Jugal Kishore vs Ramesh Chandra

P.C. Jain, J.—The petitioner has fled this petition u/s 115, C.P.C. against the order of Shri Sateesh Chandra Mittal, R.H.J.S. District Judge, Jodhpur passed in Civil Misc. Case No. 23(B)/95 Jugal Kishore v. Ramesh Chandra on 18-11-1995.

The material facts may be stated succinctly which are necessary for the disposal of this petition. The petitioner alleged that there was a partnership agreement between the parties and they carried on business in the name and style "M/s. Jugal Kishore Mahesh Chandra". The partnership agreement contained a clause for referring the dispute arising between the parties to arbitration: The petitioner alleged that a dispute arose between the parties inasmuch as the non-petitioner started his own business which was not warranted according to the partnership agreement of the parties and also began to mismanage the business and the property of the partnership venture. The petitioner has, therefore, filed an application u/s 8 of the Arbitration Act for appointing an arbitrator. The petitioner also moved another application purporting to be under. Section 41(b) of the Arbitration Act for appointment of a receiver in order to manage the business and property of the partnership firm. The learned District Judge disposed of both the applications simultaneously. The first application was allowed and an arbitrator was appointed by the learned District Judge. However, the learned District Judge dismissed the second application on merits. He discussed the facts and circumstances of the case and found that no case was made out for appointing a receiver in accordance with the settled principles laid down by Courts for appointing a receiver. He, therefore, dismissed the application filed u/s 41(b) of the Act.

I have heard learned counsel for the petitioner and non-petitioner. Learned counsel for the petitioner has invited my attention to Clause (b) of Section 41 of the Act and submitted that the Court has got power to make appropriate orders in respect of any matters set out in the Second Schedule of the Act. The Second Schedule relating to Section 41 contains the powers of the Court. Item No. 4 of Second Schedule contains a provision for appointing a receiver in accordance with the provision of Code of Civil Procedure. The learned counsel, therefore, submitted that the Court had jurisdiction to entertain the application filed by the petitioner u/s 41(b) of the Act and could have appointed a receiver in the facts and circumstances of the case. He also submitted that the petitioner detailed various acts of omission and commission committed by the non-petitioner in relation to the business and property of the partnership firm. These allegations were supported by his affidavit. The learned District Judge has, therefore, committed an error in not excercising his jurisdiction in declining to appoint a receiver which was most appropriate in the facts and circumstances of the case. Supplementary affidavits were also filed.

Learned counsel for the non-petitioner has challenged the maintainability of the application filed by the petitioner u/s 41(b) of the Act on the ground that the Court was only asked to dispose of the application moved by the petitioner u/s 8 of the Act. The powers of the Court for disposal of application filed u/s 8 are very limited. Where the Court finds an arbitration agreement providing for a reference but the parties cannot agree to the appointment of arbitrator then one of the parties must serve a written notice to the other to concur in the appointment of an arbitrator. If the other party does not agree within the statutory period of notice, the aggrieved party can make an application to the Court for this purpose and the Court, after giving opportunity to the other party, shall appoint an arbitrator or umpire, as the case may be. After the appointment of an arbitrator or umpire, the Court is ceased to have any jurisdiction into the matter. The second time when the Court can entertain such matter happens when an arbitration award is given by the arbitrator and a request is made for making it the rule of the Court Except on these two occasions the Court has got absolutely no jurisdiction. According to him the power u/s 41(b) of the Act can only be exercised when the Court exercises power u/s 20 of the Arbitration Act. There is a marked difference between the provisions of Section 8 and Section 20 of the Act. Hence, the learned District Judge has not committed any error in the exercise of his jurisdiction.

He has placed reliance on Union of India (UOI) Vs. S.V. Krishna Rao, ; The Union of India (UOI) Vs. Shri Om Prakash, ; Fertiliser Corporation of India v. Ram Kumar Ohri AIR 1979 Orri 19 and Abdul Rehman v. Abdul Khalil 1983 All LJ 761.

