M/S Jindal Aromatics vs M/S South Coast Spices Exports ...
2001 Latest Caselaw 1008 Del

ORDER

V.S. Aggarwal, J.

1. M/s. Jindal Aromatics (hereinafter described as "the plaintiff:) has filed the suit, invoking Order xxxvII of the Code of Civil Procedure. The defendant is M/s. South Coast Spices Exports Pvt. Ltd. The summons were issued to the defendants and were served by registered post on 8.6.1996 and by ordinary process on 11.6.1996. The defendant prefers an application under Section 34 of the Arbitration Act, 1940, seeking stay of the present suit purported to have been filed by the plaintiff. By virtue of the present order, I.A. No. 6727/96 is proposed to be disposed i.e. the application under Section 34 of the Arbitration Act, 1940.

2. The defendant pleads that there are agreements for purchase and sale of India Black pepper Grade MGT between the parties. The defendant-company had supplied the agreed quality of Black pepper Grade MGI conforming to Agmark specification and it was received by the plaintiff. There are disputes between the parties with respect to the supply of goods and payment, to be made by the plaintiff. Defendant's contention is that there was an agreement between the parties, which provides for an arbitration clause to refer the disputes to the Indian Chamber of Commerce, New Delhi. As disputes between the parties have arisen and are subsisting, it is prayed that the present suit may be stayed.

3. The plaintiff contests the application under Section 34 of the Arbitration Act, 1940. Plaintiff asserts that the defendant, under the written contract, had sold 315 metric tonnes of black pepper @ Rs. 31,000/- per metric tonne FOB to the plaintiff for which the plaintiff had paid the price to the defendant in advance. On delivery of requisite quantity of black pepper by the defendant, 860 bags of black pepper were found not conforming to the specifications agreed upon between the parties by the inspection agency. 80 bags were returned to the defendant. The defendant had issued and delivered to the plaintiff five cheques amounting to Rs. 18,69,000/- by way of refund of the price of 860 bags of black pepper. These cheques were returned unpaid by the bank.

4. Plaintiff contends that the defendant has ignored the fact that the plaintiff has two causes of action to file the suits. The ground of stay is not valid because the arbitration clause is stated to the vague and can not be construed in law as an agreement to refer the disputes to arbitration. The defendant is stated to have not indicated any dispute in the application. Plea has been raised that the plaintiff had earlier instituted a suit in Cochin but it was withdrawn after the defendant admitted its liability and issued to be cheques in settlement of the disputes.

5. The defendant preferred a replication. The assertions made by the plaintiff were controverter. It is admitted that there wee two agreements on 5th March and 12th March for sale and purchase of black pepper. The plaintiff had returned 860 bags of black pepper but the defendant had supplied 846 bags of black pepper but the defendant had supplied 846 bags of black pepper. The plaintiff has yet to account for receipt of 846 bags of black pepper supplied between 5.5.1993 to 13.5.1993. As regards the civil suit filed in Cochin, the defendant contends that there also an application under Section 34 of the Arbitration Act was filed but the claim of the plaintiff had not been admitted. Lateron the plaintiff had withdrawn the suit. The cheques were stated to have been obtained by misrepresentation and the assurance that they will only be presented if any amount is found due when the settlement takes place.

6. Learned counsel for the plaintiff, at the outset, urged that in fact there are no disputes because within the stipulated time, contemplated under Order xxxvII no application has been filed seeking permission to contest and, therefore, the assertions of the plaintiff must be taken to be correct. Reliance is placed on Order xxxvII Rule 2 of the Civil Procedure Code, which is being reproduced below for the sake of facility:-

2. Institution of summary suits.--(1) A suit, to which this Order applies, may if the plaintiff desires to proceed hereunder, be instituted by presenting a plaint which shall contain,--

(a) a specific averment to the effect that the suit is filed under this Order:

(b) that no relief, which does not fall within the ambit of this rule, has been claimed in the plaint; and

(c) the following inscription, immediately below the number of the suit in the title of the suit, namely:-

"(Under Order xxxvII of the code of Civil Procedure, 1908)"

(2) The summons of the suit shall be in Form No. 4 in Appendix B or in such other Form as may, from time to time, be prescribed.

