R.K. Kapila vs Shimla Development Authority and Another

A.L. Vaidya, J.—The present application has been preferred under Sections 20/34 of the Arbitration Act (hereinafter referred to as "the Act") for stay of the proceedings in the suit and for referring the matter to the Arbitrator as per terms of the agreement, entered into between the parties and for filing the agreement in the court.

The suit has been filed on the allegations that Plaintiff was awarded two jobs, namely, Job No. 1 and 4 through letter of Defendants dated 1st November, 1989 and 3rd November, 1989 respectively and the total tendered amount of Job No. 1 worked out to Rs. 81,33,576/- and under this job, the Plaintiff was to construct buildings of 34 Nos. Type ''A'' houses; 70 Nos. type ''B'' houses; 10 Nos. Type ''C'' houses and 5 Nos. Type ''D'' houses including water supply and sanitary installations. According to the Plaintiff, the total tendered amount for Job No. 4 worked out to Rs. 80,91,668.50 and the Plaintiff was to make construction of 23 Nos. Type ''A'' houses, 19 Nos. Type ''B'' houses, 6 Nos. Type ''C houses including water supply and sanitary installations. It was also averred that Plaintiff duly entered into agreement with the Defendants for the construction of the aforesaid jobs, awarded to him. It was also pleaded that the Plaintiff, according to the contract, completed the entire job with respect to Job No. 1 by 30th June, 1993 and with respect to Job No. 4 by 31st of March, 1994 for which due extensions were given by the Defendants to the Plaintiff from time to time. With respect to job No. 1, according to the Plaintiff, he handed over to the Defendants the possession of the following houses:

30.9.1992 6 Type ''B'' 4 Type ''C'' 2 Type ''D''

9.10.1992 7 Type ''B''

17.10.1992 1 Type ''A'' 1 Type ''B'' 2 Type ''C'' 2 Type ''D''

23.3.1993 14 Type ''A''

With respect to Job No. 4 the possession was handed over by the Plaintiff to the Defendants with respect to the following houses:

22.9.1993 6 Type ''B'' 19.12.1993 17 Type ''A'' 4 Type ''B'' 1 Type ''C''

28.3.1994 1 Type ''B'' 1 Type ''C''

It was further pleaded by the Plaintiff that at present he was in possession of 2 ''C'' Type Houses Nos. 69 and 89 pertaining to Job No. 1 and 2 Nos. of ''C'' Type Nos. 4 and 5 and 5 Nos. ''B'' Type Nos. 84, 85, 87, 88 and 90 pertaining to Job No''.4. According to the Plaintiff, he is still in occupation of the aforesaid houses, the possession of which has not been delivered by him to the Defendants, since the Defendants were not finalising the payment bills of the Plaintiff on false and baseless pretexts. It was also averred by the Plaintiff that his outstanding final bills were not paid by the Defendants. He has been threatened by Defendant No. 2 to take forcible possession of the houses, referred to above. According to the Plaintiff, Defendants did not admit the claim of the Plaintiff, hence the suit for permanent injunction was filed. This suit has been registered as Civil Suit No. 120 of 1994.

Before filing the written statement, the present application has been preferred by the Defendant-applicants for the stay of the proceedings and for referring the matter to the arbitration as per terms of the agreement.

It has been pleaded in the present petition that the dispute, as per allegations made in the plaint, has arisen out of the 2 Jobs, awarded to the Plaintiff through letters of the Defendant-applicants dated 01.11.1989 and 03.11.1989 respectively for the construction of buildings at New Shimla. It has also been pleaded that such work was awarded to the Plaintiff through agreements entered into with the applicants (copy of the agreements enclosed as Annexures R-1 and R-2) and as per Clause 25 of the agreement, the parties had agreed to refer any dispute arising between the parties with respect to the construction, payment etc. to the sole- arbitration of the Arbitrator to be appointed by the Chief Executive Officer-cum-Chief Engineer of Defendant No. 1. It has also been pleaded in the application that the non-applicant had been negligent and careless in completing the work and took about 5 years to complete construction of 39 numbers of houses out of 56 numbers of houses against agreement No. 12 and 30 numbers out of 45 numbers of houses against agreement No. 14. It has further been averred that non-applicant was yet to complete the remaining houses as per the agreement and in this behalf, last extension given to the Plaintiff was till 31st of March, 1994. In this behalf, letter dated 15.06.1994 was written to the non-applicant intimating the defect of 27 houses and was requested to remove the defects immediately. According to applicants, the Plaintiff has not yet allowed the access to the Defendant-applicants with respect to the remaining houses for inspection and for pointing out the defects and as such, he is not entitled to claim final'' bill and the final payment. The applicants also detailed the amount paid to the non-applicant. According to the applicants, instead of applying for arbitration, as per the terms of the agreement, the Plaintiff filed the present suit on false and frivolous grounds in order to derive undue benefit. According to the applicants, they have prayed for referring the dispute to the Arbitrator to be appointed by the Chief Executive Officer-cum-Chief Engineer of the applicant, in the meantime, the proceedings in the present suit deserve to be stayed. Through the present petition, it has been prayed that the matter be referred to the sole arbitrator to be appointed by the Chief Engineer-cum-Chief Executive Officer of the applicant No. 1 and till the matter was decided by the Arbitrator, the matter be stayed after vacating the ex-parte ad-interim injunction.

