S. Ramalingam Chettiar vs S. Sarveswaran and Others

This is a civil revision petition against the judgment of the learned Fourth Additional Judge, City Civil Court, Madras, in C. M. A. NO. 205 of

1975, preferred against the order of the learned Second Assistant Judge, City Civil Court, Madras.

The suit has been filed by respondents 1 to 3 herein against the civil revision petitioner and respondents 4 and 5 for a declaration that the

partnership firm which was carrying on business under the name and style of the Madras Standard Engineering Works has been dissolved with

effect from 25-8-1975, for appointment of a Commissioner to take the account of the partnership firm and for appointment of a receiver to take

charge of the partnership firm with all its asset, movables, etc., sell the same and deposit the proceeds into court for division among the partners.

Along with the suit, I. A. No. 18362 of 1975 was filed under O. XL, R. 1 C. P.C., for the appointment of a Receiver to take charge of the

dissolved partnership business and its assets pending disposal of the suit. An ex parte order was passed on 12-9-1975 appointing a receiver.

Defendants 1 to 3, who came to know about the appointment of receiver, appeared in court and filed I. A. No. 18684 of 1975 on 18-9-1975 to

suspend the ex parte order passed in I. A. No. 18362 of 1975 appointing receiver. On the same day, they filed I. A. No. 18685 of 1975 under S.

34 of the Arbitration Act to stay the trial of the suit. The trial court dismissed the petition for stay, and this order was confirmed by the appellate

court. Hence, this civil revision petition has been preferred by the first defendant.

The defendants did not file any written statement. Therefore, the only question to be considered is whether they took any other steps in the

proceedings so as to disentitle them from applying under S. 34 of the Arbitration Act for reference to arbitration. An application for stay of

proceedings has to be made not only before filing the written statement, but also before taking any steps in the proceedings which would be an aid

in the progress of the suit or which would amount to submitting oneself to the jurisdiction of the court. Have the defendants by filing the petition to

stay the order of appointment of the receiver taken any ''other step'' in the proceedings within the meaning of S. 34 of the Arbitration Act or have

submitted to the jurisdiction of the court? This question came up for consideration in Ives and Barker v. Willans, 1894-2 Ch 478.

That was a case in which the plaintiff ''issued the writ'' against the defendant claiming a declaration concerning certain disputed questions arising

out of a sub-contract, for specific performance thereof, and damages for delay in delivering materials. The defendant appeared in the action and

gave the plaintiffs a notice in writing requiring a statement of the claim to be delivered. Subsequently, they applied for stay of further proceedings in

the action on the ground that the matters in difference had been agreed to be referred to arbitration. In the circumstances, Lindley L. J. has

observed as follows:--

The plaintiffs issued their writ against the defendant; The defendant entered an appearance, to the praecipe, and by a formal document he required

a statement of claim. That was contemporaneous with the entry of the appearance. Then he wrote a letter to the plaintiffs'' solicitor, saying that he

should desire a statement of claim. That is all he did. He took no other steps before he made this application for a stay under the section to which I

have referred. The contention on the part of the plaintiffs is this: That the defendant was too late because he asked for, or gave notice that he

should require, a statement of claim and that is said to be the taking of a step in the proceedings. Now, the language of the section requires little

attention. It is quite obvious that the step to be taken must be a step to be taken by the applicant. It is not before any pleadings are delivered by

anybody or any step is taken by anybody, but it is before the party applying delivers any pleadings or takes any other step; and, therefore, the

question we have to consider is narrowed down to this: Whether a request by one party to another to take a step is taking a step himself. That is

what the defendant did. He asked the plaintiffs to take a step, to deliver a statement of claim, I cannot say that is taking a step in the proceedings

which precludes the defendant making the application. and I do not think it would be good sense if we held that it was. Consider what the

defendant did? He had received a writ and the writ showed him that there was a claim for breach of contract. That he knew what the contract was

