Maruti Udyog Ltd. vs Pentafour Products Ltd. And Anr.
2002 Latest Caselaw 776 Del

JUDGMENT

J.D. Kapoor, J.

1. This is an application under Order 37 Rule 4 CPC seeking setting aside of the Judgment dated 30th July, 2001 whereby the suit of the plaintiff was decreed on account of the failure of the defendant to enter appearance within the period of 10 days as prescribed under Sub-rule (2) of Rule 2 of Order 37 CPC.

2. It is pertinent to mention at the outset that the application for condensation of delay in entering the appearance was dismissed vide order dated 30th July, 2001. Grounds for recall or setting aside the said order are in brief as under:-

(i). That the service upon defendant No. 1 was effected only on 3rd July, 2001 whereas the service with respect to defendant No. 2, as contemplated by Order 37 Rule 2 CPC was also effected only on 3rd July, 2001 though the summons of the suit were received on 23rd May, 2001 by registered post and, therefore, entering of appearance on 2nd July, 2001 was within the prescribed period.

(ii). That the dispute sought to be raised in the suit arose pursuant to the purchase agreement dated 15th March, 2001 executed between the parties and since there was Arbitration clause namely Clause No. 27 the instant suit was barred by Section 8 of the Arbitration and Conciliation Act 1996. Section 8 provides as under:-

8. Power to refer parties to arbitration where there is an arbitration agreement.-

(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.

(2) The application referred to in Sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.

(3) Notwithstanding that an application has been made under Sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.

3. As regards the first contention, the plea was considered while dealing with the application for condensation of delay and repealed vide order dated 30th July, 2001. Even otherwise the contention raised by the learned counsel that defendants 1 and 3 were served on 23rd May, 2000 but the proper service in terms of Sub-rule 2 of Rule 3 of Order 37 CPC was effected on 3rd July, 2001 as the copy of the plaint and annexures thereto were furnished to the defendant on 3rd July 2001 is self contradictory. Had it been a case of service of summons of the suit being not in accordance with Sub-rule (1) of Rule 3 of Order 37, the question of entering appearance on 2nd July 2001 would not have arisen nor would have arisen the need for moving application of condensation of delay.

4. The very fact that the appearance was entered on 2nd July shows that the service of summons was duly and legally effected on 23rd May, 2001 and the prescribed period of 10 days for entering appearance expired on 2nd June 2000. So much so, the defendants did not take the plea while making an application for condensation of delay that they were not duly served with the copy of the plaint and annexures thereto. For the aforesaid reasons, I do not find any substance in the contention of the learned counsel.

5. As regards the plea that there was an Arbitration Clause in the basic purchase agreement executed between the parties on 15th March, 2000, Mr. S.K. Chaudhary, the learned counsel for the plaintiff contends that this purchase agreement was with regard to the supplies of goods made by defendant No. 1 from time to time whereas the instant transaction was an independent transaction by virtue of which the defendant while expressing their financial difficulty approached the plaintiff for loan and received Rs. 5 crores by way of demand promissory note and indemnity bond.

6. In order to controvert the aforesaid contention, counsel for the respondent has relied upon the notice dated 2nd February 2001 sent by the plaintiff wherein reference to the basic purchase agreement containing an arbitration clause was not only made but allegations were made in the following terms;-

"Accordingly, the basic purchase agreement was executed and/or renewed from time to time between you and my client. Last such agreement was executed on 15.03.2000. To augment the production and to meet the supply of components against the demand placed by my client, you requested my client to give loan, adjustable against the supplies proposed/promised to be made to my client in terms of purchase orders placed under the Basic purchase agreement prevailing at the relevant time."

7. In response to this letter the defendant vide its reply dated 7th February, 2001 admitted that his company experienced severe financial constraints as a result of delayed commissioning of the Copper Clad laminates project costing over Rs. 1000 crores and because of this they were not able to maintain adequate supply as per the requirement of the plaintiff, though they continued to meet their critical requirement.

8. Having received the loan advanced by the plaintiff, the defendant alleged that the plaintiff had not considered the payment due to them against the supply made as well as the claim lodged with the plaintiff for increased price which was substantial amount and was still pending for finalisation at their end.

9. While confronting the submission of the learned counsel for the defendant Mr. Choudhary relied upon paragraph 7 of the notice as well as reply dated 8th February 2002 sent by the defendant. Paragraph 7 of the notice reads as under:-

"Vide your letter dated 5.9.1998, you insisted and pressurized my client that to maintain the supplies to my client, it should release the payment against the supplies without deducting the amount for the adjustment of advance against the supplies. My client even succumbed to your said demand."

10. The reply dated 8th February 2001 sent by the defendant clearly shows that the defendant conceded that there had been substantial delay in repayment of the loan amount as they could not adhere to the schedule given to them earlier as the commitment made by them were based on the schedule of disbursement by them. Through this letter they requested the plaintiff in order to issue necessary instructions to their legal cell and not to persuade for action as contemplated by the notice. They also assured the plaintiff that they will make regular production from April 2000 and will be in a position to supply the same.

11. As is apparent from the aforesaid communication between the parties the basic purchase agreement was executed for supply of the goods by the defendant to the plaintiff from time to time. Apart from the arbitration clause large number of other terms were incorporated in the said agreement.

12. Thus, there is no doubt that the arbitration clause governs the disputes arising from the terms of the basic purchase agreement. So far as the instant transaction is concerned, it was a loan simplicitor advanced to the defendant in the face of his financial difficulties and constraints so as to facilitate him to maintain the schedule of supplies.

13. Had it not been an independent agreement of loan there was no need for executing a demand promissory note or Indemnity Bond. Execution of demand promissory note or Indemnity Bond goes to show that it was altogether an independent transaction and not in continuation of the basic purchase agreement. The defendant had acknowledged liability of payment of the loan vide letter dated 8th February, 2001. Had there been an intention to make the component of loan granted by the plaintiff to the defendant as part of Basic Purchase Agreement it would have been expressed in clear terms. Execution of Demand Promissory Note and the Indemnity Bond provides it a distinct and independent transaction having no relevance with the basic purchase agreement.

14. In view of the foregoing reasons, I find that the defendant has failed to come out with any such circumstances which may warrant either setting aside of the order dated 30th July 2002 or re calling of the order for granting leave to the defendant. The application is hereby dismissed.