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State of Gujarat and ors. Vs. the Ghanshyam Salt Works - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtGujarat High Court
Decided On
Case NumberA.F.O. No. 367 of 1977
Judge
Reported inAIR1979Guj215; (1980)0GLR263
ActsArbitration Act, 1940 - Sections 34
AppellantState of Gujarat and ors.
RespondentThe Ghanshyam Salt Works
Appellant Advocate K.J. Vaidya, Asst. Govt. Pleader
Respondent Advocate P.M. Raval, Adv.
Cases ReferredSubal Chandra Dhar v. Md. Ibrahim (supra). The
Excerpt:
.....not amount to adjudication of claim in suit itself - ground in which trial judge refused stay of proceedings in suit not tenable - order passed by trial judge rejecting application for stay under section 34 set aside - appeal allowed. - - there is a conflict of opinion between some high courts on the point like the present. 4, 1965. on that day, the counsel for the respondent plaintiff placed some f acts before the court and asked for additional interim orders including order for injunction in respect of a motor car and undivided interest of the defendant in a house known as jodhpur house as well as for inventory of some goods. ' sometimes, interim order of a drastic nature may be passed ex parte also and in such a case, if the defendant seeks to get the orders vacated, though he..........is a proceeding in the suit itself and any step taken in the proceeding is a step taken in the suit. arbitration act empowers the court to pass suitable interim orders in respect to matters agreed to be adjusted by arbitration. the aggrieved party may come ~before the court for interlocutory deed (sic-orders) pending adjustments of disputes by arbitration. in such a case when a party institutes a suit in breach of the arbitration agreement the suit is liable to be stayed on the application of the defendant in that behalf. if in such a suit the plaintiff wrongfully obtains an interim order in the suit itself the defendant cannot contest the interlocutory application, because by so contesting the application he would be taking step in the proceeding thereby debarring him from taking.....
Judgment:

1. In Special Civil Suit No. 6 of 1974 filed by the respondent-plaintiff against the appellant State of Gujarat challenging an order for recovery of an amount of Rs. 19,686 passed by the Collector, an ex parte injunction was obtained by the plaintiff from the Court restraining the defendant and its servants from making recovery pursuant to that order. The ex parte injunction along with a notice to show cause why it should not be made absolute was granted with the result that the learned District Government Pleader appeared in the said suit on 16-2-1974 and made an application Exh. 14 for grant of time for filing objections against the application for temporary injunction. The time was granted till 28-2-1974 on which date he further applied for time. One more application for time was made on 15-31974; and thereafter on 31-7-1974 the learned District Government Pleader made application Exh. 26 stating that the agreement dated 16-6-1965 between the parties contained an arbitration clause No. 19 and, therefore, the suit should be stayed under S. 34 of the Indian Arbitration Act, 1940 (the Act). The said clause as I find from the order passed by the learned trial Judge under appeal was to the effect that in case of any dispute arising between lessor and lessee or any difference of opinion as to the interpretation of the terms of the lease or the obligations, the matter shall be referred to the Salt Commissioner for India whose decision shall be final and binding on both the parties. The application Exh. 26 for staying the suit under S. 34 further stated that looking to the nature of the suit, the arbitration clause was applicable to the dispute raised in the suit and that the defendant was and is ready and willing to do all things necessary to the proper conduct of the arbitration. This application for stay was opposed by the plaintiff and one of the contentions raised by him was that the main relief was against the order of the Collector and the dispute referred to in the plaint does not come within the arbitration clause. The other contention was that the defendant by applying for time to file objections against the interim in~, junction application had takei3- step in the proceedings; and, therefore, it was disentitled to an order for stay under S. 34 of the Act. It appears that the learned trial Judge did not deal with the first ground. However, he found substance in the second ground and holding that the act of the Government Pleader in asking for time to file objections to the application for interim injunction, amounted to taking a step in the proceedings, rejected the application for stay. There is a conflict of opinion between some High Courts on the point like the present. The learned trial Judge referred to three of these decisions and purporting to follow the decisions reported in Amritrai v. Golecha Financiers : AIR1966Cal315 and Bortes S. A. v. Astrouic Compania : AIR1970Mad323 he held that the application for time to file objections to the interim injunction application amounted to taking a step in the proceedings within the meaning of S. 34 of the Act. On this sole ground, therefore, he dismissed the application for stay. Being aggrieved, the State has come in appeal.

