Tek Singh vs Paramjit Singh and Others

S.S. Sodhi, J.—Filing of the written statement does not invariably constitute a bar to the stay of proceedings u/s 34 of the Arbitration Act, 1940 (hereinafter referred to as the Act). Illustrative of this being the case here.

The partnership deed between the parties contained an arbitration clause which reads as under:

In case of any dispute or difference between the parties, the same may be referred to an arbitrator who shall be appointed with the mutual consent of the partners and his decision shall be final and binding on the partners.

Differences having arisen between the partners, one set of them, namely, Paramjit Singh, Ajmer Singh and Mehar Singh dissolved the partnership and then hied a suit against the other partners Tek Singh and Hari Singh seeking a permanent injunction to restrain them from carrying on the business of the partnership. Along with the suit, an application for temporary injunction was also filed. On receipt of the notice of the suit, on January 23, 1985, the Defendant Tek Singh filed an application u/s 34 of the Act praying therein that proceedings in the suit be stayed in view of the arbitration agreement between the parties. It was also averred that the dispute had already been referred to the arbitrators and the parties had appeared before them.

On the next date of hearing, i.e., January, 30, 1985, besides filing a reply to the application for temporary injunction, the Defendant also filed his written statement. The case was then adjourned to February 6, 1985, for reply to the application u/s 34 of the Act. This reply was eventually filed on February 7, 1985. One of the pleas raised in this reply was that the filing of the written statement by the Defendant constituted a step in the proceedings and the application thus deserved to be dismissed on this ground alone. This objection prevailed with both the trial Court as also the lower appellate Court. Stay of proceedings, as sought by the Defendant, was consequently declined. Herein lies the challenge in revision.

It will be seen that the application for stay of proceedings u/s 34 of the Act had been filed earlier, i.e., on January 23, 1985, and it was awaiting adjudication when the Defendant filed his written statement a week later on January 30, 1985. A plain reading of this written statement would show that objection was taken there at the very outset to the continuance of the proceedings in the suit on account of the arbitration clause in the partnership deed. Mention was also made of the application u/s 34 of the Act having already been filed. It is pertinent to note that counsel for the Respondent could point to no material on record or circumstance to infer any waiver or abandonment by the Defendant of the relief sought by him in terms of Section 34 of the Act except the filing of the written statement. Such being the circumstances, can it be said that the Defendant had disqualified himself from relief u/s 34 of the Act by the mere filing of the written statement?

The test to be applied here is that as laid down by the Supreme Court in Food Corporation of India v. Yadav Engineer and Contractor 1982 (2) S.C.C. 499, where the question posed was: "What action on the part of the Defendant who is sued in a court of law and who has a subsisting valid arbitration agreement with the Plaintiff, would constitute steps in the proceedings so as to disentitle him to stay of the suit which, if granted, would enable him to enforce the arbitration agreement?" It was held--

...Unless the step alleged to have been taken by the party seeking to enforce arbitration agreement is such as would display an unequivocal intention to proceed with the suit and acquiesce in the method of resolution of dispute adopted by the other party, namely, filing of the suit and thereby indicate that it has abandoned its right under the arbitration agreement to get the dispute resolved by arbitration, any other step would not disentitle the party from seeking relief u/s 34....

Seen in this light, the mere filing of the written statement by the Defendant in this case can by no means be construed as any unequivocal intention or acquiescence on his part to the disputes being dealt with by the Civil Court instead of by the arbitrators under the arbitration agreement between the parties. This being so, the Defendants were clearly entitled to the stay of the suit in terms of Section 34 of the Act as prayed for by them.

Faced with this situation, Mr., J. Section Virk, counsel for the Plaintiffs sought to raise the plea that it had not been specifically mentioned in the application u/s 34 of the Act that the Defendant was ready and willing to abide by the arbitration agreement. Contention was also raised that as fraud had been alleged by the Plaintiffs against the Defendants, the matter had of necessity to be decided by the Civil Court, rather than by arbitration. Neither of these pleas had been raised in the reply filed by the Plaintiffs, nor was any such point taken before either of the Courts below. They cannot, therefore, be allowed to be raised for the first time in revision.

In the result, the impugned order of the lower appellate Court is hereby set aside and the suit of the Plaintiffs is ordered to be stayed in terms of Section 34 of the Act. This revision petition is consequently accepted with costs. Counsel''s fee Rs. 300.