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Daulat Ram Rala Ram Vs. State of Punjab - Court Judgment

LegalCrystal Citation
SubjectArbitration;Civil
CourtPunjab and Haryana High Court
Decided On
Case NumberF.A.F.O. No. 28 of 1956
Judge
Reported inAIR1958P& H19
ActsArbitration Act, 1940 - Sections 2, 30 and 34; Contract Act, 1872 - Sections 29; Evidence Act, 1872 - Sections 114
AppellantDaulat Ram Rala Ram
RespondentState of Punjab
Appellant Advocate K.S. Thappar, Adv.
Respondent Advocate L.D. Kaushal, Deputy Adv.
DispositionAppeal dismissed
Cases ReferredBasantlal v. Dominion of India.
Excerpt:
.....proceedings. so long as this intention be not clearly indicated, the act cannot be regarded as a 'step in the proceedings. , after referring to a number of english as well as indian decisions, lays down the test as follows :in my opinion, the true test for determining whether an act is a step in the proceadings is not so much the question as to whether, it is an application, although, of course, that would be a satisfactory test in many cases but whether the act displays an unequivocal intention to proceed with the suit and to give up the right to have the matter disposed of by arbitration. ' 11. the facts of the second case air 1935 sind 62 (e) also are clearly distinguishable. 9. in case of bad or incomplete work, payment shall be made at 25% less rates than agreed upon. the argument,..........in the proceedings of the suit or in any proceedings connected with the prosecution of the suit. applications in matters extraneous to the suit and having no connection with the prosecution of it will not fall under this category. presentation of an application refusing to take any part in the proceedings or for granting of time to make a formal prayer for stay of the proceedings cannot, in my opinion, be regarded as taking 'a step in the proceedings.' it is in fact a step in the bar of the proceedings.the general remark should be interpreted in the light of the instances which follow. mr. paruck in his commentary on the arbitration act, 1940, (3rd edition) at page 311, says that 1he general statement is not supported by any decided case. in parker, gaines and co. ltd v. turpin,.....
Judgment:

Chopra, J.

1. This is an appeal against an order of Senior Subordinate Judge 1st Class, Ludhiana, under Section 34 of the Indian Arbitration Act, staying the suit brought by Daulat Ram appellant against the State of Punjab, the respondent.

2. Daulat Ram instituted the suit for recovery of Rs. 8,000/- on the allegations that he had contracted to carry out certain works for the Irrigation Department in the Gray Canal Circle, for which in addition to other charges he was to be paid Rs. 2/- per thousand cubic feet as wetness allowance, and that the defendant without his consent reduced the contracted allowance to Re. 1/8/- per thousand cubic feet and deducted the amount of Rs.5,081/- and Rs. 1,422/- from his further bills as excess past payments and withheld the payment of Rs. 1,497/- The action of the defendant was challenged as illegal and without authority.

The suit was instituted on 4th April, 1955. On 7th April, 1956, Summons for the appearance of defendant, on 10th June, 1955, was directed to issue. On that date, counsel for the defendant made a statement that his client wanted to present an application under Section 34 of the Arbitration Act and since the relevant records had not been received from the Department concerned he prayed for an adjournment. The Court thereupon made the following order:-'For written-statement of the defendant or application under Section 34 Arbitration Act, the case to come up on 1st July, 1955'.

3. On 1st July, 1955, the defendant submitted the application stating that one of the terms agreed upon between the parties proved that 'all disputes arising out of or connected with the work order will be referred to and decided by the Superintending Engineer of the Circle as arbitrator'', that the subject matter of the suit was covered by the arbitration clause of the agreement and that the defendant always was and now is ready and willing to do all things necessary to the proper conduct of the arbitration proceedings.

4. The plaintiff opposed the application on the ground (i) that the defendant in praying for adjournment of the case on 10-6-1955 had taken a 'step in the proceedings' and therefore the application was barred by the provisions of Section 34 of the Arbitration Act, (ii) that the dispute did not fall within the arbitration clause, and (iii) that the Superintending Engineer, being himself a party to the agreement and hence the dispute, was not the proper person to act as arbitrator. It was therefore, prayed that the Court, may in the exercise of its discretion, refuse to stay the suit.

