Surendranath Kanungo (Since vs Vijaya Bank & Others
2021 Latest Caselaw 8336 Ori

             IN THE HIGH COURT OF ORISSA AT CUTTACK

                         C.R.P. No.28 of 2009


        Surendranath Kanungo (since            ....           Petitioners
        dead) through his L.Rs. & others.

                                M/s. A. Sanganeria, S. Nath, S.K. Rout,
                                                             Advocates

                                   -versus-
        Vijaya Bank & others.                  ....     Opposite Parties
                                                                None

                 CORAM:
                 JUSTICE S. PUJAHARI
                                 ORDER

Order                           10.08.2021
No.
  22.   1.      The petitioners in this civil revision call in

question the legality of order dated 14.07.2009 passed

by the learned Civil Judge (Senior Division), First Court,

Cuttack in C.S. (III) No.1 of 2004, whereby and

whereunder, the prayer of the petitioners made under

Section 8 of the Arbitration & Conciliation Act, 1996

(hereinafter referred to as "the Act") seeking referral of

the matter to the Arbitrator, was refused.

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2. Heard the learned counsel for the petitioners.

None appeared on behalf of the opposite party no.1-

Bank at the time of call. Perused the relevant papers on

record.

3. The facts leading to the present civil revision are

as follows:-

The petitioners were Defendant Nos.2 to 4 in the

suit filed before the learned trial Court at the instance

of the opposite party no.1. The suit of the opposite party

no.1 was for a money decree of Rs.4,02,875/- with

consequential relief for auction sale of the properties of

the petitioners in the event the decreetal amount is not

recovered from the assets of the opposite party no.2.

While the opposite party no.1 being the Bank was the

creditor, the opposite party no.2 was the partnership

firm of which the petitioner nos.1 to 3 and opposite

party nos.3 and 4 happened to be the partners. The

sum and substance of the case of opposite party no.1 in

the suit was that the petitioners and opposite party

nos.3 and 4 constituting a partnership firm under

opposite party no.2 by virtue of a partnership deed,

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approached the opposite party no.1-Bank to avail cash

credit (hypothecation) loan and Cash Credit (Pledge)

loan. Considering the application for loan, the opposite

party no.1 sanctioned cash credit loan of Rs.4,50,000/-

and cash credit (Pledge) loan of Rs.3 lacs in favour of

the petitioners and their partners with a stipulation of

re-payment of the same within twelve months and,

accordingly, the loan amount was disbursed with

stipulation of interest at the rate of 16.5% per annum.

It was pleaded that there was execution of demand

promissory note between the parties besides an

agreement for demand cash credit against

hypothecation of stocks and book debts. Having the

petitioners and their partner defaulted in repayment of

loan, demand notice was served by the opposite party

no.1 and the former having failed to regularize the loan

account despite notice, the cause of action for the suit

arose leading to the suit. In response to the summons,

the petitioners appeared and without filing any written

statement, filed a petition under Section 8 of the Act

with a prayer to refer the matter to an Arbitrator since

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the agreement executed between the parties contained

an arbitration clause for resolution of dispute between

the parties. The said prayer of the petitioners having

been refused by the impugned order, this civil revision

arises.

4. The learned counsel appearing for the petitioners

while inviting the attention of this Court to Clause 8.2

of the Agreement under Annexure-3 and the provisions

of Section 8 of the Act, contended that the impugned

order is palpably wrong being contrary to the statute.

Since the agreement executed between the parties

contained a clause for referral of the dispute to

Arbitrator, it was incumbent on the part of the learned

trial Court to refer the dispute to an Arbitrator in terms

of the statutory mandate. The learned trial Court

without considering the matter in right perspective,

whimsically came to a conclusion that the arbitration

clause does not authorize the petitioners to raise the

dispute before the Arbitrator. The decisions relied upon

in the impugned order while coming to such conclusion

were in relation to the Arbitration and Conciliation Act,

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1940 which has been repelled by the new Act, 1996.

Therefore, the impugned order is not sustained in the

eye of law.

5. In the backdrop of the contention raised on

behalf of the petitioners, the seminal question which

requires to be addressed is, whether the dispute

between the parties ought not to have been resolved by

Civil Court owing to the existence of Clause 8.2 of the

Agreement vide which the parties for adjudication of

dispute before the Arbitrator.

6. Before adverting to the issue, it is apt to have a

reference to Section 8 of the Act which reads thus:-

"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 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

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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 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."

