Nayaz Ahmed Sheriff and others vs Zahoor Ahmed Sheriff and others

At the stage of admission respondents have entered appearance. Therefore, the petition is admitted and it is heard for final disposal.

Respondents 1 to 3 are the plaintiffs in O.S. No. 45 of 1989 on the file of the learned Vacation District Judge, Hassan and respondents 4 and 5 are the defendants 7 and 8 respectively in the said suit. Petitioners are defendants 1 to 6 in the said suit. After the vacation the suit now stands transferred to the file of Munsiff, Hassan and it is numbered as O.S. No. 20 of 1990.

This Civil Revision Petition is preferred against the Order dt. 30th Dec. 1989 passed by the learned Vacation District Judge, Hassan in O.S. No, 45 of 1989 (old number) rejecting I.A. No. III filed by defendants 1 to 6 in the suit. Defendants I to 6 filed I.A. No. III under O. VII R. 11 of the Civil P.C. to reject the plaint on the ground that the suit is barred by Ss. 32 and 33 of the Arbitration Act 1940 and S. 14(2) of the Specific Relief Act 1963. Learned counsel for the petitioners Sri Sridharan submits that the learned Judge has failed to consider the contentions raised in the application and has wrongly placed reliance on S. 34 of the Arbitration Act 1940 and rejected the application. The learned trial Judge has held that, as the defendants in the suit took time in filing a written statement, they must be deemed to have taken steps in the suit, and hence objections raised are not tenable as the suit is the one for permanent injunction. Of course, the learned trial Judge has not considered the scope and effect of Ss.32 and 33 of the Arbitration Act and S. 14(2) of the Specific Relief Act and as to whether in the light of the provisions contained therein the suit in question can be maintained by the plaintiffs. As it is a pure question of law, it is not necessary to remit the matter for considering the same by the trial Judge. Therefore, the contentions raised in the application -- I.A. No. III filed before the trial Court are heard by me.

It is relevant to notice that the present suit is the one for permanent injunction. The relief sought for in the plaint are as follows :

"Wherefore, for the foregoing reasons, the plaintiffs most respectfully pray that the Hon''ble Court be pleased to pass judgment and decree of permanent injunction in favour of the plaintiffs and against the defendants I to 6 restraining them from the plaintiffs'' peaceful possession and enjoyment of M/s. Sheriff Theatre, Hassan (Imperial Talkies, Hassan) exclusively in pursuance of agreement dt. 21-12-1988 (Twenty-first day of Dec., Eighty Eight) and running the film exhibition business and getting the collected funds by exhibition of films and also from interfering with the administration of the business and its funds by the defendants 1 to 6 in particular and against defendants 7 and 8, who are made as formal parties."

The aforesaid relief is sought on the ground that the plaintiffs are in possession of the suit theatre and they are entitled to manage it, and the defendants are not entitled to interfere with their management having regard to the terms of the agreement dt. 21-12-1988. The contentions of the petitioners (defendants 1 to 6 in I.A. No. III) are that the suit property in question is the property of the partnership consisting of plaintiff No. 1 and defendants 1 to 8, and plaintiffs 2 and 3 are strangers and they have nothing to do with the partnership: that as per the terms of the partnership deed any dispute arising between the partners has to be settled by way of arbitration; and that therefore the present suit, which relates to disputes among the partners pertaining to partnership is barred by Ss. 32 and 33 of the Arbitration Act and S. 14(2) of the Specific Relief Act.

