Rajasthan High Court - Jodhpur

Rathi Steel And Power Limited vs Raj Lime Products on 6 May, 2022

Bench: Vijay Bishnoi

HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR S.B. Civil Writ Petition No. 3358/2022 Rathi Steel And Power Limited, A-3, Industrial Area, South Of G.t. Road, Ghaziabad - 201009 (U.p.) Through Its Authorised Representative Sh. Satyapal S/o Shri Ram Pareah About 64 Years R/o D/2/ Nand Nagri Delhi93.

----Petitioner Versus Raj Lime Products, 2, Jalam Vilas Scheme Paota-B Road, Jodhpur (Raj) Through Its Partner Sh. Narpat Singh S/o Shri Ram Baksh.

                                                                    ----Respondent


For Petitioner(s)          :     Mr. Subhash Chawla


            HON'BLE MR. JUSTICE VIJAY BISHNOI
                          Order

06/05/2022

This writ petition (under Article 227 of the Constitution of

India) is filed by the petitioner being aggrieved with the order

dated 02.12.2021 passed by the learned Commercial Court,

Jodhpur (hereinafter to be referred as 'the trial court') whereby,

two applications preferred by the petitioner under Sections 65 and

66 of the Indian Evidence Act and under Order 18 Rule 17 C.P.C.

respectively have been dismissed.

Brief facts of the case are that the respondent herein filed a

suit under the provisions of Order 37 C.P.C. for recovery of a sum

of Rs.37,71,943/- against the petitioner. After service of

summons, the petitioner-defendant put in appearance and filed an

application under Section 8(1) of the Arbitration and Conciliation

Act, 1996 (hereinafter to be referred as 'the Act of 1996') before

the Addl. Distt. Judge No.2, Jodhpur Metro (for short 'the court

below') for referring the parties to arbitration claiming that there

is an arbitration agreement between the parties. The said

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application was objected by the respondent-plaintiff before the

court below, however, the same was dismissed vide order dated

23.08.2018.

Being aggrieved with the order dated 23.08.2018 passed by

the court below, the petitioner-defendant preferred S.B. Civil Misc.

Appeal No.3353/2018 before this Court, however, a Coordinate

Bench of this Court has dismissed the said appeal vide judgment

dated 04.01.2019 and affirmed the order dated 23.08.2018

passed by the court below.

It appears that against the judgment dated 04.01.2019

passed by the Coordinate Bench of this Court, the petitioner had

preferred a Special Leave Petition before the Hon'ble Supreme

Court, which came to be dismissed as withdrawn with liberty to

the petitioner to file a review petition before this Court. As per

counsel for the petitioner, the petitioner has already preferred

review petition before this Court which is pending consideration.

On 02.03.2021, the petitioner preferred two applications

before the trial court, one was under Sections 65 and 66 of the

Indian Evidence Act with a prayer to allow him to lead secondary

evidence regarding the existence of purchase order dated

31.05.2013 (containing arbitration agreement on the back side)

and another was under Order 18 Rule 17 C.P.C. with a prayer to

summon the plaintiff for further cross-examination by him.

The trial court after hearing the counsel for the parties has

dismissed both the applications while observing that so far as the

question regarding the existence of arbitration agreement

between the parties is concerned, the same has already been

decided by the trial court on 24.12.2018 while deciding the

application under Section 8 of the Act of 1996, which later on was

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affirmed by the High Court also and, therefore, there is no

requirement for the trial court to decide the said issue further and

in such circumstances, the prayer of the petitioner to lead

secondary evidence in respect of the arbitration agreement cannot

be granted. While observing this, the trial court has also dismissed

the application under Order 18 Rule 17 C.P.C. and rejected the

prayer of the petitioner for re-summoning the plaintiff for further

cross-examination.

Assailing the order dated 02.12.2021, learned counsel for

the petitioner has argued that the trial court has grossly erred in

rejecting both the applications filed by the petitioner. Learned

counsel has submitted that after rejection of the application under

Section 8(1) of the Act of 1996, the trial court itself framed an

additional issue No.5A on 19.09.2019 pertaining to the arbitration

agreement between the parties.

Learned counsel for the petitioner has also argued that when

the trial court itself has framed an additional issue pertaining to

the arbitration agreement between the parties, the rejection of the

application filed by the petitioner under Sections 65 and 66 of the

Indian Evidence Act as also the application under Order 18 Rule

17 C.P.C. is illegal and on this count alone, the impugned order is

liable to be set aside. Learned counsel has also submitted that the

trial court has ignored the issue regarding existence of arbitration

agreement between the parties and the same issue is required to

be decided as first issue and cannot be postponed to a future

date.

Learned counsel for the petitioner while inviting my attention

towards the order dated 23.8.2018 passed by the court below,

whereby the application filed by the petitioner under Section 8(1)

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of the Act of 1996 has been dismissed, has submitted that in the

aforesaid order, the court below has clearly observed that the

question regarding the existence of arbitration agreement

between the parties will be decided at a later stage.

