Phamachim vs Curewel (India) Ltd.
1994 Latest Caselaw 606 Del

JUDGMENT

Usha Mehra, J.

1. M/s. Pharmachim has filed a summary suit under Order xxxvII of the Code of Civil Procedure (in short 'CPC') for recovery of Rs. 63,69,052/- against M/s. Curewel (India) Ltd. The suit is based on three written notes/contracts pursuance to which the plaintiff supplied goods worth US $ 3,53,836.20 which is equivalent to Indian currency of Rs. 63,69,052.20. All these supplies were made on composite request of the defendant made by telex message dated 6th December, 1986. Inspite of the supply of goods as per the requirement of the defendant, no payment had been made nor payment due has been denied by the defendant. The amount due and the price of the goods supplied by the plaintiff are admitted. As such, the plaintiff is entitled to interest at the rate of 18% per annum besides the principle amount. Legal notice was served but without any effect. Since, the suit is based on the three invoices which are contract in itself, therefore, the suit is filed under Order xxxvII of CPC.

2. Summons were issued and the defendant put in appearance on 4th October, 1991. Summons for judgment in accordance with law were issued and were served on the defendant on 6th May, 1992. The defendant filed an application under Section 34 of the Arbitration Act as well as an application for leave to defend on 15th May, 1992 respectively. The application under Section 34 of the Arbitration Act has been listed as I.A. No. 8045/92 and the application under Order 37 Rule 3(5) of CPC as I.A. No. 8046/92. I will be disposing of first the application filed under Section 34 of the Arbitration Act i.e., I.A. No. 8045/92.

I.A. No. 4085/92

3. By this application, the defendant seeks stay of the suit, According to him suit is not maintainable because there exists an Arbitration Agreement between the parties, known as Collaboration Agreement dated 26th July, 1985. The said Collaboration Agreement contains an arbitration clause which provides that all disputes or claims relating to that contract would be settled between the parties in a friendly manner. It is further the term of the Agreement that if PHARMACHIM is the defendant, then disputes will be presented for settlement to the Arbitration Court at the Bulgarian Chamber of Commerce and Industry, Sofia and if CUREWEL is the defendant, then the disputable matter will be presented for settlement to the Indian Arbitration Court of the Federation of the Indian Chambers of Commerce and Industry. In view of this clause in the Agreement, Mr. Ganju, Advocate for defendant contended that the order placed on the plaintiff by telex dated 6th December, 1986 was in pursuance to this arbitration agreement. Therefore the remedy is not by way of suit. Further the defendant is and had been ready, and willing to get the disputes settled through Arbitration.

4. On the other hand, Mr. Benati, counsel for the plaintiff contended that the supply was made on the basis of three invoices. Supply was not made pursuance to the Collaboration Agreement. Supply was based on independent contracts. It was based on the order placed by defendant vide telex dated 6th December, 1986. Telex message and invoices/written notes formed independent contract. Transaction in question was de horse the Collaboration Agreement. According to Mr. Benati, telex and invoices constitute separate contract independent of Collaboration Agreement, therefore, suit cannot be stayed.

5. Mr. Benati further contended that by filing leave to defend application on 15th May 1992, the defendant stepped into the proceedings within the meaning of Section 34 of Arbitration Act. Hence, he cannot ask for the stay of the suit. According to him, the defendant put in appearance on 4th October, 1991. He ought to have filed an application under Section 34 of the Arbitration Act immediately thereafter. But he waited till 15th May, 1992 to file the present application under Section 34 of the Arbitration Act. This shows that he stepped into the proceedings and, therefore, the suit is liable to be stayed.