This petition has been contested on behalf of the Plaintiff and the averments made in the petition have been denied.

I have heard the learned Counsel for the parties and have minutely gone through the record.

At the very outset, the learned Counsel for the Defendant-applicants did not press the present petition u/s 20 of the Act, but only limited the relief with respect to Section 34 of the Act.

Annexures R-1 and R-2 are admittedly the photo-stat copies of the agreements, executed by the parties pertaining to the 2 Jobs under reference and as detailed earlier. Clause 25 of the two agreements is the same, which runs as under:

Clause 25. Except where otherwise provided in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions hereinbefore mentioned and as to the quality of workmanship of materials used on the work or as to any other questions, claims, right, matter or thing whatsoever, in any way arising out of or relating to the contract, designs, drawings, specifications, estimates,'' instructions, order or these conditions or otherwise concerning the works or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof, shall be referred to the sole arbitration of the person appointed by the Chief Executive Officer SDA. It will be no objection to any such appointment that the arbitrator so appointed is a Government/SDA servant, that he had to deal with the matters to which the contract relates, and that in the course of his duties as Government/SDA servant he had expressed views on all or any of the matters in dispute of difference. The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason, the Chief Executive Officer SDA at the time of such transfer, vacation or office or inability to act shall appoint Anr. person to act as arbitrator in accordance with terms of the contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this contract that no person other than a person appointed by the Chief Executive Officer SDA should act as arbitrator and, if for any reason, that is not possible, the matter is not to be referred to arbitration at all. In all cases'' where the amount of the claim in dispute is Rs. 50,000/- (Rupees fifty thousand) and above, the arbitrator shall give reasons for the award.

Subject as aforesaid the provision of the Arbitration Act, 1940, or any statutory modification or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceedings under this clause.

It is also a term of the contract that ''the party invoking arbitration shall specify the dispute or disputes to be referred to arbitration under this clause together with the amount or amounts claimed in respect of each such dispute.

It is also a term of the contract that if the contractors) do/does not make any demand for arbitration in respect of any claim(s) in writing within 90 days of receiving the intimation from the SDA that the bill is ready for payment, the claim of the contractors) will be deemed to have waived and absolutely barred and the SDA shall be discharged and released of all liabilities under the contract in respect of these claims

The arbitrator(s) may from time to time with consent of the parties enlarge the time, for making and publishing the award.

Learned Counsel for the parties have no dispute regarding the proposition that so far as the present case is concerned, the cause of action disclosed in the suit, could be made the subject matter of reference. Shri Bhupender Gupta, Advocate, learned Counsel for the Plaintiff-non-app1icant, has limited his contention that the present case does not come within the purview of Section 34 of the Act and hence, the suit has to be proceeded with in accordance with law and cannot be legally stayed. Before the contentions put forth in this behalf are appreciated and considered, the provision of Section 34 of the Act can safely be referred hereinbelow:

Power to stay legal proceedings where there is an arbitration agreement:

Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings.

The aforesaid provision of law intended to make an arbitration agreement effective and to prevent a party from going to Court, contrary to his own agreement that the dispute was to be adjudicated by a private Tribunal. In case the applicability of this Section 34 is attracted, ordinarily, the Court would require the parties to abide by the agreement, through which they had agreed to refer the dispute for arbitration. This Section 34 provides that in order that stay may be granted, it was necessary that the following conditions are fulfilled:

(a) the proceedings must have been commenced by a party to an arbitration agreement against any other party to the agreement;

(b) the suit, which is sought to be stayed, must be in respect of a matter agreed to be referred by the parties;

(c) the person applying u/s 34 of the Arbitration Act for the stay of the suit, must be a party in that suit;

(d) the applicants who happen to be Defendants in the present case, must have taken no steps in proceedings after appearance and also the application is preferred before filing written statement;

(e) the Defendant-applicants must satisfy that they were not only, at the time when the proceedings were commenced, but still remain ready and willing to do everything necessary for the proper conduct of the arbitration; and

(f) the Court is to be satisfied that there was no sufficient reason why the matter should not be referred to arbitration.

