The Punjab Dairy Development Corpn. vs Sudesh Kumar

V.S. Aggarwal, J.—The present appeal has been filed by the Punjab Dairy Development Corporation Ltd., (hereinafter described as ''the appellant'') directed against the order passed by the learned Sub-Judge 1st Class, Amritsar dated 3-9-1979. By virtue of the impugned order the learned trial Court had dismissed the application filed by the appellant u/s 34 of the Indian Arbitration Act, 1940.

The relevant facts are that respondent Sudesh Kumar had filed a civil suit recovery of Rs. 3,00,900/- against the appellant. The appellant submitted an application u/s 34 of the Indian Arbitration Act, 1940 (for short ''the Act'') contending that there is an arbitration clause between the parties. Keeping in view the said arbitration clause, the suit may be stayed. The dispute should be referred to the Arbitrator as per the agreement between the parties. The application was opposed by the respondent. It was asserted that the application was not maintainable and that the appellant has already taken steps in the proceedings of the suit. The provisions of Section 34 of the Act cannot be invoked. It was denied that there was any valid arbitration agreement.

The learned trial Court had framed the following issues :

(1) Whether there exists any valid arbitration agreement between the parties as alleged in the application ? OPA

(2) Whether the suit is liable to be stayed ? OPA

(3) Relief.

The trial Court recorded that appellant had taken steps in the proceedings and, therefore, cannot taken advantage of Section 34 of the Act. Accordingly, despite there being an arbitration agreement, the application filed by the appellant was dismissed. Aggrieved by the same, the present appeal had been filed. When the appeal was listed for arguments, none appeared for either side. Keeping in view the old pending appeal, it was unnecessary to list the same again and again for arguments.

Section 34 of the Arbitration Act which had been pressed into service on behalf of the appellant reads :

"34. Power to stay legal proceedings where there is an arbitration agreement. - Where any party of an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the 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 the arbitration, such authority may make an order staying the proceedings."

Perusal of the provisions clearly spells out the necessary ingredients of Section 34 of the Act. A stay can be granted u/s 34 of the Act when certain conditions are satisfied. Borrowing words from the decision of the Supreme Court in the case of Anderson Wright Ltd. Vs. Moran and Company, , the conditions to be satisfied are :

"(1) The proceeding must have been commenced by a party to an arbitration agreement against any other party to the agreement.

(2) the legal proceeding which is sought to be stayed must be in respect of a matter agreed to be referred.

(3) The applicant for stay must be a party to the legal proceeding and he must have taken no step in the proceeding after appearance. It is also necessary that he should satisfy the court not only that he is but also was at the commencement of the proceedings ready and willing to do every thing necessary for the proper conduct of the arbitration; and

(4) the court must be satisfied that there is no sufficient reason why the matter should not be referred to an arbitration in accordance with the arbitration agreement."

It is the third condition referred to above which was subject matter of controversy before the trial Court. It was as to if the appellant had taken steps in the proceedings before seeking stay of the proceedings u/s 34 of the Act. It is true that whenever an application u/s 34 of the Act was filed, it was not mandatory that proceedings must be stayed. The discretion was with the Court. The Supreme Court in the case of The Printers (Mysore) Private Ltd. Vs. Pothan Joseph, , considered this aspect and held that there can be no test of automatic application of the provisions. The discretion has to be exercised by this Court. In paragraph 7 it was held :

"Section 34 of the Act confers power on the court to stay legal proceedings where there is an arbitration agreement subject to the conditions specified in the section. The conditions thus specified are satisfied in the present case, but the section clearly contemplates that, even though there is an arbitration agreement and the requisite conditions specified by it are satisfied, the Court may nevertheless refuse to grant stay if it is satisfied that there are sufficient reason why the matter should not be referred in accordance with the arbitration agreement. In other words, the power to stay legal proceedings is discretionary, and so a party to an arbitration agreement against whom legal proceedings have been commenced cannot by relying on the arbitration agreement claim the stay of legal proceedings instituted in a court as a matter of right. It is, however, clear that the discretion vested in the court must be properly and judicially exercised. Ordinarily where a dispute between the parties has by agreement between them to be referred to the decision of a domestic tribunal the court would direct the parties to go before the tribunal of their choice and stay the legal proceedings instituted before it by one of them. As in other matters of judicial discretion, so in the case of the discretion conferred on the court by Section 34 it would be difficult, and it is indeed inexpedient, to lay down any inflexible rules which should govern the exercise of the said discretion. No test can indeed be laid down the automatic application of which will held the solution of the problem of the exercise of judicial discretion. As was observed by Bowen L.J., in Gardner v. Jay 1885 (29) Ch. D. 50 "that discretion, like other judicial discretion, must be exercised according to common sense and according to justice."

However, when necessary conditions of Section 34 are satisfied, necessarily the proceedings should be stayed because ordinarily when a dispute is covered by an arbitration agreement and all other ingredients are satisfied, the proceedings necessarily should be stayed.

