M/S R.R Enterprises vs C.M.D Of M/S Garware-Wall Ropes ...
2012 Latest Caselaw 5509 Del

       *       IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                     Judgment reserved on: 06.09.2012
                                      Judgment pronounced on: 13.09.2012

+      CS(OS) 2086/2010

       M/S R.R ENTERPRISES                                         ..... Plaintiff
                    Through :         Mr. R.S.Rana, Adv.

                    versus


    C.M.D OF M/S GARWARE-WALL ROPES
    LTD & ORS                                        ..... Defendants
                  Through : Mr. Ajay Kumar Gupta, Adv.
CORAM:
HON'BLE MR. JUSTICE V.K.JAIN

V.K. JAIN, J.

IA No. 13628/2011 (under Section 8 of Arbitration & Conciliation Act)

1. Pursuant to a meeting held on 07.03.2007, in the office of defendant No. 2 in

New Delhi, defendant No. 2 placed work orders with the plaintiff for execution of

civil and structural work for the secured land fill facility at Rampur in Uttar

Pradesh. The plaintiff claims to have executed civil and structural work for a total

sum of Rs 83,28,965.68p and claims to have received part payment, totalling Rs.

69,54,053/-, thereby leaving a balance principal sum of Rs 17,76,391.70p. This

included a sum of Rs 4,16,448.28p deposited by the plaintiff with defendant No. 2

as a security deposit. The plaintiff has now filed this suit for recovery of the

aforesaid amount along with interest on that amount, thereby making a total sum of

Rs 24,43,139.70p.

2. The defendant filed written statement on 19.05.2011, taking a number of

preliminary objections, including that the suit is hit by Section 8 of Arbitration &

Conciliation Act.

3. IA No. 13628/2011 has been filed by defendant No. 2 under Section 8 of

Arbitration & Conciliation Act on 26.08.2011, seeking dismissal of the suit.

The application has been opposed by the plaintiff and it has been stated in

the reply that there is no arbitration clause between the parties.

4. The plaintiff has placed on record the purchase order dated 06.06.2007.

There is no arbitration agreement contained in this purchase order. However, the

purchase order dated 02.06.2007, a copy of which has been filed by the defendant

contains the following clause:-

"Any and all claims, disputes, questions or controversies involving the parties and arising in connection with this PO, or the execution, interpretation, validity, performance, termination hereof (collectively, "Disputes") which cannot be finally resolved by such parties negotiation shall be resolved by final and binding arbitration held in Pune in accordance with of Indian Arbitration and Conciliation Act, 1996, as amended from time to time (the "Arbitration"). The disputes shall be referred to a sole arbitrator to be appointed by Gaware- Wall ropes Limited."

5. I had an occasion to examine as to whether an application under Section 8 of

Arbitration & Conciliation Act is maintainable after filing of written statement

which refers to an arbitration agreement between the parties or not in, Arti Jethani

v. Daehsan Trading (India) Pvt Ltd & Ors. 2011 (4) AD DEL 668. The

following view was taken by me taking into consideration various decisions,

including the decision of Supreme Court in Sukanya Holdings Pvt. Ltd. vs.

Jayesh H. Pandya and Anr. AIR 2003 SC 2252:-

"3. A careful analysis of Section 8 of Arbitration and Conciliation Act, 1996 would show that the following conditions are required to be fulfilled before the Court can refer the matter to arbitration;

(a) the dispute between the parties should be subject matter of an arbitration agreement;

(b) one of the parties to the suit should apply for referring the parties to arbitration;

(c) the application should be filed on or before submitting first statement on the substance of the dispute and;

(d) the application should be accompanied by the original arbitration agreement or its certified copy.

4. In the case before this Court, the application under consideration having not been filed on or before filing of written statement, but having been filed about four weeks after the written statement had been filed and after 8 days of filing of replication, one of the pre-requisite conditions for referring the parties to arbitration under Section 8 of Arbitration and Conciliation Act does not stand fulfilled

in this case.

5. In Sukanya Holdings (supra), Supreme Court, while interpreting Section 8 of the Act, inter alia, observed as under:

"Further, the matter is not required to be referred to the arbitral Tribunal, if-(1) the parties to the arbitration agreement have no filed any such application for referring the dispute to the arbitrator; (2) in a pending suit, such application is not filed before submitting first statement on the substance of the dispute; or (3) such application is not accompanied by the original arbitration agreement or duly certified copy thereof."

