The Chief Divisional Manager and Others vs Vishal Roadlines

K.A. Puj, J.—The petitioners - original defendants have filed this petition under Article 227 of the Constitution of India praying for quashing and setting aside the order dated 07. 09. 2007 passed by the learned Chamber Judge, City Civil Court, Ahmedabad below Chamber Summons Exh. 27 whereby she has rejected the petitioners'' application to refer the dispute to the Arbitrator u/s 8 of the Arbitration & Conciliation Act, 1996 read with Order VII, Rule 10 of the Civil Procedure Code. This Court has issued notice on 16. 10. 2007 and ad-interim relief in terms of para 11 (b) was granted whereby further proceedings in Summary Civil Suit No. 1671 of 2006 were stayed. The petition was thereafter admitted and rule was issued on 29. 07. 2008 and ad-interim relief granted earlier was ordered to be continued.

Heard Mr. M. R. Bhatt, learned Senior Counsel appearing for the petitioners and Mr. Shirish Joshi, learned Advocate; appearing for the respondent.

It is the case of the petitioner that the petitioner is a public sector undertaking carrying on the business of refining and sale of petrol and petroleum products as also free trade products such as Bitumen. The petitioner Corporation being interested to promote and augment its sale of Bitumen and for the said purpose, was desirous of; having an appropriate business promotion network. For the said purpose, the petitioner Corporation appointed the respondent to act as a Product Promoter. Accordingly, a product promotership agreement dated 16. 01. 2003 was entered into between the petitioner Corporation and the respondent.

It is also the case of the petitioner that as per the said agreement, the petitioner < Corporation had the absolute discretion to terminate the product promotership. There were various covenants and assurances called from the respondent. As per Clause 28 of the said agreement, any dispute or disputes arising out of the agreement was to be referred to the sole Arbitrator of the Director (Marketing) or his nominee and the provisions of the Arbitration & Conciliation Act, 1996 were agreed to be applied to such dispute/difference, if any.

It is also the case of the petitioners that without taking recourse to Clause 28 of the agreement, the respondent filed Summary Civil Suit No. 1671 of 2006 before the City Civil Court, Ahmedabad under the provisions of Order 37 of the Code of Civil Procedure. Upon summons being served, the petitioner appeared before the City Civil Court, Ahmedabad and filed an application u/s 8 of the Act read with Order 7, Rule 10 of the CPC read with Ahmedabad City Civil Court Rules. The first application filed was withdrawn with a liberty to file fresh application and the same was rejected by the learned City Civil Judge vide her order dated 07. 09. 2007 for the reasons stated therein.

It is this order which is under challenge in the present petition.

Mr. M. R. Bhatt, learned Senior Advocate appearing for the petitioner has submitted that the impugned order dated 07. 09. 2007 passed by the learned Chamber Judge is dehorse the provisions of the settled legal principles and also contrary to the provisions contained in Section 8 of the Act. The learned Chamber Judge has committed an error in observing that only in case of dispute, reference is required to be made for arbitration u/s 8 of the Act and in the instant case, there was no dispute. He has, however, submitted that the learned Chamber Judge has overstepped the jurisdiction vested in the Court. It was not open for the learned Chamber Judge to have a mark upon an inquiry as to whether there was any boanfide dispute which required adjudication through arbitration process. He has further submitted that Clause 28 mandates that any dispute and/or differences of any nature whatsoever or regarding any right, liabilities, act, omission on account of any of the party to the agreement arising out of oral relation to the said agreement shall be referred to the sole arbitration. He has, therefore, submitted on the basis of the language used in Clause 28 of the agreement that all disputes or differences, claims, omissions etc. were covered under the Arbitration clause. Mr. Bhatt has further submitted that the learned Chamber Judge has committed jurisdictional error by observing that even during the course of argument, the petitioner Corporation had failed to point out the existence of dispute. He has further submitted that the mere fact that the petitioner Corporation had not made payment of the amount demanded by respondent, suggests dispute/difference between the parties and it constitutes omission justifying the matter to be referred for arbitration as per Clause 28 of the Agreement.

