M/S Kapila Krishi Udyog Ltd. vs M/S Kamdhenu Cattle Feeds Pvt. ...
2018 Latest Caselaw 3140 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

AFR
 
Reserved on 07.03.2018
 
Delivered on 09.10.2018
 
Court No. - 34
 

 
Case :- FIRST APPEAL FROM ORDER No. - 1133 of 2017
 

 
Appellant :- M/S Kapila Krishi Udyog Ltd.
 
Respondent :- M/S Kamdhenu Cattle Feeds Pvt. Ltd.
 
Counsel for Appellant :- Kartikeya Saran
 
Counsel for Respondent :- Abhinava Krishna, Saurabh Srivastava
 

 
Hon'ble Sudhir Agarwal,J.

Hon'ble Shashi Kant,J.

(Delivered by Hon'ble Sudhir Agarwal, J.

1. This appeal under Section 37(1)(a) of Arbitration and Conciliation Act, 1996 (hereinafter referred to as "Act, 1996") has arisen from Judgment and Order dated 07.03.2017, passed by District Judge, Kanpur Nagar in Suit No. 02 of 2016, whereby defendant-appellant's (hereinafter referred to as "appellant") application filed under Section 8 of Act, 1996 has been rejected on the ground that it was not accompanied by original copy of agreement or duly certified copy thereof, hence, application did not satisfy requirement of Section 8 of Act, 1996.

2. Facts in brief giving rise to present appeal, in brief, are stated as under :

3. Appellant M/s Kamdhenu Cattle Feeds Pvt. Ltd. is engaged in the business of manufacture and sale of cattle feed under the brand name "Kapila Pashu Aahar". It is undisputed that Original Suit No. 2 of 2016 was filed by plaintiff-respondent seeking injunction restraining appellant M/s Kapila Krishi Udyog Ltd., its servants and other representatives etc. from infringing registered trade mark/label indicating "Kapila Pashu Aahar" in any manner, including deceptively using similar mark etc. In the plaint it was specifically pleaded that plaintiff entered into an agreement with appellant on 17.05.2014, permitting to use registered trade mark, artistic work and goodwill in relation to cattle feed to be manufactured with the formula specified and expert know how supplied by plaintiff. Under the said agreement appellant, at best was a licensee of the trade mark/artistic work etc. Copy of agreement dated 17.05.2014 was enclosed alongwith the plaint. Suit was instituted vide plaint dated February, 2016.

4. After notice, appellant appeared and filed written statement dated 1st April, 2016. In paragraph 30 thereof, besides other, appellant pleaded as under :-

"30. ........ Without prejudice to the above contentions, it is further submitted that the disputes in the present Suit are pertaining to the rights of the parties arising out of the Brand Sharing Agreement dated 17.05.2015 which specifically has an Arbitration Clause for the resolution of such disputes......."

(Emphasis added)

5. In paragraph 35 of written statement, besides other, appellant pleaded as under :

"35. ........... Finally, it is also submitted that as the basis of the present suit is violation of the alleged Brand Sharing Agreement, this suit is barred as the said Agreement contains an Arbitration Clause and the Defendant reserves their right to take appropriate legal recourse with respect to the same. The contents of the preliminary submissions and the foregoing paras is reiterated and reaffirmed in this regard."

(Emphasis added)

6. Thereafter, defendant-appellant filed an application dated 29th July, 2016 under Section 8 of Act, 1996, requesting District Judge to refer dispute between the parties for adjudication by an independent Arbitrator.

7. Plaintiff filed objection stating that agreement dated 17.05.2014 has already been terminated by notice dated 06.02.2016; defendant-appellant has filed Suit No. 1 of 2016, seeking declaration that agreement dated 17.05.2014 is void; defendant himself is not honouring agreement dated 17.05.2014; no steps were taken by defendant-appellant to appoint Arbitrator; the application should have been filed before filing of written statement and that defendant-appellant has neither filed original arbitration agreement nor any application before filing objection to the injunction application.

