Bansi Lal vs Haryana Finance Pvt.Ltd.

(1) On may 17, 1966, Bansi Lal, petitioner herein, brought a suit in the court of the District Judge, Jammu, against the respondent, Messrs

Haryana Finance Pt. Ltd. for a mandatory injunction directing the respondent to hand over a new Tata Mercedes Bens chassis No. 312/42 type in

terms of the hire purchase agreement entered into between the parties on June 3o, 1965. The District Judge transferred the suit for disposal in

accordance with law to the Sub Judge (A. D. M.) Jammu. On service of the summons one respondent made an application under S. 34 of the

Arbitration Act (hereinafter referred to as 'the Act') for stay of the suit and reference of the matters in dispute to S. Charanjit Singh, Advocate,

Delhi, the arbitrator designated in the arbitration clause contained in the aforesaid agreement dated June 3o, 1965. The petitioner thereupon made

an application under S. 33 of the Act challenging the validity of the arbitration agreement. The trial court thereupon framed the following issues :

Whether the hire purchase agreement which contains the arbitration clause is invalid, if so, how ? OPP

Is the Plaintiff estopped from raising the plea of invalidity ? O. P. D.

(2) The parties availed of the opportunity allowed to them to adduce evidence in respect of the aforesaid issues, on a consideration where of the

trial court while holding that the petitioner herein was not estopped from raising the plea of the invalidity of the agreement, found that the agreement

was not invalid. It accordingly passed an order dated January 31, 1971, staying the suit and referring the matters in controversy between the

parties for arbitration to the designated arbitrator. Dissatisfied with this order the petitioner herein preferred an appeal to the District Judge, Jammu,

which came to be heard by the Addl. District Judge, Jammu, who upheld the order passed by the trial court. Aggrieved by this order the petitioner

has come up in revision to this court.

(3) Appearing in support of the revision, Mr. J. P. Singh has while making a futile attempt to raise some points which were not taken by the

petitioner in the objections filed by him to the respondent's aforesaid application for stay of the suit and reference of the matters .in dispute to

arbitration urged that the trial court could only stay the aforesaid suit and not refer the matters in dispute between the parties to arbitration. In

support of his contention the learned counsel has relied upon a decision of the Gujrat High Court in Chailal. Vs. Amtatlal, AIR 1963 Gujrat 141,

where it was observed :

Under S. 34 Arbitration Act the court does not make a reference to any arbitrator but merely makes an order staying the proceedings of the suit

so that the parties can comply with the provisions contained in the arbitration agreement. But in cases to which S. 21, which is in Chap. VI is

applicable, that is, where an arbitration agreement is arrived at after the suit has been filed, then the court has to make a reference under S. 23 of

the Act. That is the difference between suits filed after the arbitration agreement and suits in which the arbitration agreement is arrived at after the

suit is filed. The provisions of Chap. VI should be flooded, but where the suit is filed after the arbitration agreement, the provisions of S 54 of the

Act should be followed and where they are followed the provisions of Chap. II would come into operation, after the suit has been stayed.

(4) Mr. Parihar has on the other hand urged that the trial court was fully competent not only to stay the suit but also to refer the matters in

controversy between the patties to arbitration. In support of his contention he has relied upon AIR 1947 Lahore 300.

(5) I have given my careful consideration to the submissions made by the learned counsel for the parties and am of the opinion that the aforesaid

contention of the learned counsel for the petitioner is well founded and mint prevail. As held in Union of India Vs. Surjeet Singh, AIR 1970 SC

186 an application under S. 34 of the Act has nothing to do with reference. It is only intended to make an arbitration agreement effective and to

prevent a party from going to the court contrary to his own agreement that the dispute is to be adjudicated by a private Tribunal. In the said case, i.

