State Trading Corporation and Another vs Vaishali Shoe Co. Ltd.

Birendra Prasad Sinha, J.—This is an appeal by the defendants against an order passed by the Ist Subordinate Judge, Muzaffarpur, in a money suit.

The plaintiff has filed the suit claiming Rs. 5,90,052/- (five lakhs ninety thousand fifty two). It appears that the plaintiff-respondent entered into a contract with the defendants-appellants Corporation for the supply of sixty thousand industrial Gloves to be sold and supplied to a firm of Australia. Clause 13 of the contract contained an arbitration clause which, inter alia, stipulated that

all disputes or differences arising under the contract would be referred to the arbitration of an officer of the appellant corporation. The agreement was entered into on 21-1-1980. The suit was filed by the plaintiff on 17-1-1983. On 7-4-1983 a petition was filed on behalf of the defendants-appellants u/s 34 of the Arbitration Act (in short the ''Act'') in which it was stated that the defendants-appellants were willing when they received a letter dated 4-11-1982 from the plaintiff and were still willing to do all things necessary within the ambit of the corporation for the proper enforcement of the arbitration clause. It was prayed that the suit should be stayed as provided u/s 34 of the Act. Learned Subordinate Judge, after hearing the parties, dismissed the application under, Section 34 of the Act. On a finding that the defendants-appellants were not willing and were not ready to appoint an arbitrator to decide the dispute. The defendant corporation has, therefore, filed this appeal against the impugned order dated 20th July 1983.

Mr. Aftab Alam, learned counsel for the appellants, submitted that the learned Subordinate Judge should not have dismissed the petition u/s 34 of the Act for mere inaction on the part of the defendants. He submitted that there must be something more i.e., some positive act on the part of the defendants signifying their unwillingness or want of readiness to go to the arbitration.

The question, therefore, is whether in the facts and circumstances of this case it can be said that the defendants-appellants were willing for the appointment of an arbitrator prior to the filing of the suit.

From the facts of the present case it will appear that the plaintiff respondent was required to supply the Gloves, latest by Mar. 1980 and on the basis of a certificate of the defendants had secured a packing credit advance for the purchase of materials. Twenty five thousand Gloves were manufactured and on 31-3-1980 the plaintiff informed the defendants to inspect and lift the goods. The goods were inspected and approved and the plaintiff was informed by a telegram dated 7-4-1980 from the defendants to stop further production. Since June 1960 the plaintiffs were requesting the defendants to arrange early disposal

of the goods as the Bank loan was everyday multiplying, but the defendants did not take any action. Ultimately having awaited for quite sometime the plaintiff wrote a letter on 4-11-1982 to the defendants to appoint an arbitrator which letter was received by the defendants oft. 8-11-1982. The defendants did not take any action. Thereafter the plaintiff sent a notice u/s 80 of the CPC (in short the ''Code'') to the defendants on 10-12-1982 which was served on them on 13-12-1982. Even then the defendants did not take any action. The suit was thereupon filed on 17-1-1983. The plaintiffs in their rejoinder in the Court below stated that the Bank had given them a threat for filing a suit and the period of limitation of the plaintiffs'' claim was also near. They had no option but to file a suit It was, therefore, not only inaction on the part of the defendants but they purposely avoided to appoint any arbitrator with the ulterior motive to see that the claim of the plaintiff was barred.

Section 34 of the Act provides that when any party to the arbitration agreement commences any legal proceeding against any other party to the agreement, any party to such legal proceeding may, at any time before filing a written statement or taking any other steps in the proceeding, apply to the judicial authority to stay the proceeding and if satisfied that there was no sufficient reason why the matter should not be referred in accordance with 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 arbitration, such authority may make an order staying the proceedings. The question is whether the defendants were ready and willing for the arbitration at the time when the proceedings were commenced and were still ready for the same when the application was filed. Relying upon a decision of the Supreme Court in case of State of Punjab Vs. Geeta Iron and Brass Works Ltd., Mr. Aftab Alam submitted that mere silence on the part of the defendants was not enough to disentitle them to move u/s 34 of the Act and seek stay. In that case also the Subordinate Judge and the High Court had declined to stay the suit. What had happened was that the defendants

kept silent on receiving a notice u/s 80 of the Code. It was observed by the Supreme Court that as a matter of law mere silence on the part of the defendants when a notice u/s 80 of the Code was sent to him, may not without more, disentitle him to move u/s 34 of the Act and seek stay. The appeal was dismissed by the Supreme Court as other circumstances were also there for dismissal of the application u/s 34 of the Act, as the suit was filed and when notices were sent the summonses were refused; and when an ex parte proceeding was taken the Government woke up.

In the present case it would appear that the plaintiffs were requesting the defendants for the disposal of the goods arid for making the payment since June 1980 as the interest was growing up to their detriment and they were receiving threats from the Bank. The plaintiffs made specific request to the defendants by their letter dated 4-11-1982 for the appointment of a receiver. The authorities did not wake up. When the notice u/s 80 of the Code was sent, the defendants received it but slept over it Thus they allowed the suit to -be filed. On 17-1-1983 they waited for another three months to file an application u/s 34 of the Act for staying the proceedings. This amply signifies the gross indifference on the part of the authorities and not only mere silence. The appellant corporation is a Government undertaking. It was only expected that with large resources at their command they would be diligent in all such matters. But if the authorities become lethargic they had to thank themselves. I shall do better by quoting a passage from the judgment of Krishna Aiyer, J., in the State of Punjab Vs. Geeta Iron and Brass Works Ltd., .

"We like to emphasize that Governments must be made accountable by Parliamentary Social audit for wasteful litigative expenditure inflicted on the community by inaction, a statutory notice of the proposed action u/s 80, C. P. C, is intended to alert the State to negotiate a just settlement or at least have the courtesy to tell the potential outsider why the claim is being resisted. Now Section 80 has become a ritual because the administration is often unresponsive and hardly lives up to the

Parliament''s expectation in continuing Section 80 in the Code despite the Central Law Commission''s recommendations for its deletion. An opportunity for sett-line the dispute through arbitration was thrown away by sheer inaction. A litigative policy for the State involves settlement of governmental disputes with citizens in a sense of conciliation rather than in a fighting mood. Indeed, it should be a directive on the part of the State to empower its law officer to take steps to compose disputes rather than continue them in Court. We are constrained to make these observations because much of the litigation in which Governments are involved adds to the case load accumulation in Courts for which there is public criticism. We hope that a more responsive spirit will be brought to bear upon Governmental litigation so as to avoid waste of public money and promote expeditious work in Courts of cases which deserve to be attended to".

In the case of Food Corporation of India Vs. Thakur Shipping Co. and Others, it was observed that where a party to the arbitration agreement chooses to maintain silence in the face of repeated requests by the other party to take steps for arbitration, the case is not

one of "mere inaction". Failing to act when a party is called upon to do so is a positive gesture signifying unwillingness or want of readiness to go to arbitration. In the instant case the plaintiff-respondent had not only requested the defendants for the appointment of an arbitrator, but had also sent a legal notice thereafter and the defendants did not even choose to send a reply. It cannot, therefore, be said that it was merely inaction or silence on the part of the defendants. They failed to act when they were called upon to do so. This was a positive act on their part signifying their unwillingness to go to the arbitration.

The learned Subordinate Judge has taken into consideration all these facts and circumstances and has rightly held that this was not a case of mere inaction on the part of the defendants. The application u/s 34 was rightly dismissed and does not require any interference by this court.

In the result this appeal fails and is dismissed, but without costs.

M.P. Verma, J.

I agree.