the defendants 1 and 2 have entered into a franchise agreement on 28.8.2000, which was for a period of three years, and separate agreements as could be seen from documents 13 to 18, were entered into between the plaintiff on one side and the defendants 3 to 6 on the other side whereby they were appointed as Course Instructors. It could also be seen that even before the period as found in the respective agreements, was over, on 25.7.2003, the defendants 1 to 6 have issued communications terminating the agreements, as found under document Nos.27 to 36. Following the said communications, there was a telegraphic notice issued by the plaintiff on 27.7.2003 which brought forth a common reply on 5.8.2003 and 12.8.2003 from the defendants. Following the same, the suit has been laid by the plaintiff. The plaintiff has sought the reliefs in his plaint which are for
(a)a declaration that the defendants 1 to 6 and their men, agents, legal heirs, representatives, servants etc., are not entitled to start and conduct a similar and identical concept of UC MAS India in Abacus, belonging to the plaintiff absolutely being a registered trader either in Chennai at their Centre Adyar morefully described in the Schedule hereunder viz., the premises bearing Door No.2, Ananya Ramaneeyam, 41, Indira Nagar 1st Avenue, Adyar, Chennai 600 020, or any other place/s throughout India, as the same is prohibited according to the terms of Franchise and Course Instructors Agreements dated 28.8.2000 and 26.7.2000, 16.4.2002, 16.4.2002, 02.07.2002 and 11.11.2002 respectively.
(b)a permanent injunction restraining the defendants 1 to 6, their men/women, agents, legal heirs, course Instructors, representatives and servants etc., from conducting a similar and identical concept of UC MAS India either in Adyar or any other place/s throughout India, in view of the terms of the Agreements as stated above;
(c)a direction to the respondents 1 to 6 to pay a sum of Rs.10,58,321/- to the plaintiff either jointly or separately as fully explained in paras 6 to 9 and 18 of the plaint, [that is, (i) due for invoices and kits Rs.71,335/-; (ii) for Registration Fee Rs.16,200/-; (iii) Royalty Due (April to August, 2003) Rs.2,38,000/-; (iv) Due Course Instructors Fee Mrs.Shobana, Mrs.Padmini Kannan, and Mrs.Nirmala) Rs.25,000/-; and (v) Due for Freight Charges Rs.266/- ... Total Rs.3,50,821/- plus (vi) the Claim of damages against 1 and 2 defendants for Rs.2,00,000/- towards the breach of Franchise Agreement; (vii) Rs.1,00,000/- towards damages against the 1st defendant for the breach of Course Instructor Agreement; (viii) the claim of damages against the defendants 3 to 6 .. Rs.4,00,000/- for breach of course Instructor Agreements by the defendants 3 to 6 and (ix) Legal Fee and expenses for issuing notices to the defendants 1 to 6 .. Rs.7,500/- in all totalling Rs.10,58,321/-]"
18.Before filing the written statement, the instant application was filed by the defendants 1 and 2 seeking an order of the Court to direct the plaintiff to resolve the dispute by arbitration. The defendants 3 to 6 were shown as respondents therein. On enquiry, the learned trial Judge accepting the contentions put forth by the respondents 1 and 2 has allowed the application which is the subject matter of challenge in this Court.
19.In a given case if the Court has to exercise its powers under Sec.8(1) and (2) of the Arbitration Act 1996, it must satisfy before referring the matter to arbitration the following conditions:
(1)There is an arbitral agreement or in the agreement entered into between the parties, there must be a clause whereby the parties should have agreed to resolve the dispute by arbitration.
(2)Either of the party to the agreement should have made an action against the other party before a Court of law.
(3)The subject matter found in the proceedings, must be the same as that of the subject matter of the arbitration agreement.
(4)The other party against whom proceedings are initiated, must move the Court for referring both the parties to the proceedings to arbitration before he filed the first statement on the substance of the dispute.
Apart from the above, even in a case where the application is made for referring the matter to arbitration, after the filing of the written statement, that can be done if the other party has no objection. Even pending the appeal, the matter could be referred to arbitration.
20.A comparison of Sec.8 of the Arbitration and Conciliation Act, 1996, and Sec.34 of the Arbitration Act, 1940 would clearly indicate that they are distinct and apparent and also would show a drastic change. Under the earlier Act, 1940, a discretionary power was vested upon the Court to decide whether the matter was a fit one to be referred to arbitration. But, that discretion has been taken away under Sec.8 of the latter enactment. A reading of the provision under Sec.8 would clearly indicate that it is mandatory that if an application is filed as envisaged in the provision, the Court has no option than to follow the mandate in sending both the parties to resolve the dispute by arbitration proceedings.
21.This Court is mindful of the caution made by the Apex Court in the ruling cited by the learned Counsel for the respondents that when an application is made under Sec.8 of the Arbitration and Conciliation Act, 1996, it is mandatory to refer the dispute to arbitration, and if not done, it would amount to failure of justice and also causing irreparable loss to the parties. But, in the instant case, on consideration of the materials available, this Court is of the considered opinion that the following grounds do exist as impediment for sending the matter to arbitration.