8. Application filed under Section 8 of Act, 1996 has been rejected by District Judge on the following grounds : -

(i) it has been filed after filing written statement,

(ii) application cannot be entertained unless it is accompanied by original arbitration agreement or duly certified copy thereof and there is no such compliance by defendant-appellant.

9. Learned counsel for appellant contended that agreement was already part of plaint and objection with reference to "arbitration clause" was also taken in written statement. Therefore, rejection of application on above stated technical grounds is patently illegal. Reliance is placed by Sri Anurag Khanna on Bombay High Court's judgment in Suit No. 331 of 2013 - Eros International Media Limited Vs. Telemax Links India Pvt. Ltd. and Others decided by a learned Single Judge (Hon'ble G.S. Patel, J.) vide judgment dated 12th April 2016.

10. Per contra, learned counsel for respondent contended that compliance of Section 8 of Act, 1996 in letter and spirit is mandatory and, therefore, learned District Judge has rightly rejected application filed by defendant-appellant under Section 8 of Act, 1996 for non compliance of requirement of Section 8 of Act, 1996. He placed reliance on a learned Single Judge judgment of this Court in Civil Revision No. 775 of 2003 - U.P. Industrial Co-operative Association Ltd. through its General Manager, 117/418, Sarvodaya Nagar, Kanpur and Another Vs. Smt. Shobha Chandra and Others (decided on 2nd March, 2012).

11. Heard Sri Anurag Khanna, learned Senior Advocate assisted by Sri Kartikeya Saran, learned counsel for appellant and Sri Ramendra Sinha, learned Senior Advocate assisted by Sri Saurabh Srivastava, learned counsel for respondent.

12. In view of rival submissions, we find that two points for determination have arisen in this appeal which require adjudication by this Court :

(I) Whether arbitration agreement, if already filed by plaintiff before Court below, would justify non filing of original copy of agreement or certified copy alongwith application filed under Section 8 by defendant?

(II) Whether filing of written statement before filing application under Section 8 of Act, 1996 would exclude application of Section 8?

13. In order to examine the requirement, effect and consequence of Section 8, it would be appropriate to have Section 8 of Act, 1996, which reads as under :-

"8. Power to refer parties to arbitration where there is an arbitration agreement.- (1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.

(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.

(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made."

(Emphasis added)

14. Section 8 contemplates that if there is an "arbitration agreement", in an action brought by a party, the other party by not later than submitting his first statement on the substance of dispute, may request Court to refer the matter to arbitration. Sub-section (2) places an embargo for such reference, stating that application under sub-Section (1) shall not be entertained unless it is accompanied by original arbitration agreement or a duly certified copy thereof.

15. In the present case, existence of "arbitration agreement" is not in dispute. It also cannot be doubted that in written statement filed by appellant he has referred to said "arbitration clause". It is also admitted fact that a copy of agreement, which contains arbitration clause, was filed by plaintiff-respondent himself alongwith the plaint as its enclosure. It is in this backdrop of facts we have to examine and answer aforesaid questions.

16. Section 8 has been considered by Supreme Court in Rashtriya Ispat Nigam Ltd. and Another Vs. M/s. Verma Transport Company, AIR 2006 SC 2800. Appellant, a Public Sector Undertaking, engaged in the business of manufacturing and marketing of iron and steel products, entered into contract with respondent - M/s Verma Transport Company, a partnership firm engaged in the business of consignment agents. Agreement was in regard to handling and storage of iron and steel materials of appellant at Ludhiana. Respondent Firm received certain payments illegally and by misrepresentation. Matter was investigated by Central Bureau of Investigation and a criminal case was initiated against Anil Verma, one of partners of respondent- Firm and certain officials of appellant. Contract of respondent was terminated by appellant on 23.05.2002. Respondent Firm filed Suit No. 122 of 2002, seeking permanent injunction restraining appellant from black-listing respondent-Firm and terminating consignment agency contract. Civil Judge, Junior Division, granted interim injunction directing parties to maintain status-quo qua termination of contract as well as black listing. Appellant sought time to file written statement. In reply to injunction application, it took a plea that subject matter of suit is covered by "arbitration agreement" between the parties and suit is not maintainable. On 7th June, 2002, application under Section 8 of Act, 1996 was filed which was rejected by Civil Judge by order dated 03.10.2002. Revision filed by appellant was dismissed by High Court on the ground that application filed under Section 8 did not accompany "arbitration agreement", hence application was not maintainable. Court in paragraph 17 of judgment while considering Section 8, said as under :

