P.V. Jagatheesan vs Veerammal and Another

G. Ramanujam, J.—This appeal raises a simple but an interesting question. The respondents herein filed a suit for dissolution of partnership

against the appellant herein, originally, in the District Munsif''s Court, Salem, in O.S. No. 1384 of 1968. In that suit, summons was issued to the

defendant, the appellant herein, and be entered appearance through his counsel and took time for filing a written statement, Thereafter, a written

statement was filed wherein he questioned the pecuniary jurisdiction of the District Munsif''s Court to entertain and try that suit. The objection

based on pecuniary jurisdiction was ultimately upheld by the District Munsif''s Court and the plaint was directed to be returned to the plaintiffs for

presentation to the proper Court. Thereafter, the plaintiffs took the plaint and presented the same before the Sub Court, Salem, which bad the

requisite pecuniary jurisdiction and the same was taken on file as O.S. No. 25 of 1976 When summons in that suit was served on the appellant, he

cams forward with an application for stay of the suit u/s 34 of the Arbitration Act, hereinafter referred to as the Act, on the ground that the subject-

matter of the dispute is covered by arbitration clauses, namely, Clauses 14 and 16 of the partnership deed, Exhibit A-1, dated 23rd September,

1961, and, therefore, the suit should stand stayed.

The said application for stay u/s 34 was opposed by the plaintiffs on various grounds. One ground is that, the defendant not having taken the

objection based on the existence of an arbitration clause at the earliest opportunity when he was served with the summons in the suit before the

District Munsif''s court he should be deemed to have participated in the legal proceedings, and this will disentitle him to file an application u/s 34 of

the Act. The next objection is that, having regard to the fact that the issues involved in the suit are both of law and fact, the matter cannot be

directed to be decided by the arbitrators. Another contention is that Clauses 14 and 16 of the Partnership Deed did not, in terms, refer to the

Arbitration Act and, therefore, an arbitration as contemplated in the Arbitration Act was not meant by the parties. The Court below has dismissed

the application for stay u/s 34 of the Act, accepting the said three grounds urged by the plaintiffs in answer to the appellant''s request for the stay of

the suit. As against the dismissal of his application for stay, the present appeal has been filed by the defendant in the suit.

It is contended that all the three reasons given by the Court below for dismissing the application for stay cannot be sustained in law. On a due

consideration of the matter, I am inclined to agree with the learned Counsel for the appellant that the lower Court is not right in holding that, as the

partnership deed does not refer to the Arbitration Act, Section 34 of the Act cannot be invoked in this case. The Partnership Deed specifically

refers to the disputes between the parties being referred to panchayatdars. It is true that this word ''Arbitrator'' has not been used in the Partnership

Deed but one has to see what the parties contemplated at the time of entering into the partnership. If the obvious intention between the parties was

to refer the matters in dispute between them to Pancnayatdars without resort to Court, then it can easily be assumed that the intention of the parties

was to settle the matters in their entirety by arbitration. Therefore, so long as the parties wanted to have the disputes determined by approaching

the Panchayatdars outside the Court, the intention that the disputes must be referred to arbitration under the Act can easily be inferred. Similarly,

the other reason given by the Court below that, as the suit involves complicated questions of law, it is a fit matter to be decided by the Court and

not by arbitration u/s 3 is equally untenable. I do not see how in this suit for dissolution of partnership, any complicated question arises so as to say

that the matter should be decided only by the Court and not by an arbitrator.

However, the lower Court appears to be right in dismissing the application for stay u/s 34 of the Act on the ground that the appellant having

taken part in the legal proceedings, he is not entitled to present a petition u/s 34. It is well established that the defendant should apply for stay of the

proceedings u/s 34 of the Act before he actually takes any step in the legal proceedings initiated by the plaintiff The question, therefore, is to see

whether the appellate has taken a step in the legal proceeding a before he invoked the provisions u/s 34 of the Act. As already stated, the plaint

was originally filed before District Munsif''s Court and it was taken on file as O.S. No 1384 of 1968. The appellant, as he defendant, filed a written

statement wherein he raised all his defences including the plea that the suit WAS beyond the pecuniary jurisdiction of the District Munsif''s Court,

Salem, and, therefore, the District Munsif had no jurisdiction to entertain and try the suit. It is significant to note that, in the written statement filed

by the appellant before the District Munsif''s Court in the said suit, no plea was taken that the subject-matter of the suit is governed by a subsisting

arbitration agreement between the parties. His objection, bated on the pecuniary jurisdiction of the trial Court, was upheld in that suit and the plaint

was returned for presentation to the proper Court. The plaintiffs thereafter filed the suit in the Sub-Court, Salem. It is only when the summons were

served by the Sub-Court, that, the defendant filed an application u/s 34 of the Act for stay of the suit The Court below has taken the view that the

Appellant''s participation in the earlier suit, without raising the objection based on the arbitration agreement, will disentitle him from filing an

application for stay of the suit.