2. It must be made clear at the outset that out of the two grounds urged on behalf of the plaintiff in opposing the application for stay under S. 34 of the Act the learned trial Judge has not decided upon the first ground. Therefore, nothing stated in this judgment will affect the plaintiff's right to urge that ground against the order for stay under S. 34 of the Act.

3. So far as the second ground on which the learned trial Judge decided the matter, following the decisions of the aforesaid two High Courts, is concerned, we proceed on the basis that after receiving the notice to show cause why the injunction order should not be made absolute, the learned District Government Pleader appeared and applied for time more than once for the purpose of filing objections to the interim injunction application at Ex. 6. The question which then arises is whether in a case where an ex parte injunction is granted by the Court and the defendant is called upon to show cause why the order should not be made absolute, does the application given by the defendant contesting the injunction application and asking for time to file reply to the injunction application amount to taking of a step in the proceedings as contemplated by S. 34 of the Act.

4. The relevant provisions of S. 34 of the Act are as under:-

.'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; 'The aforesaid section in terms contemplates two stages before which an application for stay under S. 34 can be given; and these stages are (1) filing of the written statement or (2) taking any other step in the proceedings. There is no, difficulty with regard to the first stage. However, the words 'taking any other steps in the proceedings' occurring in the second stage have led to a division of opinion between some of the High Courts. On the one hand we have the decisions of the Calcutta and Madras High Courts referred to earlier; and on the other hand we have the decisions reported in Nuruddin Abulhusein v. Abu Ahmad : AIR1950Bom127 , Daulat Ram v. Punjab, State , Sansarchand v. State of Madhya Pra. : AIR1961MP322 and Queens College Kanetra v. Collector, Varanasi : AIR1974All431 . These were the only decisions cited at the bar.

5. In Amritrai v. Golecha Financiers (supra), in a suit instituted on Dec. 23, 1964 a notice of motion was taken out and the plaintiff obtained interim injunction. The notice to show cause was returnable on Jan. 4, 1965. On that day, the Counsel for the respondent plaintiff placed some f acts before the Court and asked for additional interim orders including order for injunction in respect of a motor car and undivided interest of the defendant in a house known as Jodhpur house as well as for inventory of some goods. Defendant's advocate also appeared and opposed these prayers. In spite of his opposition, an order was made extending the injunction to the motorcar and Jodhpur house. Time for filing an affidavit in opposition to the interim relief was also extended by the aforesaid order which extension was held to have been granted at the request of the defendant. The question, which arose, was whether opposing an interim injunction application and asking for time to file affidavit in opposition would amount to a step in the proceedings. The learned Single Judge following an earlier decision of the same High Court in Subal Chandra Dhar v. Md. Ibrahim : AIR1943Cal484 held that the said act of the defendant amounted to taking a step in the proceedings. In the said earlier Calcutta case, Das, J. has stated as under:-

'It seems to me that these authorities establish that in order to constitute a step in the proceedings the act in question must be (a) an application made to the Court either on summons as in (1896) AC 1 or (1907) ILR 34 Cal 443 or orally as in (1924) 28 Cal WN 771 or something in the nature of an application to the Court e.g. attending on summons for directions as in (1909) 2 Ch. 121 and (b) such an act as would indicate that the party is acquiescing in the method adopted by the other side of having the disputes decided by the Court.'