What is the position here ? The appellant had appeared through the counsel and had prayed time for filing of the written statement on number of occasions. The trial Court rightly held that it cannot be believed that appearance was without any authority or that there was no proper service. Once appearance has been put in and adjournments taken, it must be taken that there are steps taken in the proceedings. The general principle was enunciated by the Rajasthan High Court in the case of Joharimal and Others Vs. Fatehchand and Others, and in paragraph 23 it was held :

"(1) An application for time to file written statement or any other similar application should not be treated as a matter of law a step in the proceedings. In order to constitute a "step", it must be of such a nature as to lead the Court to the conclusion that the party prefers to have his rights and liabilities determined by the Civil Court rather than by the domestic forum upon which the parties might have agreed. It must display an unequivocal intention to proceed with the suit and to abandon the right to have the matter disposed of by arbitration.

(2) The test, however, should not be subjective and a party cannot be entitled to say that he had actual knowledge of the right under the arbitration agreement and that in fact he did not intend to give up his right. On the other hand, the test must be objective and a person shall be deemed to have taken a step u/s 34 of the Act, it is can be held that he could have actual or constructive knowledge of his right in the event of exercising due diligence and that in spite of that he participated in the proceedings of the Court.

(3) Prima facie, and application for time to file written statement should raise a presumption that the defendent had actual or constructive knowledge of his right and that he acquiesced in the method adopted by the plaintiff. The presumption however, is not absolutely irrefutable and can be rebutted by showing that even constructive knowledge cannot be imputed to the defendant. It is, however, not proper and fair to lay down that the presumption, can be rebutted only on the ground that the defendants did not receive the copy of the plaint. In rare and exceptional cases, it may be rebutted by other circumstances, such as appearance of a Government counsel without getting instructions in a particular case to appear. It is not desirable to enumerate the exhaustive list of the circumstances and to make generalization and each case should be considered on its own facts and circumstances."

Almost similar was the view of this Court in the case of Union of India v. M/s. Hira Lal Sud and others 1978 PLR 239 Herein also there was request for filing of the written statement and it was held that it was a step taken in the proceedings. In paragraph 3 this Court held :

"The present case is fully covered by a decision of the Supreme Court in State of Uttar Pradesh v. M/s. Jan Saran, Kailash Chander, wherein the order declining the prayer u/s 34 of the Act was upheld because of the application submitted to seek adjournment to file the written statement. The learned counsel for the appellant, however, sought to distinguish this case on the ground that in the present case no application has been filed to seek the adjournment. I am, however, unable to agree with the learned counsel for the appellant, because an oral request for adjournment is as good as a written request, if a written request seeking adjournment to file written statement amounts to taking steps in the proceeding."

Two decisions of the Supreme Court in this regard can be noted which settles the controversy. In the case of The State of Uttar Pradesh and Another Vs. Janki Saran Kailash Chandra and Another, . The Supreme Court while considering a similar question held :

"To enable a defendant to obtain an order staying the suit, apart from other conditions mentioned in Section 34 of the Arbitration Act, he is required to present his application praying for stay before filing his written statement or taking any other step in the suit proceedings. In the present case the written statement was indisputably not filed before the application for stay was presented. The question is whether any other step was taken in the proceeding as contemplated by Section 34 and it is this point with which we are directly concerned in the present case. Taking other steps in the suit proceedings connotes the idea of doing something in aid of the progress of the suit or submitting to the jurisdiction of the Court for the purpose of adjudication of the merits of the controversy in the suit."

Lastly reference with advantage may be made to the subsequent decision of the Apex Court in the case of Rachappa Gurudappa Bijapur Vs. Gurudiddappa Nurandappa and Others, . It was held that where a person submits to the jurisdiction of the Court and seeks adjournment to file the written statement, he cannot take advantage of Section 34 of the Act. In paragraph 10 while discussing almost identical facts, the Court repelled such an argument and held :

"Each Court must find out from the context of each case whether this has happened or not. The Court further observed therein that "a step taken in the suit which would disentitled the party from obtaining stay of proceeding must be such step as would display an unequivocal intention to proceed with the suit and to abandon the benefit of the arbitration agreement or the right to get the dispute resolved by arbitration."

It has already been held above that number of adjournments were taken to file the written statement. The words ''taking any other steps in the proceedings'' does not include each and every step. It should be given a narrow meaning. It should indicate a manifest intention to waive the benefit of arbitration agreement. The step must be consciously taken with a view to submit to the jurisdiction of the Court for adjudication of the controversy. It is clear that the appellant had submitted to the jurisdiction of the Court and had taken steps towards the proceedings. The trial Court rightly held in these circumstances that provisions of Section 34 of the Act will not come to the rescue of the appellant. There is no ground to interfere.

For these reasons, the appeal being without merit must fail and is dismissed.

Appeal dismissed.