Andhra HC (Pre-Telangana)
Gousia Javed And Another vs Jagdish Pershad Associates on 27 June, 1991
Equivalent citations: AIR1992AP12, 1991(2)ALT606, AIR 1992 ANDHRA PRADESH 12, (1991) 2 LS 60, (1992) 1 ARBILR 178, (1991) 3 CURCC 530, (1991) 2 ANDH LT 606
Author: M. Jagannadha Rao
Bench: M. Jagannadha Rao
ORDER M. Jagannadha Rao, J.
1. This is an appeal preferred by the defendants in O.S. 137 of 1991 against an order passed by the IV Additional Judge, City Civil Court, Hyderabad, in I.A. 318 of 1991 on 15-4-1991 refusing to grant stay of the trial of the said suit under Section 34 of the Indian Arbitration Act, 1940. The brief facts of the case are as follows :
2. The appellants-defendants and the respondent-plaintiff entered into an agreement on 22-10-1984. This was an arrangement for negative world right control of the picture "YAA GARIB NAWAZ". Under the said agreement, it is stated that the appellants borrowed various amounts from the respondent. It is also the case of the respondent in the plaint that the amounts due to it were not paid as per the understanding, that thereafter there was an amicable settlement on the issue when the appellants came down to Hyderabad from Bombay on 16-10-1990 and that the account was settled at rupees six lakhs towards the discharge and payment of the said settled account. It is further stated by the respondent-plaintiff that in discharge of the said amount, the appellants-defendants issued two cheques, one dated 31-12-1990 and the other dated 5-1-1991, and that the said cheques were dishonoured. Thereafter, the respondent issued a notice to the appellants on 14-2-1991 demanding the amounts and giving fifteen days's time to the appellants from the date of receipt of the notice for payment. Even before the said period expired, the respondent filed the present suit on 26-2-1991 in the civil Court under Order 37, Rule 1 of the Code of Civil Procedure as a summary suit requesting the Court to pass judgment in favour of the... respondent for rupees six lakhs with interest, at 24%. The respondent also filed I.A. 239 of 1991 for attachment before judgment and summons thereon were received by the appellants on 28-2-1991. Suit notices were received mentioning 12th March, 1991 as date fixed for appearance. At that stage, the appellants filed I.A. 318 of 1991, out of which this civil miscellaneous appeal arises, contending that clause 9 of the agreement dated 22-10-1984 was comprehensive enough, that the dispute in this suit is covered by the arbitration clause and that, therefore, the suit may be stayed. The respondent filed a counter stating that "there is no dispute" arising out of the agreement and that in view of the settlement, the two cheques received by the respondent were dishonoured. Therefore, there cannot be any dispute arising out of the original agreement dated 22-10-1984. The appellants filed a rejoinder stating that the dispute in the suit is covered by the arbitration clause. They further stated in paragraph 5 of the rejoinder that, on the face of it, the suit claim is based on frivolous grounds and that it is idle to contend that there was settlement of account on 16-10-1990 in a sum of rupees six lakhs. It is further stated that the appellants have a good defence to the plaintiff's case.
3. The learned Additional Judge, on a consideration of the allegations in the above-said interlocutory application, the counter and the rejoinder, came to the conclusion that the appellants have not disclosed their defence and that, prima facie, there was no dispute which could be said to be covered by the arbitration clause. The learned Judge, therefore, dismissed the application filed by the appellants under Section 34 of the Arbitration Act. It is against this order that the defendants have preferred this civil miscellaneous appeal.
4. In this appeal, we have heard the learned counsel for the appellants, Sri T. Veerabhadrayya, and the learned counsel for the respondent Sri Rajeev Indani.
5. It may be noticed that the agreement dated 22-10-1984 contains an arbitration clause in Clause 9 which reads as follows :
"If any dispute arising out of these agreements, it shall be referred to the Arbitrator and their award shall be binding on both the parties and the Courts of Hyderabad shall be only jurisdiction."
As already stated, it is the plaintiff's claim that various amounts were advanced to the defendants under the aforesaid agreement and that thereafter there was settlement of account which took place on 16-10-1990 and pursuant thereto the defendants executed two cheques on 31-12-1990 and 5-1-1991 which were subsequently dishonoured.
6. The question for consideration is whether the right to recover the amounts covered by the said settlement dated 16-10-1990 can be said to be in dispute and covered by clause 9 of the agreement.
7. The learned Counsel for the respondent placed strong reliance on a judgment of the Madras High Court in Vasanji Navji & Co. v. K.P.C. Spinners, . In that case there was a contract for sale of cotton between A and B. Cotton was supplied by A and a cheque for the price was issued by B. The cheque was dishonoured. Suit for the amount of cheque was held to b'e not a suit on the original contract, that the issuance of cheque was an independent transaction and the arbitration clause in the original contract did not apply as there is no dispute arising out of the original contract. It was held that the suit based on the dishonour of the cheques, could not be stayed under Section 34 of the Arbitration Act. It was contended for the defendants that the execution of the pronote towards the price of cotton did not amount to a new contract but was merely a conditional payment, that the original debt subsisted as per the original contract and the arbitration clause in the original contract still held good. Various decisions relating to the effect of execution of promissory notes as conditional payment were referred to by the defendants in that case. The learned Judges distinguished those cases and held that they were not relevant and that no question arose as to whether a suit was maintainable on the original debt or not. After so holding, the learned Judges held that, after issuance of cheques there was no dispute subsisting and allowed the appeal and dismissed the application for stay.
