Swaika Vanaspati Products vs Express Tin Containers Pvt. Ltd.

Ajoy Nath Ray, J.—Upon instructions given to Mr. Mitter in Court by his learned instructing Advocate he has chosen to oppose these applications finally without filing any affidavit-in-opposition. To the specific query of Court whether his client would like to file opposition, in case his preliminary submissions made upon the petitions were not accepted, his reply, '' upon instructions, was that he would still not file affidavits and he would oppose the applications to-day and to-day only.

In this view of the matter the preliminary submissions have to be considered in some detail.

Although I have heard the issue of the applicability of Section 34 of the Arbitration Act to winding up proceedings at length in three earlier cases being the case of S.I. Engineering Pvt. Ltd. v. Port Shipping Co. Ltd. 1994 (1) C.LJ. 312, the case of Central Inland Water Transport Corporation v. Neptune Engineering Services decided on January 24, 1994, and the case of Subrata Sasmal and Co. v. Ram Kumar Radhey Shyam Kedia, decided on February 2, 1994, Mr. Mitter has indeed urged one or two new points which were not argued earlier. These I deal with below.

The first submission was that winding up application is a proceeding in rem or a representative proceeding. Since a representative proceeding affects the rights of third parties also, who are not parties to the arbitration agreement, a winding up application should not be subject to Section 34 of Arbitration Act.

Indeed the winding up application does become a representative action after advertisements are issued. But prior thereto the winding up application remains in the nature of a private dispute, whether the pre-advertisement stage of contest is reached by the company filing an opposition to the winding up petition, or by the company presenting a stay petition on its own, after giving of directions for advertisement, but prior to actual appearance thereof in the papers, at that stage where the contest is as between the petitioning creditor and the company only, the Court disposes of winding up petitions like private disputes. Very often directions are given for instalment payments. Such instalment payments after advertisements would not be possible save upon hearing all interested persons.

Thus, although the winding up proceeding is a representative action at some stage, it is not so from the beginning. Usually an action is representative either from its start or it is never a representative action. But a winding up petition is an exception. It has been held again and again in cases without number that a winding up petition assumes a representative capacity upon issuance of advertisements. It is the automatic corollary of such a proposition that it does not assume such a character prior to the appearance of advertisements.

Accordingly, there is no bar to the application of Section 34 to a winding up petition prior to the stage of the appearance of advertisements in publications circulated amongst the public.

Secondly, Mr. Mitter argued that the winding up petition is concerned with the decision upon the question whether the company has the means to pay. Such an issue is not an issue to go before the Arbitrator. Therefore, he argued, a winding up petition is not in respect of a matter agreed to be referred. Mr. Mitter relied upon two cases in this regard, i.e., Anderson Wright Ltd. Vs. Moran and Company, and the case of Rachappa Gurudappa Bijapur Vs. Gurudiddappa Nurandappa and Others, .

Indeed, if the petition is admitted upon the satisfaction of the Court that a debt is actually indisputably due, the Court would then, ultimately and after advertisements, examine the solvency of the company, at the final hearing of the winding up petition on an all-round basis and not limit its enquiry merely to the existence of the debt due from it to the petitioning creditor. But that is the ultimate question. The first question prior to the advertisements is the existence of the debt, and existence of the debt due to the petitioning creditor is a matter agreed to be referred. The second preliminary objection of Mr. Mitter in my opinion is also, therefore, with respect, unsound.

Thirdly, Mr. Mitter submitted relying inter alia upon case of The Chartered Bank Vs. The Commissioner for the Port of Calcutta, that if a petitioning creditor is to obtain an award before an Arbitrator and then apply for winding �up, it leads to an unnecessary multiplicity of proceedings. In my opinion, there is a certain fallacy in this argument which is exposed by Mr. Mitter''s own argument made earlier. A proceeding before the Arbitrator would crystallize the debt. It would crystallize the debt as between the two parties, namely, the petitioning creditor and the company, or, the applicant before the Arbitrator and the Respondent company. But thereafter, when there is no scope left practically for further disputing the debt, the winding up application would raise the second point of wiping out the existence of the company altogether. There is, therefore, involved in the process, not a multiplicity of proceedings, but proceedings in two stages, directed towards two different ends.

It was emphasized by Mr. Mitter that an inability to pay, which is the ultimate question before the Company Court in a winding up matter, is not a referable dispute according to the arbitration agreement. The Arbitrator can decide upon the liability of the company to pay. But whether the company will be able to discharge the liability or not is a matter outside the purview of the arbitration jurisdiction. Mr. Mitter in this regard relied upon the case of Nanalal M. Varma and Co. Ltd. Vs. Alexandra Jute Mills Limited,

This case was earlier cited before me and relying thereupon and upon the Calcutta case (Uttamchand) and the Supreme Court case (Birla Cotton) referred to therein, I have reached a conclusion that under the Indian Arbitration Law, a mere non-payment, for practical purposes, has to be equated to a dispute. If this is not done, a Respondent can approach the Arbitrator and say that he has no jurisdiction to pass an award because the claim before him is admitted. Such a position would lead to an absurdity which should, in my opinion, be avoided.