5. On all these points, the learned Subordinate Judge found against the plaintiff and accepting the application directed the suit to be stayed. The plaintiff has come in appeal against this order.

6. Section 34 of the Indian Arbitration Actlays down:--

'where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to 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.'

Undoubtedly, the application was presented before the filing of the written-statement. On behalf of the appellant, it is contended that the defendant in praying for adjournment, for whatever purpose, on 10th June took a 'step in the proceedings' and thereby deprived himself of the right to present the application. According to Mr. Thapar, intention of the defendant in seeking adjournment is of no consequence the matter of importance being the reason for which the adjournment was granted.

Under Order 17, rule 1, Civil Procedure Code, cause has to be shown for the adjournment of a case. The ground on which the Court adjourned the case was for the filing of a writ-ten-statement. The statement of the defendant's counsel has to be read in the light of the order made thereon. The defendant acquiesced in the order. Therefore, he should be regarded ashaving taken time for filing the written statement, which amounted to taking a 'step in the proceedings.' In the alternative, Mr. Thapar submits that even a prayer for adjournment for presenting an application under Section 34 amounts to taking a 'step in the proceedings' of the suit.

Number of decisions are cited, in which ft is held that an application for time to file a written statement is a 'step in the proceedings' within the meaning, of Section 34, Arbitration Act. The proposition can be helpful only if the argument that the time in this case was sought and granted for the purpose of filing a written-statement be acceptable. But, with that, I cannot convince myself to agree.

As already observed, on the presentation of the plaint summons for appearance of the defendant on 10th June was ordered to issue. The summons actually issued and served upon the defendant is not traceable on the record. It cannot, therefore, be said if he was also called upon to put in his written statement that day. Nor is it clear from the record that the summons was accompanied by a copy of the plaint. On the very first day when the defendant appeared & at the outset, his counsel expressed his intention to present an application under Section 34 for stay of the suit.

The defendant did not take part in the proceedings of the suit, nor did he show his willingness to take any part therein. On the other hand, he objected to the proceedings of the suit and prayed for time to present a formal application in that connection. The prayer was granted. The Court instead of adjourning the case merely for presentation of an application under Section 34 directed that the written-statement may also be filed on the adjourned hearing. It was only either of them that was to be presented, the choice was left to the defendant.

In case of the filing of an application under Section 34, the written statement need not have been submitted what the Court meant to say was that the defendant would present an application under Section 34 as desired, but in case he did not do so he should be ready with and file his written statement. It was only by way of extra precaution, to avoid the necessity off another adjournment, that this order was made. The defendant was clear in his mind that he was to present an application under Section 34, the precautionary measure taken by the Court would not affect his case adversely. In manner, could he object to the order which the Court was pleased to make on his prayer for time? The order itself was in the alternative, his forced submission did not mean that he accepted or agreed to file a written-statement on the date to which the case was adjourned.

7. The next question is whether the defendant in making a request for time to present an application under Section 34, should be deemed to have taken a 'step in the proceedings'. The true test in such a case is whether the act displays an unequivocal intention on the part of the defendant to proceed with the suit and to give up his right to have the matter disposed of by arbitration, did the request for time mean doing something in aid of the progress of the suit or submitting to the jurisdiction of the Court? In my opinion, the answer must be in the negative.

Instead of showing his willingness to take part in the proceedings of the suit or submit to the jurisdiction of the Court the defendant un-equivocally expressed his intentions to the contrary. He wanted to take objection to the proceeding of the suit and the Court's jurisdiction to hear it. By no act of omission or commission did he indicate that he desired the action to proceed and not that the matter should be referred. So long as this intention be not clearly indicated, the act cannot be regarded as a 'step in the proceedings.'

8. In The Karani Industrial Bank, Ltd. v. Satya Niranjan Shaw, AIR 1924 Cal 789 (A), Sanderson C.J. while holding that a verbal prayer by defendant's counsel for further time to file a written-statement in reply to the Court's question is taking a 'step in the proceedings', proceeds to observe:--

'However, if the Bank were intending to object to the jurisdiction of the Court and intending to make an application to stay the suit on the ground that the matter should be referred to arbitration, the proper answer to the learned Judge's question for the learned Counsel would have been that the Bank did not intend to file any written-statement, inasmuch as they were going to apply for a stay of the suit and that they did not desire to take any step in the proceedings.

