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M.P. Lokiah and ors. Vs. V.M. Jayaram Naidu - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtChennai High Court
Decided On
Reported in(1971)2MLJ155
AppellantM.P. Lokiah and ors.
RespondentV.M. Jayaram Naidu
Cases ReferredIn Banshidar v. Sukhia
Excerpt:
- - 16. in my view, the allegations in the application for return of documents clearly establish that it is a step in the proceedings......was making secret profits for chimself. after the institution of the suit the respondent has also filed an application (i.a. no. 32 of 1970) for the appointment of a commissioner to seize the account books and other records of the firm and accordingly a commissioner was appointed for the said purpose and account books and records of the firm were seized and produced by the commissioner before the court. the appellants have filed an application (i.a.no. 958 of 1970) on 16th january, 1970 for the return of the account books and records seized by the commissioner and have also filed on the same date i.a. no. 959 of 1970 out of which the present appeal arises for stay of all further proceedings in the suit and for referring the matter to arbitration in pursuance of a clause in the.....
Judgment:

S. Ganesan, J.

1. The petitioners-defendants are the appellants and they are aggrieved that the learned Sixth Assistant Judge, City Civil Court, Madras, had dismissed their application in O.S.No. 31 of 1970 for stay of all further proceedings in the said suit and for reference of the matter to arbitration.

2. The appellants and the respondent-plaintiff constituted a partnership firm under the name and style of M/s. Nethaji Brick Works and the first appellant was the managing partner thereof. The respondent has instituted the suit in question for dissolution of the partnership and for accounts and has contended in the suit inter alia that the first appellant was manipulating the account books of the firm and was making secret profits for Chimself. After the institution of the suit the respondent has also filed an application (I.A. No. 32 of 1970) for the appointment of a Commissioner to seize the account books and other records of the firm and accordingly a Commissioner was appointed for the said purpose and account books and records of the firm were seized and produced by the Commissioner before the Court. The appellants have filed an application (I.A.No. 958 of 1970) on 16th January, 1970 for the return of the account books and records seized by the Commissioner and have also filed on the same date I.A. No. 959 of 1970 out of which the present appeal arises for stay of all further proceedings in the suit and for referring the matter to arbitration in pursuance of a clause in the partnership agreement which provides for arbitration in case of dispute among the partners.

3. The main contention of the respondent-plaintiff is that, as the appellants have filed I.A. No. 958 of 1970 for return of the account books seized by the Commissioner, the application would amount to taking a step in the proceedings contemplated by Section 34 of the Arbitration Act and that they are therefore disentitled to ask for a stay of the suit. The learned trial Judge had upheld the respondents' contention and had consequently dismissed the application for stay.

4. The only question which is urged and which arises for consideration in this appeal is whether the application I.A. No. 958 of 1970 filed by the appellants for return of the documents would constitute a step in the proceedings contemplated by Section 34 of the Indian Arbitration Act.

5. Section 34 of the Arbitration Act provides that the application for stay must be filed by the defendants 'at any time before filing a written document or taking any other steps in the proceedings.'

6. There is considerable case law on the question as to what would legally constitute step taken in the proceedings and I will set out only a few leading decisions.

7. It is observed at page 386 of Volume II of Halsbury's Laws of England that the applicant must have taken no step in the proceedings after appearance; and the party who makes an application whatsoever to the Court, even though merely an application for time, takes a step in the proceedings.

8. In Nuruddin v. Abu Ahmed A.I.R. 1950 Bom. 27, the learned Judges of the Bombay High Court have observed that 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 that would be a satisfactory test in many cases but not the only test, 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. This view has found favour with the Punjab, Calcutta and Sind High Courts--Vide Doulat v. State , The Karnani Industrial Bank Ltd. v. Satya Niranjan Shaw : AIR1924Cal789 , and Firm Khimchand v. Udhavadas A.I.R. 1928 Sind 97.

9. In Bhowanidas v. Pannachand : AIR1925Cal801 , J. had observed thus:

any act in the nature of an application to the Court which indicates that a party is willing that the suit should proceed, in my opinion would be a step in the proceedings within Section 19 of the Indian Arbitration Act and the intention of the party is to be gathered from the matter of application which is made and if, having regard to the forum of the application, the Court is of opinion that step has been taken it will so hold, notwithstanding that the party may in truth and in fact have no such intention, or that the application is coupled with a protest that the party desires that the matters in dispute should be referred to arbitration and it must be a reasonable deduction from the application that the defendant intends to resist the suit on the merits.