In support of the above contentions, learned counsel for the

petitioner has placed reliance on a decision dated 10.03.2021

passed by a Division Bench of this Court in D.B. Civil Misc.

Appeal No.250/2019 - Rathi Steel And Power Limited vs.

Shri Ram Lime Products Pvt. Ltd. Learned counsel has also

placed reliance on the decision of the Hon'ble Supreme Court

rendered in the case of Pravin Electricals Pvt. Ltd. vs. Galaxy

Infra and Engineering Pvt. Ltd (Civil Appeal No.825/2021).

Heard learned counsel for the petitioner and perused the

material available on record.

Vide order dated 23.08.2018, the court below has rejected

the application filed by the petitioner under Section 8(1) of the Act

of 1996 while observing that no arbitration agreement between

the parties exists. This Court vide judgment dated 04.01.2019

while examining the order dated 23.08.2018 passed by the court

below has dismissed S.B. Civil Misc. Appeal No.3353/2018

(Rathi Steel & Power Limited vs. M/s Raj Lime Product)

preferred by the appellant, operative portion whereof, reads as

under :

"A bare reading of Section 8 of the Act makes it abundantly clear that its language is peremptory in nature. Therefore, in cases where there is an arbitration clause in the agreement, it is obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement. Furthermore, it is also expected of the Court not to decide anything in the original action after such an application is made but for to refer

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the dispute to an Arbitrator. However, the application under Section 8(1) of the Act can only be entertained when it is accompanied by original arbitration agreement or a duly certified copy thereof. Sub-section (2) of Section 8 makes it abundantly clear that for entertaining an application under sub-section (1) filing of original arbitration agreement or duly certified copy thereof with it is sine qua non.

From a bare perusal of the impugned order, it is crystal clear that the appellant has not produced either original copy of the agreement or its certified copy along with the application under Section 8(1) of the Act. It is also noteworthy that Section 7 defines arbitration agreement. Sub-section (3) of Section 7 postulates that an arbitration agreement shall be in writing and clause (a) of sub-section (4) further mandates that the document is required to be signed by the parties. Besides clause

(a) of sub-section (4) of Section 7 of the Act, arbitration agreement can also be construed under certain contingencies by invoking clause (c) of sub-section (4) of Section 7. In order to constitute an arbitration agreement under Section 7(4)(c) of the Act, the basic requirement is statement of claim containing a specific allegation about existence of an arbitration agreement by applicant and non-denial thereof by other party.

By relying on Section 7(4)(c) of the Act, Supreme Court, in M/s. Caravel Shipping Services Pvt. Ltd. (supra), made following observations:

"In addition, we may indicate that the law in this behalf, in Jugal Kishore Rameshwardas v. Mrs. Goolbai Hormusji, AIR 1955 SC 812, is that an arbitration agreement needs to be in writing though it need not be signed. The fact that the arbitration agreement shall be in writing is continued in the 1996 Act in Section 7(3) thereof. Section 7(4) only further adds that an arbitration agreement would be found in the circumstances mentioned in the three sub-clauses that make up Section 7(4). This does not mean that in all cases an arbitration agreement needs to be signed. The only prerequisite is that it be in writing, as has been pointed out in Section7(3)."

In Patel Engineering Ltd. & Ors. (supra), it was observed by 7 Judge Bench of the Supreme Court that once matter reaches arbitral Tribunal or sole arbitrator, High Court would not

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interfere with the orders passed by Arbitrator or arbitral Tribunal during the course of arbitration proceedings and parties can approach the Court only in terms of Section Section 37 or in terms of Section 34 of the Act. That apart, the Court also held:

"(ix) In a case where an arbitral tribunal has been constituted by the parties without having recourse to Section 11(6) of the Act, the arbitral tribunal will have the jurisdiction to decide all matters as contemplated by Section 16 of the Act."

Likewise, Bombay High Court in Ian Exchange (India) Ltd.

(supra) has held that summary procedure provided in Order XXXVII to certain suits cannot be left out of the purview of Section8(1) of the Act. Same view is also reiterated by Delhi High Court in M/s. Novelty Jewellers (supra).

While concurring with the ratio decidendi of the judgments referred to above, it may be observed here that in the instant case the very existence of arbitration agreement between the rival parties is not forthcoming and same is also not discernible even by invoking Section 7(4)(c) of the Act. Therefore, the observations made by the Supreme Court in M/s. Caravel Shipping Services Pvt. Ltd. (supra) about non-signing of the arbitration agreement by the parties, cannot be read in isolation to the observations made in two preceding paras, which read as under:

"Having heard learned counsel for both parties, we are of the view that the Bill of Lading makes it clear that the term "Merchant" (which is defined in the Standard Conditions Governing Multimodal Transport Documents - Clause(1)(e) as meaning shipper,consigner or consignee) expressly agrees to be bound by all the terms, conditions, clauses and exceptions on both sides of the Bill of Lading whether typed, printed or otherwise. The arbitration clause, which is Clause 25 being a printed condition annexed to the Bill of Lading, reads as under:

"25.Jurisdiction/Arbitration:

The contract evidenced by the Bill of Lading shall be governed by the laws of India, and subject to the exclusive jurisdiction of court in Chennai only. Disputes/difference arising out of this contract and/or connection with the interpretation of any of its clauses shall be settled by arbitration in India in accordance with the Arbitration & Conciliation Act, 1996. The No. Of Arbitrators shall be three, the Arbitrators shall be

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commercial persons the venue for arbitration shall be Chennai."