With respect to that the learned Advocate General has stated that the learned Counsel was not aware of the facts and was not properly instructed. The answer to that is that if that were so, the learned Counsel ought to have applied for an adjournment before taking any step at all, but he did in fact apply for further time to file a written statement.' The observation pointedly make out a distinction between a request for time for filing a written-statement and one for submitting an application under Section 34. A prayer for extension of time to put in a written-statement undoubtedly indicates a desire to contest the suit on merits in Court and an intention to abandon the right to have the matter disposed of by arbitration. No such intention is exhibited where the prayer is one for time to put in an application for stay of the suit, because of an arbitration clause in the agreement. In that case, the indications in fact are just the other way.

9. In Nuruddin Abdulbusein v. Abu Ahmed AIR 1950 Bombay 127 (B) Tendolkar J., after referring to a number of English as well as Indian decisions, lays down the test as follows : --

'In my opinion, the true test for determining whether an act is a step in the proceadings is not so much the question as to whether, it is an application, although, of course, that would be a satisfactory test in many cases but whether the act displays an unequivocal intention to proceed with the suit and to give up the right to have the matter disposed of by arbitration.' In Firm Khimchand Ramdas v. Udhavdas Varandmal, AIR 1928 Sind 97 (C) facts were almost similar. Summons was served upon the applicant to appear and answer the suit on 10th January, 1927. On that day, the applicant appeared in the Small Cause Court through a Pleader, who intimated that he wished to apply for stay. The case was accordingly adjourned. On the date of hearing, the case could not b3 reached.

Meanwhile, on 2nd February, 1927, the defendant filed an application in the Court of the Judicial Commissioner for stay under Section 19 of the Arbitration Act, 1899, on the groundthat the contracts sued upon were entered into subject to a submission clause and that the matter should therefore be referred to arbitration. The learned Additional Judicial Commissioner distinguished the case from those where prayer is made for time to file a written-statement and observed:

'In the present case, however, as would appear from the diary there was no application for an adjournment of any kind. There was merely an intimation by the pleader to the Court that an application fir stay will be made to this Court. Far from submitting for a moment to the jurisdiction of the Court, the pleader for the applicant at the very first opportunity intimated his desire to disown that jurisdiction. I do not think by any straining of language an intimation given to this effect can be construed to be a step taken in the suit or proceedings. It would be far more correct to describe it as a step in bar of the suit or the proceedings.'

10. I have quoted above somewhat in extenso ecause R. Thapar has laid particular stress upon certain observations, which seem to hold the contrary view, made in two other decisions of the same Court. These are Fleming Shaw and Co. v. Haji Yusif Ellias, AIR 1917 Sind 12 (D), and Murlimal Santram v. Banarsidas and Sons., AIR 1935 Sind 62 (E). In the first, summons was issued for framing of issues by the Small Cause Court. Pleader for the defendant appeared and applied for postponement on the ground that the documents relating to the suit had to be discovered and the time allowed had been too short to permit all this being done. The learned Judge basing his conclusion upon Halsbury's Laws of England Volume I, Para 92, to which I shall presently advert, observes .

'Whether the applicant wishes to have further time to file a written-statement or to raise as a bar to the suit the agreement to refer to arbitration, in either event his application is an application to invite the Court to do something which would enable him to establish his defence.'

The observation seems to be somewhat too generally worded; the decision can be regarded only as an authority on the facts of the case and no more. With great respect, I am not in agreement with its concluding portion, for I have not been able to understand haw the expression of a wish by the defendant to apply for stay of the suit amounts to an application for the purpose of enabling him 'to establish his defence.'

11. The facts of the second case AIR 1935 Sind 62 (E) also are clearly distinguishable. There, the defendant submitted to the orders of the Court, once to file the written statement within seven days and on the second occasion to file it within another five days. The order of the Small Cause Court refusing to stay the suit under Section 19 was maintained, because (i) the application was barred by res judicata, a similar application previously presented having been already dismissed, (ii) the order was not held to be appealable and (iii) on facts the discretion was found to have been properly exercised. On the question whether the applicant had taken any step in the proceedings, the learned Additional Judicial Commissioner followed the earlier decision of his own Court and merely reproduced the above quoted observation.

