Union Roadways Pvt. Ltd. vs Vinay Cements Ltd. and Others

D. Biswas, J.—In this petition u/s 115 of the Code of Civil Procedure, the Petitioner M/s Union Roadways Pvt. Ltd. has challenged the order dated 8.6.92 passed by the Asstt. to Deputy Commissioner. Shillong in Misc. Arbitration Case No. 78(T) of 1991 inviting the parties "to suggest name of arbitrator or to suggest modalities to make the appointment" for the purpose of referring them to arbitration.

I have heard Mr. B.N. Sarma, learned Counsel for the Petitioner and Mr. R. Choudhury, learned Counsel for the Respondent No. 3 None appeared for Respondent Nos. 1 and 2.

The controversy precisely relates to claim and counter-claim of amount due between the parties out of contract entered into by M/s Vinay Cements Limited, the principal Opp. Party and M/s Union Roadways (P) Ltd. on 8.12.1988 for transportation of materials from various places in India to the plant of M/s Vinay Cements at Umrangshu in N.C. Hills District in the State of Assam and to Shillong in the State of Meghalaya. Para 22 of the agreement contains an aribtration clause which reads "The arbitration shall be as per India Arbitration Act and jurisdiction shall be Shillong." M/s Union Road-ways raised certain claims alleging non-payment of dues and served a notice through their counsel M/s Murthi & Vasan vide letter No. M & V./UR/111/91 dated 5th March, 1991.1n reply, the principal opposite party M/s. Vinay Cements Limited vide letter dated 26.4.91 asked them (M/s Union Roadways) to settle the account within one month. As there was no response, the principal opposite party (M/s Vinay Cement) issued a notice under provisions of the Arbitration Act, 1940 on 8.6.91 as was then in force. M/s Union Roadways(P) Ltd. vide letter dated 20.6.91 termed the invocation of arbitration clause as illegal on the ground that there was no dispute at all.

At the outset it is necessary to reiterate the principles of law that this Court in exercise of its powers u/s 115 of the CPC can interfere with an order only when it is shown that the Courts below have exercised a jurisdiction not vested in it or have failed to exercise its jurisdiction illegally or with material irregularity and the impugned order, if allowed to stand, would occasion a failure of justice or cause an irreparable injury to the party against whom it was made.

The learned Counsel assailed the order mainly on the ground that there is no clause for referring an dispute to the arbitration as alleged, by the opposite party and that the petition is not maintainable in law. In support of his contention, the learned Counsel also relied upon the decisions in Union of India, Petitioner v. M/s Dev and Company, Shillong, Opposite party AIR 1978 Gau 91 , and in Union of India (UOI) Vs. A.L. Rallia Ram,

The ratio laid down in M/s Dev and Company is reproduced below:

Section 8(1) makes provision for appointment of an arbitrator or arbitrators by consent of parties where such a stipulation has been made in the arbitration agreement itself (Clause (a)) or when the parties or arbitrators do not appoint an umpire as required (clause (b)) or when the arbitrator or umpire refuses or neglects to act or cannot act for some reasons (clause (c)). In such a situation only the jurisdiction of the Court can be invoked under Sub-section (2).In the instant case it has not been so stipulated in the arbitration agreement. So, Sub-section (1) of Section 8 is not attracted to the present case. Sub-section (2) is attracted only when Sub-section (1) is attracted.

The question of appointment of arbitrator within 15 days after the service of notice, therefore, does not arise. Sub-section (2) is consequential to the operation of Sub-section (1). The power of the court under Sub-section (2) cannot be invoked if sub-section (1) is not applicable. In the instant case there is no consent of the parties in terms of Clause (a) of Sub-section (1) of Section 8 of the Act.

In Rallia Ram(supra), the Supreme Court held:

The authority of an arbitrator depends upon the authority conferred by the parties by agreement to refer their differences to Arbitration. By Section 2(a) of the Arbitration Act 1940 "arbitration agreement" means ''a written agreement to submit present and future differences to arbitration, whether an arbitrator is named therein or not." A writing incorporating a valid agreement to submit differences to arbitration is therefore requisite : it is however not a condition of an effective arbitration agreement that it must be incorporated in a formal agreement executed by both the parties thereto, nor it is required to be signed by the parties. There must be an agreement to submit present or future differences to arbitration, this agreement must be in writing, and must be accepted by the parties.

There cannot be any dispute to the above proposition of law enunciated by the Apex Court. The provisions of Section 8 of the Arbitration Act could be invoked only when there is a stipulation incorporated in the agreement for referring any dispute that may arise out of the contract to arbitration. That apart, it is also necessary to put on record mat where one of the parties to the arbitration agreement refuses to agree to the appointment of an arbitrator as per terms of arbitration clause, the other party has the option to move the Court either u/s 8 or Section 20 of the Act. A petition u/s 8 cannot be rejected and relief denied merely on the ground that Section 20 was perhaps more appropriate.

Therefore, it has to be seen whether there is an arbitration clause in the agreement alleged to have been entered into by the parties and the Court at Shillong is competent to entertain the petition. Paragraph 22 of the agreement dated 8th December, 1988 reads as follows:

The arbitration shall be as per Indian Arbitration Act, 1940 and jurisdiction shall be Shillong.