22.As seen above, it is not in controversy that the agreement entered into between the plaintiff and the defendants 1 and 2 has got an arbitral clause namely clause 16 which reads as follows:
"16.ARBITRATION The parties hereto agree that any dispute arising under this Agreement shall be determined by a single arbitrator to be appointed by the parties hereto jointly subject to and in accordance with the Arbitration Act 1940 (Revised 1972) or any other statutory provision relating to arbitration for the time being in force."
23.The plaintiff has sought for the reliefs of declaration, permanent injunction and also recovery of damages. Firstly, it is highly doubtful whether the declaration and the consequential permanent injunction sought for by the plaintiff, could be resolved by way of arbitral proceedings. Secondly, it is not in controversy that the plaintiff and the defendants 1 and 2 entered into a franchise agreement on 28.8.2000. The plaintiff has also entered into other agreements with the defendants 3 to 6 on different dates whereby they were all appointed as Course Instructors. As could be seen from the plaint averments, causes of action and also the reliefs sought for, the plaintiff's grievance was on the termination of the agreement entered into by all the defendants, and that he has issued a telegraphic message which was followed by a detailed notice which brought forth a common reply on two occasions. It is pertinent to point out that on the plaint averments, according to the plaintiff, he had the causes of action to file the suit against all the defendants, and he has also set out the remedies sought for which, according to the plaintiff, the defendants were answerable individually and jointly. Thus, it would be quite clear that the subject matter and the reliefs sought for either from the point of reliefs or from the point of the defendants, it cannot be split.
24.Added circumstance is that the application was filed by the defendants 1 and 2 only, in which the defendants 3 to 6 were not joined; but, they were ranked as respondents. They have not even filed a memo stating no objection for referring the matter to arbitration. Now, at this juncture, it is pertinent to point out that all the defendants have issued the reply notices, and they appeared before the Court through the same Counsel. It is true that they have not filed the written statement, and the time for filing the written statement has already elapsed. Even then, there is all possibility for them to file an application to condone the delay and file the written statement. Now, the application was filed as could be seen under Sec.8 of the Arbitration and Conciliation Act, 1996. Needless to say as pointed out above, Sec.8 of the Act is a mandatory provision. Once an application is filed, it must be referred to arbitration to resolve the disputes between the parties when there is an arbitral clause. In the case on hand, as could be seen above, there is an arbitral clause; but, it is found only in the agreement entered into between the plaintiff and the defendants 1 and 2. As far as the other defendants 3 to 6 are concerned, their agreements were not relied upon, nor they have joined with the defendants 1 and 2 to refer the matter to arbitration. That apart, as could be seen above, the reliefs are sought for against all the defendants jointly. In a given situation like this, whether the matter could be referred to arbitration came up before Their Lordships of the Supreme Court in Civil Appeal No.1174 of 2002 as reported in 2003 (2) CTC 431 (SUKANYA HOLDINGS PVT. LTD. V. JAYESH H.PANDYA AND ANOTHER) wherein Their Lordships considering the circumstances have held thus:
"13.Secondly, there is no provision in the Act that when the subject matter of the suit includes includes subject matter of the arbitration agreement as well as other disputes, the matter is required to be referred to arbitration. There is also no provision for splitting the cause or parties and referred the subject matter of the suit to the arbitrators.
....
16.The next question which requires consideration is even if there is no provision for partly referring the dispute to arbitration, whether such a course is possible under Section 8 of the Act? In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action that is to say the subject matter of the suit or in some cases bifurcation of the suit between the parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject matter of an action brought before a judicial authority is not allowed.
17.Secondly, such bifurcation of suit in two parts, one to be decided by the arbitral tribunal and other to be decided by the Civil Court would inevitably delay the proceedings. The whole purpose of speedy disposal of dispute and decreasing the cost of litigation would be frustrated by such procedure. It would also increase the cost of litigation and harassment to the parties and on occasions there is possibility of conflicting judgments and orders by two different forums."
25.This Court is of the considered opinion that the judgment of the Supreme Court referred to above, has got full application to the present facts of the case. In the instant case, as pointed out above, all the reliefs are sought for against all the defendants either individually or jointly on the causes of action levelled against all the defendants, and thus, all the defendants have also not joined together. Under the circumstances, neither the parties could be split nor the subject matter could be split. In such a situation, it cannot be referred to arbitration. Thus, applying the principles laid down by the Supreme Court in the above decision, this Court is of the considered opinion that the order of the learned Single Judge has got to be set aside. Accordingly, it is set aside.
26.The other contentions put forth at the bar do not require discussion or consideration.
27.Hence, this original side appeal is allowed setting aside the order of the learned Single Judge. The trial Court is required to proceed with the suit pending on its file. No costs.
(M.C.,J.) (R.P.S.,J.) 10-7-2008 Index: yes Internet: yes nsv/ M.CHOCKALINGAM, J.
AND R.SUBBIAH, J.
nsv/ OSA No.253 of 2004 Dt: 10-7-2008