1. This appeal filed by the original defendant is directed against the order passed by the trial Court rejecting her application made under Section 34, Arbitration Act for stay of the legal proceedings.
2. The respondents (plaintiffs) filed a suit for a declaration that they are vested with all the rights of publishing, advertising, distributing, selling, reprinting and all other rights in the 5 books of Ratanlal Dhirajlal viz.
Law of Crimes.
Indian Penal Code,
Law of Torts,
Indian Evidence Act, and
Criminal Procedure Code
and that the defendant stands divested of her rights in the said books and for perpetual injunction against her.
3. Admittedely, the parties had entered into the agreement dt. 6-10-1980 and the arbitration clause 21 thereof reads thus :
'In case of differences or disputes with regard to interpretation of any clause or words therein or implementation of the terms of this agreement or any other disputes regarding this agreement, the same shall be referred to the joint arbitration of Shri. Vimal Dave, Advocate, Supreme Court of India, New Delhi and Shri P. G. Joshi, Chartered Accountant Nagpur. For other purposes the provisions of Arbitration Act will apply. The Award given by the Arbitrators under the arbitration shall be final and binding on both the parties.'
3A. After putting in an appearance in the suit, the defendant on 1-11-1982 made the present application praying for the stay of legal proceedings under Section 34, Arbitration Act, in view of the above arbitration clause 21 of the agreement.
4. The learned trial Judge referring to the several decisions of the High Courts and the Supreme Court, found that though the defendant had applied under section 151, civil P. C. for temporary injunction, it could not be said that it was such a plea as could disentitle her from claiming relief of stay of the proceedings under Section 34, Arbitration Act.
5. However, he proceeded to consider whether any grounds exist for holding that the matter should not be referred to the arbitration and whether exercising his discretion he should not be referred to the arbitration and whether exercising his discretion he should stay the suit. He chose, in the instant case, to exercise his discretion not to stay, but to proceed with the suit, because the case involved difficult questions of law, unsuited for determination by the Arbitrators.
'Difficult questions of assignment of copy right, mode of assignment, meaning or copyright and meaning of publication under the Copyright Act, 1957, are also involved in the suit. Admittedly, the suit is filed for breach of agreement and having regard to the hardship involved and difficulties of balance of convenience and other matters of investigation as to who committed the breach, the Court may refuse to grant a stay of the suit. Considering all these special circumstances of the case, I feel that the Court should len against staying the proceedings of the suit when the case is beset with such difficulty and intricate questions law.'
6. Thus the application was rejected holding that in view of the special circumstances of the present case, it would be more appropriate if all the difficult questions and controversies involved in the suit are determined by the Civil Court.
7. Shri A. R. Joshi, learned counsel for the appellant (defendant) submits that the learned trial Judge was not justified in holding that the two Arbitrators appointed under clause 21 were not competent enough to decide the question of law involved in the matter. Further, referring to the Privy Council decision in Ghulam Jilani v. Muhammad Hassan 1901 29 Ind App 51, reiterated by the decision of the Bombay High Court in the case of Raneegunge Coal Association Ltd. v. Tata Iron Steel Co., Ltd. 1920 31 Bom LR 21 : AIR 1929. Bom 119, he urged that in India the Arbitrators are the Judges both of law and of facts and they are not incompetent to decide the question of law. He submitted that the dispute with regard to the interpretation of the terms, of the agreement were clearly made to vest by the parties for determination by the Arbitrators. This, he submitted, was in consonance with the prevalent practice amongst the commercial community that they choose to resort to domestic forums of their choice, so that time consuming and and tortuous delay of law Courts should be avoided and the matters should be expeditiously decided, on commonsense and commercial considerations. The lower Court, he submitted, only imagined that complicated questions of law were involved in the suit. In fact, unless facts were decided, no questions of lae could arise and if could be decided by the Arbitrators. The Arbitration Law, he submits, does not exclude reference of questions of law to the Arbitratiors. The language of Section 34, Arbitration Act is so general so as to include legal proceedings in respect of any matter and is nicer intended to exclude questions of law.