It is true that in the above-referred case, the application under Section 8 of Arbitration and Conciliation Act appears to have been filed before the written statement was filed and, therefore, the question as to whether such an application can be filed after the written statement has already been filed, did not directly come up for consideration in this case, but, the above- referred observations made by the Court do support the view that such an application cannot be filed after the first statement on the substance of the dispute has been filed by the applicant.

6. The contention of the learned counsel for the applicant is that since the defendant had already pleaded in the written statement that there is an arbitration agreement between the parties and, therefore, this Court has no jurisdiction to adjudicate the instant suit, it is evident that the applicants did not submit to the jurisdiction of the Civil Court and, therefore, the application is maintainable even after filing of the written statement.

7. In my view, if the Court accepts the contention that an application under Section 8 of the Act can be filed even after the first statement on substance of the dispute

between the parties has already been filed, this would not only be contrary to the express provisions of law but, would also defeat the very purpose behind stipulating that such an application needs to be filed not later than submitting the first statement on the substance of the dispute. If such an application is entertained after filing of the first statement, it would be possible for a party to the suit to first allow the trial to proceed by not filing the application by the stage stipulated in the Act and then come to the Court at a much later stage when the trial is substantially complete and seek reference of the dispute to arbitration. It is true that in the case before this Court the trial has not commenced as yet, but if the interpretation sought to be given by the learned Counsel for the applicants/defendants is accepted, it would be open to a party to the suit to file such an application even after the trial has commenced.

8. The question as to whether a defendant who pleads arbitration agreement in the Written Statement, but does not file an application under Section 8 of the Act, on or before filing of the Written Statement has come up before other High Courts in some cases. In K.Jayakumaran Nai vs. Vertex Securities Ltd. AIR 2005 Ker. 294, the defendant filed Written Statement raising a contention that there was an arbitration agreement between the parties. After framing of issues he filed an application seeking reference of the dispute for arbitration. The High Court noted that Section 8 of the Act clearly provides that the application had to be made not later than submitting the first statement whereas the application before it had been filed after the issues were framed. The Court expressly rejected the contention that since the matter had been raised in the Written Statement that was enough. While doing so the Court noted that the Written Statement contained no prayer for referring the matter for arbitration.

In West Bengal State Electricity Board and Ors.

Vs. Shanti Conductors Private Ltd. AIR 2004 Gau 70, the defendants filed Written Statement indicating that the dispute which had arisen between the parties and led to institution of the suit, was covered by arbitration clause. After submitting the Written Statement on 22.9.2000 the defendants filed an application under Section 8 of the Act on 7.11.2000 seeking reference of the dispute to the arbitration. The trial Court having rejected the application the matter was agitated by the defendant before the High Court and it was contended that in the plaint itself the plaintiff had admitted the existence of the arbitration clause and the Written Statement also indicated about its existence and therefore the Court below had taken a misconceived view of law as to its jurisdiction. Rejecting the contention, the High Court inter alia held as under:

"In the case at hand, the application under Section 8 was made by the defendants after the written statement stood submitted. Hence, this application was not maintainable. The fact that the existence of the arbitration clause was admitted in the plaint or asserted in the written statement is immaterial inasmuch as the Court, under Section 8, can refer for arbitration a dispute pending in a civil suit only when the party or parties concerned make application for getting the dispute referred to arbitration. If despite existence of arbitration clause, the parties choose to contest the suit, the powers under Section 8 cannot be invoked."

In this case, the defendants have already filed their Written Statement and have thereby disclosed their entire defence and that has been done in the main proceedings itself, not in the supplemental proceedings. Of course, the application under Section 8 of the Act would be maintainable if the applicant has not filed his first statement on the substance of the dispute, but when the Written Statement is filed, it can hardly be disputed that the applicant has submitted not only the first but whole of

his statement on the dispute between the parties. To hold such an application to be maintainable, even after filing of the Written Statement would be contrary to the provisions contained in Section 8 of the Act. Mere disclosure of arbitration agreement in the Written Statement and claiming that Civil Court has no jurisdiction to try the suit would be of no consequences unless the Written Statement itself contains a prayer for referring the dispute for arbitration. In the case before this Court, though the defendants claimed that there is arbitration agreement between the parties and Civil Court has no jurisdiction in the matter, no prayer was made in the Written Statement to refer the disputes between the parties for arbitration.

11. No one can dispute that a Civil Court has no jurisdiction to entertain the suit after application under Section 8 of the Act is filed but this would be subject to the application otherwise being in conformity with the requirements of the said Section. The jurisdiction of the Civil Court is not ousted on account of an arbitration agreement between the parties. It is ousted because of an application filed under Section 8 of the Act provided it otherwise confirms to the requirements laid down in the Section."

In Sukanya Holdings Pvt. Ltd. (supra), Supreme Court clearly held that

Arbitration Act does not oust the jurisdiction of Civil Court to decide the dispute in

a case where parties to the Arbitration Agreement do not take appropriate steps as

contemplated under sub-Section (1) and (2) of Section 8 of the Act.

6. In the present case, the defendants submitted to the jurisdiction of the Civil

Court by filing a written statement which discloses not only the arbitration

agreement, but also the whole of their defence on merits. No prayer was made in

the written statement for referring the disputes between the parties to arbitration.

As noted by me in the case of Arti Jethani (supra), Civil Court has jurisdiction to

adjudicate upon every civil dispute between the parties to the suit and its

jurisdiction is ousted not on account of existence of an arbitration agreement

between the parties, but only on filing of a petition under Section 8 of Arbitration

& Conciliation Act, provided the application otherwise confirms to the statutory

requirements. It can hardly be disputed that despite existence of an arbitration

agreement, the defendant may, either expressly or by his conduct, waive his right to

seek arbitration of disputes between the parties and may consent to such disputes

being decided by the Civil Court. The defendants by not filing an application

under Section of Arbitration & Conciliation Act either before or simultaneous with

filing of written statement, clearly waived their right to apply for arbitration in

terms of Section 8 of the said Act and submitted to the jurisdiction of this Court. In

fact, even in the application under consideration, no specific prayer has been made

by defendant No. 2 for referring the disputes to arbitration, the only prayer being to

dismiss the suit. In para 7 of the application, the defendants themselves have stated

that one of the conditions required to be satisfied before the Court to exercise its

power under Section 8 of the said Section is that the other party should move the

Court for referring the parties to arbitration before it submits his first statement on

the substance of the dispute. Since the defendants have already filed written

statement on the merits of the case, this condition obviously does not get fulfilled

in the present case.

7. Another reason why the disputes subject matter of this suit cannot be

referred to arbitration is that the arbitration agreement is contained only in one of

the two purchase orders placed by defendant No. 2 upon the plaintiff. There is no

arbitration clause in the second purchase order. A careful analysis of the

arbitration clause contained in purchase order filed by the defendants would show

that it applies only to claims, disputes questions and controversies arising in

connection with that particular purchase order or its execution, interpretation,

validity, performance, termination, etc. This arbitration clause, therefore, does not

apply to the disputes which are referable to the second purchase order, which

contains no such clause.

In Sukanya Holdings Pvt. Ltd. (supra), the following view taken by the

Supreme Court is relevant in this regard:-

"Secondly, there is no provision in the Act that when the subject matter of the suit includes subject matter of the arbitration agreement as well as other disputes, the matter is required to be referred to arbitration. There is also no provision for splitting the cause or parties and referring the subject matter of the suit to the arbitrators.

Where, however, a suit is commenced - "as to a matter" which lies outside the arbitration agreement and is also between some of the parties who are not parties to the

arbitration agreement, there is no question of application of Section 8. The words 'a matter' indicates entire subject matter of the suit should be subject to arbitration agreement.

The next question which requires consideration is even if there is no provision for partly referring the dispute to arbitration, whether such a course is possible under Section 8 of the Act? In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action that is to say the subject matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject matter of an action brought before a judicial authority is not allowed.

Secondly, such bifurcation of suit in two parts, one to be decided by the arbitral tribunal and other to be decided by the civil court would inevitably delay the proceedings. The whole purpose of speedy disposal of dispute and decreasing the cost of litigation would be frustrated by such procedure. It would also increase the cost of litigation and harassment to the parties and on occasions there is possibility of conflicting judgments and orders by two different forums."

8. The learned counsel for the defendant has referred to the decision of this

Court in Ruchi Soya Industries Ltd. v. Madan Exim (P) Ltd. 155(2008) DLT

317. In the above referred case, in a suit for recovery of money, the defendant

which filed an application under Section 8 of Arbitration & Conciliation Act, 1996

contended that out of various agreements between the parties only one agreement

contained an arbitration clause and the suit being based on a running account to be

maintained between the parties and that running account having reference only to

the agreements which contained arbitration clause, the matter was referable to

arbitration. The plaintiff, on the other hand, contended that the agreements dated

01.11.2000, 31.12.2001 and 01.08.2002 existed at different points of time and the

final agreement dated 01.08.2002 did not contain an arbitration clause. It was also

submitted by the plaintiff that disputes between the parties had arisen only later and

the agreement in respect of which the suit has been filed did not contain an

arbitration clause. Upholding the contention of the plaintiff, this Court, inter alia,

observed and held as under:-

"The agreements were sequenced in time and the later agreements supplanted the earlier agreements even if they did not expire by efflux of time. Consequently, the surviving agreement describing the commercial relationship between the parties was the agreement dated 01.08.2002. Admittedly, that agreement did not contain any arbitration clause. The parties were conscious of the fact that the earlier agreements had contained the arbitration clause and being conscious of this, they entered into the agreement dated 01.08.2002 without insisting upon an arbitration clause. The intention of the parties is clear that they do not want arbitration. Insofar as the lease agreement is concerned, this is a separate and

parallel transaction on which the plaintiff does not found his claim at all. The result of this discussion is that there is no arbitration clause governing the dispute between the parties and consequently, this application is liable to be dismissed."

In the case before this Court, the suit is not based solely upon the purchase

order dated 19.12.2007 which contains the arbitration clause. This is not as if the

defendants made full payment against the first purchase order and did not make

payment against the second purchase order. In the case relied upon by the learned

counsel for the defendant, the later agreement supplanted the earlier agreements

and the only surviving agreement governing obligations of the parties was the last

agreement dated 01.08.2002. On the other hand, in the case before this Court, the

second purchase order did not supplant or replace the first purchase order, both the

purchase orders being separate from each other. The first purchase order was for

construction of civil and structural work for the secured land fill facility, as per the

scope of work given in Annexure-1 of the purchase order. The second purchase

order, on the other hand, was for earth filling with compaction with all plant &

machinery, including royalty and all items complete as per instructions of the

engineer in-charge. Therefore, the second purchase order which contained the

arbitration agreement was not in substitution or replacement of the previous

purchase order. The disputes between the parties are not confined to the work

which was the subject matter of the second purchase order. Therefore, it can

hardly be disputed that the whole of the disputes between the parties are not

covered by the arbitration clause contained in the second purchase order.

9. The learned counsel for the defendant has also relied upon the decision of

this Court in Eastern Medikit Ltd. vs. R.S. Sales Corporation & Anr., 137

(2007) DLT 626. In the above-referred case, the plaintiff filed a suit for recovery

of money. The defendant filed written statement, inter alia, stating that the suit

was barred under the provisions of Arbitration Act as the invoices issued by the

plaintiff itself contained an arbitration clause. Thereafter, the defendant filed an

application under Order 7 Rule 11 of the Code of Civil Procedure, seeking

rejection/dismissal of the plaint on various grounds, including existence of an

arbitration agreement between the parties. The plaintiff agreed that in view of the

arbitration agreement between the parties, the matter be referred to the arbitration.

Thereupon, the defendant took summersault and stated that he did not want the

matter referred to arbitration. He took an ingenious plea that the matter be referred

to arbitration only when appropriate application under Section 8 of Arbitration &

Conciliation Act, 1996 was filed by him. It was in this context and on these facts

that this Court observed that in such circumstances, the first preliminary objection

of the defendants contained in the written statement could be treated as an

application under Section 8 of Arbitration & Conciliation Act, 1996. The Court

further observed that it was more, so when the plaintiff who had filed the suit had

no objection for the matter to be referred for the arbitration and that the defendants,

after taking such a plea, cannot be allowed to wriggle out of it. Thus, in the case

relied upon by the learned counsel for the defendants, the plaintiff himself was

agreeable for reference of the disputes to arbitration. On the other hand, in the case

before this Court, the plaintiff is vehemently opposing the application filed under

Section 8 of Arbitration & Conciliation Act. In the above-referred case, it was the

defendant who, despite setting up the arbitration clause, wanted to wriggle out of

the same, whereas in the case before this Court, it is the plaintiff who is opposing

reference of the disputes to the arbitrator. This judgment, therefore, does not really

apply to the facts of this case. Moreover, this judgment does not take into

consideration the binding decision of Supreme Court in Sukanya Holdings Pvt.

Ltd (supra), wherein Supreme Court clearly held that an application under Section

8 of Arbitration & Conciliation Act can be filed only before filing the first

statement on the merits of the case.

10. For the reasons stated hereinabove, I held that the application under

consideration is devoid of any merit. The application is accordingly dismissed.

V.K.JAIN, J

SEPTEMBER 13, 2012 BG