Sri Lakshmi Knits and Wovens and Others vs Agri Gold Exims Ltd.

D.S.R. Varma, J.—Heard both sides and at their request this Civil Revision Petition is taken up for disposal at the stage of admission.

The order impugned is the order passed in I.A. No. 3167 of 2003 in O.S. No. 47 of 2003 on the file of Court of II Additional District Judge, Vijayawada.

Facts in brief are that both the parties are engaged in a business under a Memorandum of Understanding (MOU) and as per the said MOU, if there is any dispute, the parties have to invoke the Arbitration Clause. In other words, the MOU contains Arbitration Clause and procedure also has been mentioned specifically in the said clause. These facts are not in dispute.

Now the problem has arisen in the following manner:

There arose a dispute between the parties with regard to certain payments. For the purpose of deciding the present case, the details of the same are not relevant. In that connection, O.S. No. 47 of 2003 has been filed by the respondent-plaintiff on the file of the Metropolitan Session Judge, Vijayawada. In the said suit, the defendants filed objections stating that in the light of the arbitration clause incorporated in the MOU, suit does not lie and the matter has to be referred to the Arbitrator, as prescribed under the said clause of the MOU. The said objections were not found favour with the court below, eventually the court below dismissed the petition along with other petitions filed, seeking stay, Hence, the present revision.

Sri B.S. Raju, counsel appearing for the petitioners, submits that as per Section 8 of the Arbitration and Conciliation Act, 1996 (for brevity ''the Act''), if any objection is raised as regards the maintainability of the suit before the first statement is filed, the judicial authority shall refer the parties to the Arbitration.

For ready reference, Section 8 of the Act is extracted hereunder:

Power to refer parties to arbitration where there is an arbitration agreement:- (1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.

(2) The application referred to in Sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.

(3) Notwithstanding that an application has been made under Sub-section (1) and that the issue is pending before the judicial authority an arbitration may be commenced or continued and an arbitral award made.

From a perusal of Sub-section (1) of Section 8, the requirements to file an application u/s 8 are: (1) an action is brought before a judicial authority; (2) the subject matter of that action i.e., a suit must be subject matter of an arbitration agreement; (3) the party, which makes an application opposing such a suit, shall raise an objection before the first statement is made on the substance of the dispute, and (4) upon such objection being raised, the parties shall be referred to the arbitration by the Court.]

The above are to be satisfied subject to the compliance of conditions mentioned in the Sub-sections (2) and (3) of Section 8 of the Act.

Coming to the case on hand, it is not in dispute that the suit has been filed before a competent civil court regarding certain payments, which are seriously in dispute by the respondent/plaintiff. It is also equally not in dispute that the MOU contains an arbitration clause, according to which, in case of arisal of any dispute, the respondents have to ask the petitioner to refer the matter to the arbitrator after nominating an arbitrator by them, and the petitioner has also to nominate its arbitrator, notwithstanding any minor difference or deviation in the interpretation of procedure. It has to be borne in mind that arbitration clause had been specifically incorporated in the MOU and the same is binding on both the parties. If any of the parties, in case of arisal of any dispute fails to appoint an arbitrator as envisaged under the MOU, it is open for the other party to approach the Hon''ble the Chief Justice of the High Court or the Judge nominated by the Chief Justice, u/s 11(6) of the Arbitration and Conciliation Act, 1996.

Having regard to the facts and circumstances, as a necessary corollary, I pass the following order:

(a) the impugned order passed by the court below is liable to be set aside and is accordingly set aside;

(b) Liberty is reserved to either of the parties to approach the Chief Justice, as held by the Supreme Court in (S.B.P. and Co. v. Patel Engineering Ltd. and Anr. 2005 (7) SCJ 461 : 2005 (6) ALT 37.1 (DN SC)), in case of failure to appoint an arbitrator by either of the parties.