8. I find these submissions of Shri Joshi fully supported by a bead-roll of cases, upon which he heavily relied namely, (1) Andhra Co-op. Spn. Mills v. Srinivasan. AIR 1958 A P 158, (2) Rangeegunje Coal Association Ltd. : (1929)31BOMLR21 , (3) Abdul Haroon V. E. D. Sasson and Co. AIR 1920 Sind 61, (4) ghulam Jiani V. Muhammad Hassan 1901 29 I A 51 Karanji and company v. Indo-China T. Co. 56 CWN 763, (6) Asia Publishing House v. John Wiley : (1969)71BOMLR777 and (7) Chandanmull Jhaleria v. Clive Mills Co. : AIR1948Cal257 .
9. In M/s. Chiranji Lal V. Union of India, , however, stay of the suit was refused where the matter was an important one relating to the interpretation of constitutional provision. The adjudication of such a matter, it was held, was more appropriate by the Court than by an Arbitrator. So also in Chimanram Motilal v. Vandravandas Gordhandas : (1947)49BOMLR431 , the question that arose at the outset was whether one of the rules of an association was ultra vires the association. Moreover, the second defendants in that suit not being a party to the arbitration agreement, the suit was to survive in any event as against them. In order to avoid a conflict of decisions, the Court, however, declined to stay the suit under Section 34. The decisions in these two cases thus turned and depended upon such special of interpretation of any provision of Constitution or ultra vires nature of ny term or rule arises for consideration.
10. It is pertinent to not that in the reply filed by the plaintiffs to the application of the defendant for stay, it was not their contention that really any complicated or difficult questions of law were involved for consideration. The application was opposed firstly, on the ground that no dispute being existent, there is nothing which should be refered, secondly, though the defendant says that she is willing to do anything in pursuance of the agreement, she has not done anything and thirdly, the power to grant stay or not is discretionary, Shri Manohar for the respondents in fact fairly conceded that dispute does arise cognisable within the ambit of Cl. 21 of the agreement. Under these circumstances, it cannot be said that the discretion has been properly exercised by the trial Court. Its finding that because complicated questions of law are involved, stay cannot be granted is, therefore, stay cannot be granted is, therefore, unsustainable and has to be set aside. The lower Court referred to the matters in its order (extracted above) about which there was no whisper. The lower Court only imagined that complicated questions of law were involved for which there was no basis.
11. The correctness of the order of the lower Court was, however, sought to be justified by assailing the adverse finding pronounced against the plaintiffs that the defendant could not be said to have acquiesced into the resolution of the dispute by the Court. It is necessary to refer to certain dates in order to appreciate how the issue arises for consideration. The arbitration agreement is dt. 6-10-1980. Plaintiffs issued notice from Nagpur on 12-10-1982 on the defendant at Bombay. They filed the present suit on 14-10-1982 and on the very same day presented an application for an ad interim injunction. It was obtained exparte returnable on 1-11-1982. On 1-11-82 the defendant appeared and on her first dau of appearance presented the present application under Sec. 34, Arbitration Act. The plaintiffs filed a reply to that application on 25-11-1982. In para 7 of this reply this what was revealed by the plaintiffs :
'Plaintiffs have already in pursuance of their rights under the agreement dated 6-10-1980 ordered a reprint of approximately 2,000 copies of each book out of which approximately 1925 copies of each book were available for sale after binding and the same have already been sold out.'
12. Then on 24-11-1982 the defendant filed an application under Section 152, Civil P. C. stating that on receipt of the suit notice by her on 18-10-1982, a telegram was sent on 22-10-1982 pointing out that they were falsely asserting some rights in reprint of the books, that by misleading the Court, they obtained an ex parte ad interim injunction against the applicant and that it was necessary to restrain the plaintiffs from selling, advertising for selling and from reprinting the books title the matter was finally decided. It was further made clear in para 6 of that application that she was making this application that she was making this application without any prejudice to her application for stay which she had already made under Section 34, Arbitration Act.
13. Filling of such an application by the defedant, it was submitted before the lower Couyrt, amounted to taking a positive step in the proceedings of the suit and as such she had disentitled herself from claiming the relief of stay of suit.
14. Now the expression appearing in Section 34, Arbitration Act, is-
'............At any time before filling of a written statement or taking any other steps in the proceedings,.......'
