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Babulal Singhania Vs. Pirudan Ojha - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberCivil Rules Nos. 3036 and 3457 of 1975
Judge
Reported inAIR1977Cal503
ActsArbitration Act, 1940 - Section 34; ;Code of Civil Procedure (CPC) , 1908 - Section 115
AppellantBabulal Singhania
RespondentPirudan Ojha
Appellant AdvocateSyamacharan Mitter and ;Samaprasanna Roy Choudhury, Advs.
Respondent AdvocateBarun Kumar Roy Choudhury, Adv.
Cases ReferredUnion of India v. Hind Galvanizing and Engineering Co. Pvt Ltd.
Excerpt:
- .....of an inventory commissioner on the grounds inter alia that the application for stay of the suit filed by the opposite party under section 34 of the arbitration act has been rejected and that no decision has been made as to filing of the arbitration agreement as provided in section 20 of arbitration act.9. on july 31, 1975, the learned subordinate judge, second court, howrah, allowed the application for issue of a commission for making inventory of the articles and account papers.10. it is against this order this rule has been obtained. there is an order of stay of operation of the impugned order till the disposal of the rule.11. mr. shyamacharan mitter, learned advocate for the petitioner in c. r. no. 3076 contended that the defendant opposite party has appeared in title suit no......
Judgment:

B.C. Ray, J.

1. These two Rules arise out of two orders passed in Misc. Appeal No. 35 of 1:975 and Title Suit No. 22 of 1976 respectively. Civil Rule No. 3457 of 1975 is directed against the order passed on 13th of August, 1975 by the District Judge. Howrah in Misc. Appeal No. 35 of 1975 affirming the order No. 18 dated 7-3-75 passed by the Munsif, First Court, Howrah in Title Suit No. 267 of 1974 rejecting the application under Section 34 of the Arbitration Act. Civil Rule No. 3036 of 1975 is directed against the order No. 28 dated 3lst July, 1975 passed by the Subordinate Judge, Second Court, Howrah in Title Suit No. 22 of 1975 allowing the plaintiff opposite party's application under Order 39, Rule 7 of the , Civil P. C. for issue of a commission for making inventory of the articles and account papers as mentioned in the petition. On the prayer of both the parties these two rules were heard together.

2. The opposite party, Pirudan Ojha in Civil Rule No. 3457 of 1075 instituted on Nov. 21, 1974 a suit being Title Suit No. 267 of 1974 in the First Court of Munsif, Howrah against the defendant petitioner Babulal Singhania for dissolution of partnership and for accounts stating inter alia that the plaintiff and the defendant carried on the partnership business under the name and style of 'Siba Processing & Co.' at premises No, 4, Gopalram Pathak Road, on the 'basis of an agreement executed and registered by them on June 6, 1969 which was subsequently amended by a deed of agreement dated September 14, 1971, that in the said business the plaintiff has 40% share and the defendant has 60% share, that there were differences with the defendant who refused to render any account of loans taken from United Commercial Bank and defaulted in payment of instalment to the bank and of the monthly rents to the landlord of the factory premises. It has also been alleged that the defendant removed all account books and other relevant papers from the office of the factory and the loans sanctioned by the bank in favour of the partnership firm were actually paid by cheques to different customers of the partnership business most of whom were fictitious customers and the defendant thus misappropriated a huge sum of money. The plaintiff on October 14, 1974 served a notice for dissolution of the partnership which was a partnership-at-will on the defendant and he repeatedly requested the defendant to settle all disputes by referring to Arbitration in terms of the partnership agreement but without any effect. Hence this suit has been filed.

3. The opposite party, it is stated in the petition, tried to have an ex parte decree in the said suit but the defendant petitioner on coming to know of the same appeared in the said suit and filed an application under Section 34 of the Arbitration Act, 1940 for stay of further proceedings of the said suit and for referring the disputes to Arbitration in accordance with the terms of Clause 9 of the partnership agreement.

4. The plaintiff opposite party filed a written objection contending inter alia that the plaintiff came into the management of the firm only on and from 14-9-1971, that there was no valid and subsisting agreement between the parties, that the partnership business had been dissolved prior to the institution of the suit by a notice dissolving the partnership firm and the petitioner requested to settle the disputes by Arbitration but without any effect and as such the application under Section 34 of the Arbitration Act should be rejected.