e. in Union of India Vs. Surjeet Singh (Supra) where on the filing of a suit by the respondent on the original side of the Calcutta High Court in

disregard of the arbitration clause occurring in the agreement entered into between the parties, the Union of India made an application under S. 34

of the Act for stay of the suit which was granted and the matter was referred to the arbitrator, but late on the order staying the suit was vacated,

and pending that suit the Union of India made an application under S. 20 of the Act in the court of the subordinate Judge at Delhi for getting the

agreement of reference filed in the court and for referring the dispute to arbitration which was opposed by the respondent on the ground that the

former applications under sec. 34 of the Act having been made in the Calcutta High Court it was in that court alone that the application relating to

arbitration could be made, their Lordships of the Supreme Court made the following illuminating observations :

The question involved in this appeal is whether the application made by the appellant under S. 34 of the Act before the Calcutta High Court was

an application in a reference within the meaning of S. 31 (4) of the same Act ..................... ...........................we are of opinion that the application

for stay of suit under S. 34 the present case is not an application in a reference within the wider meaning given to the court in Kumbha Mawji's

case. 1953 SCR 878 (AIR 1953 SC 313) (Supra). There are different sections in the Arbitration Act whereby an application is to be made even

before any reference has been made .S 8, for instance, provides for an application to invoke the court, when the parties fail to concur in the

appointment of an arbitrator to whom the reference can be made. So also S. 20 provides for an application to file the arbitration agreement in the

court so that an order of reference to an arbitrator can be made. These are clearly applications anterior to the reference but they lead to a

reference. Such applications are undoubtedly application in the matter of a reference"" and may fall within the purview of S. 31(4) of the Act even

though the application are made before any reference has taken place. But an application under S. 34 is clearly not an application belonging to the

same category. It has nothing to do with any reference. It is only intended to make an arbitration agreement effective and prevent a party form

going to court contrary to his own agreement that the dispute is to be adjudicated by a private tribunal.

we do not, therefore, consider that an application for stay of suit under S. 34 is an application in a reference even within the wider meaning given to

the phrase by this court in Kumbha Mawji's case (supra). The second condition imposed by S. 31 (4) is that the application for stay must be made

to a court competent to entertain it. It should be noticed that in S. 34 the expression ""judicial authority is used. The section provides for an

application to a judicial authority before whom a legal proceedings is pending for the stay of that proceedings to a judicial authority before whom it

is pending is an application under the Arbitration Act to a judicial authority competent to entertain it. But the judicial authority need not necessarily

be a court competent under S. 2(c) to decide the question forming the subject matter of the reference. A party to an 11 arbitration agreement may

choose to file a suit in a court which has no jurisdiction to go into the matter at all and merely because the defendant in such a 5 suit has to make an

application to that court under S. 34 of the Act for the stay of the suit it cannot be said that the court which otherwise has no jurisdiction in the

matter becomes a court within the meaning of S. 2(c) of the Act. The view that we have expressed is borne out by the decisions of the Calcutta

High Court in Choteylal Shamlal Vs. Cooch Behar Oil Mills Ltd ILR (1954) I Cal. 418 : Britania Building & Iron Co Ltd. Vs Gobinda Chandra

Bhattacharjes. 64 Cal. Wn 324 and Basanti Cotton Mills Ltd V. Dhingra Brothers. AIR 1949 Cal. 684.

(6) For these reasons we consider that the application for stay under S. 34 of the Act cannot be treated as an application in a reference under S.

31(4) of the Act. Therefore the subordinate Judge, first class Delhi was right in holding that the application under S. 20 of the Act for making a

reference of the dispute to the arbitrator mentioned in the agreement was maintainable in his court.

(7) As in the instant case the agreement sought to be relied upon by the petitioner in his Plaint was concluded at Delhi cl. (18) of the agreement

specifically provided that the courts at Delhi a lone and no other court whatsoever would have jurisdiction to try suits in respect of any claim or

disputes arising out of or under the agreement or in any way relating to the same, I think that with a view to make the agreement effective, the sub

Judge Jammu should have only stayed the suit and left it to the respondent to make an application in the competent court for reference of the

matters in controversy between the parties to the arbitrator. Thus that part of the impugned order where by reference was made to the arbitrator

cannot be upheld.

(8) For the foregoing reasons I would allow the application and modify impugned order. The said order would be read as directing only the stay of

the aforesaid suit filed by the petitioner.