In the result, the Civil Revision Petition is allowed, subject to the above observations, at the stage of admission. However, there shall be no order as to costs.

ORDER

The matter is listed under the caption "For Being Mentioned", seeking to clarify the order, dated 11-11-2005, passed by this Court in this Civil Revision Petition No. 5241 of 2004.

Heard both sides.

The present Civil Revision Petition is directed against the order and decree, dated 23-8-2004, passed by the II Additional District Judge, Vijayawada, dismissing the application LA. No. 3167 of 2003 in O.S. No. 47 of 2003, filed u/s 151 of the CPC seeking to refer the matter to the Arbitrator and to dismiss the suit O.S. No. 47 of 2003.

The petitioners are the defendants and the respondent is the plaintiff.

For the sake of convenience, in this order, the parties will be referred to as per their array in the suit.

Brief facts of the case are that both the parties are engaged in a business under a Memorandum of Understanding (MOU) and as per the said MOU, if there is any dispute, the parties have to invoke the Arbitration Clause. In other words, the MOU contains Arbitration Clause and procedure also has been mentioned specifically in the said clause. These facts are not in dispute.

Now the problem has arisen in the following manner:

There arose a dispute between the parties with regard to certain payments. For the purpose of deciding the present case, the details of the same are not relevant. In that connection, O.S. No. 47 of 2003 has been filed by the respondent-plaintiff on the file of the Metropolitan Session Judge, Vijayawada. in the said suit, the defendants filed objections stating that in the light of the arbitration clause incorporated in the MOU, suit does not lie and the matter has to be referred to the Arbitrator, as prescribed under the said clause of the MOU. The said objections were not found favour with the court below, eventually the court below dismissed the petition along with other petitions filed, seeking stay, Hence, the present revision.

Sri B.S. Raju, counsel appearing for the petitioners, submits that as per Section 8 of the Arbitration and Conciliation Act, 1996 (for brevity ''the Act''), if any objection is raised as regards the maintainability of the suit before the first statement is filed, the judicial authority shall refer the parties to the Arbitration.

For ready reference, Section 8 of the Act is extracted hereunder:

Power to refer parties to arbitration where there is an arbitration agreement:- (1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.

(2) The application referred to in Sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.

(3) Notwithstanding that an application has been made under Sub-section (1) and that the issue is pending before the judicial authority an arbitration may be commenced or continued and an arbitral award made.

From a perusal of Sub-section (1) of Section 8, the requirements to file an application u/s 8 are: (1) an action is brought before a judicial authority; (2) the subject matter of that action i.e., a suit must be subject matter of an arbitration agreement; (3) the party, which makes an application opposing such a suit, shall raise an objection before the first statement is made on the substance of the dispute, and (4) upon such objection being raised, the parties shall be referred to the arbitration by the Court.]

The above are to be satisfied subject to the compliance of conditions mentioned in the Sub-sections (2) and (3) of Section 8 of the Act.

Coming to the case on hand, it is not in dispute that the suit has been filed before a competent civil court regarding certain payments, which are seriously in dispute by the plaintiff. It is also equally not in dispute that the MOU contains an arbitration clause, according to which, in case of arisal of any dispute, the plaintiff has to ask the defendants to refer the matter to the Arbitrator after nominating an arbitrator by them, and the plaintiff has also to nominate its arbitrator, notwithstanding any minor difference or deviation in the interpretation of procedure, it has to be borne in mind that arbitration clause had been specifically incorporated in the MOU and the same is binding on both parties.

Having regard to the facts and circumstances, as a necessary corrolary, I pass the following order:

(a) the impugned order passed by the court below is liable to be set aside and is accordingly set aside,

(b) Liberty is reserved to either of the parties to approach the Honourable the Chief Justice, as held by the apex Court in S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, , in case of failure to appoint an arbitrator by either of the parties.

In the result, the Civil Revision Petition is allowed, subject to the above observation, at the stage of admission. However, there shall be no order as to costs.