5. On March 7, 1975, the learned Munsif, First Court, Howrah by Order No. 18 rejected the application holding that the partnership agreement was not in force as the plaintiff dissolved the partnership by a notice dated 14-10-74 and there was serious allegation of criminal misappropriation against the defendant which should not be referred to the Arbitrator for adjudication.

6. On appeal the said judgment and order was affirmed by the learned District Judge, Howrah who dismissed the appeal.

7. It is against this order this Rule has been issued and the hearing of the suit has been stayed till the disposal of the Rule.

8. The opposite party, Babulal Singhania in Civil Rule No. 3076 of 1974 filed on March 19. 1975 an application under Section 20 of the Arbitration Act being Title Suit No. 22 of 1975 in the Second Court of Subordinate Judge, Howrah praying that the arbitration agreement be filed in court. In the said suit the opposite party, Babulal Singhania filed an application under Order 39, Rule 7 of the Civil P. C. for appointment of a Commissioner for making an inventory of the machineries and account books lying in the factory premises at 4, Gopalram Pathak Road, P. S. Liluah. The petitioner filed an objection as to the maintainability of the said application under Section 20 of Arbitration Act as well as of the application for an appointment of an inventory Commissioner on the grounds inter alia that the application for stay of the suit filed by the opposite party under Section 34 of the Arbitration Act has been rejected and that no decision has been made as to filing of the arbitration agreement as provided in Section 20 of Arbitration Act.

9. On July 31, 1975, the learned Subordinate Judge, Second Court, Howrah, allowed the application for issue of a commission for making inventory of the articles and account papers.

10. It is against this order this Rule has been obtained. There is an order of stay of operation of the impugned order till the disposal of the Rule.

11. Mr. Shyamacharan Mitter, learned Advocate for the petitioner in C. R. No. 3076 contended that the defendant opposite party has appeared in Title Suit No. 267 of 1974 and prayed for adjournment of the suit. The defendant also made an application for adjournment of the said suit on the ground that the writ of summons with a copy of the plaint had not been served on him and also prayed for a direction for service of copy of the plaint on him for filing a written statement. Mr. Mitter has also submitted that the defendant also appeared and prayed for time in the injunction matter and on his prayer the hearing of the injunction petition was adjourned. The defendant also filed an application for adjournment of hearing of the injunction matter, Mr. Mitter has submitted that all these acts on the part of the defendant constituted taking steps in the proceedings as provided in Section 34 of the Arbitration Act and as such the courts below rightly rejected the application for stay of the suit. Several decisions have 'been cited by Mr. Mitter on this point. Mr. Mitter has further submitted that in the plaint of Title Suit No. 267 of 1974 there is serious allegation of fraud and misappropriation against the defendant, Babulal Singhania during the period he was in management of the said partnership business. These allegations of fraud and misappropriation, it has been submitted by Mr. Mitter, cannot be conveniently investigated by the Arbitrator and as such the courts below were right in holding that It was proper that this grave and serious allegations should be investigated and decided by civil court and not by Arbitrator,

12. Mr. Mitter has lastly submitted that after the rejection of the application under Section 34 of the Arbitration Act the petition under Section 20 of the Arbitration Act was not competent and the application filed therein for the appointment of an Inventory Commissioner ought to have been dismissed by the Court below.

13. Mr. Barun Kumar Roy Chow-dhury learned Advocate for the defendant opposite party, Babulal Singhania in C. R. No. 3076 of 1975 has submitted that the order of injunction had already been issued against the defendant and the defendant had no other alternative than to appear in the said injunction matter and to file objection to contest the same otherwise he would be greatly prejudiced if the injunction order had been made absolute. It has been further submitted that there is no provision in the Arbitration Act to remedy this wrong. Mr. Roy Chowdhury has further submitted that the suit was fixed for ex parte hearing and as such the defendant appeared in the suit through his lawyer and the defendant had to make an application for adjournment on the ground that the writ of summons with a copy of the plaint had not been served on him and for serving a copy of the plaint on him in order to acquaint himself with the statements and allegations made in the plaint. This, it has been submitted, cannot be considered to be taking any steps in the suit, it has also been submitted that an interlocutory matter is not a part of the proceeding in the suit and the filing of an application for time to file objection against the Injunction petition and to contest the injunction matter is not taking a step in the proceeding as provided in Section 34 of the Arbitration Act. The courts below, it has been submitted were wrong in rejecting the application under Section 34 of the Arbitration Act filed by the defendant opposite party.