I do not doubt, but he did not know from the writ what the particular breaches were in respect of which the plaintiffs were suing him, and, until he

did know that, at all events, how was he to form an opinion as to whether it would be desirable to apply for an order or not? He had not the

materials before him to enable him to exercise his judgment in the matter, and it appears to me, therefore, that we should be doing an injustice to a

defendant if we said that he must apply under the section for an order to refer before he knows what the plaintiff is suing him for. Quite apart from

the case not being within the words, therefore, it is not within the spirit or the sense of the Act. Before a man can make up his mind as to which of

the alternatives he will take, he ought to know what the alternatives are, and ought to be in a position to exercise some kind of judgment in the

matter, and if we were to hold that the defendant ought to have applied before, we should be saying that he should make his application in

ignorance of material facts.

The authorities show that a step in the proceedings means something in the nature of an application to the Court, and not mere talk between

solicitors or solicitors'' clerks, nor the writing of letters, but the taking of some steps, such as taking out a summons or something of that kind,

which is, in the technical sense, a step in the proceedings.

(Underlining is mine).

In the instant case, the defendants did not ask the plaintiffs to take a step, but themselves took a step in the proceedings by asking the court to

vacate the order of appointment of a receiver. In other words, they invited the court to pass an order.

In the County Theatres and Hotels Ltd. v. Knowles, (1902) 1 KB 480 an action was brought for breach of a written agreement which

contained a clause for referring the matters in dispute between the parties to an arbitration. The defendant attended at Chambers on the hearing of

a summon for directions taken out by the plaintiffs, on which an order was made that the plaintiffs and defendant should respectively make

discovery of the documents. Subsequently, and before delivery of statement of defence, the defendant took out a summons under S. 4 of the

Arbitration Act 1889 (52 and 53 Vict C. 49), to stay the proceedings on the ground that the action was in respect of a matter agreed to be

referred by a contract between the parties. Lawrence J. refused to make the order asked for. On appeal by the defendant, Collins M. R. held

that;--

......the decision of the learned Judge war right. It seems to me that the case last cited to us of Chappell v. North, 1891 1 QB 252 is in point; but

even if it were not, this case is clear upon principle. That which O. XXX has done is to enable the parties to obtain on one summons an order, with

respect to all interlocutory proceedings to be taken in the action, which they might before this rule took effect, have obtained on several distinct

summonses. The parties appear before the master, with, as it were, a blank sheet on which he may make this inclusive order. When he does so,

with the acquiescence of both parties, there is just as much a step in the proceedings by each of the parties as if an order had been made on his

separate application. The defendant might have objected to the making of the order on the ground of the agreement to refer differences; but he did

not do so; and is not in a position to ask for a stay under S. 4 the Arbitration Act.

In the The Karnani Industrial Bank Ltd. Vs. Satya Niranjan Shaw and Others, , Sanderson C. J. has considered the question whether the

application by the counsel for the defendant for further time to file a written statement amount to ''taking a step in the proceedings'' within the

meaning of S. 19 of the Indian Arbitration Act (IX of 1889) and held that it was such a step. Richardson J. who agreed with him has held that-

The party, who appears by counsel in suit and applies by such counsel for time to file a written statement appears to me to be taking a step in the

suit.

In Subal Chandra Bhur Vs. Md. Ibrahim and Another, the counsel for the defendant appeared and applied for and obtained time to file his client''s

affidavit in opposition to the application for appointment of receiver and also applied for and obtained directions and leave from the court to

inspect the books of accounts and records. Subsequently, one of the defendants in the suit took out a notice of motion of the stay of the suit under

the provisions of S. 34 of the Arbitration Act 1940. In the circumstances, Das J. has observed as follows-

.....I am satisfied that when the applicant by his counsel applied to the court of obtaining time to file his affidavit in opposition and for leave to have

inspection of the books and records he acquiesced in the method adopted by the plaintiffs for having the disputes decided, viz, by the court and

not by arbitration, and that he was quite content that the disputes should be fought out in court. This conduct, to my mind, clearly implies a

statement to the effect that to defendant would proceed to defend the action and would not insist on the right to have the disputes disposed of by

arbitration.

