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B. Raghuveeriah, Prop., L.B. Industries Vs. the National Small Industries Corporation Ltd., by Its Regional Manager, Sri S.F. Sethna - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtChennai High Court
Decided On
Reported in(1969)2MLJ99
AppellantB. Raghuveeriah, Prop., L.B. Industries
RespondentThe National Small Industries Corporation Ltd., by Its Regional Manager, Sri S.F. Sethna
Cases ReferredKhillorram Lekutam v. Louis Dreyfus
Excerpt:
- m.m. ismail, j.1. this is an application under section 34 of the arbitration act, 1940, by the defendant in c. s. no. 4 of 1968 on the file of this court. the applicant-defendant and the plaintiff-respondent entered into a hire-purchase agreement dated 11th february, 1964, for the sale of one complete plant of bolts and nuts making machine by the respondent-plaintiff to the applicant-defendant. the case of the respondent-plaintiff is that the machine was supplied to the applicant defendant but notwithstanding that supply the applicant-defendant failed to pay the first to sixth instalments payable under the agreement in accordance with the terms of the agreement. the respondent-plaintiff further avers in the plaint that the applicant-defendant failed to pay the instalments which fell due,.....
Judgment:

M.M. Ismail, J.

1. This is an application under Section 34 of the Arbitration Act, 1940, by the defendant in C. S. No. 4 of 1968 on the file of this Court. The applicant-defendant and the plaintiff-respondent entered into a hire-purchase agreement dated 11th February, 1964, for the sale of one complete plant of bolts and nuts making machine by the respondent-plaintiff to the applicant-defendant. The case of the respondent-plaintiff is that the machine was supplied to the applicant defendant but notwithstanding that supply the applicant-defendant failed to pay the first to sixth instalments payable under the agreement in accordance with the terms of the agreement. The respondent-plaintiff further avers in the plaint that the applicant-defendant failed to pay the instalments which fell due, in spite of repeated reminders made by the respondent-plaintiff and allowed the same to accumulate that the respondent-plaintiff took steps to retake possession of the machinery in exercise of the power conferred upon it under Clause (4) of the agreement and served a notice dated 8th September, 1966, on the applicant-defendant through its Junior Field Officer; that the respondent-plaintiff's agent was not able to seize the machinery as the applicant-defendant was assuring him that he would pay a substantial amount towards the arrears; that the applicant-defendant at last sent a cheque for Rs. 10,000 dated 29th October, 1966, drawn on the Syndicate Bank Ltd., Secunderabad, towards part-payment of the arrears of hire rent; that the said cheque was, however, dishonoured by the bank for want of funds; that the applicant-defendant's manager by his letter dated 12th December, 1966, informed the respondent-plaintiff that as the applicant-defendant was admitted in the hospital with a heart attack, he could not arrange funds for the said cheque, that the applicant-defendant was making efforts to send a draft for the said amount and that if the draft was not received the respondent-plaintiff may present the cheque again to the bank during the last week of January, 1967; that the cheque when so presented was again dishonoured and the applicant-defendant failed to pay the amount in spite of repeated letters written by the respondent-plaintiff that the respondent-plaintiff finally caused a Lawyer's notice to be issued through its Counsel on 16th September, 1967, calling upon the applicant-defendant to pay the arrears of instalments which had fallen due under the aforesaid agreement; and that the applicant-defendant duly received the said notice and sent a reply dated 21st September, 1967, containing false and untenable allegations and failed to pay the said arrears. The further case of the respondent-plaintiff in the plaint is that as the applicant-defendant disputed his liability to pay storage charges, demurrage charges and interest on blocked up capital which were occasioned by applicant-defendant's delay in completing the hire purchase formalities and in taking delivery of the machinery and_ as the applicant-defendant has also put forth fanciful and imaginary claims against the Corporation alleging loss of estimated profits on the ground that the delay in supplying the machinery was due to the Corporation's negligence and indifference the parties referred these specific matters of dispute to the arbitration of two arbitrators, one nominated by each party, under Clause 16 of the agreement; that the said proceedings were, on the date of the institution of the suit, pending before the arbitrators; that according to the respondent-plaintiff so far as the payment of instalments of hire rent which fell due under the agreement was concerned, there was no dispute and the same Was not the subject-matter of the arbitration proceedings and that the applicant-defendant's contention that the arrears were also covered by the arbitration proceedings was a clear after-thought and made with ulterior motive to gain time and delay the payment of the amount, in view of the assurances which were made by the applicant-defendant with regard to the payment of the arrears and the conduct of the applicant-defendant in sending a cheque for Rs. 10,000 It is on these averments that the suit was instituted for recovery of a sum of Rs. 91,633-12 with further interest on the principal amount of Rs. 67,865-45, from the date of suit till date of payment. This plaint was presented on 28th November

