Bharat Lal And Anr. vs Haryana Chit Pvt. Ltd. And Anr.
1998 Latest Caselaw 473 Del

JUDGMENT

S.N. Kapoor, J.

1. By this order I propose to deal with this petition under Section 20 of the Arbitration Act, 1940 for filing of the arbitration agreement and referring the disputes for arbitration; and an IA No. 6785/94 under Section 41 of the Arbitration Act, 1940 read with Order 39, Rules 1 and 2 and Section 151 of the CPC seeking an injunction against defendant No. 2 restraining the Registrar of Chit Funds from making any payment to defendant No. 1; and IA No. 6784/94 seeking direction to that defendants to allow inspection of record to the plaintiffs or their authorised representatives.

2. The two plaintiffs became members of Haryana Chits Pvt. Limited and subscribed various chits commencing from 23rd August, 1986. Plaintiff No. 1 has subscribed following chits:

Series No.

Number of chits  

Date  

Subscription paid  

HCF-6  

Two  

5.1.88  

75,000/-

each  

HCF-8 & 9  

Two  

11.6.88  

2,00,000/-

each  

HCF-10  

Two  

28.9.88  

1,00,000/-

each  

HCF-11  

and

Two  

20.10.89  

1,50,000/-

each  

HCF-13  

Two  

7.2.89  

1,50,000/-

each  

HCF-14  

Two  

27.5.89  

1,50,000/- each  

HCF-17  

Two  

16.7.90  

1,00,000/-

each  

HCF-18 & 19  

Six  

16.7.90  

1,00,000/-

each  

3.Plaintiff No. 2 subscribed the following chits:

Series No.

Number of chits

Date

Subscription paid

HCF-8 & 9

Two

11.6.88

2,00,000/- each

HCF-11 and12

 One

 20.10.89

 1,50,000/- each

HCF-13

Two

7.2.89

1,50,000/- each

HCF-14

Two

25.5.89

1,50,000/- each

HCF-17

Two

16.7.90

1,00,000/- each

4. Defendant No. 1 had been making some payments without specifying chit numbers. In good faith the plaintiffs had been paying money towards subscription of various chits from time to time. When some foul play was suspected in the payments and adjustments defendant Company through Shri Bhupinder Chaudhary entered into a Memorandum of Understanding arrived at on 25th May, 1992, indicating broad outlines on the basis of which payments were to be made. It transpired after inspection at the office of defendant No. 2 that defendant No. 1 has manipulated the accounts to deprive the plaintiffs of their legitimate dues.

5. Following payments were allegedly made by defendant No. 1 but not received by plaintiff No. 1:

S. No. Series No.

Amount paid

(a) HCF-6

-- Rs. 48,750/-

Rs. 53,750/-

  

 
  (b)
  HCF-8 & 9
  --      Rs. 1,30,000/-
  

 
  (c)
  HCF-10
  --      Rs. 50,000/-
  

 
  
  
  
  Rs. 25,000/-

 
  
  
  
  Rs. 2,500/-

 
  
  
  

 has correctly adjusted a 
 sum

 
  
  
  
  Rs. 85,000/-

 
  (d)
  HCF-14
  --
  Rs. 48,750/-



 

6. Plaintiff No. 1 has not received any payment in respect of Series No. HCF-6, HCF-10 except the adjustment of cheque of Rs. 85,000/-, HCF-11, HCF-12, HCF-13, HCF-17, HCF-18 and HCF-19.

7. Similarly, following payments were allegedly made by defendant No. 1 but either not received as received in part by plaintiff No. 2 as under:

S.No.

Series No.

