Union of India vs M/s Central India Machinery Mfrs. Co. Ltd.

S.L. Bhayana, J.—This is an appeal arising out of the order of learned Additional District & Sessions Judge, Delhi dated 13.02.1984 whereby the learned Additional District & Sessions Judge dismissed the suit of the appellant. The brief facts of the case are that a tender was floated by the appellant/Union of India on 19.12.1968 for supply of 600 numbers of guide on bogie frames. Various parties submitted tenders including the respondent but the tender of respondent was accepted by the appellant for supply of the said material. The respondent agreed to supply the material @ Rs. 146/- per piece. The contract entered into between the parties was governed by the conditions contained in Form-68 of DGSND (revised) as amended upto date. Some letters were exchanged between both the parties on the point of supply of raw material but ultimately the respondent did not perform its part of the contract. The appellant served a notice on the respondent to supply the material by 15.11.1974 failing which the contract shall be cancelled at the risk and cost of the respondent. Despite service of the said notice, the respondent failed to make any supply of the material to the appellant. Ultimately, the contract between the parties was cancelled at the risk and cost of the respondent. The appellant readvertised the tender and a risk-purchase contract was entered into with M/s Uma Engineering Works, Howrah. As a result of this risk-purchase contract, the appellant suffered a loss of Rs. 40,812/-. The appellant claimed this amount from the respondent. The appellant was also entitled to recover Rs. 1,421.85 from the respondent on the difference of freight charges. The appellant claimed interest @ 12% per annum on the said amount which comes to Rs. 37,165/- The appellant claimed a total amount of Rs. 79,398.85 from the respondent in the said suit filed by the appellant against the respondent.

Written Statement was filed by the respondent in which it claimed that there was an arbitration clause in the agreement entered into between the parties. The said arbitration clause was invoked by the appellant and the matter was referred to the sole arbitrator Dr. Bakshish Singh to resolve the dispute between the parties. Dr. Bakshish Singh held the arbitration proceedings but the appellant failed to submit any claim before him and the arbitrator closed the case for non-prosecution and made an award. It is submitted that the present suit is, therefore, not maintainable.

We have heard learned counsel for the parties and perused the record carefully. Learned counsel for the appellant has stated that admittedly there was an arbitration clause in the agreement entered into between the parties. He also admitted that the dispute was referred to Dr. Bakshish Singh, the sole arbitrator, under the agreement. He has also admitted that the arbitrator held the arbitration proceedings on certain dates. On 21.06.1977, the arbitrator closed the case of the appellant for non-prosecution as the appellant failed to file any claim/statement before the arbitrator. Thereafter, a petition u/s 28 of Arbitration & Conciliation Act seeking extension of time before the arbitrator, was moved by the appellant/UOI before the court but the said petition was also dismissed on 01.05.1978 by the learned Additional District & Sessions Judge. The learned court held that as no reference was pending before the arbitrator, the question of extension of time did not arise. Learned counsel for the appellant has further submitted that thereafter appellant appointed Shri P.S. Kaicker as arbitrator which was challenged by the respondent before the court of learned Additional District & Sessions Judge. The respondent filed a petition u/s 33 of the Arbitration & Conciliation Act and Challenged the said appointment. The said petition of the respondent u/s 33 of Arbitration & Conciliation Act was also allowed by the learned Additional District & Sessions Judge on 20.08.1980. The learned Additional District & Sessions Judge observed in the said order that the arbitration stood exhausted and the appellant was not entitled to invoke the arbitration clause any further. Thereafter, the appellant/UOI filed the present suit. Learned counsel for the appellant has submitted that the appellant has no other option but to file the present suit as the learned court of Additional District & Sessions Judge did not extend the time of the arbitrator for making an award. He further contended that even the appointment of Shri P.S. Kaicker as an arbitrator was turned down by the court of learned Additional District & Sessions Judge. So, the appellant was compelled to file the present suit. He has further stated that the suit of the appellant is maintainable and it should be adjudicated upon by the learned trial court. He has further submitted that the learned trial court has erred in dismissing the suit of the appellant. Learned trial court failed to appreciate that the appellant had no other efficacious remedy except to file the present suit to recover the amount of Rs. 79,398.85 against the respondent. He has further stated that the impugned order dismissing the suit of the appellant may be set aside and the appeal of the appellant may be allowed.