14. Mr. Roy Chowdhury has also submitted that the petitioner has removed account 'books and other papers from the office of the factory premises to his house and the petitioner has not allowed the opposite party any access to the account books. The petitioner did not pay the monthly rents of the factory premises to the landlord and also of the instalments in respect of loans to the bank. It has therefore been prayed that a Commissioner be appointed to make an inventory of machinery parts as well as account books and other relevant papers lying in the factory premises at Liluah. The order passed by the learned Subordinate Judge allowing the said application for issue of a commission for making inventory of those articles is not without jurisdiction nor it is illegal or erroneous and as such the same is not liable to be revised,

15. The plaintiff, Pirudan Ojha, ad- mittedly filed Title Suit No. 267 of 1974 for dissolution of partnership and for accounts against the defendant, Babulal Singhania in November, 1974 after serving a notice dated 14-10-74 dissolving the partnership business which is a partnership-at-will. In the said suit the plaintiff filed an application for temporary injunction and obtained an order of Interim injunction whereby the defendant had been restrained from disturbing or interfering with the carrying on the business by the plaintiff petitioner until the hearing of the said application. It also appears that the defendant after, serving of notice of the injunction petition on him appeared in the suit and prayed for time to file objection. The injunction matter was adjourned accordingly. This is evident from Order No. 6 dated Dec. 4, 1974. It is also evident from Order No. 9 dated 7-1-75 that the defendant filed a petition praying for an adjournment to enable him to file objection in the injunction matter. The hearing of the injunction matter was adjourned to a subsequent date. It also appears from Order No. 10 dated 15-1-75 that the defendant made an application for adjournment of the ex parte hearing of the suit and the said prayer was granted and the defendant was asked to file a written statement by certain date and he was directed to take copy of the plaint from the record. It also appears from Order No. 12 dated 5th February, 1975 that the defendant filed a petition praying for adjournment in the injunction matter. On the same day the defendant also filed a petition under Section 34 of the Arbitration Act praying for stay of further proceeding in the said suit and for referring the matter to Arbitration for adjudication of the disputes. It is also evident from the application for temporary injunction that the material averments of the plaint have been mentioned and the relief claimed in the plaint has also been stated clearly. The question now is whether these acts on the part of the defendants amount to taking steps in the proceeding within meaning of Section 34 of the Arbitration Act. Section 34 of the Arbitration Act specifically provides that the defendant has to file such an application for stay of the proceedings before filing any written statement or taking any other steps in the proceedings.

16. In : AIR1950Bom127 , Nuruddin Abdul Husein v. Abu Ahmed Abdul Jalli it has been observed by Tendolkar J. that the two tests 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 to proceed with the suit or to have the matter disposed of by arbitration. Filing of an appearance in court is not an application of any kind but is an act which is incumbent upon the defendant to do by virtue of Rule 117 of the High Court Rules for preventing a suit for being set down as being undefended and therefore it is not a step in the proceedings.

17. In : AIR1961MP322 , San-sarchand Deshraj v. State of MadhyaPradesh, it has been observed that thefiling of a reply to the application of theplaintiff for securing of a temporary injunction and asking the said applicationitself does not amount to 'taking othersteps in the proceedings' by the defendant within the meaning of Section 34 ofArbitration Act. Opposing the application for temporary injunction is not anunequivocal intention on behalf of thedefendant to choose to give up his rightunder the agreement to refer the dispute to arbitration. This decision hasbeen followed in : AIR1974All431 Queens College, Konetra v. Collector, Varanasi, where it has been held by Mathur. J that the act of the defendant to get an ex parts 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 adjudication of the claim, in the suit itself.