2. The further facts that emerge from the affidavits filed in this application are that the summons in the abovesuit, which was numbered as C.S. No. 4 of 1968 on the file of this Court, were served on the applicant-defendant on 15th July 1968 prior to that the arbitrators appointed by the parties entered on their reference on 9th October, 1967, and the arbitration proceedings were conducted at Hyderabad on various dates from 17th January, 1968 to 4th March, 1968. One of the issues framed by the arbitrators was ::

Whether the first party (the applicant-defendant) is entitled to claim set-off if any, towards the arrears of the instalments due by him and whether the same is covered by the arbitration proceedings.

3. This issue was framed obviously on the basis of the claim of the applicant--defendant that there were delay and laches on the part of the respondent-plaintiff in supplying the machinery and consequently he suffered loss of profit and there were also certain other defaults committed by the respondent-plaintiff for all of which the applicant-defendant was entitled to be compensated by the respondent-plaintiff and the right of the respondent-plaintiff to recover the arrears of instalments due under the hire-purchase agreement was not unqualified one and as a matter of fact the applicant-defendant made a total claim of Rs. 4,54,824-89 while the cost of machinery supplied to the applicant-defendant was itself Rs. 2,08,261-52. The applicant-defendant states in his affidavit filed in support of this application as follows:

The arbitrators gave their award on 25th March, 1968 and as the said award is not valid and proper, and not in accordance with the provisions of the Arbitration Act, and law, and as the Arbitrators failed to file the said award into Court in spite of my notice to do so, I filed an O. P. on the file of the City Civil Court Hyderabad, to direct the said Arbitrators to file the said award into Court' that I can take the necessary steps either to set aside or modify the award or any other appropriate step for redress.

4. The respondent-plaintiff in its counter-affidavit stated that the Arbitrators held that the claim of the first party (applicant-defendant) for damages, interest and loss of profits for alleged delay in supplying the machinery was not tenable and that the question whether the applicant-defendant is entitled to claim set-off towards the arrears of instalments did not arise as the major claims advanced by the applicant' defendant, namely, damages and loss of profits were not sustainable.

5. In the reply affidavit, the applicant-defendant has stated that he has filed a suit, O. S. No. 56 of 1968, on the file of the Second Additional Judge, City Civil Court, Hyderabad, under Section 14 of the Arbitration Act and Rule 10 made under the Act praying for filing the award and other documents into the Court to enable him to take further steps including the setting aside of the award and the said suit is pending.

6. Except the affidavits filed by the parties, no other materials were placed before me in this application; neither a copy of the award nor copies of the statements of claims made by the parties before the Arbitrators have been placed before me.

7. The question for consideration before me is whether, on the facts stated above, C. S. No. 4 of 1968, on the file of this Court ,should be stayed under Section 34 of' the Arbitration Act, 1940.

8. Clause 16 in the hire-purchase agreement which is the clause providing for arbitration is as follows:

That any dispute or difference which may arise between the parties with regard to the construction, meaning and effect of this deed or any part thereof or any other matter under this agreement, shall be referred to the arbitration of two Arbitrators, one to be nominated by each party, and in case of difference of the opinions between them by an umpire selected by them before they enter into the reference. Such proceedings and any legal proceedings arising out of them shall take place in the town where the owner's registered office is situated. The provisions of the Indian Arbitration Act, 1940 or any statutory modifications or re-enactment thereof and the rules made thereunder shall apply.

