Ganeshnarayan Brijlal (P.) Ltd. vs Bakelal Singh

Ramendra Mohan Datta, J.—This is an application u/s 34 of the Indian Arbitration Act for stay of the suit filed by the Respondent Bakelal Singh against the Petitioner.

Bakelal''s case is that he wanted to purchase a new Tata-Mercedez-Benz chassis at a price of Rs. 37,837-25 P. payable in instalments as provided in the agreement. The Respondent No. 2 Setablal Singh was the guarantor. Bakelal has paid by instalments to the total extent of about Rs. 48,000 out of which he holds receipts for a sum of Rs. 42,570. He contends that the Petitioner company acted as the financiers and the documents in blank printed forms executed by him and the guarantor were so executed on the understanding that they would constitute a financial agreement. He has paid interest on the said commercial loan at the rate of Rs. 190 per month for which also he holds receipts. Bakelal now apprehends that the Petitioner company has been trying to seize the said lorry from his lawful custody and possession. Bakelal claims to be the owner of the said lorry and also for a decree for Rs. 6,573 by way of refund for excess payment. Under the circumstances in the plaint filed by Bakelal he has asked, inter alia, for a declaration that he is the owner of the said motor lorry and a declaration that the printed forms of agreement or agreements which were signed by him and the said guarantor were in reality a financial agreement. In one of the prayers an order for injunction has been sought for restraining the company from taking possession of the said lorry from the Plaintiff.

After filing the said suit in December, 1966, Bakelal made an application herein, inter alia, for an order for injunction restraining the Defendant company from seizing the said motor vehicle. On the returnable date of the said motion the learned Counsel for the company opposed the prayer for an interim order of injunction, but it was recorded that he was appearing without prejudice to his client''s right to make an application for stay of the proceedings under the Arbitration Act. An ad interim order of injunction was granted. This happened on December 23, 1966. On that date the matter was directed to appear again as a new motion on January 2, 1967, when the company made this application u/s 34 of the Arbitration Act and obtained an ad interim order for stay in terms of prayer (a) of the petition. In making such order the Court made it clear that the said stay order would not affect the pending application for injunction in the suit. Thereafter, on the same day the application made in the said suit was called on as new motion and direction for filing of affidavits was given by the Court in the presence of the counsel for the company who appeared therein. On completion of their respective affidavits the two matters have now come up before me for disposals thereof.

It should be mentioned at this stage that the peculiarity of this case is that the disputed arbitration agreement is embodied in an entirely different printed form with spaces intended to be suitably filled up at or prior to the agreement being signed. It is completely unconnected with the parent agreement and no reference of it can be found in the said parent agreement.

In the affidavit-in-opposition filed herein Bakelal states that the printed forms of the agreement which they were asked to sign, were never explained to the guarantor or to himself and that they did not understand the contents or import of the said agreement, but they believed that these were the usual financial agreements. He has denied the agreement for arbitration. He says that he does not know the alleged arbitrator R.K. Chowdhury and there was no agreement to refer any matter of dispute to his arbitration or to anybody else. He says that he signed some blank papers and some blank printed documents which were never explained to him. He has no knowledge as to when these blank spaces were filled up in the body of the said documents. In para. 31 there is complete denial of any arbitration agreement being entered into by and between the parties herein. In para. 40 he has stated that this document purporting to be an arbitration agreement is a fraudulent document and that the same has been brought into existence for the purpose of this application. According to him there is inconsistency between the original financial agreement and the document providing for arbitration. His further point is that even assuming the said agreement to be a valid agreement, the dispute which is the subject-matter of the suit is outside the scope of the alleged arbitration agreement because the claim as pleaded in, the plaint mainly relates to the seizure of the vehicle which is covered by the exception clause provided therein. A further point has been taken that there has been a step in the proceedings because the company sought direction from this Court to contest this application for injunction.

During the hearing of this application I made an order that both the original documents being the agreement for purchase and the agreement for arbitration be filed and kept in the records herein.

It is well-settled that in order to obtain an order for stay the first and essential prerequisite is to establish the validity of the arbitration agreement so as to make it binding between the parties.

The entire document which is described as an arbitration agreement is set out in its true character and form as follows:

Special Adhesive Stamp for Re. 1.50 P.

AGREEMENT OF ARBITRATION

This Agreement made at Calcutta the 9th day of November, 1964, between GANESHNARAYAN BRIJLAL PRIVATE LTD., carrying on business at amongst other places in 32, EZRA STREET, Calcutta-1 (hereinafter called owners which expression shall include their successors and assigns where the context so admits) of the first part and Sri Bakelal Singh of Panagarh Bazar, G.T. Road, Burdwan (hereinafter called the hirer, which expression shall be deemed to include his/their heirs, executors, administrators, assigns where the context so admits) of the second part and Sri Sitablal Singh, Panagarh Bazar, G.T. Road, Burdwan (hereinafter called the Guarantor, which expression shall be deemed to include his/their heirs, executors, administrators and assigns where the context so admits) of the third part. WHEREAS the parties above mentioned have executed a Hire Purchase Agreement today with regard to the Motor Vehicle T.M.B. Truck year of manufacture 1964 of 30.2 H.P. having 6 cylinders painted bearing No. 312 915 460 6120 on the Engine, No. 312 056 460 6211 on the chassis registered under Policy No. ...complete with accessories.