In support of his submissions, Mr. Bhatt has relied on the decision of the Hon''ble Supreme Court in the case of Hindustan Petroleum Corpn. Ltd. Vs. Pinkcity Midway Petroleums, wherein it is held that the language of Section 80 is peremptory in nature. Therefore, in cases where there is an arbitration clause in the agreement, it is obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action after such an application is made except to refer the dispute to an Arbitrator. Therefore, it is clear that if, as contended by a party in an agreement between the parties before the Civil Court, there is a Clause for arbitration, it is mandatory for the Civil Court to refer the dispute to an Arbitrator. In that case, the existence of an Arbitral clause in the agreement is accepted by both the parties as also by the lower Courts. The Court, therefore, held that if that be so, in view of the mandatory language of Section 8 of the Act, the Courts below ought to have referred the dispute to arbitration. The Court has also taken the view that Section 16 has empowered the arbitral Tribunal to rule on its own jurisdiction including rule on any objection with respect to the existence or validity of the arbitration agreement. It is clear from the language of the Section that if there is any objection as to the applicability of the arbitration Clause to the facts of the present case, the same will have to be raised before the concerned Arbitral Tribunal. The Court, therefore, took the view that the Civil Court should not embark upon an inquiry in regard to the applicability of the arbitration clause to the facts of the case.

Mr. Bhatt further relied on the decision of the Hon''ble Supreme Court in the case of Agri Gold Exims Ltd. Vs. Sri Lakshmi Knits and Wovens and Others, wherein it is held that the term dispute must be given its general meaning under the 1996 Act. The Arbitration agreement entered into by and between the parties is of wide amplitude The arbitration agreement brings within its fold dispute of any nature whatsoever. It is in broadest term. In that case, the respondents had made payments without prejudice to their rights and contentions. Payments were made keeping in view the ongoing business relationship between the parties. Out of the five post-dated cheques, two cheques were dishonoured. But, despite pendency of the suit, payments had been made to satisfy the claim of the appellant in respect of the cheques which were dishonoured. Sufficient explanation has been offered by the respondents therefor. Certain contingencies of events, are not in dispute. Admittedly, the appellant''s claim is not confined to the question regarding nonpayment of the amount under two dishonoured cheques. Thus, the Court came to the conclusion that there existed a dispute between the parties. The Court further held that Section 8 of the 1996 Act is peremptory in nature. In a case where there exists an arbitration agreement, the Court is under an obligation to refer the parties to arbitration in terms of the Arbitration Agreement.

Lastly, Mr. Bhatt relied on the decision of the Hon''ble Supreme Court in the case of Punjab State and Others Vs. Dina Nath, wherein it is held that a bare perusal of the definition of arbitration agreement would clearly show that an arbitration agreement is not required to be in any particular form. What is required to be ascertained is whether the parties have agreed that if any dispute arises between them in respect of the subject matter of the contract, such dispute shall be referred to arbitration. The Court further held that the use of the words "any dispute" would clearly mean that it would lead to conclude that the said agreement was in fact an arbitration agreement and thus these words do not restrict the scope of the contract.

Based on the above facts as well as the settled legal position, Mr. Bhatt has emphatically urged before the Court that the learned Chamber Judge has committed an error in rejecting the application for referring the matter to the arbitration and hence, the impugned order deserves to be quashed and set aside.

Mr. Shirish Joshi, learned Advocate appearing for the respondent, on the other hand, has strongly objected to grant of any relief to the petitioners in the present petition. He has submitted that simply because there is an arbitration agreement, the Court would not assume the jurisdiction to refer the matter to the Arbitrator u/s 8 of the Act. The condition precedent is that there must be some dispute. If there is no dispute, the Court is not bound to refer the matter to the Arbitrator. The learned Chamber Judge has at length discussed this issue and arrived at a conclusion that there is no dispute worth its name which is required to be referred to the Arbitrator. He has, therefore, submitted that the impugned order passed by the learned Chamber Judge does not call for any interference.