The document in which the above clause is contained appears to be an order issued on 8.12.88 for transportation of materials from various places in India at Vinay Cement''s plant at Umrangshu, on the authority of this clause, the principal opposite party M/s. Vinay Cements Limited acted upon and issued the notice dated 8.6.91. In the objection petition dated 25.2.92, filled by the Petitioner M/s Union Roadways Limited, the existence of an arbitration agreement has not been denied. In reply to the notice under the Indian Arbitration Act, 1940, the Petitioner vide letter dated 20th June, 1991 objected to the invocation of arbitration clause in the following words:

We refer to your letter dated 8.6.91 and are surprised to note the contents. The invocation of Arbitration Clause is illegal and invalid. One can invoke the arbitration clause only when there is an existing dispute in terms of arbitration. In our case there is absolutely no dispute regarding the amount due to us. In this connection, we refer to you to your letter dt. 7.8.89 to M/s Entech Consultancy Bureau and their reply dt. 12.12.90 to you. Wherein it is stated that the accounts have been finalished and the net amount shown after all possible deductions is Rs. 2,76,547.85. Therefore, there is no question of any further documents or deductions or dispute. Therefore, as you can see as there is no existing dispute at all between us no reference can be made to arbitration. We, therefore, request you to send us your reply and payment.

From the aforesaid reply given by the Petitioner it would appear that the arbitration agreement has not been denied by them. What is disputed in the said letter is the existence of a dispute in terms of the arbitration. Therefore, from the arbitration clause quoted above and the reply given by the Petitioner, this Court can come to the conclusion that there was an agreement between the parties to refer any dispute that may arise out of the contract to arbitration. There being no mention of the number of arbitrators, it has to be presumed that the parties intended to refer the dispute to the sole arbitrator.

The learned court below after hearing both the parties passed the impugned order inviting mem to suggest the name of arbitrator. This order has been passed by the learned court below mainly on his finding mat there is an arbitration clause in the agreement entered into by the parties and that mere is a dispute between the parties regarding payment. There is no scope to review this decision on merit while exercising powers u/s 115 of Code of Civil Procedure.

The learned Counsel for the Petitioner raised the question of jurisdiction of the court below. In the objection petition dated 25.2.92 the opposite party M/s Union Road Ways Ltd. objected to the maintainability of the proceedings u/s 8/20 of the Act of 1940 and urged the Court to record decision thereon before formal objection is filed. The challenge of jurisdiction of the court below u/s 8/20 of the Act of 1940 otherwise means a challenge to the territorial jurisdiction of the Court. But, the learned Assistant to the Deputy Commissioner/Asstt. District Judge in a most perfunctory manner without reference to the question of territorial jurisdiction decided that the court was competent to entertain and dispose of the petition.

Various clauses of agreement dated 8.12.1988 show that the contract was for carrying different materials from various places in India to Umrangshu in the district of North Cacher Hills in the State of Assam. A close examination of the agreement dated 8.12.1988 shows that no material was intended to be delivered at Shillong. On this context let us examine the maintainability of the petition in the Court at Shillong.

Section 2(C) of the Arbitration Act, 1940 which is to govern this case, defines ''Court''. It reads as follows:

2.

(c) ''Court'' means a Civil Court having jurisdiction to decide the question 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 proceeding u/s 21, includes a small cause court;

It would appear from the said definition that the jurisdiction of a Civil Court to decide an arbitration petition is co-extensive with its jurisdiction over the subject-matter. In the instant case, the Civil Courts at Shillong do not appear to have jurisdiction to decide the questions relating to the subject-matter as the materials were not intended to be carried for delivery at Shillong.

Section 15 to 20 of the CPC deal with the place of suing. Neither Section 19 nor Section 20 of the Code permit institution of the proceeding at Shillong in the given circumstances of the case at hand as there is nothing on record to show that the opposite party M/s Union Roadways has its office or carries on business at a place within the jurisdiction of the Courts at Shillong.

So far the second part of the clause at para 22 is concerned, it would appear that the agreement by the parties to confer jurisdiction on the courts at Shillong is contrary to the provisions contained in Section 19 and 20 of the Code. The law in this regard is well settled. The parties to an agreement cannot confer jurisdiction on a court to entertain a suit or any proceeding which the said Court does not possess under provisions of the Code. Therefore, the agreement conferring jurisdiction to the court at Shillong as contained in para 22 of the agreement/order dated 8.12.1988 is of no consequence.

The discussion above leads to inevitable conclusion that the learned court below did not deal with the question of jurisdiction in its proper perspective and disposed of the matter in its entirety without affording any opportunity to the Opp. party M/s Union Roadways Ltd. to file formal objection. This would have otherwise been a fit case for remand for disposal afresh, but because of the finding in respect of jurisdiction of the Court below it is proposed to allow this petition u/s 115 of the code with a direction to the learned court below to return the petition to the principal Opp. Party M/s Vinay Cement Ltd. to present it before the Civil Court of competent jurisdiction, if they so decide.

This revision petition is accordingly allowed with costs. The impugned order dated 8.6.92 is hereby set aside with the direction to the learned court below to act as per observation made above.