9. Learned Counsel for the applicant-defendant contends that the question raised' in this application is covered by a decision of this Court (Venkataraman, J.) dated 28th July, 1968, in A. A. O. No. 224 of 1965 which was between the respondent-plaintiff herein and another party to whom the said respondent-plaintiff supplied machinery holding that the dispute between the parties fell within the scope of' Clause 16 of the arbitration agreement. In that case, after a few months' working; of the machinery supplied by the respondent-plaintiff the buyer complained that it was defective and the defect had been there even originally and on that ground the buyer declined to pay some of the instalments of the hire-purchase which were due from the buyer to the respondent-plaintiff. To recover the unpaid instalments, the respondent-plaintiff instituted O.S. No. 2890 of 1964 in the City Civil Court, Madras. The defendant in the suit, namely, the buyer of the machinery filed I. A.. No. 98 of 1965 under Section 34 of the Arbitration Act, 1940, for staying the proceedings in the suit and referring the matter to arbitration, claiming that the matter was covered by Clause 16 of the hire-purchase agreement. The contention of the respondent-plaintiff was that the obligation of the purchaser to pay the instalments of the hire rent in terms of the agreement was an absolute liability and the claim of' the buyer was an independent dispute which should be agitated separately. Accepting this contention, the learned Assistant Judge, City Civil Court, Madras, dismissed I. A No. 98 of 1965. It was against the said order of dismissal A. A. O. No. 224 of 1965 was filed before this Court and the learned Judge allowed the said appeal. In the opinion of the learned Judge, it was for the Arbitrators to decide whether Clause 1 of the agreement casts an absolute liability on the buyer to pay the instalments or whether there was an alleged defect in the machinery or whether that would mitigate the liability of the buyer and the dispute between the parties. fell within the scope of Clause 16 of the hire-purchase agreement. If the present application is to be decided only on the question whether the dispute between the parties is covered by Clause 16 of the hire-purchase agreement entered into between the parties, I would be inclined to agree with the contention of the applicant-defendant. However, the question before me is different and did not come to be decided by Venkataraman, J. In the case before Venkataraman, J., no arbitration-proceedings had taken place at the time when the defendant in the suit invoked Section 34 of the Arbitration Act. However, in the present case, the position is entirely different. As I pointed out already, the Arbitrators entered on the reference on 9th October, 1967, the arbitration proceedings were conducted between 17th January, 1968 and 4th March, 1968. and the Arbitrators made their award on 25th March, 1968. The present suit itself was instituted on 28th November, 1967, on the file of this Court, when the arbitration proceedings were pending, which fact is referred to in the plaint itself. The summonses in the suit were served on the applicant-defendant on 15th July, 1968, and the present application was made on 23rd August, 1968 and on 28th August, 1968, I passed an interim order staying further proceedings in the suit.

10. Against the background of these facts, the question for consideration is whether it is competent for this Court to pass any order staying further proceedings in the suit at this stage. The most important feature is that On the date when the application was filed into this Court praying for an order staying the suit, admittedly the arbitration proceedings have terminated and have resulted in an award. The learned Counsel for the applicant-defendant submitted that the fact that the arbitration proceedings have come to an end and an award has been made by the Arbitrators makes no difference whatever to the situation and this Court is competent to order stay of further proceedings in the suit. However, the learned Counsel was not able to place before me any authority in support of this contention. Section 34 of the Arbitration Act is to the following effect:

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; and if satisfied that there is no sufficient reason why the matter should not be referred 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.

11. Since reliance was placed on Section 35 of the Arbitration Act also, I shall extract that section as well:

Section 35.--(1) No reference nor award shall be rendered invalid by reason only of the commencement of legal proceedings upon the subject-matter of the reference but when the 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.

