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Security and Finance (P) Ltd. Vs. Dattaraya Ragav Agge - Court Judgment

LegalCrystal Citation
SubjectMedia and Communication;Arbitration
CourtSupreme Court of India
Decided On
Judge
Reported inAIR1970SC720; (1970)72BOMLR415; 1970CriLJ756; (1969)1SCC181; [1969]2SCR668
ActsArbitration Act, 1940 - Sections 34 and 35
AppellantSecurity and Finance (P) Ltd.
RespondentDattaraya Ragav Agge
Cases ReferredAnantalal Singha v. Alfred Henry Watson
Excerpt:
.....- dispute arose - plaintiff not present at hearing conducted by arbitrator due to non receipt of notice - suit by plaintiff declaring that agreement brought by fraud - meanwhile arbitrator postponed hearing - issued fresh notices - notice issued by plaintiff to defendant and to arbitrator - plaintiff applied for stay of suit and filed application of contempt against arbitrator and defendant - defendant pleaded non-maintainability of suit on ground of working as per directions of arbitrator - arbitrator opposed plaintiff - high court rejected grounds of arbitrator and defendant - on appeal supreme court quashed findings of high court - whether arbitrator bound to stay proceedings after notice of institution of suit - held, even if action of appellants and respondent no.1 is assumed to..........3, sri ram nath vig who is a practising lawyer in delhi was the person named as arbitrator in the arbitration agreement itself and the dispute was submitted to him on or about june 25, 1962, at the instance of the appellants. thereafter the arbitrator gave notice of the reference and invited statements of the parties. he fixed the hearing of the arbitration matter before him on july 17, 1962. the case of respondent no. 1 is that he did not receive notice of this date from the arbitrator and therefore he did not appear on the date fixed. the arbitrator adjourned the hearing of the reference to another date, namely, august 29, 1962. the contention of respondent no. 1 is that he was not given intimation of this date also but this point is controverted by the respondents. respondents nos. 1.....
Judgment:

Ramaswami, J.

1. This appeal is brought by certificate from the judgment of the Bombay High Court, Nagpur Bench, dated August 14, 1964, by which the appellants were convicted for Contempt of Court of Civil Judge, Junior Division, Nagpur and sentenced to pay a fine of Rs. 200/- each. By the same judgment Respondent No. 3, Sri Ram Nath Vig was also convicted for contempt and sentenced to pay a fine of Rs. 100/-.

