Skip to content


National Research Development Corporation of India Vs. Bhupal Mining Works Etc. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberInterim Application Appeal No. 1888 of 1971 and Suit Appeal No. 394 of 1971
Judge
Reported in9(1973)DLT37
ActsArbitration Act, 1940 - Sections 34
AppellantNational Research Development Corporation of India
RespondentBhupal Mining Works Etc.
Advocates: Hiranandan and; A.K. Jain, Advs
Cases ReferredAndersan Wright Ltd. v. Moran and Co
Excerpt:
.....because a party raises a dispute after the suit has been instituted. jain sought to suggest that the dispute bad been raised earlier and, thereforee, the stay should be ordered. i am, thereforee, satisfied that no dispute or difference has arisen between the parties which could have been referred to arbitration before the suit was filed and as such there is no question of directing the stay of the present suit. the conduct of defendants clearly shows that prior to the institution of the suit they did not even refer to the arbitration clause when it was open to them to do so. (11) i am thus satisfied that it is not a fit case in which the stay of suit should be ordered......14 years no royalty is being claimed after 31st march, 1970. it is also alleged that the earlier suit filed in the court of senior sub-judge being suit no. 256/1969 was withdrawn on 25th november, 1970 with permission to file fresh suit on the same cause of action. the present suit was filed on 20th september, 1971. (3) the defendants instead of filing a written-statement has filed this application under section 34 of the arbitration act. in this application it is stated that under the agreement dated 20th february, 1957 words 'royalty at the rate of 2'% on the net ex-factory sale price' have been used and it has to be construed as to what meaning they carry. according to law in order to arrive at the net sale price at the factory the usual costs of the material manufactured by the.....
Judgment:

Rajindar Sachar, J.

(1) This is defendants' application under Section 34 of the Arbitration Act, 1940 (hereinafter called the Act) praying that suit No. 394 of 1971 which is pending in this court be stayed.

(2) The plaintiff-corporation has filed a suit against defendant No. 1, a firm and its partners defendants 2 and 3. It is alleged that the plaintiff has been in possession of and entitled to full rights to an invention covered by the Indian Patent No. 48667 relating to manufacture of mica insulating bricks and allied products. The defendants approached the plaintiff for use of the said patent and invention and, by an agreement dated 20th February, 1957, the plaintiff granted a license to the defendants to use the said invention relating to the process of manufacture of mica insulating bricks and allied products in their own factory at Bhilwara In terms of the said agreement the defendants have to pay to the plaintiff royalty at the rate of 2'% on the net ex-factory sale price for each and every articles manufactured by them in accordance with the patented process, and for this purpose the company was to render the regular accounts to the plaintiff on first of October and first of April every year. It is further alleged that the defendants have commenced production from March, 1958 and have been rendering account and paying royalty at the rate of 2'% on net ex-factory sales value regularly to the plaintiff up to the period ending 30th September, 1965, but for the half yearly period ending with 31st March, 1966, the defendants made only apart payment of Rs. 14,323,59 though the amount which the defendants were liable to pay for that period on their own admission arising on rendition of the accounts is Rs. 42 323.59. It is also alleged that after the aforesaid period ending with 31st March, 1966, the defendants only communicated the amount of royalties accruing to the plaintiff up to the period ending 31st March, 1968 without rendering any regular account. The suit has, thereforee, been filed for the recovery of Rs. 104,767.43 from the period 31st March, 1966 to 31st March, 1968. In addition to that royalty for the half year period ending 30th September, 1968 to 31st March, 1970 is also alleged to be due from the defendants for which the defendants have not paid and neglected to render the account. The plaintiff claims that as they are not aware of the exact account, a decree for rendition of accounts is being prayed. As the agreement with the plaintiff was for a period of 14 years no royalty is being claimed after 31st March, 1970. It is also alleged that the earlier suit filed in the court of Senior Sub-Judge being suit No. 256/1969 was withdrawn on 25th November, 1970 with permission to file fresh suit on the same cause of action. The present suit was filed on 20th September, 1971.

(3) The defendants instead of filing a written-statement has filed this application under Section 34 of the Arbitration Act. In this application it is stated that under the agreement dated 20th February, 1957 words 'Royalty at the rate of 2'% on the net ex-factory sale price' have been Used and it has to be construed as to what meaning they carry. According to law in order to arrive at the net sale price at the factory the usual costs of the material manufactured by the defendants commission, discounts and expenses incidental to the sale and rejections and breakages etc. have to be deducted. It is also stated in the application that in the returns submitted by the defendants a net ex-factory sale price has not been given after deducting all the requisite items. It is also slated that the net ex-factory sale pries is to be found out for each and every item right from the very beginning of the agreement and the complete account has to be gone into, and it would then be found that the defendants have over paid royalty and are entitled to refund.