12. Section 34 of the Arbitration Act, 1940 corresponds to Section 19 of the Indian Arbitration Act, 1899, which itself corresponded to Section 4 of the English Arbitration Act of 1889 now replaced by Section 4(1) of the English Arbitration Act of 1950. (Section 19 of the Indian Arbitration Act, 1899, corresponded to paragraph 18 of the 2nd Schedule to the Civil Procedure Code of 1908). Thus, Section 34 of the Arbitration Act, 1940, providing for an order of stay of judicial proceedings has been there in the statute book in one form or another for a considerable time. The conditions to be fulfilled for invoking Section 34 of the Act have been explained and considered in several decisions, which it is unnecessary to refer to in view of the very narrow point that falls for consideration in this application and that point being whether the Court can order stay of further proceedings in the suit, when the arbitration proceedings have already culminated in an award. In my opinion, the language of Section 34 is wholly inappropriate to such a situation. The second limb of the said section states that the Court should be satisfied that there is no sufficient reason why the matter should not be referred 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. The expressions italicised by me above clearly and indisputably indicate that at the time when the Court is called upon to pass an order of stay, either the matter should not have been referred to arbitration at all and the Court must be satisfied that there is no reason why the matter should not be referred in accordance with the terms of the arbitration agreement or the arbitration proceedings are pending, the matter having already been referred to the arbitrators. If the arbitration proceedings have already come to an end and have resulted in an award, the question of the Court being satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and the willingness and readiness of the defendant to do all things necessary to the proper conduct of the arbitration cannot arise, since there is no matter to he referred to arbitration and there is no arbitration to be conducted. The learned Counsel for the applicant-defendant faintly contended that any proceedings taken before the Court under the Arbitration Act, even after an award has been passed, will constitute arbitration proceedings, and therefore the section can apply, as the applicant-defendant has taken proceedings in the City Civil Court, Hyderabad, under Section 14 of the Act, for filing the award into the Court. In my opinion, this contention is wholly untenable and there can be no warrant whatever for such a contention either in the language of Section 34 of the Act or in the entire scheme of the Arbitration Act, 1940. Once a litigant comes before a Court with a grievance or a claim, it is the ordinary and normal function of the Court to investigate into the matter and render a decision, and stay of proceedings before it, by the very Court is an exception to the general rule and consequently any person who wants the proceedings to be stayed must bring the case within the four corners of the language of the statutory provision which he invokes in his aid. In this case, the only statutory provision on which reliance has been placed is Section 34 of the Arbitration Act, 1940, and the language of that section does not support the case of the applicant at .all.

13. In my opinion, Section 35 of the Act also does not support the case of the applicant. Section 35 is a new section in the Act and the language of that section makes it abundantly clear that the judicial proceedings referred to in that section are those which are commenced subsequent to the commencement of the arbitration proceedings. The expressions ' commencement of legal proceedings upon the subject-matter of the reference,' 'in a pending reference ' and ' all further proceedings ', clearly and categorically support this inference. For that section to apply, two conditions must be satisfied, one is the legal proceedings commenced must be upon the entire subject-matter of the reference and the second is a notice of the legal proceedings must have been given to the Arbitrators or Umpire. If these two conditions are satisfied, all further proceedings in the reference shall be invalid, unless stay of proceedings is granted under Section 34 of the Act. This section has brought about a change in the pre-existing law. It was thought prior to the enactment of this section, that if, after the commencement of the arbitration proceedings, a suit is filed in a Court with reference to the same subject-matter, the Arbitrators become functus officio and any proceedings taken by them would be void. The present section has modified that law by insisting that the subject-matter of the legal proceedings must cover the entire subject-matter of the reference and the proceedings of the Arbitrators subsequent to the receipt of the notice of the legal proceedings alone would be invalid, if a stay of the legal proceedings had not been granted by the Court. Though Section 34 read with Section 35 of the Act, implies that a stay of legal proceedings can be granted whether at the time when the legal proceedings commenced, the arbitration proceedings have commenced or not, still there is one important difference between Section 34 and 35. For the purpose of Section 34 it is enough, if the legal proceedings were in respect of any matter agreed to be referred to arbitration, while for the purpose of Section 35, the subject-matter of the legal proceedings must cover the entirety of the subject-matter of the reference. Hence my conclusion on the language of Sections 34 and 35 of the Arbitration Act, 1940 is that once the arbitration proceedings have terminated and resulted in an award, it is not open to the Court to stay the suit pending before it.