2. It appears that a hire-purchase agreement was entered into between the appellants and Respondent No. 1, on or about August 12, 1959. Under that agreement a motor truck was made available to Respondent No. 1 for doing transport business. The hire-purchase agreement contained an arbitration clause for settlement of disputes arising between the parties. It appears that subsequently disputes did arise between the parties and a reference was made to an arbitrator to settle the disputes. Respondent No. 3, Sri Ram Nath Vig who is a practising lawyer in Delhi was the person named as arbitrator in the arbitration agreement itself and the dispute was submitted to him on or about June 25, 1962, at the instance of the appellants. Thereafter the arbitrator gave notice of the reference and invited statements of the parties. He fixed the hearing of the arbitration matter before him on July 17, 1962. The case of Respondent No. 1 is that he did not receive notice of this date from the arbitrator and therefore he did not appear on the date fixed. The arbitrator adjourned the hearing of the reference to another date, namely, August 29, 1962. The contention of Respondent No. 1 is that he was not given intimation of this date also but this point is controverted by the respondents. Respondents Nos. 1 and 2 filed a Civil Suit in the Court of Civil Judge, Senior Division, Nagpur, on August 30, 1962. In this suit they claimed a declaration that the hire-purchase agreement was brought about by fraud and was not binding on them on various grounds. The suit was registered and the court ordered summons to be issued to the two appellants. Meanwhile, the arbitrator postponed the hearing of the reference to September 15, 1962 and it is alleged that he issued fresh notices to the parties on September 1, 1962. The hearing was again adjourned to October 23, 1962, and it is said that Respondent No. 3 made an award on October 24, 1962. It has been found by the High Court that on October 18, 1962, a notice was issued by Respondent No. 1 to the appellants and the arbitrator with a copy of the plaint. This notice was received by the appellants on October 22, 1962. In spite of this notice, evidence was recorded by the arbitrator on October 23, 1962, and he made the award on the next day directing Respondent No. 1 to pay Rs. 20,400/-. The allegation of the arbitrator is that he received the notice sent on October 18, 1962, on the next day of the award, i.e., on October 25, 1962. It appears that in the civil suit filed by respondents 1 and 2 which was registered as Civil Suit No. 657 of 1962, on the file of the Civil Judge, Junior Division, the first date of hearing was fixed on October 15, 1962. On that date the appellants filed an application under Section 34 of the Arbitration Act for staying the proceeding before the court. No progress was made in the suit which was adjourned to November 6, 1962 and again to November 28, 1962, at the instance of the appellants. Finally on November 28, 1962, the arbitrator informed Respondent No. 1 that he had made the award. On these facts Respondents 1 and 2 filed an application under Section 3 of the Contempt of Court's Act for action being taken against the two appellants, Respondent No. 3 and one more person. According to Respondents 1 and 2 the appellants and Respondent No. 3 had committed contempt of court in proceeding with the arbitration reference in spite of notice under Section 35 of the Arbitration Act being given and in spite of the knowledge of the suit which was filed by Respondents 1 and 2. The application was contested by the appellants as well as the arbitrator. The case of the appellants was that the suit itself was not sustainable and they were unaware that participation in the arbitration proceedings after receipt of notice was precluded by law and that they honestly and bona fide believed that they were not expected to take any action after the receipt of the notice without direction from the arbitrator. It was for the arbitrator to take a decision in the matter and if the arbitrator decided to proceed with the arbitration, they only obeyed the orders of the arbitrator and therefore, had not committed any contempt. The defence of Respondent No. 3 was that in completing the arbitration and giving his award he was only performing his duty. He denied that it was necessary for him to await the result of the stay application alleged to have been made by Respondent No. 1 in the Nagpur Court as he was of the view that the subject-matter in the Nagpur Court was not the whole subject-matter under arbitration. Respondent No. 3 denied that he had any bias or that he conducted the arbitration proceedings in order to defeat the object of the suit and to place an impediment in the conduct of the suit. The High Court rejected the contention of the appellants and of Respondent No. 3 and held that the action of the appellant in participating in the arbitration proceedings and the conduct of Respondent No. 3 constituted contempt of court as the conduct of Respondent No. 3 and of the appellants had a tendency to bring into contempt the proceedings before the Civil Court.

3. It is necessary at this stage to set out the relevant provisions of the Arbitration Act (X of 1940). Sections 32, 33, 34 and 35 are to the following effect :

'32. Notwithstanding any law for the time being in force, no suit shall lie on any ground whatsoever for a decision upon the existence, effect or validity of an arbitration agreement of award, nor shall any arbitration agreement or award be set aside, amended, modified or in any way affected otherwise than as provided in this Act.'

'33. Any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award of to have the effect of either determined shall apply to the court and the court shall decide the question on affidavits :

Provided that where the court deems it just and expedient, it may set down the application for hearing on other evidence, also, and it may pass such orders for discovery and particulars as it may do in a suit.'

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

'35. (1) No reference nor award shall be rendered invalid by reason only of commencement of legal proceedings upon the subject-matter of the reference, but when legal proceedings upon the whole of the subject-matter of the reference have been commenced between all the parties to the reference and a notice thereof has been given to the arbitrators or umpire all further proceedings, in a pending reference shall, unless a stay of proceedings is granted under Section 34, be invalid.

(2) In this section the expression 'parties to the reference' includes any person claiming under any of the parties and litigating under the same title.'