It was next submitted by Mr. Mitter that the stay petition should indicate the dispute sought to be referred and the disputes indicated in the present stay petition themselves show that Section 34 of the Arbitration Act is inapplicable. He referred me, inter alia, to p: 7 of the stay petition and said that the applicant''s case was that the petitioning creditor had agreed to accept the old payments against fresh supplies. Mr. Mitter submitted that this new agreement is not the subject-matter of the arbitration agreement which has to be in writing. Thus the new oral agreement cannot be the subject of a stay order u/s 34, Mr. Mitter relied upon two cases in this regard - Seth Thawardas Pherumal Vs. The Union of India (UOI), and Umrao Singh and Co., Mahanagar, Lucknow (U.P.) Vs. The State of Madhya Pradesh and Others,

The arbitration clause, in the instant matter, would be found at p. 16 of the annexures to the petition and the same is set out below:

Should any dispute or disputes arise in connection with any matter forming the subject-matter of this order, the cases shall be referred to the Arbitration Tribunal in Calcutta under the Arbitration Rules of Bengal Chamber of Commerce, Calcutta, and any award made by the Tribunal shall be final and finding on both the parties.

It will be seen here from that this was a commercial transaction and the selected arbitral tribunal was one of a chamber of commerce. Courts are slow to interfere with such commercial decisions made specifically in contracts, wherein parties wish to avoid coming to Courts on issues relating to the agreement in question.

If the petition disclosed facts which showed that the disputes between the parties related to the subsequent oral arrangement, then and in that event the above arbitration clause might not have had any application to the present case. But if the said arrangement is not seen in its true perspective, anything isolated, but is rather a matter forming the subject of discharge or performance of the said written agreement, as subsequently decided upon by the parties, then Section 34 of the Arbitration Act applies with full force. In view of the decision of Mr. Mitter''s client not to use any affidavit-in-opposition at all in this matter, it would take a very strong case indeed, for any Court to come to the conclusion, that what is pleaded in the said petition as a matter relating to the written agreement is not such, but is in fact a matter relating altogether to a fresh agreement. Without an affidavit on the part of the Respondent I have no hesitation in accepting the Petitioner''s case that the disputes relate to the agreement in writing and do not relate exclusively or separately to the subsequent oral arrangement.

Then Mr. Mitter submit that there was an allegation of fraud in the petition. He pointed out para. 11 in this regard. He invoked the old principle that a Respondent had a right to claim a vindication of his own good name by an open trial in Court if a slur of fraud had been cast upon him. Mr. Mitter relied upon the case of Bengal Jute Mill Co. Ltd. Vs. Lalchand Dugar, and placed before me paras. 9 and 10 thereof. Even in the said para. 9 the Supreme Court''s decision in Abdul Kadir is referred to, where Wanchoo, J. pointed out that it was not every imputation of dishonesty that would induce a Court to refuse to make a reference. Short of an affidavit giving a clarification about the reasons why such an open trial is called for by the Respondent, it is not advisable to exercise discretion in favour of a refusal of reference merely because fraud has been mentioned. In my opinion, it would be an improper use of judicial discretion in this case to refuse to refer upon the allegations of the Petitioner itself simply because some imputations against the Respondent are there and the words ''fraudulent, fabricated and fatuous'' have been mentioned in the petition.

Lastly, Mr. Mitter submitted that even if all the conditions of Section 34 were satisfied, yet the final order to be passed thereon was a discretionary one. He relied upon the case of The Printers (Mysore) Private Ltd. Vs. Pothan Joseph, and placed before me para. 7 of the said judgment. At the end of the said paragraph Lord Justice Bowen''s dictum is quoted and since the quotation, even when it was reproduced in the Supreme Court decision, was 75 years old, and was being approved, it would bear a reputation, for such classical statements were meant for guidance of Judges in many successive generations. His Lordship had said: "That discretion, like other judicial discretion, must be exercised according to common sense and according to justice."

Now, my common sense tells me that when businessmen have agreed that decisions about their debts will be made by a business chamber, they should go there for such decisions, and not come to a Court of Law instead, where the primary importance is given to niceties of the law. In a business chamber the primary importance is accorded to rough and ready business, expediency.

In these circumstances, in my opinion, the applications should succeed. There shall be an order in terms of prayer (a) in each of these proceedings. The Respondents will however be at liberty to take steps for recovery of their alleged dues in any other manner they might think fit.

Although Mr. Mitter appears perhaps not in all of this set of petitions, and he was instructed not to ask for time for filing the affidavits-in-opposition, such an instruction must be taken as being given by his Advocate-on-record in regard to all these matters. Any other course would be most unfair, because it would permit the Respondents to sit on the fence, hear the judgment which I dictated upon the impression that all the matters were being dealt with by a common judgment, and thereafter to try and file affidavits upon the basis of my observations, taking a cue there from as to what matter should be pleaded. It is the essence of a fair decision that the decision shall come after the pleadings are complete, and not that the pleadings should be completed after the decision has been substantially given.

In case the arbitration proceedings cannot continue for some reason, the Respondents will, upon showing good cause, be at liberty to pray for vacating the stay of the winding up and to revive the petitions.

All parties and others concerned to act on a signed Xerox copy of this dictated order on the usual undertakings.