15. Admittedly the written statement has not yet been filed by the defendant and the question for consideration is whether making of an application under Section 151, Civil P. C. by the defendant is taking of such a step so as to disentitle her to pray for stay for which she had already applied and the decision of which was deferred. In Food Corporation of India v. Yadav Engineer & Contractor AIR 1973 SC 13020, the Supreme Court, relying upon its earlier decision in State of U. P. v. Janki Saran Kailash Chandra, : 1SCR31 , observed that the steps must necessarily manifest an intention of the plaintiffs to abandon or waive its rights to go to the arbitration or acquiesce in the dispute being decided by the Court. Filling of a written statement is specifically meant as one such act and the expression is followed by the general words 'taking any other steps in the proceedings'. The principle of ejusdem generis, it is observed by the Supreme Court, must help in finding out the import of general words and that the expression must be given a narrow meaning indicating clearly and unambiguously the intention to waive the benefit of the arbitration agreement.
16. Now, in the instant case filing of such an application by the defendant praying for an injunction as one can easily see, was necessitated by relivation of certain facts by the plaintiffs in their reply to the application of the defendant for stay. In the present application filed under Section 151, the defendant, therefore, stated that the plaintiffs were trying to arrogate to themselves certain rights, as if, on the assumption that their claim for declaration was decreed. She also alleged that taking advantage of the Ex parte injunction, the plaintiffs surreptitiously and dishonestly were indulging in reprinting and publishing the books which they could never do unless the matter in controversy was fully resolved. This could never do unless the matter in controversy was fully resolved. This could as well have been said by her in her reply to the application of the plaintiffs for an ad interim injunction praying for vacation of that ex parte order, had the revelation of these activities of the plaintiffs come to her knowledge earlier. Viewed in this light, she did not pray for any relief of temporary injuntion founded on a prima facie case under any agreement. Her application is in the mature of a prayer to maintain the status quo or in other words, to call upon the plaintiffs to undo and stop doing further their illegal activities to which they were resorting, taking advantage of the Court's ex parte order in their facour, Such an application could as well have been made buy her to the court under Section 41(b) read with Second Schedule of the Arbitration Act, even during the arbitration proceedings. The application, in short, was not in vindication of her right but merely for prevention of an abuse of the process of the Court. This alleged conduct of the plaintiffs could as well be attacked and made a ground for vacating an ex parte injunction. The matter complained of was, therefore, vitally concerned with the grant or refusal of the ad interim injunction as was prayed for by the plaintiffs. Since the ad interim injunction was still operating and the matter was not dis-justified in crying a halt to the alleged nefarious activities of the plaintiffs which they were encouraged to do under the garb of an ex parte order passed by the Court. By no stretch of imagination could it be said that by making such an application the defendant intended to abandon or waive her right to go to the arbitration or to acquiesce in the dispute being decided by the Court.
17. Referring to Anandkumar v. Kamladevi : AIR1971Bom231 , Shri Manohar submitted that by 'step' is meant a substantive step taken by a party though it may be of a very limited application. He further pointed out that the present application for temporary injunction was filed by the defendant after the application under Section 34 ibid was made by her. She could not have made such an application, be submits, seeking such a substantive relief except by filling a civil suit. I see little merit in these submissions. The very ruling relied upon in fact lays down :
'Mere filling of an affidavit or contesting or seeking to modify an interim order will not deter a defendant from abandoning reference to arbitration. Therefore, taking any part by the defendant in an interlocutory proceedings for appointment of a receiver or an injunction will not amount to taking a step in the proceedings and he wil not thereby be prevented from applying for stay of the suit.'
18. In Navjivan Construction Co. V. Kantilal : (1978)19GLR357 which was also pressed into service, the facts were that the defendants having made an application for stay relaxed their contention about the stay, a beat partically. They wanted the court to deal with the question of maintainability of the suit and to this extent they expressed unequivocally desire of theirs to have an adjudication from the Court. This was held as a clear step in aid of the proceedings though couched in a very clever language, but this ingenious desire, it was held, was almost transparent.