4. In our opinion, the High Court was in error in holding that in the circumstances of this case the appellants and Respondent No. 3 were guilty of contempt of court. It is not disputed that there was an arbitration clause in the agreement between the appellants and Respondents No. 1 and in term of the arbitration clause Respondents 1 and 2 had a right to refer the dispute to the arbitrator was made by Respondents No. 1 and 2 long before the institution of the civil suit. It is also apparent that in view of the admitted existence of the hire-purchase agreement containing an arbitration clause the remedy of Respondent No. 1 was to move the Civil Court under Section 33 of the Arbitration Act challenging the existence or validity of the arbitration agreement and to have its effect determined. It was contended on behalf of the appellants that a separate suit was barred under Section 32 of the Arbitration Act. We do not wish to express any opinion on this point in the present case. Even on the assumption that the suit filed by Respondents Nos. 1 and 2 in the Nagpur Court is competent. The question arises whether the arbitrator was bound to stay the proceedings before him after he got notice from Respondents No. 1 and 2 of the institution of the civil suit. Section 35 of the Arbitration Act does not expressly prohibit the arbitrator from continuing the hearing of the reference but the only effect of Section 35 is that 'all further proceedings in a pending reference shall, unless stay of proceedings is granted under Section 34, be invalid'. For this consequence to follow, however, two important and distinct conditions must be satisfied, namely, (1) that such legal proceedings must be upon the whole and not merely part of the subject-matter of the reference and (2) that a notice of such a legal proceeding must be given to the arbitrator. We do not wish to express any opinion as to whether these conditions were satisfied in this case. But even on the assumption that these conditions were satisfied the only effect is that the further proceedings before the arbitrator after the receipt of the notice are rendered invalid and there is no prohibition under Section 35 requiring the arbitrator not to carry on the arbitration proceedings after the receipt of the notice.

5. It is well-established that an authority holding an enquiry in good faith in exercise of the powers vested in it by a statute is not guilty of contempt of court, merely because a parallel inquiry is imminent or pending before a court. To constitute the offence of contempt of court, there must be involved some 'act done or writing published calculated to bring a court or a judge of the court into contempt or to lower his authority' or 'something calculated to obstruct or interfere with the due course of justice of the lawful process of the court'. (see Reg. v. Cray (1900) 2 Q.B. 36 and Arthur Reginald Ferers v. The King (1951) AC 482). In Tukaram Gaokar v. S. N. Shukla, (C A No. 1957 of 1967 decided on March 8, 1968) it was held by this court that the initiation and continuance of proceedings for imposition of penalty on the appellant for his alleged complicity in the smuggling of gold under Section 112(b) of the Sea Customs Act, 1962; did not amount to contempt of court though his trial in a criminal court for offences under Section 135(b) of that Act and other similar offences was imminent and identical issues would arise in the proceedings before the customs authorities and in the trial before the criminal court.

6. In Riswan-ul-Hasan v. The State of Uttar Pradesh, : 1953CriLJ911 this court stated :

'As observed by Rankin, C.J., in Anantalal Singha v. Alfred Henry Watson, 1931 58 Cal 884 , the jurisdiction in contempt is not to be invoked unless there is real prejudice which can be regarded as a substantial interference with the due course of justice and that the purpose of the court's action is a practical purpose and it is reasonably clear on the authorities that the court will not exercise its jurisdiction upon a mere question of propriety.'

It follows therefore that even if the action of the appellants and Respondent No. 1 in this case is assumed to be improper it will not justify the finding that they were guilty of contempt of court when their action was in no way calculated to obstruct the course of justice or to prejudice the trial of the civil suit.

7. For these reasons we hold that this appeal should be allowed and the judgment of the High Court of Bombay, Nagpur Bench, dated August 14, 1964, should be set aside and the conviction and sentences imposed on the appellants should be quashed. The arbitrator, Respondent No. 3 has not filed an appeal but in view of our finding with regard to the appellants it is necessary that the conviction of Respondent No. 3 and the sentences imposed upon him should also be quashed. The fines, if already paid by Respondent No. 3 and the appellants should be refunded.


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