The learned single Judge in the latter Calcutta case (Amritrai v. Golecha Financiers (supra)) referred to the decision of the Bombay High Court in Nuruddin v. Abu Ahmed (supra) and he seemed to be of the opinion that Tendolkar, J. who decided the Bombay case had quoted with approval the aforesaid observations of Das, J. in Subal Chandra Dhar v. Md. Ibrahim (supra). The learned Judge in the latter Calcutta case then observed at page 318 (right hand side column) as under:-

'It is difficult to make a distinction between filing a written statement in suit and filing an opposition to an interlocutorV application in that suit both of them are 'taking step in the suit'. Filing an affidavit in an interlocutory application is as much taking a step in the proceedings as filing a written statement or filing an affidavit in opposition to an application under 0. 12 R. 6. Interlocut6ry proceeding is a proceeding in the suit itself and any step taken in the proceeding is a step taken in the suit. Arbitration Act empowers the Court to pass suitable interim orders in respect to matters agreed to be adjusted by arbitration. The aggrieved party may come ~before the Court for interlocutory deed (sic-orders) pending adjustments of disputes by arbitration. In such a case when a party institutes a suit in breach of the arbitration agreement the suit is liable to be stayed on the application of the defendant in that behalf. If in such a suit the plaintiff wrongfully obtains an interim order in the suit itself the defendant cannot contest the interlocutory application, because by so contesting the application he would be taking step in the proceeding thereby debarring him from taking advantage of the private arbitral tribunal. The aggrieved defendant is not however without a remedy, In such a case he is empowered to apply under the Arbitration Act itself to have the hazard, if any, removed.'

Speaking with great respect, the emphasized observations take too narrow a view of the salutary provision contained in S. 34 of the Act which view may, m a given case, result in injustice. For the purpose of application of S. 34 of the Act we must adopt a functional approach in the matter of interpretation of the words 'taking any other steps in the proceedings.' Sometimes, interim order of a drastic nature may be passed ex parte also and in such a case, if the defendant seeks to get the orders vacated, though he wants to take advantage of the arbitration clause, his right to rel~ upon the arbitration clause cannot be defeated by the mere fact that on ' account of an ex parte interim order he is forced to go to the Court and request the Court to vacate the order on cause being shown. As will be shown later on, a more liberal interpretation can be given to this phrase consistent with the intention of the Legislature as contem-1 plated by S. 34 of the Act.

6. Madras High Court in Bortes S. A. 's case (supra) took a view similar to that taken by the Calcutta High Court, in Subalchandra's case (supra). In that case, also an ex parte, injunction having been granted, the defendants took out an application to vacate the in-i Junction and offered to furnish security but they did not file any written statement. The learned Judge who decided that case observed in paragraph 5 al under:-

'Whatever may be the circumstances under which the defendants took out application in this suit with a prayer to vacate the interim injunction with an offer to accept security, the fact is clear that they took steps in the proceeding-, within the meaning of S. 34 and ~are, therefore, disentitled to ask for stay ut the suit.'

Speaking again with respect, these observations show the need for a mote functional approach in the matter of interpretation of the said phrase.

7. We must first of all bear in mind the context in which the phrase occurs.1, S. 34, as observed earlier, contemplates stages, first stage being actual filing of the written statement and the other being a stage which would normally occur earlier to it. This is because, once the written statement is filed, the matter is at large and no order under S. 34 of the Act can be passed, because the party by filing written statement in the suit abandons its right under the arbitration clause and instead prefers to get the matter decided by the Court. It is not as if any step taken earlier to filing of the written statement would amount to taking a step in the proceedings as contemplated by S. 34 of the Act. Having regard to the contingency of filing of a written statement as contemplated by S. 34, it is worthwhile to interpret the phrase 'taking any other steps in the proceedings' to mean 'taking any other steps in the proceedings indicating the intention of the party to get the dispute finally decided by the Court and not by arbitrators.' This would in turn show an intention of the party to abandon the preference for the domestic forum agreed upon between it and the other side and instead to submit to the forum chosen by the other side contrary to the arbitration clause. Therefore, the real test in order to decide whether a particular step taken in the proceedings was a step in the proceedings as contemplated by Section 34 is to find out whether by taking that step the party displayed an unequivocal intention to get the dispute finally decided by the Court in preference to a final decision which may be arrived at by the arbitrators. In substance, this was the test formulated by 'Tendolkar, J. in Nuruddin's case (supra) The 4 learned Judge in terms said in para-graph 7 of the judgment as under:-

'In my- opinion the true test for determining whether an act is a step in the proceedings -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 z -oceed with the suit and to give up - to pi .the right to have the matter disposed of :by arbitration.'