7. In the case of P. Anand Gajapathi Raju and

others vrs. P.V.G. Raju (died) and others, reported in

AIR 2000 S.C. 1886, the Apex Court in paragraphs-5

and 6 have held as follows:-

"5. The conditions which are required to be satisfied under sub-sections (1) and (2) of Section 8 before the Court can exercise its powers are : (1) there is an arbitration agreement; (2) a party to the agreement brings an action in the Court against the other party; (3) subject matter of the action is the same as the subject matter of the arbitration agreement; (4) the other party moves the Court for referring the parties to arbitration before it submits his first statement on the substance of the dispute. This last provision creates a right in the person bringing the action to have the dispute adjudicated by Court, once the other party has submitted his first statement of defence. But if the party, who wants the matter to be referred to arbitration applies to the Court after submission of his statement and the party who has brought the action does not object, as is the case before us, there is no bar on the Court referring the parties to arbitration.

6. In our view, the phrase "which is the subject of an arbitration agreement" does not, in the context, necessarily require that the agreement must be already in existence before the action is brought in

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the Court. The phrase also connotes an arbitration agreement being brought into existence while the action is pending. Black‟s Law Dictionary has defined the word „is‟ as follows:

"This word, although normally referring to the present, often has a future meaning, but is not synonymous with "shall have been". It may have, however, a past signification, as in the sense of "has been"."

8. The aforesaid being the position of law, it would

be apposite to have a look to Clause 8.2 of the

Agreement as relied upon by the petitioners as well as

the Clauses 10.3 and 10.5 which read thus:-

"8.2. That the Bank shall be entitled to adjust, settle and compromise in any manner whatsoever, including by reference to arbitration at the Borrower‟s cost any dispute arising under or in connection with decision given in any such arbitration or otherwise shall be valid and binding on the Borrower and the Bank shall also be entitled to receive all monies payable under any such insurance or under any claim made thereunder and to issue a valid receipt therefor and that the amounts so received shall be credited to any of the said cash credit accounts and that the Borrower will not raise any question that a larger sum might or ought to have been received or be entitled to raise any dispute on the balance in any of the said cash credit accounts after such credit. Provided that the Bank may at its own absolute discretion waive any of the requirements as to insurance to such extent and in such manner as the Bank may deem fit.

10.3. That the Bank shall without prejudice to the foregoing powers be also entitled generally to enforce, realize, settle compromise and deal with any of the rights aforesaid as regards the said goods and the said debts and assets, but without being bound to exercise any of these rights or powers or being liable

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for, any loss in the exercise thereof and any such exercise shall be without prejudice to the rights and remedies of the Bank of suit or otherwise and not withstanding that there may be pending suit or other proceedings.

10.5. That the Bank shall be entitled at all times and without any notice to the Borrower to set-off and apply any other money or moneys in the hands of the Bank standing to the credit of or belonging to the Borrower in or towards payment of any amount at any time being payable to the Bank or towards the outstandings in the said cash credit accounts or as otherwise aforesaid and to recover at any time from the Borrower by suit or otherwise the balance remaining payable to the Bank under the said cash credit account or otherwise not withstanding that all or any of the securities may be outstanding and/or may not have been realized."

9. Be it mentioned here that there is absolutely no

dispute on record as to the agreement under Annexure-

3 entered into between the parties. As it appears, the

learned trial Court without having any reference to

Clause 10.3 and 10.5 of the agreement and only

referring to Clause 8.2 of the agreement came to

observe that even if such clause of suit agreement will

be treated as an arbitration agreement within meaning

of Section 7 of the Act, but the said clause does not

authorize the present defendants to raise the dispute

before the Arbitrator. It has been rightly submitted that

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the decisions referred to in the impugned order being in

relation to the provisions of the Act, rather in the light

of the provisions of the Arbitration & Conciliation Act,

1940, have no application to the present case governed

by the new Act, 1996.

10. Although Clause 8.2 authorizes the opposite

party no.1-Bank to adjust, settle and compromise any

dispute by reference to arbitration at the Borrower‟s

cost, yet such enforcement, realization of the amount

and settlement or compromise is without prejudice to

the right and remedies of the Bank of the suit or

otherwise and notwithstanding that there may be a

pending suit or other proceeding. Clause 10.5 of the

agreement appears to be in the same line authorizing

the Bank to recover any time from the Borrower by a

suit or otherwise. The facts remain that there was

option for the Bank in terms of agreement to bring an

action to realize the loan amount if not repaid, by way

of suit. Since the parties appear to have reiterated their

agreement for resolution of their dispute by way of a

suit, and action is already brought by Bank to recover

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the amount in terms of clauses 10.5 and 10.3 of

agreement by exercising the option, refusal to refer the

dispute to an Arbitrator in the impugned order, in the

facts and circumstances of the case, cannot be said to

be in derogation of the statutory provision under

Section 8 of the Act, inasmuch as Clause 8.2 of the

agreement has become insignificant in the face of

Clause 10.3 and 10.5.

11. In view of the aforesaid discussion, the impugned

order being otherwise found to be valid to the extent of

refusal to refer the matter to Arbitrator, the civil

revision must fail.

12. In the result, the Civil Revision stands dismissed.

The impugned order is hereby confirmed.

Urgent certified copy of this order be granted on

proper application.

( S.Pujahari ) Judge MRS