8. We may point out that the appropriate principles applicable to such situations have been laid down by Subba Rao, J. (as he then was) in the decision of the Supreme Court in Union of India v. Kishorilal Gupta and Brothers, . That case has been followed by the Supreme Court in Damodar Valley v. K. K. Kar, . In these two decisions, the Supreme Court held that if it is established that a contract containing an arbitration clause is replaced by way of novation, by another contract which did not contain an arbitration clause, the arbitration clause in the first contract would not apply. If there is no such novation, the earlier contract together with the arbitration clause will hold good. In Kishorilal Gupta's case it was laid down that, if the original contract was substituted by a new contract, the arbitration clause in the earlier contract would perish with that contract and could not be relied upon. Otherwise, it could be relied upon. Therefore the question will be whether the contract containing the arbitration clause is substituted; by way of novation, by another contract not containing an arbitration clause.
9. In our view, if the respondent is able to establish that there was a new contract entered into between the appellants and the respondent, by which the terms and conditions of the original contract were given up, then it could be said that the arbitration clause i.e., Clause 9 of the agreement dated 22-10-1984 would not be applicable any longer.
10. On the question whether there was new contract or not, according to the respondent-plaintiff, the allegations in the plaint are certainly relevant. We find from the plaint that the suit is not based upon any agreement which has substituted the original contract dated 22-10-1984. In fact, the plaintiff relied upon the earlier agreement dated 22-10-1984 in the cause of action paragraph. He nowhere stated that the said contract stood discharged by a fresh contract entered into between the parties at any time later. We find from paragraph 8 of the plaint, referring to the cause of action, that reliance is clearly placed on the original agreement dated 22-10-1984 as part of the cause of action and on all subsequent dates referred to in the plaint and finally on 14-2-1991 when the plaintiff got issued a legal notice to the defendants. In fact, the learned counsel for the respondent-plaintiff seeks to rely upon an oral settlement sometime before the issuance of cheques rather than any written contract substituting the earlier written contract dated 22-10-1984. Even in the notice, which the respondent-plaintiff gave prior to the date of the suit, dated 14-2-1991, there is no allegation that the . original contract stood discharged by a new contract. In that view of the matter and particularly, in the light of paragraph 8 of the plaint relating to the cause of action, we are of the opinion that the suit is based on the original agreement dated 22-10-1984. In view of the above decisions of the Supreme Court, jt is clear that the arbitration clause in the original contract continues to apply. Therefore, it is not necessary for us to go into the correctness or otherwise of the decision of the Madras High Court in Vasanji Navji's case , which proceeded on the assumption that the issuance of the cheques in that case amounted to the formation of a new contract.
11. Further, the Court below was wrong in thinking that the appellants have not disclosed their defence before filing the application for stay. In this context, it is necessary to remember that under S. 34 of the Arbitration Act, the defendant, if he intends to obtain stay of the suit, has first to seek stay before taking any "step" in the proceedings. In fact if he files a written statement in the case disclosng his defence, he will thereafter be barred from applying for stay of the suit. The Court below was, therefore, wrong in think-
ing that it was incumbent on the defendants to disclose their defence before filing the application for stay. We may, however, point out that the general nature of the defence is mentioned in the rejoinder filed by the appellants. The rejoinder was filed subsequent to the filing of the application for stay and will not amount to taking any steps in the proceedings.
12. It is also necessary to note that the arbitration clause in clause 9 covers "any dispute" arising out of the contract. Even assuming that the amount is settled, the nonpayment is a dispute arising out of the contract and has to be referred to arbitration because the clause is a 'comprehensive clause' covering all disputes, (see Gaya Electric Supply Co, v. State of Bihar, ). In view of the allegations in the rejoinder filed by the defendants, the settlement itself is denied by the defendants and therefore the existence of a settlement is itself a matter to be referred to arbitration.
13. For the aforesaid reasons, the appeal is allowed and the order passed by the lower Court is set aside and the suit is stayed pending reference of the matter to arbitration. It will be open to the parties to take such steps under law as are necessary for the subject matter to be referred to arbitration. No order as to costs.
14. It is, however, represented by the learned Counsel for the appellants, Sri T. Veerabhadrayya, that as a consequence of the order granting stay, it must be held that the lower court has no jurisdiction to grant interim attachment in I. A. No. 239 of 1991. It will be open to the appellants to file an application in the lower Court taking out such contentions as are open to them under law. If any such application is filed for vacating the orders passed in I.A. No. 239 of 1991, the same shall be disposed of by the lower court in accordance with law.
15. Appeal allowed.