6. I have heard the arguments of counsel for the parties at length. Mr. Benati's contention that defendant by filing application for leave to defend stepped into the proceedings, to my mind, has no force. Defendant's putting in appearance after summons were served, by no stretch of imagination can be called stepping in the proceedings. Mr. Benati's reliance in this regard on the decision of the Bombay High Court in the case of Jadavji Nasidas Shah & Co. v. Hirachand Chatrabhuj , is mis-placed. In that case, the summons for judgment were served on 17th April 1952 and appearance was filed by the defendant on 25th April, 1952. On 4th July, 1952 the plaintiff took out summons for judgment and on 12th July, 1952 the defendants filed affidavit in reply setting out the defense and asking for leave to defend. Subsequent thereto the defendant to took out a notice of motion for stay on 24th July, 1952 under Section 34 of the Arbitration Act. This notice of motion was dismissed by the court on the ground that the defendant had the intention to show cause against summons for judgments. It was only subsequently thereto that he took out a notice of motion for stay. It would amount to a step in the proceedings within the meaning of Section 34 of the Arbitration Act. In that case by filing an affidavit of defense, the defendant expressed an unequivocal intention that his matter be heard by the Civil Court. It gave clear effect to that intention when he asked the court to give him leave to defend so that he should resist plaintiff's claim. Subsequently, after about 12 days he thought of making a motion of stay. It was in these circumstances, the court held that he had already stepped in the proceedings, therefore, the application was not allowed. But in the present case, the defendant filed motion of stay under Section 34 of the Arbitration Act on 15th May, 1992. On that very date he also filed an application seeking leave to defend. In that leave to defend application also he mentioned categorically in para 2-A that the suit is liable to be stayed under Section 34 of the Arbitration Act because there existed arbitration agreement. Therefore, it cannot be said in the facts and circumstances of this case, the defendant stepped in the proceedings within the meaning of Section 34 of the Arbitration Act. In this regard, I am supported by the decision of the Supreme Court in the case of Rachoppa Guruadoppa, Bijapur v. Gurusiddappa Nuraniappa , wherein the Supreme Court observed that in order to be entitled to stay under Section 34 of the Arbitration Act, it is imperative to find out whether "any other steps in the proceedings" had been taken before making an application for stay apart from written statement. "Some other step" mentioned in the Section must indisputably by such step as would manifestly display an unequivocal intention to proceed with the suit and to give up the right to have the matter disposed of by arbitration. The expression "taking any other steps in the proceedings" does not mean that every step in the proceedings would come in the way of enforcement of the arbitration Agreement. Therefore, what we have to see is the intention whether the defendant wanted the case to be decided by the Civil Court and if that intention cannot be inferred then the motion cannot be rejected. Hence, so far as this objection of the plaintiff is concerned, it has no force. To the same effect are the findings of the Supreme Court in the case of Food Corporation of India v. Yadav Engineer and Contractor .

7. Mr. Benati then contended that this application requires rejection because inspite of the legal notice served on the defendant, the defendant did not reply nor showed this readiness and willingness to appoint an arbitrator. Hence, now defendant is estopped from taking recourse to arbitration clause. Reliance can be placed on the case of M/s. Cimmco Ltd. v. M/s. Toepfer International Asia Pvt. Ltd. (I.A. No. 3856/93 in Suit No. 1608/92 decided on 14th July, 1994), Mr. Benati contended that since inspite of the notice no willingness was shown, therefore, the present suit cannot be stayed. Since, the arbitrator was not appointed, it shows that the defendant was not ready and willing to refer the matter to the arbitration. I am afraid in view of the decision of the Supreme Court in the case of State of Punjab v. M/s. Geeta Iron & Brass Works Ltd. , this argument has no force. In the case of State of Punjab, Krishna Iyer, J. (as his Lordship then was) observed that as a matter of law, mere silence on the part of the defendant when a notice under Section 80 of CPC was sent to him may not, without more, disentitle him to move under Section 34 and seek stay. Similar view was expressed by Rajasthan High Court in the case of Padma Ram v. Bhanwari Devi, , wherein it has been held that the conduct of the defendant in not replying the notice issued by the plaintiff does not amount to waiver. It does not give rise to the inference of unwillingness on the part of the defendant to resort to arbitration proceedings. In the case of Cimmco Ltd., referred to above, this court observed that the legal notice was served on defendant No. 1 and since no reply was given, therefore, it can be inferred that he was not willing to refer the matter to arbitration. The case in hand is distinguishable from Cimmco Ltd., because in this case, the plaintiff though has alleged in the plaint that a legal notice was served on the defendant, but neither the postal receipt nor acknowledgment have been filed on the record. It, therefore, cannot be said with certainty at this stage that notice issued by the plaintiff was received by the defendant. In this view of the matter, no inference on the willingness on the part of the defendant can be drawn from non-reply to the plaintiff's notice.

8. Now, coming to the last limb of Mr. Benati's argument that the suit is based on the telex and the invoice which is an independent contract than that of the Collaboration Agreement and that written notes/invoice do not certain any arbitration clause, therefore, the suit cannot be stayed. I am afraid, this argument is also without force. The very reading of the telex message dated 8th December, 1986 shows that this is in pursuance to the contract entered into between the parties earlier. The reading of the telex message shows that this was in reference to the telex received from the plaintiff dt. 5th Dec., 1985. Telex dated 8th Dec., 1986 in response to those telex messages which were issued by the plaintiff and which the plaintiff has not placed on record. The number of telex issued by the plaintiff bearing No. 35846, 35848 and 35712. Reading of this telex dated 8th December, 1985 further confirm the contention of the counsel for the defendant that this was in pursuance to earlier contract entered into between the parties. Relevant extract of para 2 of the telex dated 8th December, 1986 which shows that invoices/written notes were pursuance to Collaboration Agreement is reproduced as under :

"We are awaiting your confirmation/approval for drawings, documents sent through Mr. Moscov. You should depute specialist 15 days after sending the confirmation. Hope position clear."

