Apollo Tyres Limited vs National Insurance Company Ltd. ...
1986 Latest Caselaw 328 Del

JUDGMENT

Mahesh Chandra, J.

(1) This order would dispose of application filed under -Section 34 of the Arbitration Act by defendant No. 2.

(2) The facts giving rise to this application are that the plaintiff had filed a suit for recovery of Rs. 9,51,9051- against National Insurance Company Limited-defendant No. 1, Ms. Chadha Motor Transport Co. (P) Ltd., defendant No. 2, M s. Kohli Auto Corporation-defendant No. 3 and Shri Narinder Singh of M/s. Kohli Auto Corporation-defendant No. 4 on the allegation that the plaintiff bad obtained from defendant No. 1 an open policy of Marine (Inland Transit) Insurance bearing. No. 750/4400363/82/9/0/SDP? dated 4th November, 1982 to cover "all consignments of tyres, tubes and flaps securely packed during transit by rail/road/conveyance"; that the plaintiff and defendant No. 2 had agreed vide agreement operative from 15th October 1980 that defendant No. 2 would securely carry for the plaintiff plaintiff's products from Jullundur station to different stations in the Punjab for delivery on the customers producing lorry receipts after discharging them from the bank concerned; that on different dates between 3rd January 1983 and 17th March 1983 the plaintiff delivered several consignments of motor vehicle tyres to defendant No. 2 for conveyance and delivery to plaintiff (self) as detailed in para 8 of the plaint; that in breach of the agreement defendant No. 2 not only wrong fully failed to deliver the said goods to the plaintiff but further also wrongfully and collusively delivered the said goods to defendant. Nos. 3 & 4 who in turn converted the same causing loss and damages to the plaintiff and as such this suit against all the four defendants.

(3) This suit has been contested by defendant No. 1 on the one hand and defendants 3 & 4 on the other while defendant No. 2 has filed this application under Section 34 of the Arbitration Act on the allegation that there is an arbitration agreement between the plaintiff and defendant No. 2 as per terms and conditions on the back of lorry receipts and as such the proceedings in suit should be stayed as the matter in dispute is liable to be referred to arbitration.

(4) This application has been contested by the plaintiff, inter alia, on the ground that the suit is not liable to be stayed in as much as all the parties to the suit are not parties to the alleged arbitration agreement ; that the said ; agreement is not a valid agreement; that the dispute is not in respect of the lorry receipt and the disputes are of much wider scope than the scope of arbitration agreement.

( 5) I have heard the learned counsel for defendant No. 2 and the plaintiff and have gone through the file and after giving my considered thought to the matter before me I have come to the following findings :--

 (6) The existence of arbitration agreement is no longer in dispute inasmuch as Ex. P1 to P31 are the consignee copies of the various lorry receipts filed by the plaintiff and admitted by defendant No. 2 and it contains clause 9 which reads as under :    "9.All disputes in respect of this lorry Receipt shall be decided by reference to arbitrator to be kept at Amritsar alone, one Arbitrator will be appointed each by the Claimant and by the company."  

 DEFENDANTNo. 2 also has filed 17 driver copies of these lorry receipts. I, therefore, hold that the arbitration agreement does exist between the plaintiff and defendant No. 2..  

 (7) The fact that defendant No. 1 and defendants 3 & 4 are not parties to this arbitration agreement is proved by Ex. P1 to P31, consignee copies of lorry receipts. These lorry receipts do not show that defendant No. 1 or defendants 3 & 4 were parties to these lorry receipts and as such I further hold that defendants 1, 3&4 are not parties to the arbitration agreement relied upon by defendant No. 2.  

(8) The last contention on behalf of the plaintiff is the scope of the suit vis-a-vis scope of arbitration agreement; it is not disputed before me that scope of arbitration agreement between the plaintiff and defendant No. 2 is limited to the disputes arising between the plaintiff on the one hand and defendant No. 2 on the other with regard to the lorry receipts and as such it would follow that this arbitration agreement cannot cover the dispute between the plaintiff and defendant No. 1 and dispute between the plaintiff and defendants 3 & 4. The claim of the plaintiff against defendant No. I flows from the insurance policy and is not covered by the arbitration agreement. So far as defendants 3&4 are concerned, the allegation of the plaintiff is that they have taken delivery of goods of the plaintiff from defendant No. 2 wrongfully, collusively and fraudulently and have misappropriated the same which also cannot be covered by the arbitration agreement, ln view thereof, I hold that certainly the scope of the suit is much wider than the scope of arbitration agreement.