14. This conclusion of mine is supported both by principle and by the observations contained in several judgments. The respective jurisdictions of the Court and the Arbitrators and the effect of the proceedings before one of them on those of the other are contained in the following well known passage of Fletcher Moulton, L. J., in Dolemar. and Sons v. Ossett Corporation L.R. (1912) 3 K.B. 257.

The present position, therefore, of agreements to refer to private tribunals may be shortly expressed thus. The law will not enforce the specific performance of such agreements, but, if duly appealed to, it has the power in its discretion to refuse to a party the alternative of having the dispute settled by a Court of law, and thus to leave him in the position of having no other remedy than to proceed by arbitration. If the Court has refused to stay an action, or if the defendant has abstained from asking it to do so, the Court has seisin of the dispute, and it is by its decision and by its decision alone, that the rights of the parties are settled. It follows, therefore, that in the latter case the private tribunal, if it has ever Come into existence, is functus officio unless the parties agree de novo that the dispute shall be tried by arbitration, as in the case where they agree that the action itself shall be referred. There cannot be two tribunals each with the jurisdiction to insist on deciding the rights of the parties and to compel them to accept its decision. To my mind this is clearly involved in the proposition that the Courts will not allow their jurisdiction to be ousted. Their jurisdiction is to hear and decide the matters of the action, and for a private tribunal to take that decision out of their hands, and decide the questions itself, is a clear ouster of jurisdiction. Therefore to hold that the private tribunal is still effective after the dispute has come before the Court would be to say that, in all cases in which Section 4 of the Arbitration Act 1889, applies ,the defendant may still force on an arbitration and by obtaining an award from the arbitrators, oust the jurisdiction of the Courts to decide the question they have in hand. In each case where the Court has decided that it will retain in its own hands the decision of the case, there would thus be a race between it and a private tribunal which should be the first to give a decision in the matter. The learned Judge has decided that, if during the pendency of the action an award is obtained from the Arbitrator, it can be pleaded in bar to the action, or in other words, the decision of the Arbitrator, and not that of the Court, decides the rights of the parties. If this were good law, there would be in every case be the race between the public and private tribunals which I have described and the decision of the speediest would prevail. This would be ousting the jurisdiction of the Court in a most ignominious way.

15. In Appavu Rowther v. Seeni Rowther I.L.R. (1918) Mad. 115 : (1918) 33 M.L.J. 177, after referring of the matter to arbitration a suit was filed and during the pendency of the suit, the Arbitrators gave an award. Thereafter another suit was filed for a decree in terms of the award and the lower Court passed a decree as prayed for. It is the correctness of that decision which was the subject-matter of the appeal before a Bench of this Court. The learned Judges, after referring to Section 28 of the Contract Act, 1872, Section 21 of the Specific Relief Act, 1877, paragraph 22 of the Second Schedule to the Code of Civil Procedure, and the Indian Arbitration Act, stated:

In our opinion, the intent to be gathered from these Acts is that the rights of a party to seek the assistance of the properly constituted Courts of the realm are unrestricted. The right inhering in a suitor to sue is preserved intact. In order to provide against the contumacious conduct of a plaintiff who has agreed to refer, but who wants to resile from it by instituting a suit, Section 18 of the Second Schedule has been introduced. Under that section if the Court is appraised that an agreement to refer was entered into, it may stay the trial of the suit. In a given case, the Court may consider that the Arbitrators would be able to decide the case for more efficaciously than the Court itself. In such a case the Court may ask the Arbitrator to give his decision. But the discretion is in the Court, the paramount idea being that a tribunal constituted by the parties should not come into conflict or usurp the function of the tribunal which the Sovereign has provided.