"17. Section 8 confers a power on the judicial authority. He must refer the dispute which is the subject-matter of an arbitration agreement if an action is pending before him, subject to the fulfillment of the conditions precedent. The said power, however, shall be exercised if a party so applies not later than when submitting his first statement on the substance of the dispute." (Emphasis added)

17. Court also said that the fact that agreement was terminated is also a dispute arising out of contract. It also said that direction to make reference is not only mandatory but arbitration proceedings to be commenced or continued and conclusion thereof by an arbitral award would remain unhampered by pendency of any suit. It also held that filing of reply to the injunction application cannot be a ground to reject application. Appellant did not submit to the jurisdiction of the Court. They did not waive their right. They in effect and substance questioned jurisdiction of Court and raised a contention that suit was liable to be dismissed. It also said that first statement on the substance of the dispute must be contra-distinguished with the written statement. Court said:

"....it employs submission of the party to the jurisdiction of the judicial authority. What is, therefore, is needed is a finding on the part of the judicial authority that the party has waived his right to invoke the arbitration clause. If an application is filed before actually filing the first statement on the substance of the dispute, in our opinion, the party cannot be said to have waived his right or acquiesced himself to the jurisdiction of the court. What is, therefore, material is as to whether the petitioner has filed his first statement on the substance of the dispute or not, if not, his application under Section 8 of Act, 1996 may not held wholly unmaintainable." (Emphasis added)

18. Court also said that waiver of a right on the part of defendant to the lis must be gathered from the fact situation obtaining in each case. A party, when receives notice from the Court, is bound to respond to Court. While doing so, they may raise a specific plea of bar of the suit in view of existence of an arbitration agreement. Court ultimately held that Section 8 was attracted and application was erroneously rejected.

19. In Bharat Sewa Sansthan Vs. U.P. Electronics Corporation Ltd., (2007) 7 SCC 737, photocopy of agreement was filed. Suit was filed by appellant Bharat Sewa Sansthan for eviction and recovery of arrears of rent against respondent. Application under Section 8 (1) of Act, 1996 was filed by respondent which was rejected by Additional District Judge, Lucknow, but writ petition preferred by respondent before High Court Lucknow Bench was allowed and Court held that application under Section 8 was wrongly rejected. High Court directed the matter to be referred for arbitration. In Supreme Court, an argument was raised that original copy of agreement or certified copy was not filed, therefore, application under Section 8 was not maintainable. Court noticed that respondent-Corporation specifically took a plea that original agreement was in possession of appellant while appellant stated that original agreement was not in its possession. In this background, Supreme Court upheld the view taken by High Court that photocopy of lease agreement could be taken on record under Section 8 for ascertaining existence of arbitration clause.

20. In Atul Singh and others Vs. Sunil Kumar Singh and Others, (2008) 2 SCC 602, suit was filed by Atul Singh and others (hereinafter referred to as 'plaintiff') in the Court of Sub-Judge I, Patna against Sunil Kumar Singh and Others (hereinafter referred to as 'defendant'), seeking declaration that partnership deed dated 17.02.1992 is illegal and void. A declaration was also sought that plaintiffs being heirs of Rajendra Prasad Singh may be deemed to continue as partners to the extent of their share. Further a decree for rendition of accounts of Firm from 01.04.1992 was also prayed. Suit initially proceeded ex-parte against defendant. Subsequently ex-pare order was recalled, whereafter defendants filed an application under Section 8 of Act, 1996, but an objection was raised by plaintiff that Rajendra Prasad Singh was not a party to the partnership deed dated 17.02.1992 and further agreement was not filed alongwith application. Court held that since Rajendra Prasad Singh or plaintiff were not party to the deed dated 17.02.1992, Section 8 has no application at all and in such a case, matter could not have been referred to arbitration. It also held that there is non compliance of Section 8(2) of Act, 1996 which is mandatory. As the copy of agreement was not filed, therefore, also the application was rightly rejected. Court observed :