Amount paid

Amount not received

(a)

HCF-8 & 9

Rs. 85,000/-

Rs. 80,000/-

(b)

HCF-11 & 12

Rs. 53,750/-

--

(c)

HCF-14

Rs. 40,000/-

Rs. 1,00,000/-

Rs. 12,500/-

(d)

HCF-17

Rs. 86,250/-

--

Rs. 65,000/-

--

8. Defendant No. 1 had illegally transferred tickets Nos. 8 and 9 in respect of Series Nos. HCF-18 and 19 which was in the name of plaintiff No. 1. Defendant No.1 in collusion and conspiracy with its staff had forged the signatures of plaintiff No.2 on various documents i.e. cheques, chit agreement and the presence of plaintiff No. 2 in various draws of Series No. HCF-17. One of the glaring instance of such forgery is that plaintiff No. 2 won prizes of tickets Nos. 3 and 24 for Rs. 65,000/- and Rs. 86,250/- respectively and payment had allegedly been made to plaintiff No. 2 by cheque which was never issued to plaintiff No. 2. Defendant No. 1 (through its staff) by forging the signatures of plaintiff No. 2 encashed the cheques. The plaintiffs had pointed out various irregularities committed by defendant No. 1 to defendant No. 2 from time to time, including through its last letter dated 16th September, 19,93. Disputes have arisen between the parties in respect of several payments as mentioned in paragraphs 19, 20 and 21 as defendant No. 1 had not made various payments which had allegedly been made by forging documents without making actual payments enumerated in paras 19, 20 and 21. The plaintiffs are entitled to get those amounts with interest @ 24% per annum atleast from May, 1990. In the middle of April, 1992, the plaintiff discovered these various irregularities being committed by the defendants. There is an agreement in between the parties. The bye-laws of the chit provide following arbitration agreement (Annexure-A):

"XIII. Settlement of Disputes

In the event of any question, dispute or difference arising between Haryana Chits Private Limited and a subscriber, his surety or guarantee, the same shall be referred to sole arbitration of Shri............... The award of this Arbitrator shall be final and binding on the parties.

XIV. All the disputes will be subject to the jurisdiction of Delhi under Delhi Courts unless the parties agree to decide the dispute by one more Arbitrator under the Arbitration Act."

9. On this basis the plaintiff seeks appointment of an Arbitrator to adjudicate in terms of Clauses 13 and 14 of the agreement upon the dispute mentioned in the suit and particularly paragraphs 17 to 19 of the plaint referred to above.

10. Defendant No. 1 is contesting this petition on various grounds. It is alleged that the petition is not maintainable as the same is bad for mis-joinder of parties. It is claimed that no cause of action arose for there was no arbitration Clause between the parties in terms of the chit agreement executed between plaintiff No. 1 and defendant No. 1 separately and in terms of agreement executed separately between plaintiff No. 2 and defendant No. 1. It is also claimed that though under the bye-laws of defendant No. 1 under Clause 13, there is an arbitration Clause but Clause 14 of the same bye-laws overrides Clause 13 of the bye-laws of defendant No. 1. There is no provision of any arbitration Clause or agreement between the parties. On account of a complaint made by the plaintiffs, the Registrar of Chit Funds, Delhi conducted proceedings after summoning the parties. The plaintiffs failed to file affidavits before the Registrar and instead filed the present suit though agreed to file affidavits on 6th November, 1992 and refused to give affidavits vide their letter dated 27th December, 1992. It is alleged that the plaintiffs were indulging in gross abuse of the process of law with intent to cause harm to the defendants. It is also claimed that there is a hand written Clause 14 in the agreement which reads as under: "That all disputes and matters of difference between the parties arising out of this chit agreement or the subject matter thereof shall be referred to the Registrar of Chit Funds or Civil Courts Delhi and New Delhi Court for settlement."

All the allegations regarding manipulation, non-payment etc. have been denied.