(4) It is then alleged that all these disputes fall within para 11 of the agreement which requires that all the disputes between the parties should be referred to arbitration. The defendants maintain that they were ready and willing to do all things necessary to the proper conduct of the arbitration, but the plaintiff never desired it and in order to harass the defendants has filed this suit.

(5) It is common ground that there was an agreement dated 20th February 1957, between the parties It is also not in dispute that para 11 of the agreement which reads as under contains the arbitration clause:-

'IF any dispute or difference arises between the parties hereto or their respective representatives or assigns with respect to their respective rights or liabilities, or otherwise under these presents (save as to any matters the decision whereof is hereinbefore expressly provided for) the same shall be referred to two arbitrators, one to be nominated by each party the said arbitrators appointing an umpire before entering on the reference and the provisions of the Arbitration Act, 1940, or any statutory modifications or reenactment thereof and the rules made there under for the time being in force shall apply to such reference and this deed shall be deemed to be a submission to such arbitration.'

(6) Though no doubt it is true that there is an arbitration clause but before the stay of a suit under Section 34 of the Act can be granted the court has to be satisfied about the various conditions and only if they exist can the stay be granted. Now the clause which I have reproduced above definitely postulates that there should be a dispel or a difference arising between the parties with respect to (heir respective rights and liabilities and it is only then that the same can be referred to the arbitration as provided under that clause. It is essential thereforee that before the suit can be stayed it must be shown by a party who claims a stay that the dispel or difference had arisen between the parties prior to the institution of the suit. It is in this connection that my attention was drawn by the counsel for the plaintiff to the various documents filed by him for the purpose of showing that earlier to the institution of the suit there was no dispute at all or difference between the parties as to the interpretation of the agreement or even as to what amount is due. I may in this connection mention that though the documents had been ordered to be filed for admission and/or denial and though some documents have been admitted by the counsel for the plaintiff, none appeared on behalf of the defendants for that purpose. That might have required a formal proof but counsel for the defendants, Mr. Jain, waived his objection by stating that he will have no objection if the documents filed by the plaintiff (which are really letters exchanged between the plaintiff and the defendants) are taken in evidence. This he conceded because he also wanted to refer to the documents filed by him namely the written-statement filed in the court of Commercial Sub-Judge which had also not been admitted by the counsel for the plaintiff. As I permitted Mr. Jain to refer to the written statement filed by him I am referring to the various documents to which no objection has been raised by the counsel for either side.

(7) In the application one of the disputes sought to be suggested is as to what meaning is to be given to the word 'Royalty at the rate of 2'% on the net ex-factory sale price' and it is suggested that it was not clear as to what net ex-factory sale prices was. It is also suggested whether the plaintiff could grant a license under patent No. 48667 is also a mutter which requires determination. Another matter sought to be raised is that according to the contract the plaintiff was to see that the cost of the brick and other items did not exceed the amount under the patent No. 48667 but they have throughout exceeded and the defendants are also entitled to compensation on that account. These matters which are mentioned in the application no doubt seek to suggest that the plaintiff is not entitled to the amount of royalty demanded by it, rather it is made out that if these pleas of the defendants were accepted some amount would be due from the plaintiff to the defendants. I am not concerned at the present stage with the merits or otherwise of these objections of the defendants. What validity if any, these submissions have is a matter which will have to be decided at the appropriate stage. All that I am concerned at the present is to see whether these or other disputes or difference had arisen before the institution of the suit. If the answer is in the affirmative then it is apparent that the suit has to be stayed because there is arbitration clause. It is for his purpose really that a reference was made to the various documents by the counsel for the plaintiff to show that at no stage prior to the institution of the suit any dispute or difference had arisen between the parties. In letter dated 10th August, 1967, written by the Managing Partner of defendant No. 1 a request is made to the plaintiff not to take legal action against them at least for a month as they were expecting orders from Bokaro Steel Project and Ennore Thermal Power Project and no sooner orders were received they would be able to clear their arrears Again by letter of 5lh February, 1968, the defendants wrote to the plaintiff that they were having some difficulties in arranging for funds and they were expecting some orders from Bokaro Steel Plant and they conveyed their firm commitments that they will definitely pay the outstandings with the start of dispatches to Bokaro Steel Project which they expect that the same would start from April or May, and praying for some more time. In reply to the plaintiffs letter dated 18th May, 1968 demanding arrears, the defendants wrote a letter dated 20th May, 1968 informing the plaintiff that the defendants were conscious to start the payment of the arrears which they hope they would be able to do by the end of May, or by the 1st week of nextmonth. Again another letter dated 29th June 68 was written by the defendants informing the plaintiff that the defendants will be able to start making payment definitely by the middle of next month i.e. July. Another letter dated 9th December, 1968 also by the defendants states that they would start paying the current royalties together with one Installment of the old so that they can square up the entire dues before the order of Bokaro Steel Project is over. Again another letter dated 6th August, 1969 written by the defendants to the plaintiff thanks the plaintiff for the accommodation the Corporation had given to them during very hard and recessional period. It is also Stated that commitment has been made to pay 2'% royalty and the defendants are doing their best to clear the arrears.