"..therefore for application of Section 8 it is absolutely essential that there should be arbitration agreement between the parties." (Emphasis added)

21. In Branch Manager, Magma Leasing and Finance Limited and Another Vs. Potluri Madhavilata and Another, (2009) 10 SCC 103, respondent Smt. Potluri Madhavilata filed a suit seeking recovery of possession of vehicle and restraining appellant M/s Magma Leasing and Finance Limited from transferring said vehicle to any one. After receiving notice, appellant made an application under Section 8 of Act, 1996 before Trial Court praying for reference to arbitrator and to stay the proceedings. Application was contested by respondents on the ground that hire-purchase agreement having been terminated, arbitration agreement does not survive and matter need not be referred for arbitration. Application was rejected by First Additional Senior Civil Judge, Vijayawada. Thereafter, revision was filed in Andhra Pradesh High Court, which was also dismissed on the ground that upon termination of hire-purchase agreement, arbitration agreement does not survive. Examining the question whether arbitration clause also stood terminated with termination of contract, Court said that it will not. Findings recorded in paras 14 and 15 are reproduced as under :-

"14. The statement of law expounded by Viscount Simon, L.C. in Heyman as noticed above, in our view, equally applied to the situation where the contract is terminated by one party on account of the breach committed by the other particularly in a case where the clause is framed in wide and general terms. Merely because the contract has come to an end by its termination due to breach, the arbitration clause does not get perished nor is rendered inoperative; rather it survives for resolution of disputes arising "in respect of" or "with regard to" or "under" the contract. This is in line with the earlier decisions of this Court, particularly as laid down in Kishorilal Gupta.

15. In the instant case, Clause 22 of the hire-purchase agreement that provides for arbitration has been couched in the widest possible terms as can well be imagined. If embraces all the disputes, differences, claims and questions between the parties arising out of the said agreement or in any way relating thereto. The hire-purchase agreement having been admittedly entered into between the parties and the disputes and differences have since arisen between them, we hold, as it must be, that the arbitration Clause 22 survives for the purpose of their resolution although the contract has come to an end on account of its termination." (Emphasis added)

22. Then coming to question with regard to compliance of Section 8 of Act, 1996, Court held that Section 8 is in the form of legislative command to the Court and once prerequisite conditions are satisfied, Court must refer the parties to arbitration. As a matter of fact, on fulfilment of conditions of Section 8, no option is left to the Court and Court has to refer the parties to arbitration.