On the other hand, learned counsel for the respondent has submitted that there is an arbitration clause in the agreement which was entered into between both the parties. Under the said arbitration agreement, the appellant had appointed Dr. Bakshish Singh as the sole arbitrator to reslove the disputes between the parties .Dr. Bakshish Singh held the arbitration proceedings on various dates. The said arbitration on 21.06.1977 held that the appellant/UOI has not filed its claim/statement. The case was closed for non-prosecution. The counsel for the respondent further submitted that once the reference is made to the arbitrator, then it is the arbitrator who has jurisdiction to decide the point in controversy and the court cannot assume jurisdiction to decide the same. In this case also, the dispute was referred to Dr. Bakshish Singh, the sole arbitrator who ultimately closed the case for non-prosecution as the appellant had failed to file its claim before the said arbitrator. He has further submitted that thereafter the appellant had moved the court for extension of time of the arbitrator to adjudicate upon the reference and the said petition was also dismissed by the court of learned Additional District & Session Judge. Thereafter, the appellant had appointed another arbitrator Shri P.S. Kaicker to enter upon the reference. Even that appointment was challenged by the respondent u/s 33 of the Arbitration & Conciliation Act and the court of learned Additional District & Sessions Judge struck down the appointment of the new arbitrator, Shri P.S. Kaicker as it was done illegally by the appellant. Learned counsel for the respondent has further submitted that once an award has been passed by the arbitrator, the court has no jurisdiction to assume jurisdiction over the matter and the court cannot decide the point in controversy as the court does not have the power to do the same under the law.

We have heard the arguments. It is admitted case of both the parties that the tender which was floated by the appellant Union of India on 19.12.68 for supply of the goods, contained arbitration clause. It is also admitted case of both the parties that the tender of the appellant was accepted by the respondent for supply of the material to the appellant Union of India. It is also admitted case of both the parties that the respondent failed to supply the material as per the terms and conditions of the contract. Consequently, the appellant served a notice on the respondent to supply the material but the respondent failed to supply the material even after service of notice. Ultimately, the appellant Union of India cancelled the contract and re-advertised the tender for supply of the material at the risk and cost of the respondent. As a result of this risk purchase contract, the appellant suffered a loss of Rs. 40,812/- and the total amount claimed by the appellant including interest came to Rs. 79,398.85 from the respondent. It is also admitted case of both the parties that the appellant appointed Dr. Bakshish Singh as the sole arbitrator to enter upon the reference/dispute which had arisen between the parties. Dr. Bakshish Singh entered upon the reference and invited both the parties to file their claim and counter claim before him. Despite several opportunities given by the learned arbitrator to the appellant Union of India, the appellant failed to file its claim before the sole arbitrator as a result of which learned arbitrator passed an award on 21.06.1977 thereby closing the case of the appellant for non-prosecution as the appellant had failed to file any claim before the arbitrator. It is also admitted case of both the parties that the appellant moved the court of learned Additional District & Sessions Judge for extension of time for passing the award by the arbitrator. The said petition wad dismissed by the learned Additional District & Sessions Judge as the learned Additional District & Sessions Judge held that no reference was pending before the arbitrator. So, the question of extension of time did not arise. Thereafter, the appellant appointed another arbitrator, namely, Shri P.S. Kaicher to enter upon the reference afresh which was challenged by the respondent by filing petition u/s 33 of the Arbitration & Conciliation Act and the same was allowed by the learned Additional District & Sessions Judge holding that the arbitration stood exhausted and the appellant was not entitled to invoke the arbitration clause any further. Thereafter, the appellant filed the present suit which was dismissed by the learned trial court holding that the civil court has no jurisdiction to entertain the suit as both the parties were governed by the arbitration clause and the appellant had exhausted the arbitration clause by appointing the arbitrator Dr. Bakshish Singh who entered upon the reference and closed the case as the appellant had failed to file its claim before the said arbitrator.

In our opinion, the learned court has rightly held that the civil courts cannot entertain any such suit because both the parties were governed by the terms and conditions of the contract which contained arbitration clause. Once the arbitrator has passed an award closing the case of the appellant on account of non-filing of claim before the arbitrator, the appellant is estopped from filing any civil suit before a civil court. This view finds support from the observation made by this court in case reported in Beena Misra Vs. S.K. Jain and Others, titled as "Beena Misra v. S.K. Jain & Others":