As already pointed out, the present suit is only for permanent injunction. It is not a i suit seeking a decision of the court upon the existence, effect or validity of an arbitration agreement or award nor it is a suit to enforce an arbitration agreement or award or to set aside the same or to have the same modified. It is also not a suit in which the existence or validity of the arbitration agreement or award is challenged. Therefore, the suit is not hit by Ss. 32 and 33 of the Arbitration Act, 1940. Sri Sridharan, learned counsel for the petitioners placed reliance on a decision of the Supreme Court in Jawahar Lal Burman Vs. Union of India (UOI), . It is relevant to notice that the said decision did not arise out of a suit. That was a case in which arbitration proceeding was going on between the parties and during the pendency of that arbitration proceeding an application was filed before the Court under Ss. 32 and 33 of the Arbitration Act, and the court held that a suit seeking such a relief is not maintainable and an application is a proper remedy, as Ss. 32 and 33 of the Arbitration Act are enacted with the sole object of bringing the relevant disputes for decision before the specified court in the form of a petition and a remedy by a regular suit is intended to be excluded Paragraphs 6, 7 and 8 of the judgment, which are relevant are as follows :

"(6) In appreciating the effect of these two provisions it would be relevant to remember that the object of the Legislature in enacting the two sections quite clearly was to prevent the abuse of the process of the Court. Before the present Act was passed experience showed that unscrupulous and dishonest parties to the arbitration agreements frequently chose to deny the existence of the said agreements even after the arbitration proceedings had concluded and ended in awards and that tended to make ail arbitration proceedings futile. More often than not these pleas ultimately tailed but it meant considerable delay and waste of time and substantial expense. That is why Ss. 32 and 33 have been enacted with the object of bringing the relevant disputes for decision before the specified Courts in the form of petitions. It is significant that under S. 31(2) of the Act all questions regarding the validity, effect or existence of an award or an arbitration agreement between the parties to the agreement or persons claiming under them shall be decided by the Court in which the award under the agreement has been, or may be, filed, and by no other Court. Indeed, S. 2(c) defines a Court as meaning a Civil Court having jurisdiction to decide the questions forming the subject-matter of the reference if the same had been the subject-matter of a suit, but does not, except for the purpose of arbitration proceedings under S. 21, include a Small Cause Court. Therefore, stated broadly, it would be correct to assume that be main object of introducing the new provisions of Ss. 31, 32 and 33 was to entrust the decision of the relevant disputes to the specified Court and to require the parties to bring the said disputes for the decision of the said Court in the form of petitions. Remedy by a regular suit is intended to be excluded.

(7) Section 32 creates a bar against the institution of suits and it provides that if he existence, effect or validity of an arbitration agreement or award is in dispute on any ground whatsoever no suit shall lie for the adjudication of the said dispute. It also provides that no suit shall lie to set aside, amend or modify or in any way affect an arbitration agreement or an award. It would be noticed that the clause "on any ground whatsoever'' is very wide and it denotes, inter alia, that if the existence or validity of an arbitration agreement is questioned on any ground whatever it cannot be the subject-matter of a suit; the said dispute shall be tried as provided in this Act. Thus, there can be no doubt that if a party affirms the existence of an arbitration agreement or its validity it is not open to the party to file a suit for the purpose of obtaining a declaration about the existence of the said agreement or its validity. Such a suit in terms is barred by S. 32. This position is not disputed. The bar to the suit thus created by S. 32 inevitably raises the question as to what remedy it is open to a party to adopt in order to obtain an appropriate declaration about the existence or validity of an arbitration agreement; and it is on the decision of this question that the parties are at issue before us.