Mr. Joshi has invited the Court''s attention to the relevant clauses from the plaint of the suit as well as the affidavit-in-reply filed to the present petition as well as the affidavit-in-reply filed before the Trial Court in response to the Chamber Summons taken out by the petitioners. He has submitted that it is true that an agreement was executed on 16. 01. 2003 and as per the said agreement, the respondent was appointed as the sole Promoter of the petroleum product being introduced by the petitioners. The service charges and the method of arriving at the service charges were provided in the said agreement itself. It is nobody''s case that the respondent has not worked to the satisfaction of the petitioner or that the respondent gave any reason whatsoever to the petitioner to challenge the bills prepared and submitted by the respondent to the petitioner. No reasons are shown at any stage as to why the petitioner refused to make such payments of such bills. Since the payment was delayed for quite a long time and despite repeated reminders, since no payments were made, the respondent was constrained to file the suit before the City Civil Court and that too, to save the limitation. As many as 7 bills were submitted since 20. 01. 2003 till 30. 09. 2004. All these bills were accepted by the petitioner and at no point of time, any dispute was raised either in respect of the bill amount or the method of arriving at such amount. On the contrary, all the bills were checked by the Officers including the contents of the bill and have forwarded those bills with their recommendation to the higher-ups. Even after service of the demand notice on 18. 07. 2004, no dispute was raised nor was any grievance on the part of the petitioners against such bills. The respondent has issued the legal notice on 18. 07. 2007 to the petitioners and no one has given any reply to the said notice. He has further submitted that even when the suit was filed, after filing the appearance within the statutory period, no reply was filed despite the fact that the respondent has given summons for judgment. Instead of filing leave to defend application, the petitioner has filed Chamber Summons for referring the matter to the Arbitrator.

Mr. Joshi has further submitted that the learned Chamber Judge while deciding Chamber Summons, has referred to the provisions of Order VII, Rule 7 of the Civil Procedure Code, 1908 along with the provisions of the Rules made by this Court u/s 82 of the Arbitration & Conciliation Act, 1996. He has further submitted that the learned Chamber Judge has at length discussed the provisions contained in Clause 28 of the agreement and after examining the same, the learned Judge has come to the conclusion that the dispute as contemplated therein did not arise and hence, there is no need to refer the matter to the Arbitrator. Further, the learned Chamber Judge has rightly observed in her order that the application seeking settlement of dispute through arbitration should contain the relevant details of disputes including all relevant dates and names in a clear, concise and chronological fashion and should be concluded by indicating the relief sought. It was also observed that at no point of time, the petitioner disputed the bills towards service charges as product promoter. The notice given by the respondent prior to filing of the suit was not replied and, therefore, adverse inference could be drawn that there was no dispute with regard to the payment claimed by the respondent. He has, therefore, submitted that there is no infirmity in the impugned order which calls for any interference by this Court while exercising its writ jurisdiction under Article 227 of the Constitution of India.

Mr. Joshi has relied on the decision of the Constitutional Bench consisting of 7 Judges of the Hon''ble Supreme Court in the case of S.B.P. and Co. Vs. Patel Engineering Ltd. and Another, . Before citing this judgment, Mr. Joshi has made it very clear that though this judgment is rendered in connection with the provisions contained in Section 11 of the Arbitration & Conciliation Act, it equally applies to the issues arise in connection with Section 8 of the Act and as a matter of fact, the Court has referred to Section 8 also in more than one places. He has invited the Court''s attention to paragraph 15 of the said judgment which makes it clear that Sections 8 & 11 are of complementary in nature. Whether there is an arbitral agreement between the parties and one of the parties ignoring it, files an action before a judicial Authority and the other party raises the objection that there is an arbitration clause, the judicial Authority has to consider that objection and if the objection is found sustainable to refer the parties to arbitration. The Court further held that the judicial Authority is entitled to, has to and bound to decide the jurisdictional issue raised before it, before making or declining to make a reference.