16. The learned Judges were of the opinion that the views so expressed by them received support from the judgment of Fletcher Moulton, L. J. in Doleman and Son . v. Ossett Corporation L.R. (1912) 3 K.B. 257 extracted by me already. On the basis of this opinion the learned Judges accepted the contention that on the filing of the suit during the pendency of the arbitration the Arbitrators became functus officio and consequently their award was ultra vires their powers and the lower Court acted without jurisdiction in passing a decree embodying the terms of the award.

17. The same view was taken by the Calcutta High Court in Ramprasad Surajmal v. Mohanlal Lachminarain I.L.R. (1920) Cal. 752 and in Jokiram Kaya v. Ghenashamdas Kedarnath I.L.R. (1920) Cal. 849. In the latter case, Mookerjee, J., with whom Fletcher, J., concurred after referring to the observations of Fletcher Moulton, L.J., stated:

Consequently when a reference to arbitration has been made and the private tribunal has come into existence, the effect of the institution of the suit is, that, from that very moment, the Arbitrators become functus officio, that is, their authority to deal further with the matter becomes extinguished. The institution of the suit cannot, however, retrospectively affect the validity of the reference which when it was made, was in exact conformity with the agreement of the parties. If this view were not adopted, the result would follow that a party to a submission, who had appeared throughout and had taken his chance before the Arbitrators might, at the very last moment, when the award, possibly an adverse award, was about to be made, and when there would be no time left for his opponent to obtain a stay order, institute a suit and thereby render infructuous the entire proceedings. Such a conclusion cannot, in our opinion, be defended, either on principle or on the authorities.

18. It may be seen that this opinion of the Calcutta High Court has taken statutory shape in the present Section 35 of the Arbitration Act, 1940, when it provides that when the Arbitrators without there being a stay of the judicial proceedings under Section 34 and after notice of the judicial proceedings covering the entire subject-matter of the reference, proceed with the arbitration, it is only the further proceedings that are invalid.

19. In Jainarain v. Naraindas (1922) I.L.R. 3 Lah. 369, Shadi Lal ,C. J., with whom Campbell, J., agreed, after referring to the observations of Fletcher Moulton, L. J., pointed out that it lays down only a proposition that an Arbitrator has no Authority to adjudicate upon a matter which has already been made the subject-matter of an action unless the person bringing the action consents to the jurisdiction of the Arbitrators; and this proposition rests upon a sound principle and its validity cannot be impeached; when the same matter comes before two tribunals, a public tribunal appointed by the Sovereign and a domestic forum chosen by the parties and no order is made staying the proceedings before one or the other, the public tribunal alone must decide that matter and cannot be hampered by any adjudication thereupon made by the private tribunal and neither can that adjudication be pleaded as a bar to the action nor can it be allowed to affect the merits of the decision given by the public tribunal. The learned Chief Justice further stated ::

The essence of the rule enunciated in Doleman's case L.R. (1912) 3 K.B. 257 is this. The law does not permit the same question to be decided by a Court of law as well as by the Arbitrators, and it is only when the dispute before the two tribunals is identical that a decision given by the Arbitrators must be treated as ultra vires. It is the identity of the dispute before the two authorities which is the ratio of the rule in Doleman's Case (1912) 3 K.B. 257 and it is necessary to emphasise this point because it appears, that the passage quoted above when divorced from its context, is liable to be misinterpreted as laying down the broad proposition that when an action has been brought in respect of a contract containing an arbitration clause and has not been stayed, then an award made by the Arbitrator upon a dispute coming within that clause is ultra vires, and it is immaterial whether that dispute was or was not a matter in controversy in the action. I can see no reason in principle to extend the scope of the rule in the manner indicated above and fail to understand why the Court of law and the Arbitrator should not go on simultaneously if the disputes before them, though relating to the same contract, are entirely distinct. In such a case, there is no conflict between the two jurisdictions, and no question could arise whether the decision of one tribunal should prevail as against the decision of the other....There is no statute law in support of the proposition that an award made after the commencement of an action must be treated as invalid even though the award deals with a question which is not a matter in controversy in the action, and I know of no principle of law upon which this broad proposition could be reasonably defended.