9. Now, if we read the contract i.e. Collaboration Agreement this message quoted above makes a sense, because in the Collaboration Agreement it is mentioned in paras 1.2 and 2.1 namely that PHARMACHIM will supply to CUREWEL necessary technology, know-how, drawings, technological and technical assistance for the transformation of the intermediate product 3 Formally Rifamycin SV into the final product Rifampicin. The word appearing in the telex that the defendant was awaiting confirmation for drawings, documents sent through Mr. Moscov, shows that this had a reference to the Collaboration Agreement. Otherwise if a person was placing an order de horse the Collaboration Agreement, there was no necessity to mention the confirmation or approval for drawings or for the documents sent through someone. It has further been asking in the telex dated 8th December, 1986 that the plaintiff should depute some specialist 15 days after sending the confirmation. This expression has direct nexus with the term stipulated in Clause No. 1.2 of the Collaboration Agreement. It cannot be said that this telex message and the supplies made through these three invoices was an independent contract. Vide Collaboration Agreement dated 27th July, 1985 provided that the plaintiff would supply technology and know how for production of intermediate product 3 Formally Refamycin SV. The defendant was to purchase necessary quantities of 1-methy 1-4-amino piperazine (MAP) from the plaintiff at a mutually agreed price. The telex also shows that these very products were ordered to be supplied by the plaintiff to the defendant for which the parties had entered into Collaboration Agreement. The said Collaboration Agreement contained an arbitration clause. It was also a term of the said Collaboration Agreement that within 20 days from the receipt of the bank guarantee plaintiff will supply to defendant with the documentation as per article 2.21 and even the telex message talks about the documents sent through Mr. Moscov which, to may mind, could be in pursuance to the Collaboration Agreement. In this view of the matter, the contention of Mr. Banati that the telex message and the invoice constitute an independent contract, to my mind, has no force.

10. Having held that the supply in the present case was made pursuance to the arbitration agreement entered into between the parties, the provision of Section 34 of the Arbitration Act gets attracted. In the case of Rachappa Guruadappa, Bijapur (supra) Supreme Court after discussing at length the provision of Order 34 opined that the said section stipulates that in order that stay may be granted under the section, it is necessary that the following conditions are fulfillled :

(1) The proceedings must have commenced by a party to an arbitration agreement against any other party to the agreement;

(2) The legal proceeding, in this case the suit, 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 proceedings, the suit in this case;

(4) The applicant must have taken no steps in the proceeding after appearance;

(5) The applicant must satisfy that only the applicant was at the time when the proceedings were commenced, ready and willing to do everything necessary for the proper conduct of the arbitration; and

(6) The Court must also be satisfied that there was no sufficient reason why the matter should not be referred to arbitration.

11. Therefore, relying on these guidelines laid down by the Supreme Court, it can be said that since there exist an arbitration agreement between the parties and the disputes mentioned by plaintiff are covered under the Collaboration Agreement, therefore, they are liable to be referred to arbitration.

12. That the defendant is also a party to the said arbitration agreement and further the defendant has not taken any step in the proceedings as already discussed above. Moreover, the defendant at the very first available opportunity has come forward to state that he was ready and willing for referring the dispute to arbitration pursuance to Clause 8 of the Collaboration Agreement dated 27th July, 1985. The defendant has always been ready and willing to get the matter adjudicated from the Forum selected by the parties. It is apparent from the reading of this application where it is specifically pleaded that the disputes between the parties are covered by the aforesaid Clause 8 of the joint Collaboration Agreement and that the defendant had always been ready and willing at all times and even now is ready and willing to do all things necessary for referring the aforesaid disputes to the arbitration in terms of Clause 8 of the Collaboration Agreement. Therefore, having held that there is an arbitration agreement and the disputes raised are the same and the defendant having not taken any step in the proceedings and that the defendant had always been ready and willing to do necessary act for the proper adjudication of plaintiff's claims.

13. That till such, this court is satisfied that no sufficient reason has been shown why the suit should not be stayed, the matter was not referred to arbitration in accordance with Clause 8 of the Collaboration Agreement. The application is allowed. The suit is accordingly stayed.