(9) It is in the light of my findings above that question of stay of this suit has now to be considered. Section 34 of the Arbitration Act provides as under : S.34-"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 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."

The words of Section 34 postulate that where (1) there is a subsisting arbitration agreement between the parties; (2) some legal proceedings have been commenced by one such party in respect of the matter covered by arbitration agreement; (3) an application for stay has been filed by the other party in those legal proceedings before filing of written statement or taking any other steps in that legal proceeding; (4) applicant has been and is ready and willing to do all things necessary to proper conduct of arbitration; and (5) there is no sufficient reason not to refer the dispute to arbitration, then in that even the court may make an order staying those proceedings. This shows that even where the first four requisites are present, even then it is the judicial discretion of the court to stay or not stay those proceedings and in appropriate cases the court may still refuse to stay the proceedings if there are sufficient reasons not to say the proceedings. In , it was held as follows : "In order that a stay may be granted under Section 34, it is necessary that the following conditions should be fulfillled : (1) The proceeding must have been commenced by a party to an arbitration agreement against any other party to the agreement; (2) the legal proceeding which is sought to be stayed must be in respect of a matter agreed to be referred; (3) the applicant for stay must be a party to the legal proceeding and he must have taken no step in the proceeding afterappearance. It is also necessary that he should satisfy the Court not only that he is but also was at the commencement of the proceedings ready and willing to do every thing necessary for the proper conduct of the arbitration; and (4) the Court must be satisfied that there is no sufficient reason why the matter should not be referred to an arbitration in accordance with the arbitration agreement."

Keeping in view the principle of law enunciated in Anderson Wright Ltd. (supra), it would be difficult to say that present is a fit case in which proceeding should be stayed. No doubt, in the instant case, there is an arbitration agreement between defendant No. 2 and the plaintiff and defendant No. 2 has applied for stay before filing the written statement or taking any other steps in the proceedings and defendant No. 2 has stated that he was and is ready and willing to do all things necessary to the proper conduct of the arbitration but all the conditions referred to above have not been satisfied in the instant case. Not only all the parties to the suit are not parties to the arbitration agreement but further also the scope of arbitration agreement is limited as against the scope of the suit and complicated questions of law and fact would be required to be determined in the instant case. It is difficult to separate and split up the case of defendant No. 2 from that of other defendants in view of the pleadings of the parties. Similarly, it is difficult to dispose of the entire matter between the plaintiff and defendant Nos. 1, 3 & 4 without defendant No. I being before this Court. Likewise, it would be difficult for the arbitrators to dispose of the reference without the actual presence of .defendant No. land defendants 3 & 4 before them in addition to defendant No. 2 and the plaintiff. The plaintiff has alleged that defendant No. 2 has wrongfully, fraudulently and in collusion with defendants 3 & 4 made the delivery of goods to defendants 3 &4 to the detriment of the plaintiff and as such these three defendants have misappropriated the plaintiff's goods and the plaintiff is entitled to claim damages from defendants 3 & 4. These questions of collusion and fraud cannot be conveniently disposed of by the arbitrators. Here is a case in which not only all the parties to the suit are not parties to the arbitration agreement but further also the scope of arbitration agreement is limited and common and complicated questions of law and fact are involved and in view there of I do not consider it fit and proper to exercise my discretion to stay the proceedings in this suit under Section 34 of the Arbitration Act merely because there is an arbitration agreement between the plaintiff and defendant No. 2, more so because it cannot be said by any stretch of imagination that defendants 1,3 & 4 are not necessary parties to this suit and have been imp leaded to oust the jurisdiction of the arbitrators. On the pleadings of the parties such a conclusion cannot be arrived at and as such ruling relied upon by the learned defense counsel and reported as wherein it was held that stay cannot be refused where the plaintiff unnecessarily joins third parties in the suit against whom no relief is claimed, would not be applicable to the facts of the instant case; rather M/s. The which is subsequent ruling of same High Court and has followed , would be applicable to the facts of the present case. In M/s. The Barium Chemicals Ltd. (supra) a suit had been filed against vendee and selling agent for recovery of sale money while the arbitration agreement was between the plaintiff-vendor and the selling agent only and defendant No. 2 (selling agent) had filed application under Section 34 of the Arbitration Act for stay of the suit and it was held therein that : "So far as the second defendant was concerned really there was no claim against him. However, even if there was one the dispute between the plaintiff and the second defendant could not be referred to arbitration because the suit in which a single claim is made against defendants 1 and 2 cannot be split up and the dispute as against one cannot be referred to arbitration while it is tried against another by the Court. Therefore the dispute between the parties cannot be referred to arbitration on account of the fact that the ".....first defendant is not a party to the arbitration agreement. The view that the suit cannot be split up between one who is a party to the agreement and one who is not a party to it is supported by the decisions of the Calcutta High Court in ........................"