Mr. Joshi has further invited the Court''s attention to paragraph 18 of the said judgment which says that Section 8 of the Act contemplates a judicial Authority before which an action is brought in a matter which is the subject of an arbitration agreement on the terms specified therein to refer the dispute to arbitration. It is further observed by the Court that when the defendant to an action before a judicial Authority raises plea that there is an arbitration agreement and the subject matter of the claim is covered by the agreement and the plaintiff or the person who has approached the judicial Authority for relief, disputes the same, the judicial Authority, in the absence of any restriction in the Act, has necessarily to decide whether, in fact there is in existence a valid arbitration agreement and whether the dispute that is sought to be raised before it, is covered by the arbitration clause. The Court further observed that it is difficult to contemplate that the judicial Authority has also to act mechanically or has merely to see the original arbitration agreement produced before it and mechanically refer the parties to an arbitration.

Mr. Joshi further invited the Court''s attention to paragraph 24 of the said judgment wherein it is observed that it is not correct to say that by the mere constitution of an arbitral Tribunal the rights of parties are not affected. Dragging a party to an arbitration when there existed no arbitration agreement or when there existed no arbitrable dispute, can certainly affect the right of that party and even on monetary terms, impose on him a serious liability for meeting the expenses of the arbitration, even if it be preliminary expenses and his objection is upheld by the arbitral Tribunal. Therefore, it is not possible to accept the position that no adjudication is involved in the constitution of an arbitral Tribunal.

Based on the above observations made by the Hon''ble Supreme Court, Mr. Joshi has strongly urged that unless there is a dispute, the matter cannot be referred to the arbitral Tribunal. Since the learned Chamber Judge found that there is no dispute at all, nor any dispute was raised by the petitioner at any point of time, the application was rightly rejected and hence, the impugned order should not be interfered with.

Mr. Joshi also relied on the decision of the Hon''ble Supreme Court in the case of Brigadier Man Mohan Sharma, FRGS (Retd.) Vs. Lt. Gen. Depinder Singh, wherein also it is reiterated that the designated Judge was only required to examine as to whether any dispute existed between the parties which could be referred to arbitration.

Since the whole emphasis of the arguments of Mr. Joshi was that there was no dispute at all, Mr. Bhatt, learned Senior Advocate appearing for the petitioner has made an attempt to refer to the affidavit-in-rejoinder filed in the present petition which enumerates certain disputes according to the petitioners. However, this was strongly objected to by Mr. Joshi and submitted that this being a petition under Article 227 of the Constitution of India, no new facts should be permitted to be urged before the Court. Accordingly, the Court is not taking into consideration either the affidavit-in-rejoinder filed in the present proceedings or the submissions made by Mr. Bhatt in this regard.

Having regard to the facts and circumstances of the case and having heard learned Advocates appearing for the parties and having considered the relevant Clause 28 of the Arbitration Agreement and having gone through the order passed by the learned City Civil Judge while rejecting the petitioner''s application to refer the dispute to arbitration and having considered the decided case law on the subject cited before the Court, the Court is of the view that there is no dispute about the fact that there is an arbitration agreement. There is also no dispute that Clause 28 of the said agreement deals with the arbitration clause. The learned Chamber Judge while rejecting the petitioner''s application has mainly given two reasons. The first reason is that certain technical lapses are found on the part of the petitioners while moving the application. The application moved by the petitioners is not in accordance with the provisions of Rules. The Court is, however, of the view that there is no much substance in this objection. This is merely a technical objection which should not have been given too much importance. Even otherwise, the petitioners in second application have complied with almost all the requirements which are contemplated under the Rules. Second reason given by the learned Chamber Judge while rejecting the petitioner''s application is that there is no dispute at all which is required to be referred to the Arbitrator. The payments demanded by the respondent are never denied nor even disputed. Bills were raised and were duly accepted. Part payment was also made. No defect was ever pointed out in the bills though the bills were processed by the Officers of the petitioner Corporation. When notices were issued making demand for the payment at that point of time also, no objection was ever raised. Before filing of the suit, statutory notice was given which was neither replied to nor any objection was raised. Even in the application moved before the learned Chamber Judge u/s 8 of the Act for referring the matter to the Arbitrator there is not a whisper even with regard to the denial of the bill amount. It is no where stated that the petitioners are not liable to make any payment to the respondent. Only a legal issue is raised and that too by simply stating that since there is an arbitration Clause in the agreement, u/s 8 of the Act. the Court is bound to refer the matter to the Arbitrator.