20. The learned Chief Justice further explained the decision of the Madras High Court in Appavu Rowther v. Seeni Rowther I.L.R. (1918) Mad. 115 : (1918) 33 M.L.J. 177, and that of the Calcutta High Court in Ramprasad Surajmal v. Mohanlal Lachminarain I.L.R. (1920) Cal. 752, and in Jokiram Kaya v. Ganeshamdas Kedarnath I.L.R. (1920) Cal. 849, as having dealt with matters in which the entire subject-matter of the reference was covered by the suits. It is significant to note that this position of law explained by the Lahore High Court has found statutory form in the present Section 35 of the Arbitration Act, 1940, under which the said section will apply only, when the judicial proceedings cover the entire subject-matter of the reference before the arbitrators.

21. In Saratchandra Sen v. Rajkumar Mookherjee A.I.R. 1923 Cal. 135 (2), a Bench of the Calcutta High Court explained the position as follows ::

The true position consequently is that as soon as the suit is instituted, the Arbitrators lose their authority. If the defendant still desires that the controversy should be decided by arbitration, he must endeavour to obtain a stay of the suit by an appropriate application under paragraph 18 of the Second Schedule to the Civil Procedure Code. If the application is refused by the Court in the exercise of its discretion, the remedy by arbitration ceases to be available. If the suit is stayed, two possible contingencies may require consideration. If the Arbitrators have not yet made an award, they arc free to bring their proceedings to a termination and make an award in accordance with law. If on the other hand the Arbitrators have made an award after institution of the suit as happened in Ramchand v. Gobindram (1920) 13 S.L.R. 183 : (1920) 56. I.C. 150 the award cannot be pleaded as an effective bar to the suit. The award so made should be brought up before the Court under paragraph 20 of the Second Schedule to the Civil Procedure Code; the Court will refute to enforce it under paragraph 21 read with paragraph 14 (c); and as the award will thus stand cancelled, because made without jurisdiction, the Arbitrators will be left free thereafter to resume their proceedings on the basis of the original reference. If this view were not adopted, the result would follow that a party to a submission, who had appeared throughout and had taken his chance before the Arbitrators, might at the very last moment when the award, possibly an adverse award, was about to be made and when there would be no time left for his opponent to obtain a stay order, institute a suit and thereby render infructuous the entire proceedings.

22. The decision which may be said to specifically refer to and deal with a case just like the present one is that of the Lahore High Court in Jawahir Singh Sundar Singh v. Fleming Shaw and Co. Ltd. I.L.R. (1939) Lah. 351. There, Tekchand, Offg, C. J., with whom Abdul Rashid, J., concurred, after quoting Section 19 of the Arbitration Act, 1899, stated:

It will be seen that the conditions which must be fulfilled before an application for stay can be made are:

(1) that there must be a valid submission;

(2) that legal proceedings in Court have been commenced by a party to the submission in respect of a matter agreed to be referred; and (3) that the application for stay is made by the opposite party before filing his written statement or taking other steps in the proceedings.

23. If these conditions are fulfilled, the Court will grant, the application and stay the suit so as to enable the parties to have the dispute settled by arbitration, unless of course, the opposite party satisfies it that there are sufficient reasons to the contrary. If, however, the opposite party does not avail himself of the provisions of Section 19 or fails to apply under that section at the proper time, or where the application if made, has been refused, the Court will proceed with the suit and its decision will be binding on the parties. And this is so, not only where the action had been brought before the reference to arbitration, but also in cases where the Arbtirators had been appointed before the institution of the suit and had actually entered upon their duties (but had not given the award) before that date.