(8) Before answering this question we may conveniently consider the scope of S. 33 and its effect. Section 33 consists of two parts. The first deals with a challenge to the existence or validity of an arbitration agreement or an award, and it provides that the persons therein specified can apply to the Court to have a decision on its challenge to the existence or validity of an arbitration agreement or an award. In other words, there is no doubt that it is only persons who challenge the existence of the arbitration agreement that can apply under the first part of S. 33. This position is also not disputed. The second part of the section refers to applications made to have the effect of either the arbitration agreement or the award determined. The question which we have to consider is whether a person affirming an arbitration agreement can apply under the latter part of S. 33. Even assuming that the requirement that an application can be made under the first part of S. 33 only by persons desiring to challenge the arbitration agreement does not apply to its latter part, it is difficult to hold that an application to have the effect of the arbitration agreement determined can legitimately cover the dispute as to the existence of the said arbitration agreement. It is clear that the first part of S. 33 refers to the existence or validity in terms and Ss. 31 and 32 also refer separately to the existence, effect or validity. Therefore, the effect of an arbitration agreement is treated as distinct from the existence of the agreement, and where it was intended to refer to the existence as well as the effect of such an agreement both the words "existence and effect" have been specifically used. Thus, under the latter part of S. 33 and application can be made to have the effect or purport of the agreement determined but not its existence. That means that an application to have the effect of the agreement can be made provided the existence of the agreement is not in dispute. Besides, if a person affirming the existence of an agreement is held entitled to apply to the Court under the latter part of S. 33 for getting a declaration about the said existing agreement then the first part of S. 33 would be wholly superfluous. Therefore, it seems to us that a party affirming the existence of an arbitration agreement cannot apply under S. 33 for obtaining a decision that the agreement in question exists. In fairness we ought to add that the learned Solicitor General, who appeared for the respondent, did not dispute this position."

(underlining supplied)

Therefore, it is not possible to apply the aforesaid decision of the Supreme Court to the case on hand. The present case is the one in which the suit is filed for permanent injunction which does not fall under S. 32 or S. 33 of the Arbitration Act.

As far as S. 14(2) of the Specific Relief Act, 1963 is concerned, no doubt it states that "Save as provided by the Arbitration Act, 1940, no contract to refer present or future differences to arbitration shall be specifically enforced; but if any person who has made such a contract (other than an arbitration agreement to which the provisions of the said Act apply) and has refused to perform it, sues in respect of any subject which he has contracted to refer, the existence of such contract shall bar the suit." Opening words of sub-sec. (2) of S. 14 of the Specific Relief Act are very material which clearly say that ''save as provided by the Arbitration Act, 1940''. Therefore, if a party to the arbitration clause files a suit, whether such a suit is to be maintained or not depends upon conduct of the other side, and the provisions contained in the Arbitration Act. In such a situation, parties setting up an arbitration agreement are required to raise objections based upon the arbitration agreement before they take steps in the suit. S. 34 of the Arbitration Act provides that, if a party raises objections based upon the arbitration agreement before taking any steps, in such an event, a suit relating to the subject-matter of which can form the arbitration proceeding shall have to be stayed by the Court. But in the present case, petitioners did not raise such an objection immediately on their appearance in the suit. In fact, petitioners filed a caveat and that caveat came up for orders on 20th Dec. 1989. The suit was also filed on 20th Dec. 1989. Regarding steps taken by the defendants in the suit, the learned trial Judge has referred to the memo filed by the defendants. Relevant portion of the order of the trial Court in this regard is material and it is necessary to refer to the same. In para 4 of the order the learned trial Judge has stated thus:

"In the instance case also a plain reading of the order sheet discloses that a caveat petition under S. 148A, C.P.C. was filed and the counsel appearing for the defendants 1 to 6 sought time to file objections and the case was posted to 20-12-1989. On that day the order sheet discloses the counsel for the defendants 1 to 6 filed his appearance and the counsel for defendants 7 and 8 gave an undertaking to file power on behalf of his clients and the counsel for the defendants 1 to 6 filed a memo seeking direction to plaintiff to furnish him with copies of the documents produced by the plaintiff. The memo filed on behalf of the defendants 1 to 6 reads that they sought direction from the Court to plaintiff to furnish them with copies of the documents filed by the plaintiff to the Court in support of the plaint allegation to enable the defendants to verify the documents and to file their written statement."

The learned trial Judge has followed the decision of a Division Bench of this Court in Manjunath V. Jannu Vs. Latha M. Ralkar, On the facts of the present case, the learned trial Judge is justified in applying the principle enunciated in the aforesaid decision.