18. In : AIR1966Cal315 , Amritraj Kothari v. Golecha Financiers the view expressed in : AIR1961MP322 has been dissented from by Mullick, J. who has observed:--

'It is difficult to make a distinction .between filing a written statement in the suit and filing an opposition to an interlocutory application in that suit; both of them are 'taking steps in the suit'. Filing an affidavit in an interlocutory application is as much taking a step in the proceeding as filing a written statement or filing an affidavit-in-opposition to an application under Order 12, Rule 6. Interlocutory proceeding is a proceeding in the suit itself and any steps taken in the proceeding is a step taken in the suit, Arbitration Act empowers the court to pass suitable interim orders in respect of matters agreed to be adjusted by arbitration,'

19. In : AIR1962Cal541 , Dunichand Sons and Co. v. Fort Gloster Industries Ltd., the case in short is that the plaintiff Dunichand and Sons instituted a suit against Fort Gloster Industries Ltd. for a decree for a certain sum of money or alternatively for an enquiry into the damages and for other relief's. On the service of writ of summons the defendant on 17-7-61 executed a warrant of attorney in favour of Messrs. Khaitan and Co, This was filed before the Registrar on 18-7-61 and on the same day appearance was entered in the suit on behalf of the defendant. On 17-7-61 i. e. before the warrant was filed an application under Section 34 of the Arbitration Act was taken and the same was made returnable on 24-7-61. It has been observed that mere entering appearance is not a step in the proceeding within the meaning of Section 34 of the Arbitration Act.

20. In AIR 1949 All 611, United Provinces Govt. v. Sri Har Nath the plaintiff filed a suit for certain reliefs against the defendant, U. P. Government. The defendant made an application for time to file a written statement. Sometime thereafter the defendant made an application under Section 34 of the Arbitration Act for stay of the suit. The application was rejected and the said order was affirmed on an appeal. It was held that an application for adjournment to file a written statement was a step in the proceeding within the meaning of Section 34 of the Arbitration Act

21. In AIR 1024 Cal 789, The Karnani Industrial Bank Ltd. v. Satya Niranjan, it has been observed that verbal prayer by defendant's counsel for further time to file written statement is taking a step in the proceeding.

22. In (1907) ILR 34 Cal 443, Sarat Kumar v. Corporation of Calcutta it was held by Woodroffe J. that application for time to file written statement is a step in the proceeding within S. 19 of the Indian Arbitration Act, 1899 (Act 9 of 1899).

23. In AIR 1943 Cal 484, Subal Chandra Bhur v. Md. Ibrahim the counsel for the defendant appeared in the suit and applied for and obtained time to file his client's affidavit-in-opposition to the application for appointment of a receiver and also applied for and obtained directions and leave to inspect the books of accounts and records. It was observed by his Lordship S. R. Das, J. that the filing of such an application would indicate that the party acquiesced in the method adopted by other side of having the dispute decided by the court and not by Arbitrator,

24. In AIR 1948 Cal 59, Sadhan Kumar v. Sunil Kumar, it has been observed that the filing of an application for time to file a written statement is taking other steps in the proceeding as provided in Section 19 of the Arbitration Act. 1889 or Section 34 of the Arbitration Act, 1940 and therefore a person who has applied for time to file a written statement is not entitled at a later date to apply for stay of proceeding under Section 34 of the Arbitration Act, 1940.

25. In : AIR1970Mad323 , M/s. Bortes S. A. v. Astrouic Compania Naviors S. A., it was observed that making an application in the suit with a prayer to vacate the interim injunction amounts to taking steps in the proceeding within the meaning of Section 34 of Arbitration Act and as such the defendant was disentitled to ask for stay of the suit.

26. In AIR 1920 Cal 685, Joy Lall & Co. v. Gopiram Bhotica the defendant appeared 'before the court and asked the court to direct the plaintiff to furnish security for costs. It was held that that Act on the part of the defendant amounted to taking steps in the proceedings.

27. In : AIR1976Cal126 , W. F. Ducat & Co, Pvt. Ltd. v. Hiralal Pannalal it has been observed by S. K. Roychowdhury J. that the power of the court to grant a stay of suit under Section 34 of the Arbitration Act, 1940 is discretionary and must be exercised judicially. It is not as a matter of course that a stay of a suit may be granted.