19. It cannot be gainsaid that making an application for appointment of a receiver or applying for temporary injuntion are interlocutory proceedings in a suit and have life till the disposal of the main proceedings. They stand independent and aloof of the main dispute between the parties involved in the suit. The test as laid down by the Supreme Court in Food Corporation of India v. Yadav Engineer (citsupra), being that an act 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 would depend upon the fact and circumstances of each case and not merely on the fact whether by an application the party seeks a positive relief or not or whether the application is made before or after the application under Section 34, ibid. True it is, that the defendant possessed the rights of publication and printing of these books and had this right been indicated by any one, her remedy was to seek a redress through the Civil Court. But here, the plaintiffs filled their suit for a declaration that they have acquired these rights under the agreement in question and the defendant stands deprived of all her rights in these books on commission of the alleged brech of a particular term of the agreement. Neither in the plaint nor in the application for ad interim injunction was it disclosed that they had started publishing and printing of these books. Having obtained an ex parte temporary injunction, they started the publication and printing. It is in the reply to the defendant's application under Section ibid that the plaintiffs, in para 7 of their reply, disclosed that they had already ordered reprint of an approximately 2000 copies of each book and they were now ready for sale. Under these circumstances, if even before the issue whether the defendant committed any breach of the term of the agreem,ent was adjudicated upon bu the Court, the plaintiffs proceeded to do certain act on an assumption of a finding in tehri favour, was it expected, of the defendant that she should not bring this fact to the notice of the Court that under the garb of an ex parte temporary injunction the plaintiffs were abusing the process of the Court and that status quo, as on the day of the suit, be maintained. From the steps she took bu making such an application, can it really be inferred that she displayed her an unequivocal intention to abandon the benefit of the arbitration agreement and wanted the main dispute to be resolved by the Court? In my opinion, No. She was driven to make such S ab application by a situation created by the plaintiffs who having obtained an ex parte injunction order tried to misuse it to her prejudice. Under the facts and circumstances of this case, I. Therefore, find that lower Court was justified in holding that it could not be said that by making such an application, the defendant abandoned her right or acquiesced in the proceedings. A request of a person to a Dentist to stop temporarily his tooth-ache, does not always and necessarily mean that he also intends to approach, in future, the very Dentist to extract that tooth. The finding of the lower Court on the point is, therefore, maintained.
20. Shri. Manohar, however, tried to uphold the correctness of the order on a different ground altogether. In short, his submission is that where a party repudiates the agreement itself, the arbitration clause appearing therein cannot be availed of by him. In other words, one of the ingredient for the application of Section 34, he submits, is that there must be a subsisting contract. Though he referred to several decisions in support of his proposition, he mainly relied upon Shriram Hanutram v. Mohanlal and Co. : AIR1940Bom93 , Middle East Trading Co. v. State of Bihar : 4SCR572 . There can be no quarrel with the proposition that when the fact of contract itself is disputed, the Arbitrators cannot decide the point and the Court, in the normal course, will refuse to stay.
21. The scheme under the agreement in question was that the defendant had a right to revise and reprint the editions of Law Books in question and the plaintiffs were to be the sole selling agents for the same on payment of some commission. It was further provided that after every 7 or 8 months the defendant should revise and reprint at least one book and supply the minimum number of copies thereof to the plaintiffs and in that event the selling rights of the plaintiffs were to pay Rs. 4, 00,000/- to the defendant and in the event she delivered a first publication which she was entitled to make, the plaintiffs were to advance a further sum of Rupees 1,00,000/. The defendant was to refund Rs. 4,00,000/- within two years. Clause 12 then provided that in case the defendant committed any breach, the agreement of selling agency was to stand automatically terminated any breach, the agreement of selling agency was to stand automatically terminated and the plaintiffs were automatically to get all the rights of Publishers. Printers and Sellers. In other words, the limited right of the plaintiffs as Selling agents was to mature and pitch-fork into the larger rights as Publishers and Printers in case the breach of the condition was committed by the defendant. The plaintiffs paid Rs. 4,00,00/-. The defendant, it was alleged, did not revise nor reprint any book. The plaintiffs therefore, filed a suit founded on the ground that clause 12 of the agreement came into operation and they were entitled to printing and publishing the law books.
22. Shri Manohar relied upon several documents of the defendant on record to show that she in clear terms repudiated the agreement in question.