(8) A reference to these various documents unmistakably shows that so far as the question of liability of the defendants to pay royalty at the rate mentioned in the agreement is concerned no dispute or difference was being raised by the defendants. The only request of the defendants was for asking accommodation to make the payment. There was thus no difference or dispute which could have been referred to the arbitration as para 11 of agreement necessarily postulates that it is only if there is difference or dispel between the parties that the arbitrator will have jurisdiction to entertain the matter. A demand was being made by the plaintiff for the arrears and the defendants were delaying the matter pleading for time because of financial stringency or because of their other commitments. But this is not a difference or dispute in terms of para 11 of the agreement. The dispute that is contemplated must relate to the respective rights or liabilities arising under the agreement. of course it is true that now in the application various facts have been mentioned which do raise a dispute between the parties about the liability of the defendants to make payment. But it is also true that if these disputes are raised in the suit the same will necessarily have to be determined on merits. But the question arises whether even if no dispute had arisen before the filing of the suit. the defendants can ask for its stay by raising disputes after the institution of the suit. Mr. Jain learned counsel for the defendants contended that it was not essential that the dispute or difference should have arisen before the institution of a suit. According to him as difference and dispute have been raised in the application under Section 34 of the Act that was sufficient to invoke the arbitration clause. In my opinion there is no force in this contention. That a condition precedent to the invocation of the arbitrator on whatever grounds is that a difference between the parties should have arisen,' and I think that must mean a difference of opinion before the action is launched either by formal plaint in the country court or by writ in the superior courts. Any contention that the parties could, when they are sued for the price of the services, raise then for the first time the question whether or not the charges were reasonable and that thereforee they have a right to go to an arbitrator seems to me to be absolutely untenable vide Lord Halsbury L. C. London and North Western and great Western Joint Railway Companies v. J. H. Billington, Limited. This case was followed in Dawaadbhai Abdulkader v. Abdulkader Ismailji. In that case the defendant had sought an order that the suit may be stayed. It was observed, if there is no dispute there can be no right to demand arbitration. The court must, thereforee, be satisfied that there is some real point of difference which has to be submitted to arbitration, 'and' failure to pay was not necessarily a difference, and the mere fact that a party could not or would not pay does not in itself amount to a dispute unless the party who chooses to pay raises a point of controversy regarding, for instance, the basis of payment or the time or manner of payment. There can be no arbitration where no such controversy in fact exists.' 'If there is no indication that there was any dispute or difference before suit or in other words where the plaintiff is not aware before the institution of a suit, that there is no difference between him and the defendant or of nature of the difference, he cannot be said to have gone back upon his agreement to refer to arbitration, or was attempting to go back upon it, by rushing to court. 'I he court in these circumstances would be justified in the exercise of its jurisdiction in refusing to Slay the suit' vide Ladha Singh Bedi v. Raja Sree Sree Jyoti Prosad Singha Deo Bahadur. see also Charanjiv Lal and others v. The Tropical Insurance Co. Ltd. and Dwarka Nath Kapur v. Rameshwar Nath.