In the aforesaid background, it has been very forcefully contended on behalf of the Defendant-applicants that their case come within the purview of aforesaid provision of law and their prayer for stay of the suit and referring the matter for arbitration has to be favourably considered.

On the other hand, the aforesaid prayer has been very strongly opposed on behalf of the Plaintiff-applicant on the sole ground that Defendant-applicants have failed to approach the Court u/s 34 of the Act at an appropriate time, meaning thereby that they have to move the Court under the said provision of law before taking any other steps in the proceedings and in the present case, as the Defendant-applicants in the present application, have made a prayer for vacating the ad-interim injunction granted in favour of the Plaintiff-non applicant, it would simply mean that they had already taken steps in the proceedings, i.e. in the suit and, therefore, on this short ground, their prayer u/s 34 is to be dis-allowed. It is not so simple a matter, as has been contended on behalf of the learned Counsel for the Plaintiff-non applicant.

There is no dispute to the proposition that in order to grant the relief in favour of the applicant, one of the essential requirement to be taken into consideration, as provided under the said provision of law, was that the prayer for stay and referring the matter for arbitration, has to be made u/s 34 of the Act before filing a written statement or taking any other steps in the proceedings. In the present case, written statement admittedly, has not been filed. However, the Defendant-applicants in the present application, have made a prayer for vacation of the temporary ad-interim injunction granted in favour of the Plaintiff-non applicant. Whether this prayer would legally mean and come within the purview of "taking any other steps in the proceedings" or not ? The answer to this query has been settled in AIR 1982 SC 1302 Food Corporation of India and Anr. v. Yadav Engineer and Contractor. Paras 9 and 11 of this judgment of the Apex Court are being reproduced hereunder for the sake of convenience and guidance:

Apart from filing written statement, what other step did the legislature contemplate as being taken in the proceedings which would dis-entitle the party to the suit from obtaining stay of the proceedings which would have the effect of enforcing the arbitration agreement ? General words "taking other steps in the proceedings" just follow the specific expression "filing a written statement" and both are used for achieving the same purpose. Therefore, the latter general expression must be construed ejusdem generis with the specific expression just preceding to bring out the ambit of the letter. Expression ''written statement'' is a term of connotation ordinarily signifying a reply to the plaint filed by the Plaintiff. Therefore, the expression ''written statement'' in Section 34 signifies a specific thing, namely filing an answer on merits to the plaint filed by the Plaintiff. This specific word is followed by general words ''taking any other steps in the proceedings''. The principle of ejusdem generis must help in findings out the import of the general words because it is a well established rule in the construction of statutes that general terms following particular ones apply to such persons or things as are ejusdem generis with these comprehended in the language of the legislature. In Ashbury Railway Carriage and Iron Co. v. Riche (1875) LR 7 HL 653, the question of construction of the object of a Company; ''to carry on business of mechanical engineers and general contractors'', ''came in for consideration and it was said that the generality of the expression ''general contractors'' was limited to the previous words ''mechanical engineers'' on the principle of ejusdem generis. Filing of the written statement would dis-entitle the party from seeking enforcement of arbitration agreement by obtaining stay of proceedings before it is such an act on behalf of the party entitled to enforce the arbitration agreement which would disclose unequivocal intention of the party to give up the benefit of the arbitration agreement and accept the method in preference to the one set out in the arbitration agreement to the one adopted by the other party by filing the suit and get the dispute adjudicated upon by the machinery of the Court. If this is the underlying intendment in providing that application for stay of the proceedings must be filed before the filing of the written statement, the same conclusion must follow when instead of filing the written statement, the party has taken some other step in the proceedings. That some other step must indisputably be such step as would manifestly display an unequivocal intention to proceed with the suit and to give up the right to have the matter disposed of by arbitration. Each and every step taken in the proceedings cannot come in the way of the party seeking to enforce the arbitration agreement by obtaining stay of proceedings but the step taken by the party must be such step as would clearly and un-mistakably indicate an intention on the part of such party to give up "the benefit of arbitration agreement and to acquiesce in the proceedings commenced against the party and to get the dispute resolved by the Court. A step taken in the suit which would disentitle the party from obtaining stay of proceedings must be such step as would display an unequivocal intention to proceed with the suit and to abandon the benefit of the arbitration agreement or the right to get the dispute resolved by arbitration.