I have considered the respective contentions. First I may deal with the question whether in proceedings initiated on an application u/s 8 of the Act the Court can exercise the powers conferred by Section 41(b) of the Act?

Section 41 of the Arbitration Act contains two provisions. Clause (a) prescribes the procedure for the Court dealing with arbitration proceeding and for appeal under the Act. The procedure is the same as is provided in the Code of Civil Procedure. Clause (b) read with Schedule II confers some specific powers on the Court.

These powers are to be exercised under two limitations namely, to the same extent and in the same manner as the Court does for the purpose of and in relation to any other proceedings before it, and; the exercise of these powers shall not prejudice any power which may be vested in an arbitrator or an umpire.

The Second Schedule, inter alia, enumerates the power of the Court to issue interim injunction or to appoint a receiver.

A perusal of Clause (b) of Section 41 clearly shows that an application for an interim relief can be moved under this Section only if some arbitration proceeding is pending and not otherwise. Such an application shall be u/s 41 read with Schedule II and such interim relief must be "for the purpose of and in relation to arbitration proceedings". In this connection, the Court normally deals with arbitration matters under Sections 8 and 20 of the Act. It would be proper to quote the above two sections.

Section 8:

(1) In any of the following cases -

(a) where an arbitration agreement provides the reference shall be one or more arbitrators to be appointed by consent of the parties, and all the parties do not after differences have arisen, concur, in the appointment or appointments; or

(b) if any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied and the parties or the arbitrators, as the case may be, do not supply the vacancy; or

(c) where the parties or the arbitrators are required to appoint an umpire and do not appoint him;

any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy.

(2) If the appointment is not made within fifteen clear days after the service of the said notice, the, Court may, on the application of the party who gave the notice and after giving the other parties an opportunity of being heard, appoint an arbitrator or arbitrators or umpire, as the case may be, who shall have like power to act in the reference and to make an award as if he or they had been appointed by consent of all parties.

Section 20:

(1) Where any person have entered into an arbitration agreement before the institution of any suit with respect to the subject matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies they or any of them, instead of proceedings under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in Court.

(2) The application shall be in writing and shall be numbered and registered as a suit between one or more of the parties interested or claiming to be interested as plaintiff or plaintiffs and the remainder as defendant or defendants, if the application has been presented by all the parties, or, if otherwise, between the applicant as plaintiff and the other parties as defendants.

(3) On such application being made, the Court shall direct notice thereof to be given to all parties to the agreement other than, the applicants, requiring them to show cause within the time specified in the notice why the agreement should not be filed.

(4) Where no sufficient cause is shown, the Court shall order the agreement to be filed and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise, or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court.

(5) Thereafter the arbitration shall proceed in accordance with, and shall be governed by, the other provisions of this Act so far as they can be made applicable.

A consideration of the aforesaid provisions makes it clear that in arbitration out of the Court the parties play an important or leading role. The Court is called upon to intervene at two stages. First when it appoints an arbitrator at the request of the parties in the circumstances occuring as mentioned in Section 8 of the Act. Secondly, when it makes the arbitration award given by the arbitrator a rule of the Court. All the proceedings between these two stages are conducted independent of the Court. Under Sub-section (2) of Section 8, an arbitrator appointed by the Court shall be deemed to be an arbitrator appointed by the consent of all parties. A distinction between Sections 8 and 20 is material for deciding the above point. The above distinction has been very lucidly summed up in The Union of India (UOI) Vs. Shri Om Prakash, :

"It is clear from the provision of Chap. II after the appointment of arbitrator, the proceedings are to be outside the Court and up to the stage of filing the award intervention of Court in not contemplated unless any occasion arises requiring the Court to remove the arbitrator u/s 11. An agreement to submit differences to arbitration implies an agreement to refer the differences to the arbitrator. Section 8 only empowers the Court to appoint an arbitrator where the parties do not concur in the appointment. Section 20, occuring in Chap. III contains provisions for arbitration with the intervention of the Court, where there is no suit pending."