(9) Mr. Jain, however, referred me to Andersan Wright Ltd. v. Moran and Co, and sought to contend that above authorities are not good law as the Supreme Court has made no such exception. In my view this is not a correct understanding of the Supreme Court judgment. The Supreme Court in that case has given four conditions which have to be satisfied before the stay can be granted under section 34 of the Arbitration Act. The contention of Mr. Jain that it is not mentioned in that authority that before a stay is granted there should have been a difference or dispute and the same should have arisen before the institution of the suit. One of the conditions mentioned by the Supreme Court that the court must be satisfied why the matter should not be referred to the arbitration necessarily postulates that the court should examine whether there was a difference or dispute between the parties which could have gone to arbitration and whether such a dispute or difference had arisen before the institution of the suit. Thus that requirement laid down by those cases has not in any manner been whittled down by the Supreme Court authurity. Thus the proposition is well settled that unless the difference or dispute had arisen before the institution of a suit no slay will be granted simply because a party raises a dispute after the suit has been instituted. Mr. Jain sought to suggest that the dispute bad been raised earlier and, thereforee, the stay should be ordered. For this purpose he referred me to the written statement filed in the court of Commercial Sub Judge in a suit which was previously instituted by the plaintiff and which was withdrawn with permission to file the present one. All that Mr. Jain could point out in that written statement was that a preliminary objection had been taken in that written statement that the claim is time barred on the face of it because the agreement was dated 20th February, 1957 and the arrears were sought to be realised was time barred. I cannot read this objection of limitation taken in the previous written statement as complying with the condition that difference or dispute should have arisen before the institution of the suit. I understand Mr. Jain to contend that as the present suit has been filed in 1971 the previous written statement filed in the court of Commercial sub-judge should be taken as having raised a dispute and as the said period is prior to the institution of the present suit the matter could go to arbitration. I am afraid there is no merit in this contention. I cannot accept that a plea taken in a written statement in a previous suit (even though the same was withdrawn with permission to file the present suit) can be taken to have raised a dispute in point of time prior to the institution of the suit. The mere fact that the previous suit was withdrawn does not mean that differences which must be in existence prior to the institution of the suit should not have been in existence at a point of time when the suit was filed in 1969. It is also relevant to note that the only objection taken in the written statement filed in the court of Commercial Sub Judge was about the claim being time barred. This was a assertion to the maintainability of the suit an I was not with regard to any difference or dispute arising out of the agreement Such a claim, thereforee, even if made prior to the institution of the suit would not comply with the requirement of there being a difference which could have been referred to arbitration. The dispute which is now sought to be raised in the application namely aboutthe interpretation to be given to the expression net ex-factory sale price and about the right of the plaintiff to the patent' were not even suggested in the written statement. So even if that written statement was to betaken as a matter prior to the institution of a suit it does not in any manner prove that any difference or dispute has arisen which could have gone to the arbitrator. I am, thereforee, satisfied that no dispute or difference has arisen between the parties which could have been referred to arbitration before the suit was filed and as such there is no question of directing the stay of the present suit.

(10) There is another reason why the discretionary relief of staying the suit should not be exercised in favor of the defendant. A reference to the written statement filed in the court of Commercial Sub Judge will show that the defendant never invoked the arbitration clause. 'A party who invokes Section 34 must specifically allege that he was, not only, at the commencement of the suit quite ready and willing to have the dispute resolved by arbitration proceedings, but that he is throughout ready and willing for such arbitration and do everything necessary for the proper and successful conduct of the arbitration proceedings. The readiness and willingness to do everything necessary for the proper conduct ofthe arbitration proceedings should cover the entire period both before the commencement of the suit and thereafter', vide N.C Padmanabhan and others v. S. Srinivasan. Of course the defendants have now stated in the application that they were at the time when the previous suit was filed and still remain ready and willing to do all things necessary for the proper conduct of the arbitration. But this assertion of the defendants is belied by their previous conduct. When the defendants filed written statement in the court of Commercial Sub Judge it was open to them to invoke the arbitration clause and if they had done so the question whether the matter should go to the arbitrator or should be decided in a suit would also have been the subject-mater of the decision. But the defendants never invoked the arbitration clause and that obviously mean thatthe defendants were not ready and willing to go for arbitration prior to the period before the commencement of this suit This readiness and willingness is one of the conditions precedent for invoking Section 34 of the Act. The conduct of defendants clearly shows that prior to the institution of the suit they did not even refer to the arbitration clause when it was open to them to do so. On that ground alone the defendants have disentitled themselves to invoke the discretionary relief under section 34 of the Act.

(11) I am thus satisfied that it is not a fit case in which the stay of suit should be ordered. I, thereforee, dismiss this application with costs, which is assessed at Rs. 150/.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //