Madras High Court

Shri Mahavir Ferro Alloys Pvt. Ltd vs M/S.Veesons Energy Systems Pvt. Ltd on 14 February, 2025

Author: P.Velmurugan

Bench: P.Velmurugan

                                                                                            A.S.(MD)No.16 of 2015



                          BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT

                                             DATED : 14.02.2025

                                                        CORAM

                               THE HONOURABLE MR.JUSTICE P.VELMURUGAN
                                                AND
                             THE HONOURABLE MR.JUSTICE K.K.RAMAKRISHNAN

                                            A.S.(MD)No.16 of 2015
                                                    and
                                            M.P.(MD)No.1 of 2015

                     1.Shri Mahavir Ferro Alloys Pvt. Ltd.,
                       A Company registered under the Indian Companies Act,
                       Vide Registration No.U27320R1996PTC004602,
                       Rep. by its Managing Director,
                       Vicky Jain having its Registered Office at
                       L/10, Civil Township,
                       Rourkela - 769 004.

                     2.Vicky Jain
                     3.Suresh Chand Jain
                     4.Sudhansu Pati
                     5.Manish Kumar                                                  ...Appellants
                                                            vs.

                     M/s.Veesons Energy Systems Pvt. Ltd.,
                     A Company Registered under the Indian Companies Act,
                     Rep. by its Managing Director V.Ramakrishnan,
                     S/o.V.K.N.P.Venkatachalam,
                     Having its registered Officer at
                     C-14/2, Industrial Estate, Thuvakudi,
                     Tiruchirappalli - 620 015.                         ... Respondent



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                                                                                             A.S.(MD)No.16 of 2015



                     Prayer: Appeal Suit filed under Section 96 of the Civil Procedure Code

                     praying to allow this appeal by setting aside the Judgment and decree

                     dated 27.06.2014 in O.S.No.116 of 2009 on the file of the I Additional

                     District Judge (PCR), Tiruchirappalli.

                                  For Appellants              :         Mr.M.Vallinayagam
                                                                        Senior Counsel
                                                                        for Mr.M.Palaramasamy

                                  For Respondent              :         Mr.D.Srinivasaragavan

                                                         JUDGMENT

(Judgment of the Court was delivered by P.VELMURUGAN, J.)

The respondent is the plaintiff who filed the suit in O.S.No.116 of

2009 before the Principal District Court, Thiruchirappali and the same

was made over to the I Additional District Judge (PCR), Tiruchirappalli

for disposal in accordance with law. The learned I Additional District

Judge dealt with the matter and decreed the suit in favour of the

respondent and directed the first defendant therein to pay a sum of Rs.

57,28,702/- with subsequent interest thereon at the rate of 6% per annum

from the date of the plaint till the date of realization. Aggrieved over the

same, the defendants have filed the present appeal.

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2. The parties are referred to as per their ranking before this Court.

3. The brief facts of the case of the respondent is that the first

appellant placed a purchase order with them on 12.06.2008 for supply of

one number 10 TPH capacity, 67 ata, 515 + 5°c WHRB [Waste Heat

Recovery Boiler] for their power plant project, for which, a sum of Rs.

1,00,000/- was paid as advance by way of Demand Draft dated

12.06.2008 by the first appellant to the respondent. The total value of

purchase order is Rs.2,23,00,000/-. The supply of boiler ought to be

made from 01.08.2008 and to be completed before 31.10.2008. All the

sub delivery items purchased by the respondent from the outside vendors

will have to be supplied to the first appellant before 31.12.2008. The

first appellant agreed to disburse 30% of the purchase order value on

production of a bank guarantee by the respondent. The balance 65% of

the payment was agreed to be paid by way of Demand Draft, on readiness

of materials, including all taxes and duties on pro rata basis against

proforma invoice. A sum of 5% of the basic value would be retained by

the first appellant from each proforma invoice of the respondent against

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performance bank guarantee. Accordingly, a bank guarantee was also

furnished by the respondent. On receipt of bank guarantee, the first

appellant released 30% of the advance payment to the respondent (less

Rs.1,00,001/-) already paid. On receipt of 30% of the advance amount

on the total value of the purchase order, the respondent started

manufacturing the boiler as per the specifications given by the first

appellant on war footing basis. The respondent prepared designs and

drawings for the manufacture of boiler and its components as per the

specifications given by the first appellant. As much as 223 drawings

have to be made for manufacturing the boiler in question. If that work is

given to an outside agency, the normal cost that may be incurred for

preparation of drawings and designs would come around Rs.30,00,000/-.

Therefore, the respondent on its own prepared the drawings and designs

by spending lot of time and energy. The said designs and drawings were

sent to Indian Boiler Regulation Authority [hereinafter referred as 'IBR

Authority'] having its headquarters at Chennai for approval. IBR

Authority also verified the designs and drawings submitted by the

respondent in this regard and approved the same. For getting approval of

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each component involved in the process of manufacturing of boiler in

question, the respondent paid the necessary fees, which alone came to

Rs.40,970/-. After getting approval, the respondent started to

manufacture the boiler for the first appellant on war footing basis by

procuring the materials at huge cost, by spending its own fund at all

levels. Almost, all the employees of the respondent were involved in

manufacturing the boiler in question for the first appellant by giving top

priority. The respondent did not evince any interest in any other projects

or other new work. Other pending works of the respondent got delayed.

The respondent not only incurred loss, but also incurred wrath of their

other valuable customers. After completion of manufacturing of boiler in

question, the same was informed to the first appellant and also IBR

Authority for Inspection. On receipt of the information, the first

appellant sent an e-mail on 21.07.2008 informing the respondent that one

of their staffs by name Mr.Hasan would come and inspect the boiler in

question soon. On 01.08.2008, Mr.Hasan came to the respondent

Company, inspected the boiler and gave an Inspection Report to the first

appellant recommending the release of payment to the respondent.

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Meanwhile, the first appellant gave reply on 07.08.2008 informing that

the payment would be released on or before 10.08.2008. The respondent

was awaiting to receive the payment and to dispatch the manufactured

items to the first appellant. However, to their shock and surprise, the first

appellant sent an e-mail on 12.08.2008 informing the respondent that

they are unable to lift the materials as the market is dull and due to

shortage of fund. The first appellant also stated that they would lift the

materials once their financial position improves. The respondent

invested a huge amount of Rs.1,11,75,614/- in the project in question.

However, after completing all the manufacturing process, the first

appellant refused to lift the boiler. On account of the breach committed

by the first appellant, the respondent suffered huge financial loss and

huge funds of the respondent got dumped in the project in question. The

difficulty faced by the respondent can be easily visualized from the

above said narrations. Thereafter, the first appellant gave lame excuses

for not honouring the commitment made by them. Subsequently, the

respondent issued notice on 28.02.2009 calling upon the first appellant to

pay 40% of value of three proforma invoices raised by them together

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with interest at the rate of 24% per annum. The second appellant is the

Managing Director, appellants 3, 4 and 5 are the Directors of the

appellant Company. They are also equally, jointly and severally liable to

pay the claim of the respondent. After receiving the notice dated

28.02.2009, the appellants did not send any reply or pay the said amount.

Therefore, the respondent was constrained to file the suit claiming

damages for the loss incurred by them.

4. The brief facts of the case of the appellants is that the appellants

faxed an e-mail reply to the mail received from the respondent dated

16.06.2008 asking for specific date for submission of order acceptance,

specific date for submission of drawings for approval and requesting to

expedite submission of the advance bank guarantee, showing their

healthy approach to the purchase order. The remainder for submission of

the purchase order acceptance was again sent on 22.08.2008, 17.09.2008,

06.10.2008 and 08.11.2008. The respondent sent e-mail dated

27.08.2008 stating that they are going through the purchase order and

that they would submit their comments shortly. Thereafter, the

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respondent deliberately delayed the submission of order acceptance by

asking various clarifications in the purchase order. The first appellant

regularly clarified the points raised by the respondent. The designs and

drawings being sent to IBR Authority and got approved after payment of

fees of Rs.40,970/- is not concerned by the appellants since the same was

neither sent to the appellants for confirmation nor sent to IBR Authority

through the appellants. By the letter dated 23.07.2008, the Managing

Director of the respondent Company stated that they plan to divert the

boiler which was already under manufacture for the some other client to

the appellants. That boiler is not a tailor made product and the technical

data of different users may vary. Hence, the diverted boiler would not

meet the specific requirements of the appellants. The respondent starting

the work of manufacturing of boiler for the first appellant on war footing

basis by procuring materials at a huge cost and by spending their own

funds is false and denied. As per PGMA list, the value of the materials

procured and utilized for the manufacturing of boiler and its components

in question alone comes to Rs.46,12,511.11/- is false and denied as the

boiler was manufactured for a different customer and not for appellants.

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Mr.Hasan was sent to the respondent Company to follow the order for

release of drawings, for acceptance of the purchase order. During his

visit, he was shown some parts / components that were manufactured for

some other customers and planned to be diverted to the appellants. The

reason for the diversion is best known to the respondent. Mr.Hasan in

his competency issued a Report to consider as to whether the parts /

components inspected, meet out the technical requirements of the first

appellant. The respondent played fraud upon the appellants and

compelled them to withdraw the bank guarantee. The first appellant

sending an e-mail on 12.08.2008 informing the respondent that they are

unable to lift the materials as the market is dull and due to shortage of

funds is false and denied. The respondent investing a huge amount of

Rs.1,11,75,614/- in the project in question is false and denied. Though

the first appellant has placed its purchase order on 12.06.2008, the

respondent attempted to deliver a boiler that was manufactured before

the placement of the purchase order, which reflects in their letter also.

The appellants have not committed any breach of the terms and

conditions of the contractual agreement. The appellants giving lame

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excuses, that too, at the time of dispatching the boiler is false and denied.

It is true that on 16.06.2008, the first appellant sent a mail to the

respondent asking for specific date for submission of order acceptance,

specific date for submission of drawings for approval and requesting to

expedite submission of the advance bank guarantee. As per the

conditions of purchase order, on 16.06.2008, the respondent sent a bank

guarantee for Rs.66,90,000/-. On 02.07.2008, the first appellant sent a

sum of Rs.65,89,999/- vide cheque No.442324 dated 26.08.2008 against

the bank guarantee which is 30% of the total cost of the boiler. But, on

11.07.2008, the first appellant received billing breakup sent by the

respondent, wherein, they did not send acceptance order or any drawings

as per the terms and conditions of the purchase order. In the same

manner, on 16.07.2008, the first appellant received two proforma

invoices for a sum of Rs.82,47,646/-. The respondent pressurized the

first appellant to release the payment without the acceptance order and

drawings and they tried to sell the boiler manufactured for some other

party which may not fulfill the requirements and technical specifications

of the first appellant. The first appellant sent an e-mail demanding the

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acceptance order. But the respondent without issuing the acceptance

order, raised clarification after clarification, which the first appellant

always clarified point by point. Even then, the respondent did not issue

the acceptance order and drawings as required and kept silent. It took the

respondent four months to go through the purchase order which was the

basis of the contract. The letter dated 28.10.2008 sent by the respondent

and the e-mail dated 08.11.2008 sent by the first appellant demanding the

respondent for acceptance order proved that the demand of the first

appellant became invalid. Though six months time had elapsed from the

date of placement of purchase order, the respondent did not submit

acceptance of purchase order to the first appellant. As per the terms and

conditions of the purchase order, the respondent ought to submit the

drawings and acceptance order to the first appellant within a period of

two weeks of placing of the order. The first appellant exercised their

right in safeguarding the terms and conditions of the project and wrote a

letter dated 22.12.2008 to the Axis Bank for revocation of the bank

guarantee and to adjust the advance paid to the respondent. The advance

bank guarantee was given to safeguard the appellants' advance and to

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take care of any eventuality when the purchase order's terms and

conditions are violated. The appellant did not recover the money that

was lost in pursing the purchase order and the opportunity cost of the

project. It is denied the respondent spent enormous time in preparation

of designs and drawings for the proposed manufacture of boiler. The

respondent obtaining purchase order for proposed manufacture of boiler

from the first appellant itself proves that the boiler was not manufactured

as required by the appellants. The purchase order was obtained by the

respondent only to grab money illegally from the first appellant without

any basis. The first appellant quite unexpectedly invoked the advance

bank guarantee and the respondent was left in lurch is false and denied.

The respondent could not use the finished products for other purpose and

has to simply dismantle the manufactured items and thus, the respondent

is deceived by the first appellant and the first appellant committed the

breach of terms and conditions of the contractual agreement is false and

denied. The guarantee was invoked by the first appellant on their own

whims and fancies without any jurisdiction and defrauded the respondent

is false and denied. The respondent is not entitled to claim a single pie

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from the first appellant. After issuance of notice by the respondent, the

first appellant contacted them over phone and they informed that it is

only a formality and hence, no reply was given. The Directors of the

appellant Company and the first appellant are not jointly and severally

liable to pay any amount much less than the suit claim. The suit is not

maintainable and the respondent suppressed all the material facts. There

was no breach of contract committed by the appellants. Neither the

respondent obtained approval of the drawings and designs of the boiler

from the appellant or IBR Authority nor they manufactured the boiler as

per the specification of the appellants. The respondent tried to sell the

boiler which was manufactured for some other parties to the appellants.

Therefore, the respondent is not entitled to get the suit claim and the suit

is liable to be dismissed.

5.1. Based on the pleadings, oral and documentary evidence

adduced by the parties, the following issues were framed by the Trial

Court.

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"(i) Whether the plaintiff is entitled for the suit amount at 12% interest as prayed for?

(ii) What other relief?"

5.2. After receipt of the additional written statement and reply

statement, the trial Court framed the following additional issues.

"(i) Whether the Court has jurisdiction to entertain the suit?

(ii) Whether the plaintiff is entitled for the suit amount at 12% interest as prayed for?

(iii) What other relief?"

6. On the side of the plaintiff, Ex.A1 to Ex.A20 were marked and

PW1 was examined. On the side of the defendants, Ex.B1 to Ex.B11

were marked and DW1 was examined.

7. After completion of the trial and hearing the arguments

advanced on either side, the Trial Court found that the suit claim made by

the plaintiff therein was proved and decreed the suit. Aggrieved over the

same, the defendants therein have filed the present appeal.

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8.1. The learned senior counsel appearing for the appellants would

submit that the suit itself is not maintainable on account of the arbitration

clause in the contract between the parties. The suit document is

Ex.A2/Ex.B1. Clause No.16 in the purchase order in Ex.A2/Ex.B1 refers

to the resolution of disputes between the parties in respect of the

contract. It states that the purchaser and the supplier will make every

effort to resolve amicably by direct informal negotiation any

disagreement or dispute arising between them under or in connection

with the order. If after 30 days from the commencement of such informal

negotiations, the purchaser and the supplier were unable to resolve

amicably an order dispute, the dispute will be referred for resolution by

arbitration as per the Indian Arbitration Act, 1996. When such

arbitration clause is embodied in the agreement between parties, then the

Civil Court should not entertain any suit arising out of the dispute

between the parties regarding the contract. The learned senior counsel

drew the attention of this Court to Section 5 of the Arbitration and

Conciliation Act, 1996 [hereinafter referred to as 'the Act'] which states

that notwithstanding anything contained in any other law for the time

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being in force, in matters governed by this part, no judicial authority

shall except where so provided in this Part. By relying on Section 9 of

the Code of Civil Procedure, the learned counsel would submit that the

bar to file a Civil Suit may be express or implied.

8.2. He relied on the Judgement of the Apex Court in the case of

N.D.M.C vs. Satish Chand (deceased) by Lr Ram Chand reported in AIR

2003 Supreme Court 3187, wherein, it is held that bar to file a Civil Suit

may be express or implied. An express bar is where a statute itself

contains a provision that the jurisdiction of a civil Court is barred. The

learned counsel from a conjoint reading of Section 9 of the Code of Civil

Procedure, Section 5 of the Act and the above cited Judgment of Apex

Court, submits that jurisdiction of the Civil Court is ousted.

8.3. The contract between the parties to this suit has been filed

along with the plaint itself and thus the existence of the arbitration clause

is well known to the Trial court. In case a party suppresses or in case the

Trial Court at the first instance did not notice the availability of

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arbitration clause and entertained suit, then the opposite party i.e., the

defendant can invoke Section 8 of the Act read with section 5 of the Act,

for the purpose of bringing the existence of arbitration clause in

agreement to the knowledge of the Court. In the present case, in

paragraph no.17 of the written statement, the appellants have brought the

existence of the arbitration clause to the knowledge of the Court. Under

such circumstances, he would submit that the suit is not maintainable.

8.4. It is well settled by the Apex Court and High Courts, by catena

of Judgements, that the jurisdiction of the Civil Court if expressly or

impliedly excluded, then entire suit proceedings is barred in the eye of

law, and they have to be set aside by the Appellate court without going

into the merits of the case. On knowing about the existence of arbitration

clause in the agreement upon which suit is filed, it is obligatory on the

part of the Court to refer the matter to Arbitration and the jurisdiction of

the Court to deal with the case on merits perishes or ceased. Such is the

position of law, the merits of the case dealt by the Trial court ought not

have been deliberated by the Appellate court.

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8.5. The Apex Court in the case of Ravi Prakash Goel vs. Chandra

Prakash Goel and another reported in 2008(13) SCC page 667 has held

that when a dispute is referable to arbitration, parties cannot be

compelled to take recourse in the Civil court. While so, the Appellate

Court ought not have deliberated the merits of the case.

8.6. In support of his contentions, the learned counsel for the

appellants relied on the following Judgements also.

(i) Judgement of the Madras High Court in the case of

G.Rajarajan vs. Aig Consumer Financial Services reported in 2012(4)

LW 155.

(ii) Judgment of the Delhi High Court in the case of Sharad

P.Jagtiani vs. Mis.Edel Weiss Securities Limited.

8.7. The learned senior counsel would submit that in the case on

hand, the respondent relied upon Exs.A8, A10, A11 in order to establish

their case and the appellants rely upon Ex.B3, communication sent by the

respondent dated 23.07.2008. In Ex.B3, the respondent has disclosed

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that they are diverting the boiler, which was manufactured for some other

customer. For converting or altering the boiler manufactured for some

other customer, the respondent had applied for approval from IBR

Authority under Exs.A14 and A15. However, no such approval was

obtained from IBR Authority for manufacturing the boiler. The

respondent has not also marked any document to prove that they have

obtained IBR Authority approval for manufacturing the subject boiler.

Therefore, since it is obvious that the respondent is substituting another

contract in the place of original contract, the original contract Ex.A2

need not be performed by the appellant. In this context, the learned

senior counsel referred to Section 62 of the Indian Contract Act, 1872

which reads that, if the parties to a contract agree to substitute a new

contract for it, or to rescind or alter it, the original contract, need not be

performed. Therefore, he submitted that on this ground itself, the suit is

liable to be dismissed.

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8.8. He would also add that it is well proved that the respondent

herein has not honored to the terms of the contract and has attempted to

supply the boiler, which was meant for third party, without providing

requisite drawings and the required approval of IBR Authority.

Therefore, any party, which has not adhered to the terms of the contract,

is not entitled for any compensation in form of damages under Section 73

of the Indian Contract Act, 1872. On this ground also, the suit is liable to

be dismissed.

8.9. Furthermore, he would submit that, absolutely, there is no

pleading regarding the diversion of the boiler manufactured for other

customer in the place of original boiler ordered by the appellants under

Ex.A2 and any evidence without pleading is useless in the eye of law.

8.10. According to the senior counsel, when there is an arbitration

clause, apart from dismissing the suit, it is obligatory on the part of the

Court, to direct the parties to approach the Arbitrator and resolve their

dispute through Arbitration. He also would submit that if this case is

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referred to Arbitration, the appellants would co-operate with the

proceedings of the Arbitration and prayed to set aside the judgment and

decree of the trial court and refer the matter to Arbitration Tribunal.

9. The learned counsel appearing for the respondent would submit

that the respondent did not attempt to divert the boiler of any third party

to the first appellant. The respondent has given bank guarantee and

started manufacturing the boiler. The first appellant has paid 30% value

of the purchase order after receiving the bank guarantee. The first

appellant sent their man Mr.Hasan for Inspection, who had conducted

inspection and made a report. Subsequently, the appellants have

promised to lift the boiler. Hence, both the parties acted upon the

contract. The respondent has proved beyond doubt the cost of

preparation of designs and drawings, payments made to IBR Authority

and the cost of raw materials. The respondent restricted their claim to

40% alone and prayed for the decree. The appellants have not denied the

purchase order. Though the respondent sent a legal notice, the first

appellant did not send any reply. Only thereafter, the respondent filed the

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suit. The Civil Court has got jurisdiction to decide the issue. After filing

of the suit, the appellants sought for several adjournments to file written

statement and they filed the written statement very belatedly. After

consuming considerable time more than the statutory period, the

appellants have not filed any application under Section 8 of the Act for

referring the matter to Arbitration and they have not also invoked Section

8 of the Act before filing the first written statement. Even though the

appellants have averred in the written statement about the arbitration

clause mentioned in the agreement, they have neither invoked Section 8

of the Act and made any application nor submitted a copy of either the

original agreement or certified copy of the agreement and requested the

Court to refer the matter to Arbitration. The appellants did not take any

sincere effort for referring the matter to Arbitration and no issue in this

regard was framed. The respondent has proved their case through oral

and documentary evidence and there is no civil remedy barred either

under Section 9 of the Civil Procedure Code or under Section 8 or 5 of

the Act. Since the appellants have not filed any application under

Section 8 of the Act initially, they cannot take that defence at a latter

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point of time, that too, at the appeallate stage. They ought to have taken

this stand either at the stage of Interlocutory Application or at the stage

of filing written statement and before deciding the suit. Since there are

no materials to show that the appellants invoked Section 8 of the Act

during the pendency of the suit, they cannot take that defence at the

appellate stage. The trial Court rightly appreciated the oral and

documentary evidence on both sides and rightly decreed the suit. There

are no merits in the appeal and hence, the appeal is liable to be

dismissed.

10. Heard both sides and perused the materials available before

this Court.

11. Considering the above narrated facts and circumstances of the

case, the following points are taken for consideration.

(i) Whether the suit is maintainable before the Civil Court?

(ii) Whether mere taking defence in the written statement about the

arbitration clause is enough for the Trial Court to refer the matter to

arbitration.

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(iii) Whether the Judgment and decree passed by the trial Court is

liable to be set aside.