(3) The defendant shall not defend the suit referred to in sub-rule (1) unless he enters an appearance and in default of his entering an appearance the allegations in the plaint shall be deemed to be admitted and the plaintiff shall be entitled to a decree for any sum, not exceeding the sum mentioned, in the summons, together with interest at the rate specified, in any, up to the date of the decree and such sum for costs as may be determined by the High Court from time to time by rules made in that behalf and such decree may be executed forthwith.

7. Perusal of the relevant provisions shows clearly that the defendant shall not defend the suit unless he enters an appearance and in default of his entering an appearance the allegations in plaint shall be deemed to be admitted. In other words, the allegations would only be deemed to be admitted unless the defendant enters appearance. Of course, it is subject to the other provisions that within the stipulated tme he has to seek the necessary permission to contest the suit.

8. What is the position in the present matter? The notice had been served and the defendant had put in appearance and in the first instance he submitted an application under Section 34 of the Arbitration Act, seeking stay of the suit. Necessarily, he could not have filed the written statement or take steps towards the defense of the suit at the thresh-hold. Therefore, in the peculiar facts, it can not be termed that the plaintiff could press into service Order xxxvII of the Civil Procedure Code nor it can be stated that in the peculiar facts, it would amount to admitting the claim or by legal fiction that is created by Order xxxvII, the allegations will have to be deemed to be admitted.

9. Reference with advantage in this regard can well be made to the decision of this Court in the case of SHAKTI FABRICS versus SRI RAM TEXTILES 1990 DELHI LAW TIMES 671. In the cited case, there was an arbitration agreement. In the bills for sale of goods, there was note that the same have been supplied according to rules and regulations of Delhi Hindustani Mercantile Association. One of the rules provided that the disputes would be settled by arbitration. A civil suit was filed under Order xxxvII of the Civil Procedure Code. The defendant therein moved an application for stay in view of the arbitration clause. This Court held that the parties should have gone in for arbitration proceedings and suit had to be stayed. The precise findings, recorded by the Court are:-

17. There is no time limit prescribed for making an application under Section 34 of the Act. Therefore, it is not correct to contend that the application of the respondent herein made before the trial court was barred by limitation. The argument of Mr. Malhotra that such an application should have been made within 10 days of the service of summons is in conflict with the judgment in Shroff Brothers (supra) cited by Mr. Malhotra where the period for making the application was, in fact, held to be of 28 days. In both the judgments of the Calcutta High Court cited by Mr. Malhotra it appears to me that filing of application under Section 34 of the Act has been held to be co-terminus with the time limit prescribed under other provisions of law so as to construe different provisions harmoneously. Therefore, in the Pench Valley case (supra) it was held that an application under Section 34 of the Act should have been made within 10 days of the service of summons whereas in Shroff Brothers (supra) this period was 28 days. It is also important to note here that Section 34 provides that an application for stay of proceedings should be made before filing of written statement or taking any steps in the proceedings should be made before filing of written statement or taking any steps in the proceedings. Therefore, if the time for filing of the written statement is 28 days then by virtue of that provision an application under Section 34 should obviously be made within 28 days.

10. Keeping in view the aforesaid view, with which one respectfully agrees, the said contention must fail.

11. Learned counsel for the plaintiff, in that event, contended that the application under Section 34 of the Arbitration Act does not mention the disputes and, therefore, it is without merit and must fail. There is little controversy that can be raised that the application filed under Section 34 of the Arbitration Act, 1940 must mention the disputes. The petition must indicate as to what are the disputes existing. In default of such a plea, the application is liable to fail. This Court, in the case of M/s. NATIONAL SMALL INDUSTRIES CORPORATION LTD., NEW DELHI versus M/s. PUNJAB TIN PRINTING & METAL INDUSTRIES AJRAUNDA, FARIDABAD (HARYANA) has dealt with the said controversy and in similar terms held:-

"To stay a suit, there must be an existing dispute between the parties. If there was no dispute, there is nothing to arbitrate. It is for the applicant to plead that there was a dispute and that he was ready and willing at all relevant times to do all things necessary for the proper conduct of arbitration. For proper conduct of arbitration he has to allege the dispute or disputes which he was ready and willing to refer to arbitration. The suit cannot be stayed if there was no dispute between the parties, at the commencement of the proceedings. There is no allegation in the present application as to what dispute or difference was existing between the parties which the applicant was ready and willing to refer to arbitration at the time the suit was filed. The applicant has also not mentioned the dispute or difference which he is still ready and willing to refer to arbitration. In the absence of such allegations regarding the disputes it cannot be said that the applicant was ever ready and willing to do everything necessary for the proper conduct of arbitration. The suit, therefore, cannot be stayed."