In The State of Uttar Pradesh and Another Vs. Janki Saran Kailash Chandra and Another, in spite of an arbitration clause, a suit was instituted for the recovery of a sum of Rs. 69,556-27 by way of damages for breach of contract impleading the State of U. P. The suit summons were served on the District Government Counsel, who appeared on 22nd Sept. 1966, filed an appearance slip in the Court and also put in a formal application praying for one month''s time for the purpose of filing the written statement. Accordingly time was granted. However, on 1-10-1966 the District Government Counsel filed an application under S. 34 of the Arbitration Act to stay the suit. The trial Court held that the dispute was subject to arbitration clause and since the State of U. P. had not taken any steps in the suit proceedings and it had also not filed the written statement, the suit was liable to be stayed. Accordingly, the trial Court allowed the application and stayed the suit. However, in the appeal, the High Court allowed the appeal, set aside the order of the trial Court and held that the action of the District Government Counsel in applying for time to file the written statement amounted to taking a step in the proceedings within the meaning of S. 34 of the Arbitration Act. Therefore, it was held that the defendant was disentitled to claim that the suit should be stayed. In the appeal, the Supreme Court held that there was no serious infirmity in the impugned judgment of the High Court and therefore, there was no case for interference under Art. 136 of the Constitution. It was also further held that taking other steps in the suit proceedings connotes the idea of doing something in aid of the progress of the suit or submitting to the jurisdiction of the Court for the purpose of adjudicating the merits of the controversy in the suit. Accordingly, the Supreme Court dismissed the appeal.

Again in The State of Uttar Pradesh and Another Vs. Janki Saran Kailash Chandra and Another, was considered and with reference to the aforesaid case it was held thus:

"The view herein taken not only does not run counter to the view we have taken but in fact clearly supports the view because the pertinent observation is that taking step in the proceeding which would disentitle a party to obtain a stay of the suit must be doing something in aid of the progress of the suit or submitted to the jurisdiction of the Court for the purpose of adjudication of the merits of the controversy in the suit. In other words, the step must necessarily manifest the intention of the party to abandon or waive its right to go to arbitration or acquiesce in the dispute being decided by Court. In fact, the view taken in this case should have quelled the controversy but it continued to figure in one form or the other and that is why we have dealt with the matter in detail."

In the latest decision in Rachappa Gurudappa Bijapur Vs. Gurudiddappa Nurandappa and Others, the earlier decisions of the Supreme Court in Food Corporation of India, AIR 1982 SC 1302 and The State of Uttar Pradesh and Another Vs. Janki Saran Kailash Chandra and Another, have been reiterated and it has been held that the expression ''written statement'' is a term of specific connotation ordinarily signifying a reply to the plaint filed by the plaintiff. The expression ''taking any other steps in the proceedings'' does not mean that every step in the proceedings would come in the way of enforcement of the arbitration agreement. The step must be such as would clearly and unambiguously manifest the intention to waive the benefit of arbitration agreement. It was further held that the time sought to file the written statement was not only the time taken to consider whether written statement should be filed as a defence to the plaint to enter into an arena of controversy but it was time taken to have the matter decided by the suit.

Thus it is clear that the ultimate conclusion arrived at by the trial Judge is correct and it does not call for interference. That being so, no doubt the trial Judge has not considered the application in the manner he was required to consider, but the decision of the trial Judge rejecting I.A. No. III is not disturbed not on the reasons given by the trial Judge but on the reasons stated in this order.

For the reasons stated in this order, the order of the trial Judge rejecting I. A. No. III does not call for interference. Accordingly, the Civil Revision Petition is dismissed.

It is submitted by Sri Sridharan, learned counsel for the petitioner that the learned Munsiff is not granting time to file objections and he is posting the suit day-today. It is not possible to appreciate as to why the trial Court has not granted time to file objections. It is also not necessary to go into this question while dismissing the C.R.P, However, if the petitioners are not granted time by the trial Court, they are granted time till 20th of this month finally for filing objections to the application filed by the plaintiffs for temporary injunction.

Communicate the order immediately.

Petition dismissed.