23. The defendant in reply to the application of the plaintiffs for temporary injunction (Exh 10), in para 2, it is pointed out, stated-
' The defendant states that the agreement dt . 6-10-1980 was never acted upon or to be acted upon as regards the specified 5 Law Books or the rights relating thereto.'
24. In the application for interim injunction under Section 151, Civil P. C., the defendant referred to her telegram dt, 20-10-1982 already sent to the plaintiffs informing them that-
'The agreement in truth and in real intention is only a loan arrangement at high rate of interest and nothing further. The agreement was never acted upon or to be acted upon.'
25. In reply to the plaintiffs' application for temporary injunction the defendant, in para 1 thereof (Exh. 22), stated-
'Defendant states that the plaintiffs have no selling rights much less publishing rights in respect of the 5 Law Books of which the defendant is an exclusive copyright owner'.
26. The defendant sent letters to the three Publishers on 3-12-1962 and informed them that-
'One Nagpur firm M/s. Wadhwa Sales Corporation is falsely and fraudulently claiming that they have publishing, selling and distribution rights in respect of these prestigious Law Books. My, client asserts and states that they have no right whatsoever in respect of their touching the said books.'
27. Shri Joshi submits that these stray statements, extracted from the documents of the defendant on record, are torn from their context in which they have been made. The defendant never stated that no agreement dt. 6-10-1980 ever took place between the parties. When the defendant stated that it was in truth a loan transaction at a high rate of interest or that the plaintiffs have no selling or publishing rights or that the defendant is the sole and exclusive copyright owner of these books, she only reiterated rightly the contents of clauses 3 and 5 of the agreement to the following effect :
'Clause 3:.... This amount shall be treated as a loan to my client and shall carry the rate of interest whatever is charged by your Bankers, Bank of Maharashtra from time to time. You shall further advance a sum of Rupees. 1,00,000/- as a loan from the day my client delivers you first supplies or publications on the terms and conditions thereunder'.
28. He pointed out from the reply of the defendant to the application of the plaintiffs for temporary injunction (Exh. 10) that the real contention raised by the defendant was that it was only on payment of Rs. 1,00,000 /- by the plaintiffs to the defendant that the latter was to grant the exclusive selling agency to the plaintiffs and since the plaintiffs did not pay Rs. 1,00,000/- by the plaintiffs to the defendant that the latter was to grant the exclusive selling agency to the plaintiffs and since the plaintiffs did not pay Rs. 1,00,000/- along with Rs. 4,00,000/-no selling rights were contemplated to mature in their favour. Further, it was only on the vesting of selling rights in the plaintiffs which were to accrue on payment of Rs. 1,00,000/- that clause 12 could come into operation and no publication rights thereunder could flow at all to the plaintiffs. A further contention was that the defendant had supplied 48 copies of the Cr. P. C. 33 copies of the book of Law of Evidence and 16 copies of Penal Code on 20-7-1981 to the plaintiffs and as per the term of the agreement, on delivery of these first supplies of books, the plaintiffs had to pay Rs. 1,00,000/- and since the amount was not paid, no selling agency vested in the plaintiffs and there was no question of automatic termination of that right and automatic acquisition of any right of publishers and printers. Shri Joshi, therefore, submits that if the reply is read as a whole, which would also explain the circumstances under which the said telegram was issued to the plaintiffs before the suit, it cannot be said that the defendant actually repudiated the contract as such. The defendant only complained of a breach of the term of the agreement by the plaintiffs and non-acquisition of any right by them as publishers and printers of these books under the agreement and it was in this context that the defendant stated that the agreement dt. 6-10-1980 was never acted upon or to be acted upon as regards the specified 5 books and that it was only a loan transaction at a high rate of interest and nothing more. Shri. Joshi further submits that the plaintiffs never opposed defendants application under Section 34 on the ground that the agreement has been repudiated or that there was no valid existing contract. Before the trial Court the matter was argued at length on the hypothesis that a valid contract subsists. He submits that in Anderson Wright Ltd v. Moran & Co. AIR 1955 SC 57, the Supreme Court ruled that when an issue is raised as to the formation for validity of the contract containing the arbitration clause, the Court is not bound to refuse a stay but may, in discretion,in the application for decide the issue as to the existence for validity of the arbitration agreement even though it may involve incidental a decision as to the validity or existence of the parent contract.