The learned Counsel for the appellant contends before me that the earlier proceedings before the District Munsif''s Court should be taken to be

non est in the eye of law as anything that happened before the plaint was presented to the proper Court should be taken to be without jurisdiction.

Though, for the purpose of limitation and other purposes, the earlier proceedings before the District Munsif''s Court cannot be taken into account

to find out as to what is the conduce of the party against whom the suit is filed, notwithstanding the existence of an arbitration agreement between

the parties, it is not possible to ignore his conduct in the earlier proceedings. In the earlier proceedings, if the appellant had raised the objection

based on the existence of the arbitration agreement along with the other objection based on lack of pecuniary jurisdiction, the matter would have

been different. But, admittedly, no objection based on the Arbitration Act was raised in the earlier proceedings and the only objection raised was

as regards the pecuniary jurisdiction apart from other contentions based on merits. I am, therefore, of the view that the conduct of the appellant in

the earlier proceedings before the District Munsif''s Court cannot be ignored or lost sight of in deciding the question as to whether the appellant is

entitled to invoke Section 34 of the Act at this stage.

In Mt. Zainab v. Mt. Budhana AIR 1922 Oudh 158 the plaint was filed in a Court having no pecuniary jurisdiction but the plaint was entertained

and numbered as a suit. During the pendency of that suit, no reference was made by either party to the existence of an arbitration agreement and

the appointment of an arbitrator and the reference of the subject-matter of the suit for arbitration. Ultimately the Court held that it had no pecuniary

jurisdiction to try the suit and, therefore, returned plaint for presentation to the proper Court. Thereafter, the plaint was presented to the proper

Court and numbered as a suit. The question arose as to whether the institution of the earlier suit in a Court which had no pecuniary jurisdiction had

ipso facto the effect of superseding a previous reference to arbitration, and whether the return of the plaint for presentation to the proper Court will

have the effect of revival of the reference to arbitration. The Court held that the institution of the suit had not ipso facto the effect of superseding a

previous reference to arbitration, dealing with the same subject-matter; but, where either party fails to apply for stay of the hearing of the suit under

Paragraph 18, the effect is to supersede the arbitration for good and the arbitrator becomes functus offico. The decision in that case proceeds on

the basis that, even if the suit has been filed in a Court having no pecuniary jurisdiction, the defendant should have applied for stay of the suit as

otherwise it will have the effect of superseding the reference to arbitration. This decision is an authority for the proposition that, for the purpose of

determining the conduct of the parties with reference to the subject-matter of the suit, the question, whether the legal proceedings had been initiated

in a Court having pecuniary jurisdiction or not, cannot be decisive. The non-invocation of Section 34 by the defendant would lead to the inference

that he is not keen about the arbitration agreement. Therefore, his conduct in the proceedings before the District Munsif Court, wherein he did not

raise the objection based on the arbitration agreement, cannot be lost sight of and that conduct will clearly indicate that he is not invoking the

arbitration agreement.

In The New India Assurance Co. Ltd. and Others Vs. Kamta Singh, a case somewhat similar to the one on hand came up for consideration. In

that case also the suit was filed in a Court having no pecuniary jurisdiction and the plaint was returned for presentation to the proper Court. After

the plaint was entertained by the appropriate Court and when summons was served on the defendant, he applied for stay of the suit u/s 34 of the

Act, relying on an arbitration agreement subsisting between the parties. It was found in that case that, even at the earliest stage when the matter

was pending before the Court having no pecuniary jurisdiction, the defendant had clearly raised the plea that the subject-matter of the suit is

covered by an arbitration agreement and, therefore, the suit cannot be maintained. Having regard to the fact that the defendant first raised the

objection as regards the arbitration agreement at the earliest opportunity available to him, the Court held that he is not estopped from raising the

objection based on arbitration agreement and filing an application u/s 31 of the Arbitration Act, According to the learned Judges in that case, the

conduct of the defendant in the earlier suit, when the matter was pending before the Court having no pecuniary jurisdiction, will show that he had

not waived the plea based on the arbitration agreement. It is for that reason, he was held entitled to file an application for stay of the suit u/s 34 of

the Act, after the plaint was presented to the proper Court and when the matter was pending there. In my view, the decision in The New India

Assurance Co. Ltd. and Others Vs. Kamta Singh, cannot apply on the facts of the present case, where, admittedly, the defendant did not raise the

plea based on the arbitration agreement at the earliest opportunity available to him.

For the reasons set out above, the appeal fails and the same is dismissed. But there will be no orders as to costs.