As far as the finding of the learned Chamber Judge to the effect that there is no dispute is concerned, neither the facts of the case are properly appreciated nor Clause 28 of the Agreement was construed in its true perspective. The respondent while filing the suit has made several averments in the plaint. From paragraphs 1 to 7 of the plaint, the respondent has set out the facts in relation to its claim against the petitioners. The conclusion was drawn by the respondent in paragraph 8 of its plaint. In fact, paragraph 8 is the sum and substance of the whole plaint and it is nothing but the gist of the entire plaint. It is stated therein also how the respondent is liable to recover the amount from the petitioners, how the bills were raised and part payment was made; what efforts were made by the respondent to persuade the petitioner to make the payments etc. While dealing with these averments made by the respondent in the plaint, the petitioners in their application have referred to the arbitration agreement dated 16. 01. 2003, more particularly. Clause 28 of the said Agreement and its scope. Immediately, thereafter, the petitioners stated that they deny contents of paragraph 8 of the plaint. This denial of contents of para 8 of the plaint does certainly give rise to a dispute falling under Clause 28 of the Agreement. This enables the petitioners to invoke the provisions of Section 8 of the Arbitration & Conciliation Act, 1996 and once such provisions are validly invoked. the learned Chamber Judge had no other option but to refer such dispute to the arbitration.

What is contemplated u/s 8 of the Act is that there should be an arbitration agreement between the parties and there should be an existence of a dispute as envisaged in the arbitration agreement. Clause 28 of the Agreement dated 16. 01. 2003, inter alia, includes any dispute of any nature whatsoever regarding an omission on account of any of the parties arising out of or in relation to the agreement. Here there is an omission on the part of the petitioners to make payment to the respondent. Since the payment was not made, a dispute arose out of or in relation to the agreement. Mere existence of a dispute is good enough to refer the matter to the arbitration. The velocity or magnitude of such dispute is not required to be gone into at the time of referring the matter to the arbitration. That is the function of the Arbitrator once he assumes the jurisdiction. In this view of the matter the learned Chamber Judge was not right in declining to refer the matter to the arbitration on the ground that there was no dispute. The impugned order dated 07. 09. 2007 passed by the learned Chamber Judge below Chamber Summons Exh. 27 is therefore quashed and set aside and the learned Chamber Judge is hereby directed to refer the matter to the sole Arbitrator as envisaged in Clause 28 of the agreement dated 16. 01. 2003, in exercise of the powers vested u/s 8 of the Arbitration and Conciliation Act, 1996 read with Order 7, Rule 10 of the Civil Procedure Code.

Before parting, it is necessary to observe that the judgments relied upon by Mr. Joshi would not render much assistance to the respondent as those judgments proceed on the footing that when there is no dispute between the parties, despite there being an Arbitration agreement, matter should not be referred to the arbitration. The Court, however, once having found that there is a dispute between the parties, is duty bound to refer the matter to the arbitration.

Subject to the above direction and observation, this petition is accordingly allowed. Rule made absolute with no order as to costs. At this stage Mr. Joshi, learned Counsel prayed for stay against the operation and implementation of this order. Mr. Bhatt objected to such request. Considering the facts and circumstances of the case, this order is stayed for the period of four weeks from today.