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Bhailal Manilal Vs. Amratlal Lallubhai Shah - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtGujarat High Court
Decided On
Case NumberCivil Revn. Appln. No. 547 of 1960
Judge
Reported inAIR1963Guj141; (1963)0GLR498
ActsArbitration Act, 1940 - Sections 9, 12, 21, 23, 25, 34, 35 and 39; Code of Civil Procedure (CPC) , 1908 - Sections 115 and 151
AppellantBhailal Manilal
RespondentAmratlal Lallubhai Shah
Appellant Advocate N.C. Shah, Adv.
Respondent Advocate A.H. Mehta, Adv.
DispositionRevision allowed
Excerpt:
.....court allowed application - order confirmed in appeal - revision application field by defendant - arbitration agreement continued to be valid after proceedings in suit stayed - chapter vi of act do not apply - court committed error by passing order under section 25 - provisions of chapter ii continue to apply - section 9 not followed - held, material irregularity in exercise of jurisdiction. - - 3. the learned counsel for the opponent contends that the order is perfectly correct in view, of the scheme of the act. --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,..........counsel for the opponent is that chapter iv which deals with arbitration in suits whether the arbitration agreement be prior to the suit or subsequent to the suit. section 21, which is in chapter iv reads as follows:--'where in any suit all the parties interested agree that any matter in difference between them in the suit shall be referred to arbitration, they may at any time before judgment is pronounced apply in writing to the court for an order of reference.'it is, therefore, dear that if this chapter applies, the parties interested in the suit must agree that any matter in difference between them in the suit shall be marred to arbitration; they should then apply to the court for an order of reference, and the court should, under section 23 of the act, refer to the arbitrator.....
Judgment:
ORDER

V.B. Raju, J.

1. One of the parties to an agreement, which contained a clause relating to arbitration of disputes that may arise between the parties, filed a suit without getting the dispute settled by arbitration. The suit was stayed and arbitrators were appointed by the parties. On 6-4-59, one of the arbitrators intimated that he wanted to resign vide Ex. 40. Then the plaintiff gave an application, Ex. 41, to the Court to supersede the arbitration, and the Court passed the following order :--

'The order of the appointment of arbitrators is superseded and the stay of the suit is vacated and I order to proceed further with the suit.'

This order was confirmed in appeal, and aggrieved by this order the defendant has now come in revision.

2. It is contended that the Court should have follow-ed the provisions contained in Sections 9 and 10 of the Indian Arbitration Act, 1940, which will hereinafter be referred to as the Act, and that the learned Judge was wrong in passing an order which purported to be one under Section 25 of the Act.

3. The Learned counsel for the opponent contends that the order is perfectly correct in view, of the scheme of the Act. Chapter II of the Act deals with arbitration without intervention of a Court. Chapter III of the Act deals with arbitration with intervention of a Court where there is no suit pending. Chapter IV deals with arbitration in suits. The contention of the learned counsel for the opponent is that Chapter IV which deals with arbitration In suits whether the arbitration agreement be prior to the suit or subsequent to the suit. Section 21, which is in Chapter IV reads as follows:--

'Where In any suit all the parties interested agree that any matter in difference between them in the suit shall be referred to arbitration, they may at any time before judgment is pronounced apply in writing to the Court for an order of reference.'

It is, therefore, dear that if this Chapter applies, the parties Interested in the suit must agree that any matter in difference between them in the suit shall be marred to arbitration; they should then apply to the Court for an order of reference, and the Court should, under Section 23 of the Act, refer to the arbitrator the? matter in difference which is required to be referred to him. In cases to which Chapter IV is applicable a provision is made in Section 25 of the Act. Section 25 reads as follows:--

'The, provisions of the other Chapters shall, so tar as they can be made applicable, apply to arbitrations under this Chapter:

Provided that the Court may, in any of the circumstances mentioned In Sections 8, 10, 11 and 12, instead of filling up the vacancies or making the appointments, make an order superseding the arbitration and proceed with the suit, and where the Court makes an order superseding the arbitration under Section 19, it shall proceed with the suit.'

The order in question has obviously been, made under Section 25 of the Act. It is conceded by the learned counsel for both sides that the order in question has been passed Under Section 25 of the Act. In cases to which Chapter 4 is not applicable, the Court may order that the arbitration agreement shall cease to have effect with respect to the difference referred. This can be done under Section in (2) (b) of the Act in cases to which Chapter II is applicable. Under Section 19 of the Act also the Court has power to supersede arbitration in cases to which that section is applicable.

4. On this contention it is necessary to remember the provisions of Section 34 of the Act. Section 34 reads as

follows:--

'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 taxing any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings, and it satisfied that there is no sufficient reason why the matter should not be referred to 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.'

The Legislature has, therefore, made provisions for cases where a party to an arbitration agreement commences a legal proceeding without complying with the terms of the arbitration agreement, in such a case the court can stay the proceedings of the suit. In such a case the Court does not make a reference to any arbitrator but merely makes an order staying the proceedings of the suit so that the parties can comply with the provisions contained in the arbitration agreement But in cases to which Section 21, which is In Chapter IV, is applicant, that is, where an arbitration agreement is arrived at afterlife suit has been filed, then the Court has to make a reference under Section 23 of the Act. That is the difference between suits filed after the arbitration agreement and suits in which the arbitration agreement is arrived at after the suit is filed. Where the arbitration agreement is arrived at after the suit is filed, the provisions of Chapter IV should be followed, but where the suit is tiled after the arbitration agreement, the provisions of section 34 of the Act should be followed and where they are followed the provisions of Chapter II would come Into operation, alter the suit has been stayed.

5. The provisions of Section 35 are also Important. Section 35 of the Act reads as follows:--

'(1) No reference nor award shall be rendered invalid by reason of the 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 persons and litigating under the same title.'

It is therefore, clear that the arbitration agreement continue to be valid after the 'proceedings in the suit have been stayed.

6. It is therefore, clear to me that Chapter IV does not apply to cases where the arbitration agreement between the parties is prior to the suit filed by one of the parties to the agreement and the Courts below were wrong in passing an order under Section 25 of the Act. Where the suit is filed after the arbitration agreement and the suit has been stayed under Section 34 of the Act, the provisions of Chapter II would continue to apply and they should have teen followed by the parties. En the present case as one of the arbitrators had wanted to resign, the provisions of Section 9 of the Act would have been applicable and should have been followed. But the parties did not follow the provisions of Section 9 of the Act and the Court also did not pay its attention to the provisions of Section 9 and without doing so passed an order under Section 25 of the Act,

7. It is true that the Court itself had appointed the arbitrators and issued a letter of authority to the arbitrators. The Court somehow got the impression that the provisions of Chapter IV should be followed, but the Court was wrong in doing so. In view of Section 34 of the Act and the stay of the suit under Section 34, the provisions of Chapter II should have been followed by the parties and the Court lost sight of this fact.

8. It is next contended that the Court has inherent power to pass the order in question. But where the Act is clear and where the Act does not contemplate an order under Section 25 of the Act but contemplates that the parties should follow the provisions contained in Chapter II, to pass an order under Section 25, which is in Chapter IV of the Act, is clearly a material irregularity in the exercise of jurisdiction and is not warranted by the application of the principle of inherent powers.

9. The revision, application is, therefore, allowed andthe order of the lower Court is set aside. The questionwhether an order under Section 12(2)(b) of the Act shouldbe passed should be considered by the Court at theproper stage. No order as to costs throughout.


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