24. Before the learned Judge, the decision of the Judicial Commissioner of Sind in Khillorram Lekuram v. Louis Dreyfus Co. (1919) 52 I.C. 150 : A.I.R. 1919 Sind 57, was relied on wherein it was held that the mere fact of a suit being filed does not invalidate the arbitration proceedings and that an order under Section 19 can be made before, as well as after, reference or award. The learned Judges of the Lahore High Court did not accept that view and proceeded to state:

Nor can I accept the view of the learned Judicial Commissioner in the above case, that an order of stay can be passed under Section 19 of the Arbitration Act, even after the award had been given (see page 134 of the Khillorram Lekutam v. Louis Dreyfus & Co. (1919) 521.C. 130 : (1919) 13 S.L.R. 8. There is nothing in the section which would justify this conclusion. The object of passing an order staying the suit, under that section, is to allow the parties to proceed with the arbitration. But if before the application for stay is made, or has been disposed of, the Arbitrators have already made the award (which according to the view of the learned Judicial Commissioner is valid) there will be no point in making the stay order. In that event, the proper course for the opposite party would be to plead the award in bar of the suit and not to obtain an order staying the suit pending arbitration, which already terminated.

25. This observation of the Lahore High Court supports the conclusion I have reached simply as a matter of construction of Section 34. In my view, the language of Section 34 is entirely inapplicable to a situation where the arbitration proceedings have come to a close and culminated in an award. The institution of a suit in respect of a matter covered by the arbitration agreement, without referring the matter for arbitration in accordance with the terms of the agreement, during the pendency of the arbitration proceedings covering the matter, does not affect the maintainability of the suit or the jurisdiction of the Court to deal with it or dispose it of. The only remedy available to a party to the arbitration agreement and against whom the suit has been filed, not desiring the suit to be proceeded with, but wishing the matter to be dealt with by arbitration in accordance with the terms of the agreement, is to apply for stay of proceedings in the suit under Section 34 of the Act. The object of such stay is to force the plaintiff to respect and act up to the terms of the agreement and refer the matter for arbitration. If, at the time the Court is required to pass an order staying further proceedings in the suit, the arbitration proceedings have terminated and resulted in an award, the object for the achievement of which alone further proceedings can be stayed is no longer available. Further, since the language of the section is clear and specific, any difficulty, real or imaginary, said to be present as a consequence of the award having come into existence and the suit being proceeded with, cannot affect the construction of the section and alter its scope or effect. Consequently, on the admitted facts of this case the applicant-defendant herein is not entitled to an order staying further proceeding in the suit.

26. It may be that the respondent-plaintiff was not justified in instituting the suit during the pendency of the proceedings. It may be again that the applicant-defendant is not to be blamed in filing this application after the award has been made by the Arbitrators, since, the summons in the suit were served on the applicant-defendant only on 15th July, 1968 and the award has been made on 25th March, 1968 itself. But none of these facts affects my conclusion, since the same is based on the construction of Section 34 of the Arbitration Act, 1940, and this conclusion of mine does not involve exercise of any discretion on my part. No material has been placed before me as to whether the Arbitrators had any notice of the institution of the suit by the respondent-plaintiff before they made their award, nor was any contention advanced before me in this behalf.

27. It is unnecessary for me in this application to decide, and no material has also been placed before me for coming to a decision, whether the award is valid or not and what is the effect of the award, with reference to any decree that may be passed in the suit. However, purely from a practical point of view, it would appear that the award is favourable to the respondent-plaintiff, as is alleged in this case, and if the respondent-plaintiff can get relief on the basis of the award itself, he may not be interested in pursuing the suit and it is only the defendant-applicant that would be interested in having the suit proceeded with, since he could put forward his counterclaim or claim to set-off in the suit itself and have the matter investigated into and adjudicated upon by the Court itself. It is only in this context it appears rather strange that the learned Counsel for the applicant-defendant should have insisted that this Court should stay further proceedings in the suit, notwithstanding the particular award that has been passed by the Arbitrators.

28. Under these circumstances, this application fails and it is dismissed. Taking into account the circumstance that the respondent-plaintiff instituted the suit during the pendency of the arbitration proceedings, I do not make any order as to costs.


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