It was similarly held in , that suit could not be stayed where there were serious allegations of fraud and it was. desirable that matter should be tried in the Court. It was similarly held in , that where serious allegations of fraud and misappropriation had been made in the plaint "such serious and grave allegations can be properly investigated arid decided by the court in the suit and not by the arbitrator in an arbitration proceeding".

(10) It may be mentioned here that Section 34 is not. an automatic provision, which says that all suits must be stayed where there is an arbitration agreement, rather it is the judicial discretion of the court to grantor to refuse the stay even where the matter is covered by arbitration agreement. And how such discretion is to be exercised in a given case would be dependent upon various circumstances. As observed in Anderson Wright Ltd. (supra) : "the Court must be satisfied that there is no sufficient reason why the matter should not be referred to an arbitration in accordance with the arbitration agreement". This clearly indicates that a discretion is vested in the court in appropriate eases to refuse stay of the proceedings and the court has, therefore, to proceed on the facts of each particular case in the matter of granting or refusing a stay of the suit and even though arbitration agreement may be sacrosant, the strict principle of sanctity of an arbitration agreement is subject to the discretion of the court, more so because such 180 arbitration agreements have the effect of virtually ousting the ordinary jurisdiction of civil court vested in it under section 9 of the Code of Civil Procedure. In Asiatic Shipping Co. (Pvt.) Ltd. (supra) it was held that : "Arbitration agreement does not affect the jurisdiction of the Court. But where parties have entered into an agreement for arbitration, normally, the Court would decide the rights of the parties according to their agreement. But the Court has always a discretion to grant the stay or not and this discretion is to be exercised judicially."

Supreme Court has also held in

"The strict principle of sanctity of contract is subject to the discretion of the Court .under Section 34 of the Indian Arbitration Act, for there must. be read with every such agreement an implied term or condition that it would be enforceable only if the Court having due regard to the other surrounding circumstances thinks fit in its discretion to enforce it."

In this view of the matter each case would depend on its peculiar facts. The case in hand is such a case in which there are sufficient reasons not to stay proceedings under Section 34 of the Arbitration Act and the surrounding circumstances of this case also do not admit of exercise of discretion of the Court in favor of stay of further proceedings in the suit. Keeping in view that all the parties to this suit are not parties to the arbitration agreement and defendants 1, 3 & 4 have not been imp leaded to oust the jurisdiction of arbitrators and rather their presence is necessary for full and final determination of matter in dispute; the scope of suit is much wider than that of the arbitration agreement; the matter in dispute between the plaintiff and defendants 1,3 & 4 cannot be separated and split up from the matter covered by arbitration agreement; complicated questions of law and fact relating to collusion and fraud are involved in the suit and the same cannot be left to be tried by the arbitrators; it is neither possible nor practicable to stay further proceedings and there are sufficient reasons which do not admit of exercise of discretion of the court in favor of stay of proceedings under Section 34 of the Arbitration Act in this suit and rather enjoin upon the court to refuse to exercise its discretion.

(11) My attention has been drawn by the learned counsel for the defendant to , bat that case depends more upon the interpretation of Section 35 rather than that of Section 34 of the Arbitration Act and as such cannot help the defendant. The learned counsel for the defendant has tried to urge about the merits of the case but the same are not to be considered at the time of disposing of this application under Section 34 of the Arbitration Act.

(12) In view of my discussion above, I have come to the conclusion that present is not a fit case in which further proceedings in this suit deserve to be stayed and as such this application under Section 34 of the Arbitration Act is liable to he dismissed and is dismissed.