11. Having heard learned Counsel for the parties, the following points arise for consideration:

1. Is there any arbitration agreement in between the parties?

2. Whether arbitration is not possible in view of the allegations of fraud and forgeries of criminal nature?

3. Whether the petition itself is maintainable?

4. Whether the petition is bad for want of cause of action or mis-joinder of parties?

12. I have heard parties Counsel at length and gone through the record. Point No. 1:

13. Basically, the controversy involved herein rests on the interpretation of Clause XIII and hand written additional Clause XIV. In regard to settlement of dispute, following is the printed Clause: "XIII. Settlement of Disputes--In the event of any question, dispute or difference arising between Haryana Chits Private Limited and a subscriber, his surety or guarantee, the same shall be referred to sole arbitration of Shri............... The award of this Arbitrator shall be final and binding on the parties.

14. In addition to this Clause, there is another hand-written Clause 14 which reads as under: "All the disputes will be subject to the jurisdiction of Delhi and New Delhi Court unless the parties agree to decide the dispute by one or more Arbitrators under the Arbitration Act."

(see page 4 of Bye-laws of the defendant filed by the plaintiff).

15. It is not in dispute that this type of agreement has been signed in all the chits between the two plaintiffs and the defendants. It is evident that while Clause XIII indicates that all disputes were to be referred to Sole Arbitrator of a named Arbitrator, Clause 14 provides that all the disputes will be subject to jurisdiction of Delhi and New Delhi Courts; so long the parties do not agree to decide the disputes by one or more Arbitrators under the Arbitration Act. Firstly the plaintiffs do not point out that any person was named as Arbitrator in terms of Clause XIII. They also do not claim that any agreement as envisaged in Clause 14 was subsequently arrived at. The conflict in two Clauses is loud and pronounced.

16. In so far as the choice between printed Clause XIII relating to settlement of disputes through arbitration and hand-written Clause XIV is concerned, one has to opt for the hand-written Clause, for there is a conflict between Clauses XIII and XIV. It appears to be settled law that if there is a conflict between the text of a document and a printed Clause then the text of the document shall prevail over the ordinary printed Clause as being the special variation where the printed Clause would be inapplicable. This principle is well recognised by the Privy Council in Canadian and Dominion Sugar Co. Ltd. v. Camdian National (W.L) Steamships Ltd., l947 AC 46 at p.57 in following words: "...If there is any discrepancy between this printed Clause and the stamped Clause in the margin, the latter, on ordinary principles of construction, will prevail. Their Lordships think that the case should be decided on the simple language of the stamped Clause, which overrides Clause 27 if there is any relevant difference in their effect, and that in this case, Clause 27 may be disregarded in the result."

A Division Bench of Calcutta High Court followed the same view in United Bank of India Ltd. v. Netherlandsche Standard Bank, . Since Clause 14 is handwritten, it has to be treated as special variation where printed Clause 13 is not applicable, this Court is supposed to act upon only Clause XIV.

18. Clause 14 only provides that all the disputes shall be subject to jurisdiction of Delhi and New Delhi Courts. However, apart from clarifying jurisdiction of the Courts it also provides an exception for referring the matter to arbitration subject to the condition that the parties agree to refer the dispute(s) to one or more Arbitrators under the Arbitration Act. Firstly, there is no arbitration Clause shown; secondly, it appears that the Memorandum of Understanding filed by the plaintiffs themselves was reached by intervention of Panchas. This Memorandum of Understanding purports to have been signed by Shri Bhupinder Chaudhary and the Panchas. This does not indicate that there was any agreement to refer the matter further to arbitration. As such, it is apparent that there is virtually no arbitration agreement in between the parties.

Point No. 2:

19. Supposing there is an arbitration agreement, then a question arises whether it would be desirable to refer the matter to arbitration. In this case, it is apparent that the plaintiffs have made allegations of forging the signatures of plaintiff, misappropriating the amount by forging the entries in the records and forging signatures at a number of places and naturally these allegations relate to criminal offences, fraud and forgery. Seeing the allegations made, followed by a Memorandum of understanding in presence of Panchas, it appears that the allegations cannot be ignored as exaggeration relating to moral misconduct or moral dishonesty or relating to preparation of incorrect accounts. The allegations are of serious nature of fraud and forgeries.