23. Then we come to a very recent decision, which is quite nearer to the facts of the case in hand. In Ananthesh Bhakta Represented by Mother Usha A. Bhakta and Others Vs. Nayana S. Bhakta and Others, (2017) 5 SCC 185, a suit was filed by Ananthesh Bhakta in the Court of District Judge, Mangalore. An application under Section 8(1) of Act, 1996 was filed by respondent-defendants relying on arbitration agreement in the retirement deed dated 25.07.2005 as well as partnership deed dated 05.04.2006. District Judge allowed application and referred the matter to arbitration. Revision was filed by plaintiff-appellant Ananthesh Bhakta in the Karnataka High Court which was rejected vide judgment dated 08.07.2014 and that is how matter came to Supreme Court. One of the issue raised before Supreme Court was that application filed under Section 8 of Act, 1996 by respondent-defendant did not accompany retirement deed and partnership deed both, by referring whereto arbitration was prayed. Two more objections were raised - (i) all the parties to suit were not party to the agreement and (ii) the Firm being unregistered Firm no reference could be made. With regard to question that agreement was not appended to the application filed under Section 8, Supreme Court noticed in para 9 that both agreements were filed by plaintiff-appellant himself alongwith list of documents and therefore, non filing thereof alongwith application filed under Section 8 by defendant was inconsequential. Court also observed that subsequently, before passing order by District Judge, two deeds were filed by defendants themselves and therefore also, application ought not to be rejected on the ground of non filing of agreement and thus non compliance of Section 8(2) of Act, 1996. Court distinguished judgment in Atul Singh and Others (supra) by observing that therein copies of agreement were not on record and since agreement was not on record at all, therefore, application under Section 8, if not accompanied by agreement, could have been rightly rejected for non compliance of Section 8(2) of Act, 1996. Court also referred to judgment of Bharat Sewa Sansthan Vs. U.P. Electronics Corporation Ltd. (supra), wherein a deviation was admitted and photocopy of lease agreement was taken to be sufficient compliance of Section 8(2). Court then also proceeded to decide issue by interpreting Section 8(2) using phrase "shall not be entertained". It held that Section 8(2) has to be interpreted to mean that Court shall not consider an application filed under Section 8(1) unless it is accompanied by original arbitration agreement or duly certified copy thereof. Filing of an application without such original or certified copy but bringing original arbitration agreement on record at the time when Court is considering application, shall not entail rejection of application under Section 8(2). It further said in para 29 that two documents were relied by plaintiff himself, therefore, rejection of application for want of agreement was not justified. Para 29 of judgment reads as under :

"29. In the present case it is relevant to note that the retirement deed and partnership deed have also been relied upon by the plaintiffs. Hence, the argument of the plaintiffs that the defendants' application IA No. IV was not accompanied by the original deeds, hence, liable to be rejected, cannot be accepted. We are thus of the view that the appellants' submission that the application of the defendants under Section 8 was liable to be rejected, cannot be accepted." (Emphasis added)

24. In the present case also it is admitted fact that agreement was placed on record by plaintiff-respondent itself as an enclosure to the plaint. It is also true that appellant did not submit to the dispute and instead refers to arbitration clause in written statement and clearly pleaded that suit is barred and matter is liable for arbitration.

25. In a Single Judge judgment of this Court in Alok Nath Chattopadhya Vs. Anil Narayan Tadvalkar and others, 2011 (2) ADJ 870, a specific plea was taken in written statement that subject matter of suit is covered by arbitration agreement entered between the parties. Written statement was filed on 15.05.2006. Thereafter on 09.09.2006 application was filed for termination of proceedings and reference for arbitration. Trial Court allowed the application, where against review application was filed, which was also rejected and then matter came to this Court in writ petition. It was argued that plea for arbitration ought to have been raised before filing written statement. Court referred to plea taken in written statement that there existed an arbitration clause and matter is liable to be referred for arbitration and held that it cannot be said that defendant has waived its right and submitted to the substance of dispute and jurisdiction of Court. Objection raised in written statement in effect and substance questioned jurisdiction of Court and therefore, application if filed subsequently, could not have been rejected on the ground that it was not filed before filing written statement.

26. In our view, learned Single Judge has rightly held so, and this is consistent with the discussion made by us hereinabove.

27. We therefore, answer Question - I holding that if agreement containing arbitration clause is already on record, application under Section 8(2) of Act, 1996 filed by defendant cannot be rejected on the ground that it does not accompany original copy or certified copy of the agreement.

28. Question - II is also answered by holding that when objection has been taken in written statement itself referring to arbitration clause in the agreement, it will mean that defendant has not submitted to the jurisdiction of Court and application filed subsequently under Section 8 cannot be said to be a non compliance of Section 8(1) of Act, 1996.

29. In the result, judgment in question passed by learned District Judge, Kanpur Nagar, in Suit No. 02 of 2016, cannot be sustained.

30. Appeal is allowed. Judgment and order dated 07th March, 2017 is hereby set aside. District Judge is directed to refer the dispute to arbitration without any further delay.

Order Date :- 09.10.2018

A. Verma