In- a -case where the defendant is forced to go to the Court as a result of an ex parte interim injunction or any other interlocutory, order and to pray to the Court to vacate that order, it cannot be said that, the said defendant has given up his right to get the matter decided by arbitration merely because he files a written statement opposing the interim relief or applies for time to file such a written statement. Thereby such a defendant is not calling upon the Court to decide the dispute between the parties finally in preference to the decision, which can be given by the arbitrators.

8. The aforesaid test was adopted by the Punjab High Court in Daulat Ram's case (supra). Of course in that case the prayer was for time to file an application for stay of the suit because of the arbitration clause. But to these facts of the case, the aforesaid test was applied. In Sansarchand's case (supra) a reply was filed by the defendant to the plaintiff's application for temporary injunction and that application was argued. It was held that the same did not amount to taking a step in the proceedings. It was, inter alia, observed in paragraph 8 that mere filing of a reply to an interim injunction application does not indicate that there is in effect abandonment of the proposal to have the subject of the cause disposed of by arbitration.

9. In Queens College Kanetra's case (supra) following observations were made by the Allahabad High Court which would show that the same test was applied:-

'The true test for determining whether an act is 'a step in the proceedings' is not so much the question as to whether it is an application 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. There must be submission to the jurisdiction of the Court for' adjudication of the claim in the suit , itself. There can be no doubt that the act,-of the defendant to get an ex parte order of injunction vacated does not indicate an unequivocal intention to proceed with the suit and to give up the right to,have the matter disposed of by arbitration. The adjudication of the injunction matter does not amount to adjudicati6ri of the claim in the suit its ' elf.'

Apart from the fact that I am bound by the judgment of the learned single Judge of the Bombay High Court, mentioned above, I find myself in respectful agreement with the test laid down therein subject to this rider that the unequivocal intention must be to get the final decision of the dispute by the Court and not by the arbitrators. In case of an interim application nobody calls upon or expects the Court to give a final decission of the dispute between the parties. The question as to interim relief is decided only on the basis of the prima facie case and nothing is decided finally. In such a case, therefore, to prevent a defendant from contesting the interim application on the pain of losing his right to get the dispute decided by arbitration may, in a given case, work injustice. This, in my opinion, needs a functional approach in the matter of interpretation of the relevant words.

10. To my mind, these words mean taking any other step in the proceeding3 with the intention of getting the dispute decided finally by the Court and abandon thereby the right to get it decided by arbitrators.

11. If this is the correct interpretation of the relevant words occurring in S. 34 of the Act, it is clear that the ground on which the learned trial Judge refused stay of the proceedings in the present suit is no longer tenable. On this ground, therefore, the appeal must be allowed. However, as the other ground urged on behalf of the plaintiff has not been decided by the learned trial Judge, it would not be correct and proper to pass a final order as regards stay of the suit without examining that ground. Therefore, the following order is passed.

12. The appeal is allowed; and the order passed by the learned trial Judge on September 27, 1977 rejecting the application for stay under S. 34 is set aside. The matter will now go back to the trial Court for passing fresh orders after hearing the parties on the other ground of objections against the application for stay taken out by the plaintiff. In pressing these objections, the plaintiff will be at liberty, if the trial Court so permits, to amend the plaint with a view to limit the challenge only to the competence of the Collector to pass the impugned order and to omit the averments made in the plaint which would bring into existence a dispute falling within the arbitration clause. Looking to the question of interpretation involved, there will be no order as to costs of this appeal.

13. Order accordingly.


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