All the points are being discussed together, the findings are

given as follows:-

12. The respondent has specifically stated that the first appellant

placed a purchase order with them on 12.06.2008 for supply of one

number 10 TPH capacity, 67 ata, 515 + 5°c WHRB. The purchase order

placed by the first appellant is marked as Ex.A2. The first appellant has

not denied the same. Admittedly, the total value of the purchase order is

Rs.2,23,00,000/-. There is a specific period stipulated in the purchase

order for delivery of boiler. While so, the drawings were sent to IBR

Authority having its headquarters at Chennai for approval. IBR

Authority verified the designs and drawings submitted by the respondent

and approved the same. For getting approval, the respondent paid Rs.

40,970/- as fees and the same was also intimated to the appellants. Only

thereafter, the respondent started to manufacture the boiler. The

respondent spent their own funds in the process of manufacturing of

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boiler at all levels, which alone would come to Rs.46,12,511.11. Almost

all the employees of the respondent Company were involved in the

process of manufacturing the boiler in question for the first appellant

Company by giving top priority. The respondent manufactured the

components for the boiler in question and after completion, raised three

proforma invoices Ex.A4, Ex.A5 and Ex.A9. In pursuance thereof, the

first appellant sent an e-mail on 21.07.2008 informing the respondent

that one of their staffs by name Mr.Hasan would come and inspect the

boiler in question. For better clarity, the said e-mail dated 21.07.2008,

marked as Ex.A6 is extracted hereunder.

"Dear Mr.K.N.Venkatakrishnan, This is to inform you that out Mr.Hasan will be coming to your works for inspection of the materials. Once the inspection of materials is over, we will be releasing the your payment as per the proforma invoice raised by you. You may coordinate with Mr.Hasan about his visit plans to your works."

Accordingly, the first appellant sent their staff Mr.Hasan for Inspection,

who in turn inspected the boiler in question and sent a report. The

respondent also sent an e-mail to the first appellant along with the copy

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of the Inspection Report. Even after seeing the e-mail, the appellants did

not raise any objection and they promised to take delivery. The e-mail

sent by the first appellant in this regard dated 06.08.2008, marked as

Ex.A10 is extracted hereunder.

"From: Abdul Hasan Ref: /[email protected]/ Date 06.08.08 To Veesons Energy System Pvt.

C-14/2, Industrial Estate, Tiruchirapalli - 620 015. Kind Attn: Mr.Ramakrishna (Director) Sub: Regarding payment of 3rd. WHRB.

Dear Sir, We have received your mail/fax no-VCOM/VWH022/89 10/1, dated 06.08.08 regarding release of payment against PI-01, 02 and 03 of our PO no-SMFAPL/08-09/P/MA5/42, dated 12.06.2008. In this regards this already has been clarified that the payment due on account of material ready for dispatch have been cleared by us to the bank. Since the bank takes two or there days time to process the payment. This is likely released to you on or before 10th August, 2008."

Only thereafter, the first appellant informed the respondent that they are

in financial crunch and once they recover from the same, they would lift

the boiler in question. For better appreciation of facts, the e-mail sent by

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the first appellant in this regard dated 12.08.2008, marked as Ex.A11 is

extracted hereunder.

"Mr Venkatakrishnan, This has our reference to our PO for 10 TPH WHRB on you. Please note that since there is problem of fund in this month due to dullness in market, we will not be in a position to lift the materials for the WHRB as of now. As and when the fund position improves, we will be in a position to lift the materials.

We are extremely sorry for the inconvinience but would request you to bear with us till then."

Reading of the above facts would clearly demonstrate that the first

appellant has not lifted the boiler in question due to shortage of funds

and dullness in market. While that being so, they cannot now take a

different stand that the boiler in question was not manufactured as per

their specifications and the boiler manufactured for a third party was

planned to be diverted to them. In fact, the first appellant has nowhere

communicated to the respondent that the boiler was not up to their

standard or not manufactured as per their specifications. In that case, at a

later point of time, they cannot say that the boiler manufactured by the

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respondent did not meet out their requirements or boiler manufactured

for some other client was planned to be diverted to them. It is pertinent

to note that the first appellant did not even give any reply to the notice

issued by the respondent dated 28.02.2009 calling upon them to pay 40%

value of the proforma invoices raised by the respondent together with

interest at the rate of 24% per annum.

13. Though the learned senior counsel for the appellants submitted

that the manufacturing of boiler in question was not as per the

specifications of the first appellant and even without getting approval

from IBR Authority, the respondent tried to extract money from them, as

stated above, the appellants did not even give any reply to the pre-suit

notice. Further, the appellants have not denied the purchase order,

payment of 30% value of purchase order as advance, receipt of e-mails,

sending of their man Mr.Hasan for inspection and the Inspection Report.