Arbitration agreement generally provides for resolution of disputes either present or future by a forum of the choice of the party. Ordinarily, arbitration agreement finds its place in contracts. Apprehending that while performing contract some disputes may arise, care is taken to incorporate an arbitration agreement in the contract itself prescribing the forum for resolution, of such disputes. To illustrate, partnership contracts incorporate arbitration agreement for resolution of disputes arising out of the contract of partnership. Building contracts, these days, incorporate arbitration agreements. International commercial transactions also incorporate arbitration agreements. The purpose underlying entering into arbitration agreement is to provide for resolution of disputes arising from the contract between the parties. Now, if a party to an arbitration agreement files a suit seeking relief in respect of disputes arising from the contract, the other party to the agreement can either waive the benefit of the arbitration agreement and acquiesce in the suit or enforce the arbitration agreement. Such conduct has specifically to be in relation to disputes covered by arbitration agreement. But if a party to an arbitration agreement files a suit and simultaneously moves an inter-locutory application such as an application for appointment of receiver, usually to be found in suits for dissolution of partnership and rendering accounts, or for an interim injunction to ward off a threatened or continuing breach of contract, irreparable harm would be suffered by the other party to the arbitration agreement, if it cannot contest the interlocutory application on the pain of abandoning the benefit of arbitration agreement. A concrete illustration would be both illuminating and convincing. In a suit for dissolution of partnership and accounts an application for appointment of receiver as also an application for interim injunction restraining the Defendant from using the partnership goods or assets for continuing the business are filed. The Court passes ex parte interim and issues notice calling upon the Defendants to show cause why the same should not be made absolute. In a running business, appointment of a receiver would thoroughly dis-locate the business and an injunction would bring to stand-still the flourishing business. If the Defendant appears and contests the application for appointment of receiver as also the application for injunction, could he be said to display an unequivocal intention to give up the benefit of the arbitration agreement, and to acquiesce in the suit ? The dispute between the parties is whether the partnership should be dissolved as per the contract of partnership. Interim injunction application or application for appointment of receiver have nothing to do directly or substantially with the terms of the partnership. The main or substantial dispute will be covered by the plaint filed in the suit. Incidental proceedings for appointment of receiver or for interim injunction or for the protection either of the property or the interests of the parties. Now, when exparte orders are obtained on exparte averments the other party cannot be precluded from coming and pointing out that no case is made out for granting interim relief. It would be too cumbersome to expect the party first to apply for take and then invite the court u/s 41(2) of the Act to vacate the injunction or to discharge the receiver. Giving the expression ''taking any other steps in the proceedings'' such wide connotation as marking an application for any purpose in the suit such as vacating stay, discharge of the receiver or even modifying the interim orders would work hardship and would be inequitous to the party who is willing to abide by the arbitration agreement and yet be forced to suffer the inequity of exparte orders. Therefore, the expression ''taking any other steps in the proceedings'' must be given a narrow meaning in that the step must be taken in the main proceeding of the suit and it must be such step as would clearly and unambiguously manifest the intention to waive the benefit of the arbitration agreement and to acquiesce in the proceedings. Interlocutory proceedings are incidental to the main proceedings. They have a life till the disposal of the main proceeding. As the suit or the proceeding is likely to take sometime before the dispute in the suit is finally adjudicated, more often interim orders have to be made for the protection of the rights of the parties. Such interlocutory proceedings stand independent and aloof of the main dispute between the parties involved in the suit. They are steps taken for facilitating the just and fair disposal of the main dispute. When these interlocutory proceedings are contested it can not be said that the party contesting such proceedings has displayed an unequivocal intention to waive the benefit of the arbitration agreement or that it had submitted to the jurisdiction of the court. When exparte orders are made at the back of the party the other party is forced to come to the Court to vindicate its right. Such compulsion cannot disclose an unambiguous intention to give up the benefit of the arbitration agreement. Therefore taking any other steps in the proceedings must be confined to taking steps in the proceedings for the resolution of the substantial disputes in the suit. Appearing and contesting the interlocutory applications by seeking either vacation thereof or modification thereof cannot be said to be displaying an unambiguous intention to acquiesce in the suit and to waive the benefit of the arbitration agreement. Any other view would both be harsh and inequitous and contrary to the underlying intendment of the Act. The first party which approaches the Court and seeks an ex parte interim order haft obviously come to the Court in breach of the arbitration agreement. By obtaining an ex parte orders if it forces the other party to the agreement to suffer the order, or by merely contesting be imputed the intention of waiving the benefit of arbitration agreement, it would enjoy an undeserved advantage. Such could not be the underlying purpose of Section 34. Therefore, in our opinion, to effectuate the purpose underlying Section 34 the narrow construction of the expression ''taking any other steps in the proceedings'' as hereinabove set out appears to advance the object and purpose underlying Section 34 and the purpose for which the Act was enacted.

