Prasad & Co. vs Satish Gupta And Anr.
1994 Latest Caselaw 676 Del

JUDGMENT

R.C. Lahoti, J.

(1) This order shall dispose of IAs 5173/94,6338-39/94.

(2) Ia 5173/94 is an application under Order 39 Rules 1 & 2 Civil Procedure Code filed by the plaintiff seeking an ad- interim injunction. Ia 6338/94 is an application under Order 39 Rule 4 Civil Procedure Code filed by the defendants, seeking vacating of the ex-parte injunction order dated 30.5.94 also adopted by the defendant as reply to Ia 5173/94. .IA 6339/94 is an application under Section 34 of the Arbitration Act, 1940 filed by the defendants seeking stay of the suit on the ground of there being an arbitration agreement between the parties.

(3) The plaintiff has filed the suit for recovery of Rs.26,21,322.00 . Vide para 16 of the plaint, the parties are admittedly members of the Delhi Stock Exchange Association Limited. According to the plaintiffs they had entered into a contract with the defendants whereunder the transactions entered into by the plaintiffs on the floor of the Stock Exchange were directly entered in the books of the defendants and the plaintiffs were to pay certain brokerage to the defendants. The defendants dishonestly withheld certain payments which were due to the plaintiffs. There was an open and running account between the parties. As per the account, the suit amount is due by the defendants to the plaintiff. The defendants issued cheques to the plaintiffs which were dishonoured. Hence the suit. 4. According to the defendants, the parties being members of the Association, are governed by the Memorandum, articles of Association and Bye-Laws of the Association which contain an arbitration clause, according to which the disputes raised by the plaintiffs are liable to be referred for adjudication by arbitration. The defendants have submitted that the disputes/differences raised by the plaintiffs being liable to be referred to arbitration, the suit deserves to be stayed.

(5) In Food Corporation of India VS. Yadav Engineers & Contractors. their Lordships of the Supreme Court have held :- "When in breach of an arbitration agreement a party to the agreement rushes to the Court, unless a clear case to the contrary is made out the approach of the Court should be to hold parties to their bargain provided necessary conditions for invoking Section 34 are satisfied."

(6) In Ramji Dayawala & Sons (P) Ltd. VS. Invest Import. , their Lordships have held :- "When parties by contract agree to arrange for settlement of their 662 disputes by a Judge of their choice, by procedure of arbitration voluntarily agreed upon, ordinarily the Court must hold the parties to their bargain. As a corollary, if a party to a subsisting arbitration agreement in breach or violation of the agreement to refer dispute to arbitration approaches the Court, the Court would not lend its assistance to such a party and by staying the suit compel the party in breach to abide by its contract."

(7) Faced with the legal position, the learned counsel for the plaintiffs has raised several objections to the entertainability of the defendants prayer. Firstly, it is submitted that the suit filed by the plaintiffs is based on dishonoured cheques and hence' the arbitration clause which might have been attracted to the original agreement/understanding between the parties may not apply. I am not impressed. The arbitration clause is not contained in any contract between the parties. It is contained in Articles of Association and the Bye-Laws governing the association of which the parties are members. Reliance by the plaintiffs' counsel on M/s.Vasanji Navji & Co. VS. M/s.K.P.C.Spinners and Ors., is therefore misconcieved. The position has been clarified by a Division Bench of Andhra Pradesh High Court in Gausia Javed & Anr. VS. Jagdish Pershad Associates, wherein the Madras view has been considered. It has been held that only when there is a new contract between the parties amounting to novation of the earlier contract containing the arbitration clause, the parties would cease be bound by the arbitration agreement. The Division Bench of Andhra Pradesh High Court has held that in respect of cheques issued and dishonoured the suit would be deemed to have been based on the original cause of action and the parties would remain bound by the arbitration agreement. 7.1 Secondly, it is contended by the defendants' counsel that the application under Section 34 of the Arbitration Act does not state the disputes between the parties and the defendants readiness and willingness to refer the disputes to arbitration. Reliance is placed on M/s. National Small Industries Corporation Ltd., New Delhi VS. M/s. Punjab Tin Printing & Metal Industries Ajrounda, Faridabad and M/s. Pearl Hosiery Mills, LudhianaVS. Union of India & Anr., . Both the cases do not have any applicability to the case at hand. The disputes do exist. They are set out in the plaint. The application has to be read in the light of the plaint. As per arbitration agreement, the plaintiffs should have sought for reference for dispute to arbitration. A reading of the application filed by the defendants substantially suggests the defendants readiness and willingness for having the disputes resolved by arbitration. 663 7.2 Lastly it was submitted that defendants have taken steps in proceedings by contesting the plaintiffs' application for grant of injunction. This contention deserves to be rejected at the threshold. The defendants have not filed any written statement. Merely because they have contented the plaintiffs' application for grant of examination by filing an application under Order 39 Rule 4 Civil Procedure Code it cannot be said that they have taken step in proceedings {see Food Corporation of India's case (supra) and Shri Ram Shah VS. Mastan Singh & Ors., it was submitted by the plaintiffs counsel that there being allegations of a fraud having been committed by the defendants and bias on the part of Association in favor of the defendants, it will not be a sound exercise of discretion to stay the suit driving the plaintiffs to arbitration. Reliance is place on Union of India VS. Naresh Chand Goel 1978 Air Calcutta 307. Suffice it to observe that the allegations of fraud and of bias are bald allegations made in the plaint unaccompanied by any particulars within the meaning of Order 6 Rule 4 CPC. The plaintiffs cannot take advantage of such vague pleas.

(8) The application under Section 34 of the Arbitration Act is allowed.

(9) The defendant No.1 has a membership ticket in the Stock Exchange. The plaintiffs have sought for alienation of the membership ticket being restrained during the hearing of the suit alleging that if the alienation is permitted, the plaintiffs may not be able to realise the fruits of the decree. The defendants have denied all the averments made in the application. It is stated in Ia 6338/94 in very many details, quoting different provisions from the Memorandum, Articles of Association and Bye-Laws of the Delhi Stock Exchange Association that transfer of membership ticket is a very detailed and cumbersome procedure which the defendant No.1 cannot undergo so as to defeat the interest of any member of the Association which the plaintiffs are. To be more correct by this application, the plaintiffs want the membership ticket of defendant No.1 to be attached before judgment, a relief contemplated by Order 38 Rules 1 & 5 CPC. Such a relief cannot be granted merely for asking or merely because it is lawful to do so. The averments made in the application do not satisfy the ingredients of Rule 1 Order 38 of the CPC. It cannot also be said that the defendant No.1 is likely to transfer the membership ticket for the purpose of defrauding his creditors. The defendant has not been shown to be indebted to anyone other than the plaintiffs for the suit amount. Such an attachment or restraint order cannot be allowed. (For a detailed discussion of the relevant law on the point see Indian Railway Construction Co. Ltd. Vs. Quadricon Pvt. Ltd. in IAs .4412/94 and 5240/94 in Omp 36 of 1992 decided on 664 8th September, 1994 reported at .

(10) The result is that Ia 5173/94 under Order 39 Rules 1 & 2 Civil Procedure Code filed by the plaintiffs is rejected and Ia 6539/94 under Order 39 Rule 4 Civil Procedure Code filed by defendants is allowed. With that the interim order dated 30.5.1994 also stands vacated.

(11) The suit is directed to be stayed under Section 34 of the Arbitration Act, 1940. The plaintiffs are at liberty to seek adjudication by arbitration of the disputes raised by them in the suit. ***