20- Russel on Arbitration (1982 Edn.) states at page 187 as under:

"In a case where fraud is charged, the Court will in general refuse to send the dispute to arbitration if the party charged with the fraud desires a public inquiry. But where the objection to arbitration is by the party charging the fraud, the Court will not necessarily accede to it and will never do so unless a prima facie case of fraud is proved."

21. In Abdul Kadir v. Madhav Prabhakar, Supreme Court laid down the law on the point as under:

"There is no doubt that where serious allegations of fraud are made against a party and the party who is charged with fraud desires that the matter should be tried in open Court, that would be a sufficient cause for the Court not to order an arbitration agreement to be filed and not to make the reference. But it is not every allegation imputing some kind of dishonesty, particularly in matters of accounts, which would be enough to dispose a Court to take the matter out of the Forum which the parties themselves have chosen." ........ ........ ........

"We are clearly of opinion that merely because some allegations have been made that accounts are not correct or that certain items are exaggerated and so on that is not enough to induce the Court to refuse to make a reference to arbitration. It is only in cases of allegations of fraud of a serious nature that the Court will refuse as decided in Russell's case (1880) 14 CH D 471 to order an arbitration agreement to be filed and will not make a reference."

21.1. A Division Bench of Andhra Pradesh High Court in M. Venkateshwar Rao v. V.S.N. Subbarao, through lagannadha Rao, J. (as his Lordship then was) and in Shri Subhash Chander Kathuria v. Ashoka Alloys Steels Ltd. & Ors., 1995 III AD (Delhi)316:59(1995)DLT335 through R.C Lahoti, J. echoed the similar views. In Buddhu Lal v. Jagannath, AIR 1949 AH 70 (DB) F.O. Murlimal Santram v. M/s Banarsidas & Sons & Anr. AIR 1937 Sind 62 (DB), Basantlal jagatramka v. Dominion of India, , Allahabad, Sind, Calcutta High Courts also expressed similar views.

22. As such this very view has to be followed and the person against whom fraud, forgery etc. of serious nature is alleged--irrespective of the fact whether he is plaintiff or defendant--has an option to have the matter decided by the Civil Court to vindicate his conduct in regular trial. Cases involving allegation of professional or occupational negligence, impropriety or dishonesty shade in one another and the above principles applicable to cases of allegation of fraud equally apply to such cases. But the allegation of vague nature that account share not correct or that certain items are exaggerated and so on shall not be sufficient and enough to induce the Court to refuse to make a reference to arbitration. It is only in cases of allegations of fraud etc. of a serious nature that the Court should refuse to order an arbitration agreement to be filed and may refuse to make any reference.

23. Since the allegations are of serious criminal nature and relate to fraud and forging of valuable documents, the defendants are certainly entitled to have the matter decided by the Civil Court to vindicate their conduct in regular trial. As such it is not appropriate to refer the dispute to arbitration.

Point No. 3;

24. In absence of arbitration agreement and the fact that the matter in dispute could not have been referred to even otherwise, present suit is not maintainable.

Point No. 4:

25. Seeing the allegations regarding transfer of ticket of Series Nos. HCF-18 and 19 and the disputes relating thereto as mentioned in paragraph 20, it may not be possible to say that the petition on the basis of the allegations made in the plaint is bad for mis-joinder of parties or cause of action. No doubt in respect of each and every chit there are numerous causes of action and to a certain extent in other aspect it is possible to say that plaintiff No. 1 and plaintiff No. 2 may not have any joint interest but it cannot be said in respect of ticket Nos. 8 and 9 of Series Nos. HCF-18 and 19 which have been shared allegedly and illegally transferred in favour of plaintiff No. 1 without the knowledge of either of the two plaintiffs. As such, this point has to be decided against the defendants.

26. For the foregoing reasons, it would not be appropriate to direct filing of the arbitration agreement and to refer the disputes in between the parties to arbitration. Consequently, the petition as well as the applications (IA Nos. 6784-6785/94) are dismissed. Parties are left to bear their own costs.