Since the purchase order Ex.A2 and payment of 30% of the amount as

advance are admitted, failing to take delivery of the boiler is also

admitted. Therefore, the questions that arise are (i) whether the boiler in

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question was manufactured as per the specifications of the first appellant

or not? and (ii) whether the respondent sustained any damages or not?

The said questions can be very well decided by the Civil Court. The

presence of arbitration clause in the purchase order does not mean that

the Civil Court has got no jurisdiction.

14. In the instant case, the suit was presented on 17.08.2009 and

Mr.I.M.Lal, learned counsel undertook before the Trial Court to file

vakalath on behalf of the appellants (defendants) on 12.01.2010 itself.

However, the appellants (defendants) filed their first written statement

only on 30.11.2010. Either after receipt of suit summons and before

filing of the written statement or even at the time of filing the written

statement, the appellants have not filed any application under Section 8

of the Act to refer the matter to Arbitration.

15. The contention of the learned senior counsel for the appellants

is that in paragraph 17 of the written statement, there is a mention about

the existence of arbitration clause in the agreement and when such clause

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is available in the purchase order, the respondent erred by filing the

above suit and by not taking legal recourse through Arbitration.

Therefore, the learned counsel contended that the suit is not maintainable

and the Civil Court has no jurisdiction to decide the issue on hand.

16. Mere reading of Section 8 of the Act, clearly shows that there

is no bar for the Civil Court to decide this issue. Therefore, Section 5 of

the Arbitration and Conciliation Act, 1996 would not be applicable to

the present case. When the appellants admitted the purchase order,

payment of 30% value of purchase order as advance, receipt of e-mails

and legal notice, they cannot say that the Civil Court has got no

jurisdiction. A combined reading of Sections 8 and 5 of the Act shows

that the intention of the legislature is not totally ousting the jurisdiction

of civil Court. If one of the parties approached the Civil Court for legal

remedy and if the subject contract or agreement provides arbitration

clause, then, it is option for the other party to resolve the dispute through

arbitration by invoking Section 8 of the Act. In case, the other party /

defendant has not opted for arbitration by invoking Section 8 of the Act,

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then, Civil Court can proceed with the suit. Therefore, in the present

case, neither Section 8 of the Act nor Section 5 of the Act would bar the

jurisdiction of the Civil Court. Considering the nature of transaction

between the parties and dispute between the parties, this Court finds that

even though the purchase order provides arbitration clause, when the

respondent sent a legal notice, the appellant has not opted to avail the

same and even when the respondent filed the suit, the appellant has not

filed any application under Section 8 of the Act before filing the first

written statement. Mere referring the arbitration clause in one of the

paragraphs of the written statement is not enough to ouster the

jurisdiction of the Civil Court. Therefore, under these circumstances,

considering the pleadings, oral and documentary evidence, this Court

finds that the trial Court has got jurisdiction to entertain the suit.

17. Admittedly, the respondent filed the suit based on the purchase

order Ex.A2 and there is an arbitration clause provided in clause 16 of

the purchase order. Admittedly, prior to the filing of the suit, the

respondent sent pre-suit notice, for which, the appellants did not give any

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reply. Hence, the respondent filed the suit claiming damages, which they

incurred on account of the breach committed by the first appellant by

violating the contractual agreement dated 12.06.2008.

18. The learned senior counsel for the appellants contended that

there is no need to file separate application under Section 8 of the Act.

Since there is a specific averment in the written statement, the trial Court,

itself, could have referred the matter to arbitration. Therefore, the

learned senior counsel contended that the jurisdiction of the Trial Court

is ousted and hence the Judgment and Decree passed by the trial Court is

liable to be set aside. In support of his contentions he made reliance on

number of Judgements which are mentioned above. Though the learned

counsel for the appellants (defendants) undertook before the Trial Court

to file vakalath on 12.01.2010, he filed vakalath only on 01.04.2010.

The filing of the suit by the respondent came to the knowledge of the

appellants way back on 12.01.2010 itself. However, the appellants did

not file their written statement either immediately within a period of 30

days or within a period of 90 days from the date of receipt of summons.

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Though the learned counsel undertook to file vakalath on 12.01.2010

itself, written statement was filed only on 30.11.2010. The appellants

have not chosen to file any application under Section 8 of the Act even

on 30.11.2010 or prior to that.

19. For the sake of convenience, Section 8 of the Act is extracted

hereunder.

"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 to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.

(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:

[Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition

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praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court]

(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."

