Habri Janta Co-operative Society vs Haryana State

D.S. Tewatia, J.—This appeal arises out of a suit for recovery of Rs. 45986/- instituted by the plaintiff-appellant against the State of Haryana.

The amount in question was claimed by the plaintiff on account of having executed certain contracts of earthwork.

Primarily the question for determination in this appeal is as to whether the plaintiff was competent to bring the present suit for recovery of the amount in question during the pendency of arbitration proceedings between the parties regarding the said amount.

To appreciate the above said proposition, a few relevant facts having bearing thereon may now be noticed. The parties had entered into a contract for execution of certain earthwork. In the contract there was a clause for referring to arbitration any dispute arising thereunder. A dispute regarding payment having arisen between the parties, the matter was referred to the arbitrator for decision. While the dispute was yet pending before the arbitrator, the plaintiff filed the present suit for recovery of the above said amount.

The respondent State resisted the suit inter alia, on the ground that Civil Court had no jurisdiction in the matter and this plea gave rise to the following issue which happens to be the only issue, the decision of the trial Court on which has been challenged before me :--

Whether the Civil Court has no jurisdiction to try this suit.

The trial Court dismissed the suit on the ground that in view of the matter already pending before the arbitrator, the civil Court had no jurisdiction.

The argument advanced before it, to the effect that the moment the civil proceedings were launched regarding the matter which was pending before the arbitrator, the jurisdiction of the arbitrator to proceed further came to an end, was disposed of by the trial Court with the following observations :--

That he has not cited any law or authority on the point. If this argument were to be accepted, one party could at once file a suit and get out of agreement containing the arbitration clause. That does not appear to be the scheme of the Arbitration Act. Vide preamble of the Act, this Act is a complete code on the procedure of arbitration.

A perusal of the above observations of the learned trial Judge would show that he completely lost light of the provisions of section 35 of the Arbitration Act which is in the following terms :

35(1) No reference nor award shall be rendered invalid by reason only of the commencement of legal proceedings upon the subject matter of the reference, but when legal proceedings upon the whole of the subject-matter of the reference have been commenced between all the parties to the reference and a notice thereof has been given to the arbitrators or umpire, all further proceedings in a pending reference shall, unless a stay of proceedings is granted u/s 34, be invalid.

(2) In this section the expression ''parties to the reference'' includes any persons claiming under any of the parties and litigating under the same title.

A persual of the above provisions of section 35 or the Arbitration Act reveals that the legislature while enacting this provision not only presupposed the existence of a right to initiate valid civil proceedings, but also underlined the fact that such proceedings had enjoyed priority over the arbitration proceedings pending or in the offing, and sought to save them from being rendered invalid inter alia only in the contingency where the legal proceedings did not either cover the entire subject-matter under reference with the arbitrator or the arbitrator had no notice of the said proceedings.

The matter is not res integra. Such a question arose in Ram chand Gurdasmal v. Gobindram Gurdasmal AIR 1920 Sind 124, in which the subject-matter of dispute was already under reference to the arbitrator and during the pendency of such arbitration proceedings; civil proceedings were initiated. It was held therein that where the parties to a dispute agreed to refer the matters in dispute to arbitration, the fact that the arbitration proceedings were pending was no bar to the entertainment of a suit relating to the matters referred to arbitration. The defendant''s remedy in such a case was to apply for the stay of the suit and if he failed to (sic) so, the Court could proceed to adjudicate upon the matters covered by the reference.

Above is the view with which I find myself in respectful agreement. In this view of the matter, the trial Court was clearly in error in holding that during the pendency of the arbitration proceedings jurisdiction of the civil court to try the same subject-matter stands ousted. I, therefore, allow this appeal, set aside the judgment and decree of the trial Court and remand the case for decision on merit. Parties are directed to appeal before the trial Court on April 10, 1973.