29. The case of the matter is whether the avoidance or so-called repudiation of the defendant arises out of the terms of the contract itself or she seeks to avoid the contract for reason the agreement? If it is former, the matter is certainly referrable to the Arbitrators, falling within the ambit of clause 21 which is very comprehensively and if it is latter, the clause cannot the reported to which goes along with the other terms of the contract which is repudiated as a whole.
30. The plaintiffs obviously have founded their claim for a declaration in the agreement in question, alleging breach of certain terms on the part of the defendant. The defendant has yet to file her written statement and unravel her defence in details. The terms of the arbitration clause 21 are as wide can well be imagined including within its sweep the determination of disputes with regard to (1) interpretation of any clause or words, or (2) implementation of the terms thereof, or (2) implementation of the terms thereof, or (3) any other dispute regarding the agreement. The defendant, by making an application under Section 34 ibid desires a settlement by the two arbitrators as per clause 21. The documents filed on record, read as a whole, shoe that the defendant is really not approving and reprobating i.e. repudiating the entire contract including its existence and yet insisting on a reference to the arbitration for determination of the matters in dispute. She seems to question the right of the plaintiffs even as a sole selling agent, which right, according to her, on interpretation of the terms of the agreement, was to accrue on payment of not only Rs. 4,00,00/- but Rs. 1,00,000/- also. The plaintiffs not having performed their part, the agreement in subsistence, she seems to assert, reveals only an agreement of a loan. There is really a difference between repudiation of a contract and repudiation of a liability under it, which cannot be overlooked. It is not stated by her that the agreement was never meant to be acted upon. That it is being acted upon as a loan transaction, is her contention.
31. To conclude, therefore, the proceedings are initiated by the plaintiffs claiming certain reliefs founded, obviously, on this agreement, which , admittedly, contains an arbitration clause. The nature of dispute that seems to arise as per the plaint precisely falls within the terms of the arbitration clause. The defendant, at the earliest stage, filed an application for stay under S. 34 ibid relying manifestly on the agreement and the arbitration clause therein. In the proceedings before the Court, there has been no clear repudiation of the contract by her. The plaintiffs, for the first time, during the hearing of this appeal, relying upon the defendant's telegram before the suit and other documents, try to spell out a repudiation of the contract bu her. In Chhabildas v. Damodar & Co. : AIR1943Bom199 , also the defendant had taken an attitude before the suit that he had a right to cancel the contract containing an arbitration clause. It was held that that cannot preclude him from relying on an arbitration clause and there is no reason for not granting his application for stay. Here, from the skeleton material relied upon by the plaintiffs. It cannot be said that the defendant refuted the factum or existence of the contract, more so when the defendant, the author of the same, explains the context in which she made them. The grievance of the plaintiffs is that the defendant by her conduct has evinced and declared her intention not to fulfil her obligations under the contract. The defendant never says that there has never been a contract at all. According agency under the agreement has not accrued in favour of the plaintiffs as a result of the non-payment of Rs. 1,00,000/-. On her part, she fulfilled her obligation to supply first publications of books to the plaintiffs and denied that she committed any breach. Lastly, her stand seems to be that it was primarily a loan transaction and was to be acted upon as such. All this controversy (including a plea of the defendant that it was mainly an agreement of loan and was intended as such) certainly falls within the fold of the wide wings of the arbitration clause. The defendant, in truth, does not repudiate the contract nor reprobates. She is using the same as a shield against the claim that is set up against existence by either. Each is seeking its aid for a climb, pointing out, at the same time, its inefficacy for the other.
32. In the result, therefore, the sole ground on which the learned trial Judge refused to stay namely, that intricate and complicated questions of law arise for determination is hereby set aside. His finding that filling of an application by the defendant for temporary injunction does not amount to a step in the proceedings is affirmed. The argument advanced for the first time in this appeal that the stay must be refused as the defendant has repudiated the contract itself is rejected. The appeal is allowed with costs. The order of the trial Court is set aside and the application of the defendant under S. 34, Arbitration Act, is allowed. The trail Court shall say the proceedings and take steps to refer the matter in accordance with the arbitration agreement.
33. Appeal allowed.