10. In Banshidar v. Sukhia : AIR1957MP24 , it was held that 'taking step in the proceedings' means some step which indicates an intention on the part of a party to the proceedings that he desires that the action should proceed and had no desire that the matter be referred to arbitration.

11. The law on the subject may be thus summarised. The question as to what constitutes a step in the proceedings so as to deprive a party of his right to go to arbitration within the meaning of Section 34 of the Arbitration Act will depend upon the facts and circumstances of each case and it will be difficult to lay down an absolute test for that purpose. Having regard to the provisions of order 5, Rule 2, Civil Procedure Code, a proceeding must be taken to have commenced within the meaning of Section 19 of the Arbitration Act only when the defendant is supplied with a copy of the plaint and the time is fixed by Court for filing a written statement. At that stage it is the duty of the defendant to elect whether he would insist upon the arbitration clause and ask the Court to refer the matter to arbitration and to stay the suit or whether he would participate in the suit and defend the suit claim. Any laches on his part is bound to be fatal and any association by him in the proceedings will constitute a waiver of his claim for stay.

12. The words 'other steps in the proceedings' would embrace within their amplitude a large variety of acts. An application by a party indicating that he has participated in the proceedings of the case or has contributed to its further progress or any act by a party showing that he has acquiesced in the jurisdiction of the civil Court would constitute a step in the legal proceedings. An application by the defendant for the appointment of a Commissioner or Receiver for taking an inventory or for possession of property would obviously be a step in the proceedings; in such a case, he seeks the assistance of the Court for the avowed purpose of establishing his case and defeating the suit. An application for time or for extension of time to file the written statement or for postponement of the hearing of the suit would also be an obvious step in the proceedings; and the defendant's intention to proceed with the suit rather than his insistence upon the arbitration., clause can be readily inferred. Similarly,, where the defendant appears in answer to an application for discovery filed by the plaintiff and an order is passed in his presence directing him and the plaintiff' to file affidavits of discovery, his conduct: would be construed as a step in the proceedings. In all these cases it can be legitimately inferred that he intended to-abandon his claim to refer the matter to-arbitration and proceed with the trial.

13. The intention of the defendant must be gathered only (1) from the matter and purpose of the application in the proceedings and (2) the conduct of the defendant in respect of the proceedings before he filed the application for stay; and it will not be open to him to show that he had in fact no such intention by showing that the application treated as a step in the proceedings is coupled with a protest that the party desired that the matters in dispute should be referred to arbitration or that he had filed an application for stay simultaneously with or subsequent to the application held to be a step in the proceedings.

14. Judged by these principles, it appears to me that the application filed by the appellants for the return of documents would constitute a step in the legal proceedings so as to deprive them of their right to call upon the Court to refer the matter to arbitration. It is true that this application for stay had bee filed on the same date as their application I.A. No. 958 of 1970, for the return of account books and other records; but it is nowhere pleaded that the present application for stay is antecedent in time to the application for return of documents; nor is there any plea that both the applications were filed simultaneously. It is seen that the application for stay was numbered next to the application for return of documents; and it may, therefore, in the normal course of events, be presumed to have been filed later in time. In my opinion, even if both the applications had been filed simultaneously, that circumstance would be of no avail to the applicants.

15. The learned Counsel for the appellants, however, contends that, even if this application is treated as one filed subsequently to the application for return of account books, it cannot be positively inferred from the circumstances present in this case that the appellants have displayed an unequivocal intention to proceed with the suit and to give up their right to have the matter disposed of by arbitration. In my view, there is a fallacy behind this argument. The fact that the application for stay had also been filed on that day can be of no consequence in this case. Once it is found that this application for stay is not anterior in time to the application for return of account books, it is clear that the Court is bound to ignore the present application for stay and to decide the question by considering whether the application for return of documents would, standing by itself, constitute a step in the proceedings or not.

16. In my view, the allegations in the application for return of documents clearly establish that it is a step in the proceedings. Account books and records which were in the possession of the appellants had admittedly been seized by the Commissioner in pursuance of an order by the trial Court in an earlier interlocutory application and by this application the appellants seek the assistance of the Court for getting back those documents which according to the respondent-plaintiff, constitute material evidence in the case. By instituting the application for return, they must be deemed to have participated in the suit; it is evident that by seeking the return of the documents which are alleged by the respondent-plaintiff to have been manipulateed by them, they are attempting to deprive the respondent of a material piece of evidence and thereby to defeat the suit.

17. In the result, the appeal fails and is dismissed with costs.


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