A perusal of the same shows that the respondent has expressly agreed to be bound by the arbitration clause despite the fact that it is a printed condition annexed to the Bill of Lading. Secondly, it must be remembered that the respondent has itself relied upon the Bill of Lading as part of its cause of action to recover the sum of Rs.26,53,593/- in the suit filed by it. The respondent, therefore, cannot blow hot and cold and argue that for the purpose of its suit, it will rely upon the Bill of Lading (though unsigned) but for the purpose of arbitration, the requirement of the Arbitration Act is that the arbitration clause should be signed."

That apart, the learned Court below has also non-suited appellant for non-compliance of mandatory provisions contained under Section 8(2) of the Act. Section 8 of the Act envisages with clarity and precision that for referring parties to arbitration, it is absolutely essential that there should be an agreement between parties. Reliance in this behalf can be placed on a judgment of Supreme Court in case of Atul Singh & Ors. Vs. Sunil Kumar Singh & Ors. [(2008) 2 SCC 602]. Moreover, the respondent has set out a case of fraud in order to wriggle out of the arbitration agreement. The case of fraud set out by the respondent is also strengthened due to non-filing of original arbitration agreement or certified copy thereof by the appellant and therefore in this behalf the observations made by Supreme Court in A. Ayyasamy (supra) are also relevant, which read as under:

"In view of our aforesaid discussions, we are of the opinion that mere allegation of fraud simplicit or may not be a ground to nullify the effect of arbitration agreement between the parties. It is only in those cases where the Court, while dealing with Section 8 of the Act, finds that there are very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated that it becomes absolutely essential that such complex issues can be decided only by Civil Court on the appreciation of the voluminous evidence that needs to be produced, the Court can sidetrack the agreement by dismissing application under Section 8 and proceed with the suit on merits. It can be so done also in those cases where there are serious allegations of forgery/fabrication of documents in support of the plea of fraud or where fraud is alleged against the arbitration provision itself or is of such a nature that permeates the entire contract, including the

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agreement to arbitrate, meaning thereby in those cases where fraud goes to the validity of the contract itself of the entire contract which contains the arbitration clause or the validity of the arbitration clause itself. Reverse position thereof would be that where there are simple allegations of fraud touching upon the internal affairs of the party inter se and it has no implication in the public domain, the arbitration clause need not be avoided and the parties can be relegated to arbitration. While dealing with such an issue in an application under Section 8 of the Act, the focus of the Court has to be on the question as to whether jurisdiction of the Court has been ousted instead of focusing on the issue as to whether the Court has jurisdiction or not. It has to be kept in mind that insofar as the statutory scheme of the Act is concerned, it does not specifically exclude any category of cases as non-arbitrable. Such categories of non-arbitrable subjects are carved out by the Courts, keeping in mind the principle of common law that certain disputes which are of public nature, etc. are not capable of adjudication and settlement by arbitration and for resolution of such disputes, Courts, i.e. public fora, are better suited than a private forum of arbitration. Therefore, the inquiry of the Court, while dealing with an application under Section 8 of the Act, should be on the aforesaid aspect, viz. whether the nature of dispute is such that it cannot be referred to arbitration, even if there is an arbitration agreement between the parties. When the case of fraud is set up by one of the parties and on that basis that party wants to wriggle out of that arbitration agreement, a strict and meticulous inquiry into the allegations of fraud is needed and only when the Court is satisfied that the allegations are of serious and complicated nature that it would be more appropriate for the Court to deal with the subject matter rather than relegating the parties to arbitration, then alone such an application under Section 8 should be rejected."

The learned Court below, in my considered opinion, has examined the matter threadbare while passing the impugned order and recording its finding about non-compliance of Section 8(2) of the Act besides observing that existence of arbitration agreement between the parties itself is neither visible nor traceable in the backdrop of facts and circumstances of the case. Therefore, in my view, impugned order passed by the learned Court below requires no interference in exercise of appellate jurisdiction.

Resultantly, the appeal fails and same is hereby rejected."

(Emphasis Supplied)

It is not in dispute that the challenge of the petitioner to the

judgment dated 04.01.2019 passed by this Court in S.B. Civil

(9 of 9) [CW-3358/2022]

Misc. Appeal No.3353/2018 (Rathi Steel & Power Limited

vs. M/s Raj Lime Product) is also failed as the Special Leave

Petition against the aforesaid judgment has been dismissed by the

Hon'ble Supreme Court as it was withdrawn by the counsel for the

petitioner while granting liberty to him to prefer a review petition.

Learned counsel for the petitioner though submitted that the

review petition is pending consideration, but the fact remains that