This Agreement witnesseth that I/we hereby agree that notwithstanding condition No. 22 of the said Agreement of Hire Purchase executed by me/us to-day all disputes, differences, claims arising out of the terms of the said Agreement of Hire Purchase with the exception of the rights of the owners to seize the vehicle under all circumstances in terms of the Hire Purchase Agreement and all the disputes with regard to the claims under on demand Pronote executed by the hirer alone or both hirer and Guarantor in favour of the owners in connection with the said HIRE PURCHASE AGREEMENT and all claims with regard to the compensation due to the instalments unpaid interest thereon, seizing expenses and charges, postage and telegrams, other incidental expenses and damages done to the vehicle in machineries, tyres and tubes etc., to the vehicle regarding which the said Hire Purchase Agreement is executed today shall be referred to the sole ARBITRATION of Sri R.K. Choudhury, Advocate, under the provisions of INDIAN ARBITRATION ACT, 1940 or any statutory modifications thereof. The award of the said arbitrator shall be final and shall be binding on the parties to this agreement and the said HIRE PURCHASE AGREEMENT executed to-day, provided that regarding the right of the owners to seize and take possession of their vehicle at any time under the provisions of the said HIRE PURCHASE AGREEMENT, the decision of the owners shall be final and irrevocable and not subject to this reference to the ARBITRATOR. The fee of the Arbitrator in case of any such reference shall be 5 % of the value of the claim of the claimant with a minimum of Rs. 50. The Arbitrator shall be competent to decide the liabilities of the parties for the cost of the Arbitration.

In Witness whereof the parties hereto have set their hands this 9th day of November, 1964 and bind themselves and their heirs and successors and administrators and assigns.

Witness: Illegible Hirer Bakelal Singh

Witness: Illegible Guarantor Sitablal Singh

Witness: Illegible Owners GANESHNARAYAN BRIJLAL PRIVATE LTD. Niranjan Lal Todi Director

I find that Bakelal''s case about signing blank printed forms is full of substance and is acceptable. If the two documents in question are examined side by side they give the clear impression that even though they bear the same date, viz., November 9, 1964, yet the body of them including the date have not been filled up on the same date. The printed papers in respect of the agreement for purchase appear to be old, but the printed paper providing for the arbitration agreement appears to be very fresh thereby suggesting that the latter document was preserved at a separate place. In respect of the said two documents different ink pads appear to have been used. In fact, the rubber stamp impression of the company makes it abundantly clear that in the agreement for purchase the rubber stamp impressions were put at a date much earlier than the date when the rubber stamp impression was put in the arbitration agreement. In the former it is as distinct as new, but in the latter it is very much worn out by repeated user thereof, e.g., the starting word ''for'' has so clearly come out in the former document but in the latter it has practically become illegible thereby suggesting that by constant user the same rubber stamp has become worn out. The letters at the end again have become broken in the arbitration agreement whereas in the former agreement they appear to be quite distinct and new. Most significant difference between the two documents is the ribbon used in the typewritten impressions. In the former the ribbon used appears to be fresh and in the latter the ribbon appears to be a much used one.

Then, again, the question is bound to arise as to why is it that a separate arbitration agreement should be thought expedient to be executed simultaneously with the said parent agreement for purchase without deleting the clause therein whereby the parties agreed to have their disputes decided by Calcutta Courts only? Further, why is it that in the said parent agreement no reference is to be found as to the existence of such a separate document which contained an arbitration clause? To my mind the obvious answer would be that the signature of the Respondents in this document were obtained for using this document under extreme circumstances such as has arisen now. Whereas proceeding under Clause 22 the company may obtain the reliefs by way of injunction and receiver from Court in the shortest possible time but under the arbitration agreement whenever the Respondents would proceed to file a suit against the company, they would be restrained from doing so and such disputes would have to be decided by the company''s own man whose name might be put in there.

On behalf of the company, Mr. Bachawat contends that, the signatures being admitted and there being no pending proceeding asking for the cancellation of this document, the Court ought to uphold the document being the arbitration agreement. I am unable to accept the contention of the learned Counsel on this point. To my mind, the applicant for stay has to satisfy the Court that there is in existence a valid and binding arbitration agreement. This onus becomes heavier to discharge when the Respondent denies the validity of the document. In the instant case the documentary evidence is overwhelmingly against the Petitioner. In the facts and circumstances of this case, in my opinion, no oral evidence is necessary to decide this issue and, as such, I did not think it worthwhile to try this issue on oral evidence. In deciding matters u/s 34 of the Arbitration Act, 1940, normally the Court has to weigh the evidence and averments made in the petition and in the affidavits and only in certain cases on the oral evidence if it is necessary in the facts and circumstances of a particular case. In exercising its discretion u/s 34 of the Arbitration Act the Court has to satisfy itself on the facts and circumstances of each particular case, inter alia, that there is in existence a valid arbitration agreement so as to make it enforceable and binding on the parties thereto. If the Court is not satisfied in that, the Court should not exercise the discretion in favour of granting stay.