The main purpose of "taking any other steps in the proceedings" is to be construed in the background of the intention of the parties as to whether the party asking for staying the suit or referring the matter to the arbitration, still intended to invoke the provision of arbitration and in order to achieve that end, has not taken any step whatsoever to defend the suit by means of filing written statement or their plea of defence on merit. It has, as such, to be found out by the Court whether ''any other steps in the proceedings'' have been taken before making an application for stay, apart from filing written statement. The steps to be taken, as referred in the Section, should lead to the intention of the party to proceed with the suit and to give up the right to have the matter disposed of by arbitration. In case, the applicant''s conduct leads to that inference, definitely, the prayer cannot be favourably considered, but, if on the other hand, the steps so taken did not disclose the intention and conduct of the party to contest the suit, but still holding the arbitration agreement to be good and still wants the matter to be decided in that manner, the application u/s 34 has to be favourably taken note of.

There is no dispute between the parties that the cause of action, so disclosed in the plaint, is clearly covered under Clause 25 of the agreement, referred to above. Again, the Defendant-applicants are still interested to settle the dispute in the manner referred in Clause 25 of the agreement. The Defendant-applicants fulfill all the requirements of Section 34 of the Act, as discussed above. In the present application, the Defendant-applicants prayed for the vacation of the stay which prayer will not, in any manner, and especially, in view of the ratio of Food Corporation of India''s case (supra), be a bar for approaching the Court u/s 34 of the Act.

The suit preferred by the Plaintiff is for permanent prohibitory injunction which relief admittedly cannot be granted by the arbitrator. The fact remains that the cause of action, disclosed in the plaint, pertains to some amount which, according to the Plaintiff, was due to him from the Defendants. In this behalf, in the present proceedings, the Plaintiff was directed by this Court to disclose by way of an affidavit the approximate amount due to him from the Defendants. The Plaintiff, through his affidavit, submitted that approximate amount due to the Plaintiff from the Defendant pertaining to Job Nos. 1 and 4 was Rs. 29.05 lacs, besides, the interest accruing thereupon. Thus, the real dispute is this amount, being claimed by the Plaintiff. Needless to say, that the very first principle of Law of Injunction is that prima-facie, one cannot get injunction to restrain actionable wrong, i.e. for breach of contracts, for which damages were the proper remedy. It is a case of that very nature, whereby the main purpose of filing the suit was to get payment from the Defendants for which some dispute had arisen. Thus, the main dispute between the parties, happened to be the amount claimed by the Plaintiff which, according to him, he was so entitled under the agreement, which is being factually disputed by the Defendant-applicants. In this view of the matter, the main cause of action of the suit, was the amount being claimed by the Plaintiff which was alleged to be continued (sic) by the Defendants and the suit for permanent injunction, in a way, was not the proper recourse to settle the matter between the parties. That being so, the real dispute was the amount which, in view of Clause 25 of the agreement, has to be settled through arbitration.

In view of the fore-going reasons, I accept the present application and stay the Civil Suit No. 120 of 1994 u/s 34 of the Act and as a consequence thereof, on the basis of Clause 25 of the agreement, referred to above, the dispute between the parties, as disclosed in the plaint, is referred to the sole arbitration of the person to be appointed by the Chief Executive Officer of the SDA. The relevant record, as such, be sent to the Chief Executive Officer, SDA, for compliance. This petition, alongwith Civil Suit No. 120 of 1994, stand disposed of accordingly.

OMP 345 of 1994

This was an application preferred under Order 39 Rules 1 & 2 read with Section 151 CPC by the Plaintiff-applicant, wherein it has been prayed that an ad-interim injunction may be granted in favour of the Plaintiff against the Defendants, restraining them from forcibly taking possession of the constructed houses as detailed in para 9 of the plaint, i.e. 2 type ''C'' houses Nos. 69 and 89, pertaining to Job No. 1 and 2 Type ''C houses, Nos. 4 and 5 Nos. ''B'' type houses, Nos. 84, 85, 87, 88 and 90 of Job No. 4 from the Plaintiff till the final bills were completed and paid to the Plaintiff, either themselves or through their servants, workmen, agents etc.

In this application, vide order dated 8th of August, 1994, this Court directed the parties to maintain status-quo. This order is vacated. However, Defendant-non applicants are directed not to dis-possess the Plaintiff-applicant from the aforesaid houses, except in due process of law and in accordance with the terms of the agreement, arrived at between the parties. This petition also stands disposed of accordingly.