28. In 0043/1975 : AIR1975Cal222 , Biswanath Rungta v. Oriental Industrial Engineering Co. Pvt. Ltd., the case in short was that the plaintiff who was one of the directors of the company filed a suit and in the said suit he made an application for injunction restraining the defendant from operating the Bank account. An interim order of injunction was obtained, The defendant, thereafter appeared and prayed for an order that the bank should be restrained from allowing the plaintiff from operating the bank account. The said prayer was granted. It was held by Sabyasachi Mukharji, J. that the conduct only represents the intention of the defendant that during the period the disputes would last either in court or in arbitration each of the parties should 'be restrained from having the use of the money. From this conduct it is not evident that the defendant has either done anything in aid of the suit or submitted to the jurisdiction of the court for the purpose of adjudication of the controversy in the suit. The order of injunction having 'been made what the defendant did was to circumscribe it to such extent that the rights of the parties were protected until the disputes were decided. The facts of the case are different from the facts of the present case and as such this decision has no application to the present case.

29. Thus on a consideration of all, the decisions mentioned before the conclusion is irresistible that the acts of the defendant in praying for time both in the injunction matter for filing objection as well as in the suit orally and by written application clearly and unequivocally displays an intention on the part of the defendant to submit to the jurisdiction of the court in order to have the controversy decided in the suit. As such these acts amount to taking steps in the suit within the meaning of Section 34 of the Arbitration Act, 1640 (Act X of 1940). This debars the defendant from making an application under Section 34 of the Arbitration Act for stay of the said suit and for referring the disputes for adjudication in the arbitration proceedings.

30. It also appears from para. 2 of the plaint of Title Suit No. 267 of 1974 that serious allegations of fraud and misappropriation of loans sanctioned in the name of the partnership business and paid to the fictitious customers of the defendant during the period when the defendant, Babulal Singhania was in charge of the management of the partnership business have been made against the defendant in the plaint. Such serious and grave allegations can be properly investigated and decided by the Court in the suit and not by the Arbitrator in an arbitration proceeding. It has been contended on behalf of the defendant that the arbitrators are competent to decide questions both of law and of facts and as such only because allegations of fraud and misappropriation have been made against the defendant in the plaint they do not by themselves debar decision of those disputes by the arbitrator in an arbitration proceeding. Reference has been made in this connection to a Bench decision of this Court reported in (1952) 56 Cal WN 763, C. M. Karanji & Co. v. Indo-China Trading Co. Ltd. where it has been held that the arbitrators are Judges both of law and of facts and however difficult question of law the subject-matter of dispute may involve, the arbitration proceeding should be carried into effect. In : AIR1973Cal215 , Union of India v. Hind Galvanizing and Engineering Co. Pvt Ltd., it has been observed that where the dispute involved complicated questions of law it is proper that the matter should be decided in the suit rather than the matter being referred to arbitration. It has been further held that the decision of the trial Judge who rejected the application under Section 34 of the Arbitration Act on that ground should not be called either unreasonable or capricious and so it would not be interfered with In appeal. In this case the courts below have held that the suit should be heard by the civil court and its proceedings should not be stayed under Section 34 of the Indian Arbitration Act in view of the serious and grave allegations of fraud and misappropriation made against the defendant. We do not find any infirmity in this finding and as such we are not inclined to interfere with the said finding. Moreover the findings arrived at by the courts below cannot 'be said to be unreasonable or capricious and as such the same cannot be set aside in this revisional application,

31. We have already held that the application under Section 34 of the Arbitration Act was rightly rejected by the Courts below. The impugned order dated July 31, 1975 passed in Title Suit No. 22 of 1975 allowing the petition for issue of a commission for making inventory of the articles and accounts papers as mentioned in the petition in such circumstances cannot be upheld and the same is liable to be set aside.

32. In the premises aforesaid the Civil Rule No. 3457 of 1975 is discharged without costs and Civil Rule No. 3036 of 1&75 is made absolute without costs. The Order No, 28 dated July 31, 1975 passed in Title Suit No. 22 of 1975 is hereby set aside. All interim orders are vacated. Let the records be sent down to the Court below as expeditiously as possible,

N.C. Mukherji, J.

33. I agree.


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