Learned Counsel for the appellant contended that the learned ADJ had no jurisdiction to grant interim injunction in favour of the respondent No. 1 as the suit itself was barred u/s 32 of the Arbitration Act. It is beyond the pale of controversy that the agreement dated 29.4.1982 was executed between the appellant and the respondent No. 1, whereunder the respondent No. 1 acquired sole and exclusive rights of distribution of the Hindi feature film "DO YAAR" for screening for a consideration of Rs. 2,50,000/-. It is also undisputed that the said agreement contained an arbitration Clause (Clause No. 9) pursuance to which both the parties referred the dispute for the arbitration of respondent Nos. 2 & 3 and that on 24.7.89, the respondent Nos. 2 & 3 gave an award directing the respondent No. 1 to pay a sum of Rs. 70,000/- within four weeks and on payment of this amount the appellant herein shall deliver as many prints as in her possession against the cost. It is the grievance of the appellant that instead of complying with the award, the respondent No. 1 filed the suit and got the interim injunction against her. In my opinion, the suit itself, prima facie, which was instituted by the respondent No. 1 was not maintainable by virtue of the provisions of Section 32 of the Arbitration Act. Section 32 imposes a bar not only against the institution of any suit for a decision upon the existence, effect or validity of an award, but is also impose a bar against the award being enforced, awarded or set aside or modified except otherwise than as provided in the Arbitration Act. Therefore, whenever any award is made, the question of existence of the arbitration agreement or validity of the award can only be decided under the provisions of the Arbitration Act. The jurisdiction of the Civil Court is ousted because of the clear and unambiguous wording of Section 32 of the Arbitration Act. What the respondent No. 1 had sought in the present suit was to challenge the existence of the arbitration agreement and the validity of the award made by the respondent Nos. 2 & 3. The statutory remedy open to him is one provided u/s 30 of Section 33 of the Arbitration Act. It appears that the learned Additional District Judge is blissfully ignorant about the provisions of Section 32 of the Arbitration Act otherwise he would not have committed such a patent illegality in granting injunction against the appellant. Consequently, the impugned order cannot be allowed to stand. In the result, the appeal is allowed and the impugned order dated 22nd January, 1996 is hereby set aside. Respondent No. 1 shall pay the cost of the appellant and bear his own. Counsel fee is quantified at Rs. 3,000/-

(Emphasis supplied)

This view also finds support from the observation made in case reported in AIR Bombay 39 titled as "Akbar Ali (deceased by LR) and others v. Mumtaz Hussain and Another.": Where parties refer their dispute to an arbitration and an award is made, it is binding on parties and though the award is not filed in Court and rule is not made by the Court in terms of the award, a fresh suit on the basis of original cause of action is barred under S. 32. AIR 1984 Andh. Pra. 28. Dissented from. Case law discussed.

Although in express terms it is not stated in S. 32 that a suit on the original cause of action would be barred, the scheme of Ss. 30, 31 (2) and 32 would be that a suit on the original cause of action would be barred because what is provided therein is that no suit can lie on any ground whosoever for a decision upon the existence, effect and validity of an award and no arbitration award can be enforced, set aside, amended, modified for in any way effected otherwise than as provided in the arbitration Act. Although, therefore, the suit may not directly be framed to set aside the award as such or to vary its terms, the effect of the filing of a suit on the basis of the original cause of action for adjudication of the rights of the parties would be the same. Therefore, the suit on the original cause of action stands barred by the provisions of S. 32 of the Arbitration Act.

In the instant case, there was a dispute between the partners and the matter was referred to sole arbitrator who made an award. Neither party filed award in Court and consequently no rule was made in terms of the award. Subsequently a fresh suit was filed on the original cause of action. According to the plaintiffs the sole arbitrator acted in excess of the terms of the reference and that the plaintiff did not accept the same and further that the award was not filed in the Court within the prescribed time due to which the award was a nullity. Held, that the question in view of the provisions of S. 31(2) of the Arbitration Act could be decided by a Court in which the arbitration award was or could be filed and by no other. As such, if the award cannot be challenged as a nullity in the instant suit upon the above grounds, the plaintiffs are not entitled to any relief in the instant suit on the original cause of action. The award is final and bindings upon the parties and would bar the instant suit.

(Emphasis supplied)

We are in respectful agreement with the observation made by the Hon''ble courts in the aforesaid citations and we are of the considered opinion that in the present case also both the parties had referred their disputes to the arbitrator Dr. Bakshish Singh who entered upon the reference and made an award. The same is binding on the parties. A fresh suit on the basis of original cause is barred u/s 32 of the Arbitration & Conciliation Act. The learned trial court has rightly dismissed the suit filed by the appellant. We find no merit in the appeal. The appeal is hereby dismissed. Parties are left to bear their own costs. File be consigned to record room.