20. According to the learned counsel for the appellants, a formal

application under Section 8(1) of the Act is not required and mere

reference of arbitration clause in the written statement is enough for the

Trial Court to refer the matter to arbitration. We are not accepting the

said contention for the reason that Section 8 (1) uses the term 'so applies',

which would mean that a party is required to make a formal application

for referring the dispute to arbitration. The implied timeline fixed under

Section 8(1) persumes filing of an application and for the application to

be made before filing of the first written statement on the substance of

the dispute. Construing the words 'so applies' in Section 8(1) in any

other manner would render the express time-frame completely

meaningless. Section 8(2) refers to the application in Section 8(1) and

the requirement of filing such an application in a proper form. The

requirement of filing a separate application under Section 8(1) is

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distinctive to and independence of the first statement to the substance of

the dispute. A reference to the arbitration clause in the written statement,

simpliciter, does not satisfy the rigour of Section 8(1) of the Act in terms

of making a separate application for referring the parties to arbitration.

21. The appellants have simply referred to the arbitration clause in

the written statement and objected to the maintainability of the suit.

However, the objection would not absolve the appellants from the

discipline of filing of an application under Section 8 of the Act. Though

the learned senior counsel for the appellants would submit that mere

bringing to the knowledge of the Court about the existence of the

arbitration clause is enough; Trial Court cannot proceed with the matter

further; and it is mandatory to refer the matter to arbitration, a reading of

Section 8 of the Act states otherwise. Therefore, under these

circumstances, the contention of the learned senior counsel for the

appellants is not acceptable. Even otherwise, it is seen from the records

that the respondent sent a legal notice regarding their claim and the first

appellant did not send any reply and thereafter only, the respondent filed

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the suit. Even though the filing of the suit was well within the

knowledge of the appellants (defendants) on 12.01.2010 itself, they took

10 months time for filing of the first written statement.

22. In this context, it is pertinent to extract Order 8 Rule 1 of the

Code of Civil Procedure.

1. Written Statement.—The Defendant shall, within thirty days from the date of service of summons on him, present a written statement of his defence:

Provided that where the defendant fails to file the written statement within the said period of thirty days, he shall be allowed to file the same on such other day, as may be specified by the Court, for reasons to be recorded in writing, but which shall not be later than ninety days from the date of service of summons.

[Provided that where the defendant fails to file the written statement within the said period of thirty days, he shall be allowed to file the written statement on such other day, as may be specified by the Court, for reasons to be recorded in writing and on payment of such costs as the Court deems fit, but which shall not be later than one hundred twenty days from the date of service of summons and on expiry of one hundred twenty days from the date of service of summons, the defendant shall forfeit the right to file the written statement and the Court shall not allow the written statement to be taken on record.]

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23. From a reading of the above, it is clear that within 30 days

from the date of service of summons, the defendant has to file the written

statement. Proviso clause states that the defendant could file the written

statement with the permission of the Court within 90 days, and thereafter

the defendant cannot file the written statement, though there is no

forfeiture clause as in the Commercial Courts Act, 2015. However, if at

all the appellants wanted to exercise the arbitration clause, they ought to

have filed the application under Section 8 of the Act immediately or even

otherwise at the worst case, they ought to have filed such an application

along with the written statement. However, they have not done so. They

have simply averred about the arbitration clause in the written statement

and objected to the maintainability of suit. They have taken no sincere

efforts to refer the matter to Arbitration by producing the original

Agreement or Certified copy of the Agreement. Even otherwise, they

have not filed any application to decide the preliminary issue regarding

the jurisdiction of the Trial Court or maintainability of the suit or filed an

application under Order 7 Rule 11 for rejection of plaint. Knowing fully

well the consequences, the appellants have not tried to resolve the

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dispute through Arbitration by invoking the arbitration clause. The scope

and object of the arbitration clause itself is for speedy disposal of the

matter. The conduct of the appellants shows that their intention is not to

resolve the dispute through Arbitration, but only to evade and protract

the suit. Under these circumstances, this Court finds that the appellants

have not come to the Court with clean hands and the above points are

answered accordingly. The Trial Court has also elaborately discussed the

pleadings, oral and documentary evidence. This Court as a final Court of

fact finding, after perusal of the claim of the respondent in the plaint,

written submissions of the appellants, oral and documentary and

evidence produced on both sides, finds that the respondent have proved

their claim. The citations relied on by the learned senior counsel

appearing for the appellants is not applicable to the case on hand, as they

are distinguishable on facts. Therefore, the Trial Court rightly

appreciated the oral and documentary evidence and decreed the suit in

favour of the respondent herein. There are no merits in the appeal.