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National Small Industries Corporation Ltd. Vs. Metal Products of India and ors. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberFirst Appeal No. 33 of 1972
Judge
Reported in18(1980)DLT227; 1980RLR676
ActsArbitration Act, 1940 - Sections 34
AppellantNational Small Industries Corporation Ltd.
RespondentMetal Products of India and ors.
Advocates: J.P. Chopra and; A.N. Goel, Advs
Cases ReferredIn Middle East Trading Co. Bombay v. The New National Mills Ltd.
Excerpt:
.....1960 bom 292, where the plaintiff gave a notice to the defendant on 17.8.1955 for taking legal steps in case tile claim was not satisfied and the defendant did not reply, nor stated that they were willing to refer the matter to arbitration and thereafter the suit was filed on 1st december, 1955, it was observed that the circumstances show that the defendant was not ready and willing to refer the matter to arbitration. his application is clearly motivated with a view to delay the proceedings......the respondent-defendant's application under section 34 of the arbitration act and stayed the suit filed by the appellant. (2) the appellant-plaintiff filed a suit for the recovery of rs. 2,37,029.25 on account of arrears of installment of three hire-purchase agreements enteredinto between the appellant and the respondent. it is common case that there is an arbitration clause in the agreement, namely, clause 16 which provides that any dispute or difference between the parties will be referable to the arbitration of two arbitrators one to be nominated by each party and in case of difference of opinion between them by umpire selected by them. the suit was filed on 23rd october, 1971. the respondent filed an application under section 34 seeking stay of the suit because of the.....
Judgment:

Rajindar Sachar, J.

(1) This is plaintiff's appeal against the order of the learned Single Judge by which he allowed the respondent-defendant's application under Section 34 of the Arbitration Act and stayed the suit filed by the appellant.

(2) The appellant-plaintiff filed a suit for the recovery of Rs. 2,37,029.25 on account of arrears of Installment of three hire-purchase agreements enteredinto between the appellant and the respondent. It is common case that there is an arbitration clause in the agreement, namely, Clause 16 which provides that any dispute or difference between the parties will be referable to the arbitration of two arbitrators one to be nominated by each party and in case of difference of opinion between them by Umpire selected by them. The suit was filed on 23rd October, 1971. The respondent filed an application under Section 34 seeking stay of the suit because of the arbitration clause. The learned Judge has allowed the application and that is why the plaintiff has come up in appeal.

(3) Mr. Chopra, the learned counsel for the appellant contended before us as he had done before the learned single Judge that the record clearly shows that the respondents were not ready and willing to refer the matter to arbitration at the time of the commencement of these proceedings, i. e. when the suit was filed, and thereforee one of the essential conditions under Section 34 of the Arbitration Act was not complied with.

(4) 'THE record shows that the appellant on 17th April, 1970 gave a notice to the respondents informing them that they had committed default in payment of Installments on the above said three agreements and that a total sum of Rs. 2,06,845.53 was due from them as on 31st March, 1970. After giving the details the notice ended with the para 4 which is as under :

'INcase you dispute your liability to pay the amount due, it is open to you to refer the dispute, if any, to arbitration, underclause 16 of the hire-purchase agreements. My client, however, on its part, does not wish to invoke the arbitration clause in the agreements. Accordingly, if you do not invoke the arbitration clause within the above said period of one week, it would be presumed that you also do not intend to refer the dispute, if any, to arbitration and in that event my client shall be free to file a suit against you in Delhi Court as already stated above, which please note.'

(5) No reply to the said letter has been produced on record. Mr. Chopra informs us that apart from sending a small amount of Rs. 4,502.08, some time in May 1970 no other correspondence in pursuance of this notice took place. Again, on 17.9.1971, another notice was sent to the respondent informing them of the default in payment of Installments and telling them that a total sum of Rs. 2,37,029.25 as on 30th October, 1971 was due and asking for the payment to be made. Again, the said letter informed them that if the payment was not made within a week from the date of the receipt of the notice the appellant will be constrained to file a suit. In para 5 again the respondents were asked that if they disputed their liability it was open to them to refer the matter to arbitration in terms of Clause 16 of the hire-purchase agreement but so far as the appellant was concerned it did not wish to invoke the said arbitration clause in the agreement, and if arbitration clause was not invoked the appellant will be forced to file a suit. The learned Judge did not accept the contention of the appellant that the failure of the respondents to invoke arbitration clause clearly showed their unwillingness to refer the matter to arbitration and as they were not ready and willing at the commencement of the proceedings to refer the matter to arbitration there was no jurisdiction to move an application under Section 34 of the Act. The learned Judge relying on Governor-General in Council v. Simla Banking and Industrial Co. Ltd., New Delhi and another A. I. R. 1947 Lah 215; Daulat Barn Bala Ram v. State of Punjab, and Punjab State v. Moji Ram, , has held that silence of the defendant before the suit is filed does not affect the applicability of Section 34 of the Arbitration Act, nor does it indicate that the defendant is not ready and willing to get the dispute decided byarbitration. The learned Judge did notice that in N. C. Padmanabhan and others S. Srinivasan : AIR1967Mad201 , it was held that the readiness and willingness under Section 34 of the Act would cover the entire period both before the commencement of the suit and thereafter. We do not go so far as Madras High Court that readiness and willingness must in all cases cover the entire period prior to the suit. But the learned Judge has proceeded on the view that whatever the circumstances and inaction before the filing of suit they are irrelevant and all that has to be seen is whether after the institution of the suit the party has made a choice that the matter should be referred to arbitration. In our view this extreme proposition that silence and inaction before the institution of the suit is totally irrelevant, cannot be accepted as laying down correct law, because where a party to an arbitration agreement chooses to maintain silence in the face of repeated requests by the other party to take steps for arbitration, the case is not one of 'mere inaction'. Failing to act when a party is called upon to do so is a positive gesture signifying unwillingness or want of readiness to go to arbitration, In Food Corporation of India v. M/s Thakur Shipping Co. and others, : [1975]3SCR146 the Supreme Court referred to the requirement of Section 34 of the Arbitration Act and observed that the applicant seeking stay of I 'gal proceedings must satisfy the Court that he is but also was ready and willing to do everything necessary for proper conduct of the arbitration at the commencement of the legal proceedings now sought to be stayed. This is a question of fact which a Court has to find the basis of material on record showing con duct of the parties prior to the filing of the legal proceedings. There were two appeals before the Supreme Court. In one appeal the plaintiff had sent four communications seeking to have the matter decided through arbitration and the last communication was sent on 25th July, 1970. There was no reply and the plaintiff filed a suit on 31.8.1970. It was also on record that a few days more delay would have barred the claim. The Court upheld the order of the trial Court reversing the decision of the High Court and rejected the prayer for stay. In the Second Appeal in reply to all the three communications sent by the plaintiff the Steamer Agents wrote that they have referred the matter to their principals and shall revert on hearing from them. A 4th communication was sent on 29th July 1970 informing the agents that if the claim is not settled on or before 13th August, 1970 the plaintiff would take legal action. There was no reply sent and the suit was filed on August 14, 1970. The Supreme Court in this appeal also upheld the order of the trial court reversed the decision of the High Court and rejected the prayer for stay. In the circumstances of the two Appeals before it the Supreme Court held that it was not a case of 'mere inaction' because the parties chose to maintain silence in the face of repeated requests to take steps for arbitration and this failure to act was a positive gesture signifying unwillingness or want of readiness to go arbitration. It is to be seen that the defendants in both the cases did not act when called upon to and further in between, the. period of the last communication and the date of filing of the suit there was nothing done by the defendants that signified readiness or willingness.

