Metro Offset Printers vs Syndicate Bank And Anr.
1995 Latest Caselaw 855 Del

JUDGMENT

S.D. Pandit, J.

(1) This application is filed by respondent No. 2 under Section 34 of the Arbitration Act contending therein that in view of Clause No. 35 of agreement between the parties the claims made in the suit will have to be referred to an arbitration and the present suit in the ordinary civil Court is not tenable in law.

(2) Plaintiff has filed this suit to get a decree for Rs. 7,34,110.60p. against two defendants on the allegation that the invocation of the Bank guarantee No. 2/87 dated 20.3.1986 for Rs. 2,20,000 .00 by respondent No. 2 was illegal and not binding against him and to get back the suit amount from defendants 1 & 2 on account of the encashment of the said Bank guarantee and the amount of Rs. 5,10,000.00 is claimed by way of damages suffered by him by encashment of the said Bank guarantee.

(3) The respondent No. 2 is relying on Clause No. 35 of the contract between the parties.The said Clause No. 35 reads as under: "IF any dispute arises between the parties in respect of this agreement or breach thereof, except in respect of the matters on which the decision of the Managing Director is declared final, the same shall be referred to the Secretary to the Government of Madhya Pradesh, School Education Department, Bhopal or his nominee for arbitration, whose decision thereon shall be final and binding on the parties."

(4) As per Clause '6' of the contract between the parties the Bank guarantee in question was obtained from the plaintiff and it is further claimed by the defendant No. 2 that as the plaintiff had committed breach of the contract the said Bank guarantee has been encashed by him and the claims made in the suit are on account of the terms of the contract between the parties and the claims made against the defendant No. 2 by the plaintiff are not out of the contract and, therefore, it is contended by him that in view of Section 34 of the Arbitration Act the present suit is not tenable.

(5) As against this it is contended by Mr. Kantawala, learned Counsel for the plaintiff that defendant No. I, Syndicate Bank, is not a party to the contract and he has made claims against both defendants 1 & 2. He further claims that his claim of damages of Rs. 5,10,000.00 on account of the encashment of the said Bank guarantee also could not be said to have arisen out of the contract and, therefore, there is no question of application of the provisions of Section 34 of the Arbitration Act, 1940.

(6) It is true that defendant No. 1, Syndicate Bank, is not a party to the contract in question but we have to see as to whether defendant No. 1 is a necessary party to the present suit and whether it could also be even said that defendant No. I is a proper party to the present suit-Admittedly, the Bank guarantee in question was given by defendant No. I Bank in favor of defendant No. 2 on behalf of the plaintiff for the due performance of the contract between the plaintiff and defendant No. 2. It is alleged by defendant No. 2 that plaintiff had committed breach of contract and, therefore, he was entitled to encash the said Bank guarantee.That would be clear from Clause No. 3 of the said Bank guarantee which runs as under: "WEdo hereby guarantee that the printer shall either print the books on the paper supplied by you or return the paper or its cost to you that in the event of any default on their part in making the payment or returning the paper or supplying the books, we shall forthwith, upon your notifying such default to us, such notification to be conclusive as the default, make payment to you ourselves and we shall indemnify you and keep you indemnified against all losses of principal, interest or other moneys due to you under the said Agreement."

As per the above clause it would be quite clear that the notifying by the defendant No. 2 about the commission of default by the plaintiff shall be conclusive and on informing about the same the Bank would pay the amount to defendant No. 2.1t is an admitted fact that as per the said term No. 3 the Bank guarantee in question has been encashed. Defendant No. 2 is admitting the fact that he repudiated the Bank guarantee and received the amount of the Bank guarantee. In these circumstances, the Bank could not be said to be either a proper or a necessary party to the dispute between the plaintiff and defendant No. 2-Therefore, merely because the plaintiff has joined defendant No. 1 Along with defendant No. 2 in the suit, it could not be said that the provisions of Section 34 of the Arbitration Act are not applicable to the suit in question.

(7) As stated earlier, the Bank guarantee in question has been given by the plaintiff in pursuance of the contract between the parties.The plaintiff's claim is to get back the amount of the Bank guarantee and to get the damages on account of the encashment of the said Bank guarantee.The second claim of Rs. 5,10,000.00 is connected with the first claim of illegal encashment of the Bank guarantee and it could not be said to be an independent claim. As claim No. 2, viz. the damages, is on account of the alleged illegal encashment of the Bank guarantee, this claim No. 2 will also fall within the purview of the contract and it is also arising out of the contract between the parties.The said claim is on account of the alleged breach of the contract by defendant No. 2, as claimed by the plaintiff. It is the claim of the plaintiff that there was no ground to encash the Bank guarantee and encashment of the Bank guarantee is illegal and because of the same he has suffered damages. Therefore, that claim of damages is also a claim arising out of the contract between the parties.Thus, both the claims are arising out of the contract between the parties and, therefore, the present suit will have to be stayed under Section 34 of the Arbitration Act.

(8) Learned Counsel for the plaintiff has also contended that defendants had appeared before the Court on 20.8.1991 after the service of the summons on the defendant No. 2.The order sheets do show that Advocate for defendant No. 2 had appeared before the Deputy Registrar on 20.8.1991 and time was sought to file written statement. According to learned Counsel for the plaintiff this conduct on the part of defendant No. 2 would amount to taking steps in the proceeding and, therefore, this application under Section 34 is not tenable.

(9) As against this, it is submitted by learned Counsel for the defendants that he has appeared before the Court on 20.8.1991 and on the subsequent date on account of getting instructions from his client who was in Bhopal and that he had not received full instructions or documents from his client. Therefore, in these circumstances, on his appearance in the suit time is granted for filing the written statement The same has been granted by the Deputy Registrar.Therefore, it could not be said that there was any conduct on the part of defendant No. I amounting to taking steps in the proceeding.

(10) The order sheets are showing that there was request for granting of time for filing written statement on 20.8.1991 and on the subsequent date and before the due date of filing of written statement the present application IA.264/92 is filed by the defendant But mere that conduct of the Counsel for the defendant, who is residing beyond the jurisdiction of this Court, would not, in the circumstances of the case, amount to taking of any steps in the proceedings so as to hold that he was giving up the claim under Section 34. It must be stated that defendant No. 2 or his Advocate has not contributed to further progress of the suit. He has also not committed any act showing that he has acquired to the jurisdiction of the Court. Defendant No. 2 also has admittedly not filed any written statement. It is also quite obvious that he has not taken any interlocutory order in his favor in the suit before the filing of IA. 264/92. Advocate for defendant No. 2 had appeared on 20.8.1991 on instructions of his client who was residing at Bhopal to appear on his behalf and the defendant No. 2 had not given any detailed instructions to his Advocate on that day. Therefore, in these circumstances, I am unable to hold that defendant No. 2 had taken any steps in the proceeding so as to refuse to entertain his claim under Section 34.

(11) Learned Counsel for the plaintiff has submitted before me that already a proceeding under Section 20 of the Arbitration Act on account of the dispute arising out of the contract between the parties is pending in a Court in Madhya Pradesh. In view of this decision, which is on account of the objection taken by defendant No. 2, the present plaintiff should get his claim in that proceeding under Section 20 amended so as to include the claims made in the suit in the claims which he wants to be referred to an Arbitrator, as per the terms of contract between the parties. If the plaintiff gets the said amendment of his claim and makes that claim in that proceeding then this suit would become infructuous. Therefore, the plaintiff should make a statement on the next date as to whether he got his claim in the proceeding under Section 20 amended as per this order.

(12) For further directions the matter be listed on 8.2.1996.