12. Same view was adopted by this Court an year later in the case of HINDUSTAN COPPER LIMITED, JHUNJHUNU versus ASSAM BEARING AGENCIES, DELHI .

13. In the present case in hand, perusal of the application clearly shows that though briefly the defendant had pleaded that it had supplied the agreed quality of black pepper, conforming to Agmark specification and was received by the plaintiff. The dispute has been mentioned to be with respect to the supply of goods and payments to be made. In other words, the defendant in its own words has placed on recorded which is the dispute according to it. It can not, therefore, be termed that for lack of pleadings, the application must fail. In this view of the matter, the said plea of the plaintiff's learned counsel, so and though of, necessarily must also be rejected.

14. In that event, it was further contended that the present suit has been filed under Order xxxvII and is based on dishonouring of the cheques. According to the learned counsel, the fact about the supply of the articles is only a prelude and in fact suit has been filed because the cheques, that were given to the plaintiff, amounting to Rs. 18,69,000/- have been dishonoured. The learned counsel for the plaintiff, in support of his contention, strongly relied on the Division Bench decision of the Madras High Court in the case of M/S. VASANT NAVJI & Co. versus M/s. K.P.C. SPINNERS AND OTHERS . In this cited case, the plaintiff had entered into a contract with the defendants for supply goods. Certain cheques were given. The plaintiff could only realize two cheques. The other three cheques were dishonoured. For the recovery of the balance amount, a civil suit was filed. Defendant had chosen to (SIC) an application under Section 34 of the Arbitration Act. The Madras High Court held that the suit was not liable to be stayed and concluded that though the plaint refers to antecedent facts which gave rise to the issue of cheques by the defendants in favor of the plaintiff, the suit is in substance a suit on dishonoured cheques. Such a suit can not be taken to arise solely out of the contract entered into by the plaintiff with the defendants for supply of goods.

15. On the strength of this decision, learned counsel, as referred to above, had contended that the present suit, keeping in view the dishonoured cheques, can not be taken to be arising out of the contract for supply of the articles.

16. With utmost respect, one finds difficult to subscribe to the view in the case of Vasanji Navji & Co. (supra). Reasons are obvious. The cheques, as such, were given, purported to be for the price of certain articles. While construing as to whether the dishonouring of the cheques has some reference to the supply of articles or not, the facts must be considered. These cause of action would be the bundle of facts. It includes supply of the articles and returning some of them, as alleged, by the plaintiff. The defense of the defendant is that cheques were obtained by some misrepresentation and that certain articles had been resupplied. Merely because cheques had been issued, what was antecedent to the same, can not be ignored altogether. In that view of the matter, it must follow that the disputes do exist between the parties and this plea so eloquently put forward by the learned counsel must also be rejected.

17. The arbitration clause, which is not in controversy, reads:-

"ARBITRATION: All disputes and differences of whatsoever arriving between the parties out of or relating to the construction, meaning and operation or effect or this contract or the breach thereof shall be settled by one Arbitrator each appointed by the Two Parties concerned who will jointly meet at new Delhi for settlement. In case of no settlement, the matter will be referred to the Indian Chamber of Commerce New Delhi or in the Courts of Delhi Whose award shall be binding on both the parties."

18. It clearly reveals that all disputes and differences that a

re to arise between the parties, have to be referred for arbitration in the manner referred to above. it can not be termed that the terms are vague or indefinite. Once there is an arbitration agreement and, as referred to above, disputes have arisen, necessarily the present suit is liable to be stayed because there is little on record to conclude that the defendant is not ready and willing to submit to the arbitration to prompt this Court not to stay the suit.

19. For these reasons, I.A. under consideration is allowed and the proceedings in the present suit are stayed.