12. Reliance is also placed on Halsbury's Laws of England, (Lord Simonds Third Edition) Vol. 2, Para 58, page 25, which says -

'A Party who makes any application whatsoever to the Court, even though it be merely an application for time, takes a step in the proceedings. Thus the filing of an affidavit opposition to a summons for summary judgment, delivery of a defence, application to the Court for leave to interrogate, or for a stay pending the giving of security for costs, or for extension of time for delivery of defence, are ''steps' in the proceedings. Even attendance on an ordinary summons for directions issued by the plaintiff and permitting an order to be made thereon without objection amounts to taking a step in the action.' .

13. So far as the instances are concerned, the present case does not fall under any of them. The clarification, 'whatsoever' has, from the very nature of things, to be confined to an application in the proceedings of the suit or in any proceedings connected with the prosecution of the suit. Applications in matters extraneous to the suit and having no connection with the prosecution of it will not fall under this category. Presentation of an application refusing to take any part in the proceedings or for granting of time to make a formal prayer for stay of the proceedings cannot, in my opinion, be regarded as taking 'a step in the proceedings.' It is in fact a step in the bar of the proceedings.

The general remark should be interpreted in the light of the instances which follow. Mr. Paruck in his Commentary on the Arbitration Act, 1940, (3rd Edition) at page 311, says that 1he general statement is not supported by any decided case. In Parker, Gaines and Co. Ltd v. Turpin, (1918) 1 K. B. 358 (F), the principal case relied upon in the Paragraph, the facts were these. A party to a written contract containing an agreement to refer disputes to arbitration was sued for breach of the contract. He was unaware that the contract contained an agreement to refer.

The plaintiffs in the action took out a summons for discovery. The defendant asked for discovery also, and an Order for mutual discovery was made. He then became aware of the agreement to refer and applied for a stay of proceedings in the action. The Country Court had relied upon Ives and Basker v. Willans, (1894) 2 Ch 478 (G) and stayed the action. In appeal, Lawrence J, referring to that decision observes:

'He (counsel) suggested that if a party does not know the full facts he cannot take a step in the proceedings which would preclude a stay and recourse to arbitration. The Court of Appeal did not mean to decide anything of that sort. The Court was dealing with the particular matter of demanding a statement of claim. It did not intend to give any countenance to the suggestion that a party may take any step however advanced in the action so long as he does not know of the arbitration clause, and then apply to have the action stayed. That is not the intention of Section 4. The words in their natural meaning indicate that if a party takes a step in the proceedings he cannot after that stay the action and proceed to arbitration.'

It is not the making of every kind of application in the suit that amounts to taking a step in the proceedings, one has to see to the natureof the application and the purpose for which it is made. In my view, the prayer for adjournment in this case did not amount to a step in the proceedings of the suit, and therefore, could not be pleaded as a bar to the application under Section 34 of the Arbitration Act.

14. It is then urged that the dispute is notcovered by the arbitration clause. Conditions of the contract are printed on the back of the work-order. The parties are admittedly bound by these conditions. The relevant conditions are Nos. 5, 7 and 9 and they read -

'5. In matter of dispute, the case shall be referred to the Superintending Engineer of theCircle, whose order shall be final.

'7. Any sum found to be due to Government by the contractor in respect of this work order, may be deducted from any sum whatsoever, payable by the Government to the contractor (s) either in respect of this work order or any other work order or contract.

'9. In case of bad or Incomplete work, payment shall be made at 25% less rates than agreed upon.'

The plaintiff's case is that the defendant had no right to reduce the rate of wetness allowance from Rs. 2/- to Re. 1-8-0 per thousand public feet without his consent and that the defendant was not entitled to deduct the over payments amounting to Rs. 6,503/ or to withhold payment of the balance of Rs. 1,497/-. The dispute arises out of the work orders and it relates to clauses 7 and 9 of the conditions. Clause 6 applies to all kinds of disputes arising out of the work-order and relating to any of its conditions. The clause is broad and comprehensive enough to embrace the points raised by the plaintiff. I do not therefore see any force in the contention.

15. It is next submitted that the arbitration clause is vague and unenforceable inasmuch as it does not specify the Superintending Engineer to whom the matter is required to be referred, is it to be the one who held the post when the contract was entered into or at the time of its breach or when the dispute arose. Mr. Thapar further contends that at the time the dispute arose the Gray Canal Circle, to which the contract related, had been abolished.