Considering the above I have no hesitation to hold, even without requiring any oral evidence to be adduced, that this arbitration agreement, at the time the same was signed by Bakelal and the guarantor, was kept blank and such blank spaces were filled up at a much later date than on November 9, 1964.

Accordingly, I hold that there is no valid and binding arbitration agreement entered into by and between the parties herein.

In view of my above finding it is not necessary for me to discuss in detail the other points raised by Mr. Das except to indicate what they are and my findings thereon.

Learned Counsel for the Respondents contend; that even assuming the said arbitration agreement to be a valid and binding document, then also there are other grounds for refusing stay.

It is argued that Clause 22 of the parent agreement for purchase gives exclusive right to the Courts at Calcutta alone to try suits in respect of any claim or disputes arising out of or under the said agreement or in any way relating to the same. If that be the position then what is the effect of the arbitration clause which is set out above? It is significant to note that, without deleting that clause from the body of the parent agreement, what has been done is that a separate arbitration agreement has been brought into existence by using therein the words "notwithstanding condition No. 22 of the said agreement of hire purchase". The question arises as to what is the meaning of such a clause, It is necessary at this stage to set out Clause 22 of the said original agreement for purchase in full.

Clause 22 is as follows:

All the instalments of monthly Hires, Terms and Conditions of this Agreement are to be paid and observed and performed at Calcutta. The Courts at Calcutta alone and no other Courts whatsoever will have jurisdiction to try suits in respect of any claim or disputes arising out of or under this Agreement or in any way relating to the same.

It is quite apparent that this jurisdiction of the Courts at Calcutta alone has not been totally taken away by the arbitration agreement. In my opinion, the effect of the words ''notwithstanding condition No. 22'' has been that the arbitration agreement has become optional and has lost its binding character. Had it been otherwise then there was no difficulty in the parties deleting the said Clause 22 in the parent agreement for purchase.

There is still another attack on this arbitration agreement itself. It has been urged that there is an exception clause which has been provided for in the arbitration clause in that the rights of the owners to seize the vehicle under all circumstances in terms of the said agreement has been taken away from the purview of the said arbitration clause. Mr. Das contends that his client''s main case in the plaint is to resist seizure of the vehicle and, as such, an injunction has not only been prayed in the plaint itself but an interlocutory application is pending to restrain the company from seizing the said vehicle. I think that the learned Counsel has rightly argued that in respect of this dispute in the plaint, if his client had proceeded in arbitration instead of filing the suit, then the Petitioner could have objected to the matter being proceeded with in arbitration in terms of the said exception clause. If in respect of the rights of the owners to seize the vehicle a suit has to be filed, then in resisting seizure also the exception clause would be operative and this right of the purchaser and the guarantor would necessarily also be covered by the said exception clause as provided in the said disputed arbitration agreement.

Mr. Das contends with the reference to the plaint filed by his client that the plaint as framed alone should be looked into and the main prayer therein is for injunction restraining the company from seizing the said vehicle, The said claim should be allowed to be proceeded with in Court in terms of the said exception clause in the purported arbitration agreement.

The next contention of Mr. Das is that his client has alleged fraud in the plaint and such question of fraud should not be gone into in arbitration and the question of fraud should be thrashed out in open Court. Learned Counsel for the company has relied on several decisions which decided that if the person against whom fraud had been alleged objected to the matter being proceeded in arbitration on the ground that he would suffer prejudice thereby, then only there could be a good ground for stay of the arbitration proceeding and the matter being heard in open Court. I hold that the party against whom the stay is being sought for cannot take advantage of his own averments of fraud and obtain the order in his favour thereby.

Mr. Das''s next contention is that there has been a step in the proceedings by the Petitioner and, as such, stay should not be granted. I find from the records that Mr. Bachawat appearing on the first occasion made it clear that his client was intending to make an application for stay u/s 34 of the Arbitration Act and on the second occasion when he appeared he actually moved such application and upon obtaining the interim stay his client proceeded to resist the interlocutory application for injunction against seizure. Under those circumstances, I find that the intention has all along been maintained to go to arbitration. Mr. Bachawat''s client never intended to proceed in the suit but always intended to enforce the arbitration clause. Accordingly, I hold that there has been no step in the proceedings on the part of Mr. Bachawat''s client.

In any event, the facts and circumstances relating to the execution of the arbitration agreement herein are so manifestly ugly and disreputable that I feel that I should not exercise my discretion in favour of stay u/s 34 of the Arbitration Act, 1940, and I hold that there is every reason before me why I should hold that the parties should not be asked to proceed in arbitration and, as such, I refuse to stay the suit filed herein. In the matter of exercising such discretion I also take into consideration the fact that the substantial part of the amount due from the Respondents has already been paid by Bakelal and that the existence and validity of the arbitration agreement is very much in dispute and the document appears to have been executed in blank and filled up subsequently, apparently to be utilised in this manner.

Accordingly, the prayer for stay of the suit and all proceedings thereunder is refused and the application is dismissed with costs.