Subsequently, he has observed that---

...... the application for time to file the affidavit in opposition to the application for the appointment of a receiver and for leave to inspect

documents cannot possibly be referable to any intention to go to arbitration or to any objection to filing of the suit, but only indicates that the

defendant was anxious to oppose that application although it had been made in a suit and that there was no objection that the plaintiff had filed a

suit instead of going to arbitration. In these circumstances, by acting as he did, the defendant was undoubtedly taking a step in the proceeding, may

be in ignorance of the existence of the arbitration clause. The fact that he was unaware of the arbitration agreement does not make him act any the

less a step to the proceedings if in fact and in law it was a step.

In P. Gannu Rao Vs. P. Thiagaraja Rao and Another, Kunhiraman J. held that asking for time to file a counter in an interlocutory application for

interim injunction was a step in the proceedings within the meaning of S. 34 of the Arbitration Act, and, therefore, the defendant was precluded

from applying for stay of proceedings and for reference of disputes of parties to arbitration.

In Bortes S.A. by Agents, South India Corporation (Agencies) Private Ltd. Vs. Astrouic Compania Naviors S.A. by Power of Attorney Agent

Shaw Wallace Co. Ltd., Palaniswamy J. considered a case where the defendant took out an application to effect an interim injunction and offered

to furnish security and held that wheat ever may be the circumstances under which the defendant took out the application, the fact is clear that they

took steps in the proceedings within the meaning of S. 34 and are, therefore, disentitled to ask for stay of the suit.

As against the decisions cited above, the learned counsel for the civil revision petitioner relies on a decision of a Bench of the Bombay High

Court in Anandkumar Parmanand Kejriwala and Another Vs. Kamaladevi Hiralal Kejriwal, , in which it has been held that to debar a defendant

from moving to refer the case to arbitration, the application must be a substantive application expressing a desire to take step in the suit indicating

that the defendant proposes to go on with the suit. It was held that,

According to the test formulated by our court, it must indicate that the defendants desire to abandon the agreement to refer the matter to

arbitration and proceed with the suit. Having regard to what is stated by defendant No. 1 in paragraph 2 of his affidavit and their filing of the

appearance under protest, it is clear that the defendants wanted to rely upon the arbitration clause and not to proceed with the suit in the court. It is

doubt true that Tendolkar J. did point out that there is no rule in the Original Side Rules requiring an appearance under protest in the case of

arbitration clause. Even so, when an appearance is filed under protest it must indicate that the defendants do not desire to proceed with the suit but

desire an arbitration, though no doubt filing of an appearance without protest would not mean that they abandon their rights of arbitration as held

by Tendolkar J.

Again, it was observed that,

.......the test of an application is not the sole test or a conclusive test. The section does not refer to an application as such. The section refers to a

step in the proceedings and the principles for deciding as to what is a step in the proceedings have been settled by the decision of Tendolkar J. and

the decision of the Division Bench of this court. Applying this test and having regard to the defendants filing of the appearance under protest and

reserving their right to move the court for referring the dispute to arbitration, we hold that they had not taken any steps in the proceedings.

With great respect, I agree with the view of Palaniswamy J. in Bortes S.A. by Agents, South India Corporation (Agencies) Private Ltd. Vs.

Astrouic Compania Naviors S.A. by Power of Attorney Agent Shaw Wallace Co. Ltd., cited above. I am unable to follow the view of the

Bombay High Court as against the decision of this court. In the instant case, by inviting the court to pass an order vacating the interim injunction,

the defendants have submitted to the jurisdiction of the court. Therefore, the petition under S. 34 of the Arbitration Act to stay the proceedings in

the suit is not maintainable.

In the result, the orders of the courts below are confirmed, and this civil revision petition is dismissed. There will be no order as to costs.

Revision dismissed.