Section 8 does not contain any pro-visions empowering the Court to make an order of reference to the arbitrator, as we find in Sub-section (4) of Section 20. Thus, it seems clear that in those cases the Court had no jurisdiction after appointing an arbitrator u/s 8(2) to proceed further to make an order referring the dispute to the arbitrator. It is, thus, clear the Section 8 only empowers the Court to appoint an arbitrator where the parties do not concur in the appointment. Section 20, on the other hand, confers power on the Court to order the agreement to be filed and, further, to make an order of reference to the arbitrator appointed by the parties, or, where the parties cannot agree upon an appointment to an arbitrator appointed by the Court. As we have noticed the power mentioned in Section 41(b) of the Act can only (be) exercised "for the purpose of, and in relation to, arbitration proceedings", there is no doubt that a proceeding will be deemed to be a proceeding before the Court right from the time an application is made u/s 20 of the Act up to the time the case is finally disposed of by accepting the award or setting it aside. The Court will have, therefore, jurisdiction u/s 41(b), read with para 4 of the Second Schedule of the Act to issue interim orders for the preservation and safety of the subject matter of the dispute. However, the matter stands on, a different footing with regards to the proceedings taken u/s 8 of the Act. The appointment of an arbitrator u/s 8 of the Act in the circumstances mentioned therein may be a proceeding in arbitration but the appointment of the arbitrator by itself cannot be said to constitute an arbitration proceedings. This view was taken in Abdul Rehman v. Abdul Khalil 1983 All LJ 761. The reason is obvious. The scope of intervention by the Court u/s 8 of the Act is very limited. In such a matter the Court is only concerned with the appointment of an arbitrator. The Court does not make any reference to the arbitrator nor call for the production of the agreement relating to arbitration as has been envisaged in Section 20 of the Act. It was, therefore, held in Abdul Rehman''s case that during the pendency of the proceedings u/s 8 of the Act, application for the appointment of receiver and for an interim injunction are not legally maintainable. The Court has been empowered u/s 8 of the Act to appoint an arbitrator only. Except for the appointment of an arbitrator no other question can be raised before any proceedings u/s 8 of the Act. In Abdul Rehman''s case a reference was also made to Section 18 of the Act and it was observed that the provisions contained in Section 18 of the Act support to the view that the power to pass interim order has been vested in the Court only after the award of the arbitrator has been filed before it on the completion of the private arbitration.

I am, therefore, in agreement with the view taken in Abdul Rehman''s case (1983 All LJ 761) that for the purpose of passing an order under Clause (b) of Section 41 read with Schedule II, Item 4 the proceedings initiated u/s 8 of the Act cannot be deemed to be "arbitration proceedings" in which an interim order like the appointment of receiver can be made. However, the matter is entirely different when proceedings are initiated on an application filed u/s 20 of the Act. The Court while dealing with the application filed u/s 20 of the Act exercises wide powers.

In this connection a reference may be made to Daulat Ram Phoolchand Vs. Shriram and Others, . In the above case the facts were that an application u/s 20 of the Act read with Section 40 of the Act had been filed and dismissed by the trial Court. On an appeal having been preferred, it was held by a Division Bench that since no difference had arisen between the parties with regard to any of the matters to which the arbitration agreement applies, Section 20 of the Act could not be invoked by the petitioner. Thereafter the petitioner filed a fresh application u/s 41 of the Act praying for the appointment of a receiver. The Court dismissed the application on the short question that an application u/s 20 of the Act must be filed in order to enable the Court to take action u/s 41 of the Act. A perusal of the judgment, therefore, shows that arbitration proceedings were pending. This is a distinguishable feature of the case.

Hence, the learned District Judge has not committed any error for not entertaining the application as per Sub-section (b) of Section 41 of the Act.

Otherwise also the application filed by the petitioner was not found sustainable by the learned District Judge. He was aware of the grounds on which the interim relief by way of appointment of receiver can be given. He examined the merits of the case on the touchstone of the above principles and found the case of the petitioner not fit for exercise of the above discretion. I do not find any ground to interfere with the above order.

For the above reasons I find no force in the petition and the same is hereby dismissed.