Mr. Ahuja, S. D. O. (D.W.1) tells us that Mr. Vashisht was the Superintending Engineer, Gray Canal Circle, at the time when the work orders were issued, that he had retired and that on his retirement the Circle was abolished and amalgamated with the Ferozepore Circle. The argument, therefore, is that the suit should not have been stayed since both the identity as well as existence of the arbitrator were in dispute. To me there seems to be no doubt as regards the identity of the arbitrator to whom the matter was intended to be referred.

The clause says that 'in the matter of dispute, the case shall be referred to the Superintending Engineer of the Circle', which clearly means the gentleman holding the office when the dispute arises. It is the dispute that is to be referred, the question of reference does not arise so long as there is no dispute. If and when any dispute arises, the case is to be referred to the Officer holding the post at the time. I am supported in this view by the decision of a Division Bench in Basantlal v. Dominion of India. AIR 1952 Cal 340 (H). The learned Judges dissented from the contrary view held in Governor-General v.Simla Banking and Industrial Co., AIR 1947 Lahore 215 (I).

16. Moreover, nomination of the arbitrator is not by name, but by virtue of his office. On the transfer or retirement of the Superintending Engineer entitled to act, his successor is to take his place as the arbitrator. There is thus no uncertainty or ambiguity as regards the identity of the arbitrator.

17. Abolition of the Circle, in my opinion, can have no effect in this case. As already stated, the Superintending Engineer of the Circle at the time the dispute arises and the proceedings are started is competent to arbitrate. On the merger of Gray Canal Circle with Ferozepore Circle, which meant the formation of a bigger Circle, the latter would be 'the Circle'' as contemplated by the arbitration clause. Superintending Engineer of that Circle would be the officer to whom the reference is to be made.

18. Another ground taken up is that the respondent was served with a notice under Section 80, Civil Procedure Code, no reply to the same having been received the appellant was forced to institute the suit at the expense of a large amount in the way of court-fees etc. In view of these facts, it is submitted, the discretion for stay of the suit should not have been exercised in favour of the respondent. Silence of a party before the proceedings are started is not of any serious consequence. Not resorting to arbitration or taking up a plea in support of the same, on being threatened with a suit, would not disentitle the party to take a stand on the arbitration clause as a bar to the suit. The choice whether the party would like the matter to be referred or determined by the Court is to be made after the proceedings are instituted and not when the same are contemplated or threatened. It is only then that he is to make up his mind and act accordingly.

19. Lastly, it is submitted that the Superintending Engineer was the officer at whose instance the deductions were made and payment of the balance amount due to the appellant was stopped and that he was in service of the respondent and a witness in the case. Therefore, the Superintending Engineer was the most inappropriate person to act as arbitrator, on facts, the learned counsel has not been able to point out anything on the record in his favour, except that the Superintending Engineer is an employee of the respondent. He has not been able to show that the Superintending Engineer, Ferozepore, had anything to do with the work-orders issued to the appellant on completion of the work and payments therefore.

There is nothing on the record to indicate that the deductions were made or the payment stopped under his orders or at his instance. There is thus little to be proved by or elicited from the Superintending Engineer, which means that he is not even a necessary witness in the case.

20. Normally, the parties to an arbitration are entitled to have their disputes settled by an unbiased arbitrator with no interest in the result of the proceedings. The fact that the Superintending Engineer is interested to the extent that he is employed and paid by the respondent would, by itself, be not sufficient to disqualify him from acting as arbitrator. It has not been shown that the Superintending Engineer is biased or that there is a probability that he would be biased.

In the absence of any indication to the contrary, the presumption is that the gentleman, holding such a high office, would keep in mind the duties and responsibilities of an arbitrator and would act as an honest disinterested and impartial tribunal, absolutely un-influenced by the fact that he is the head of the department to which the dispute relates. I shall expect that he would realise that his position as an arbitrator is more responsible than that of a Judge and that he would act with scrumptious fairness, because his award is to be the final judgment on the rights of the parties before him. On this ground also I would refuse to interfere with the discretion exercised by the learned Subordinate Judge.

21. In the result, the appeal fails and isdismissed. In view of the facts of the case, Ileave the parties to bear their own costs.


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