(6) In the matter of Punjab State v. Moji Ram (supra) the Court allowed the prayer under Section 34 with the observation that silence of the defendant before the suit is filed does not affect the applicability of Section 34 of the Arbitration Act nor does it indicate that the defendant is not ready and willing to get the disputes decided by the arbitration. With respect this is not a correct statement of the law in view of the ruling of the Supreme Court reported as : [1975]3SCR146 . The other decision referred to by the learned single Judge is A. 1. R. Lah 215. As was observed by the learned Judges it is correct that the choice between seeking stay of proceedings with the defense of the legal proceedings is with the defendant. Even if a defendant is ready and willing to refer the matter to arbitration at the time of the commencement of the legal proceedings it is always open to him to give up recourse to arbitration and proceed with the defense of the suit. But this is not the question which is before us. The precise plea before the Lahore High Court was that the defendant failed to remind the plaintiff of his duty to proceed under the arbitration agreement after a notice under Section 80 was served upon the defendant that this thereforee prevented the defendant from seeking stay of the proceedings. The Court rejected this. This also is not the question before us and we need not, thereforee, deal with it. As in the present case the Labour High Court was not even called upon to decide whether the defendant was ready and willing to do all things necessary for proper conduct of the arbitration at the commencement of the legal proceedings. From the judgment it appears that neither the plaintiff nor the defendant thought of arbitration before the commencement of the legal proceedings because a notice under Section 80 of the Code of Civil Procedure is not necessary for commencing arbitration proceedings. This ruling, in our opinion, is of no help to the respondent. In Middle East Trading Co. Bombay v. The New National Mills Ltd., Ahmedabad A. I. R. 1960 Bom 292, where the plaintiff gave a notice to the defendant on 17.8.1955 for taking legal steps in case tile claim was not satisfied and the defendant did not reply, nor stated that they were willing to refer the matter to arbitration and thereafter the suit was filed on 1st December, 1955, it was observed that the circumstances show that the defendant was not ready and willing to refer the matter to arbitration.

(7) In the present case the facts are that by letters written on 17th April, 1970 and on 17th September, 1971, the defendant was pointedly told that the appellant intended to file a suit if the claim is not settled. The appellants did not stop at that but specifically drew the attention of the defendant-respondent to the arbitration Clause 16 and told him that it was open to the defendant to invoke the arbitration clause, while at the same time telling him that the appellant did not wish to invoke the arbitration clause. The purpose was clear. The appellant accepted that there was the arbitration clause with the result that if defendant invoked it, no problem could arise, and the matter may go to arbitration. Now in spite of such a clear demand the defendant did not choose to invoke arbitration clause. The suit was then instituted on 23.10.1971 and till that date no action was taken by the defendant. From these facts inference is obvious and inevitable that the defendant was not ready and willing to refer the matter to arbitration, when the suit was instituted. It is true that defendant did not accept that any amount was payable by him. But there was no doubt that the plaintiff was claiming a huge sum and threatening that if payment was not made he would file a suit. Nevertheless the defendant kept quiet, and did not invoke arbitration clause. So when the suit was filed, it was too late for the defendant to move under Section 34 of the Act, because by his conduct he had shown he was not ready and willing to get the matters decided by arbitration. His application is clearly motivated with a view to delay the proceedings.

(8) The result is that we would allow the appeal, set aside the order of the learned single Judge and dismiss the application filed under Section 34 of the Arbitration Act filed by the defendant. The matter will be remitted to the Single Judge for trial of suit in accordance with law and merits. The parties through their counsel are directed to appear before the Deputy Registrar on 19th March, 1980 for taking further proceedings in the suit. There will be no order as to costs.


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