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TMI Blog2006 (8) TMI 515X X X X Extracts X X X X X X X X Extracts X X X X ..... tered into by and between the parties hereto in regard to the handling and storage of iron and steel materials of the Appellant at Ludhiana. The Appellants contend that one Shri Anil Verma, Partner of the Respondent-Firm had constituted various firms and companies and obtained several consignment agency contracts from the Appellant pertaining to Delhi, Faridabad, Chandigarh and Ludhiana etc. who conspired with certain officials of the Appellants and obtained payments @ Rs.140/- per M.T. in place of Rs.36/- per M.T. on a false plea that the Transport Union at Bahadurgarh did not permit transportation of goods without levy of a fee of Rs.100/- per M.T. on transportation of such goods. An investigation was conducted by the Central Bureau of Investigation and a criminal case was initiated against Shri Anil Verma and the concerned officials of the Appellants. Allegedly, with the object of presenting a clean image to the Appellants and with a view to avoid termination of all the contracts by them, a plea was put forth that Shri Anil Verma had resigned from the partnership firm as also from his other firms/companies. According to the Appellants, the said Shri Anil Verma was replaced by hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts for the year 2001-02. The same was made possible because of untiring efforts made by the plaintiff of the present case. In the present case, the straightaway of black listing the firm is not justified, even the principal of natural justice goes in favour of the respondent/plaintiff" A Revision Application filed by the Appellants before the High Court thereagainst was dismissed by the impugned judgment, inter alia, on the premise that the application filed by them being not accompanied by the original arbitration agreement or a duly certified copy thereof, the same was not maintainable. A Review Application filed thereagainst pointing out that such certified copy had in fact been filed, however, was not entertained. Mr. R. F. Nariman, the learned Senior Counsel appearing on behalf of the Appellants, inter alia, would submit that the learned Civil Judge and the High Court committed a serious error in construing the provisions of Section 8 of the 1996 Act, insofar as they failed to take into consideration that : (1) Section 8 of the 1996 Act cannot be equated with Section 34 of the Arbitration Act, 1940, (for short, 'the 1940 Act) having been made in terms of UNCITRAL Model Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g resigned, the application under Section 8 was not maintainable. (6) The original arbitration agreement or the certified copy of the agreement having not been annexed with the application, the same was not maintainable. The 1996 Act makes a radical departure from the 1940 Act. It has embodied the relevant rules of the modern law but does not contain all the provisions thereof. The 1996 Act, however, is not as extensive as the English Arbitration Act. The 1996 Act was enacted by the Parliament in the light of the UNCITRAL Model Rules. In certain respects, the Parliament of India while enacting the said Act has gone beyond the scope of the said Rules. With a view to appreciate the said question, we may at the outset notice the provisions of Section 4 of the English Arbitration Act, 1899, which was bodily lifted in enacting Section 34 of the 1940 Act, in the following terms : "4. Power to stay proceedings where there is a submission.-If any party to a submission, or any person claiming through or under him, commences any legal proceedings in any Court against any other party to the submission, or any person claiming through or under him, in respect of any matter agreed to be ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itral proceedings have already commenced, the arbitral tribunal may continue the proceedings while the issue of its jurisdiction is pending with the court." Section 8 of the 1996 Act reads as follows : "8. Power to refer parties to arbitration where there is an arbitration agreement.-(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute refer the parties to arbitration. (2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof. (3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made." Section 8 of the 1996 Act, however, although lifted the first part of the said Article 8 did not contain the expression contained in the second part therein. The Indian Parliament has gone beyond the recommendations made by the UNCITRAL Model Rules in enacting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was stated : "The answer to the question whether a dispute falls within an arbitration clause in a contract must depend on (a) what is the dispute, and (b) what disputes the arbitration clause covers. To take (b) first, the language of the arbitration clause in this agreement is as broad as can well be imagined. It embraces any dispute between the parties "in respect of " the agreement or in respect of any provision in the agreement or in respect of anything arising out of it. If the parties are at one on the point that they did enter into a binding agreement in terms which are not in dispute, and the difference that has arisen between them is as to their respective rights under the admitted agreement in the events that have hampered e.g. as to whether the agreement has been broken by either of them; or as to the damage resulting from such breach; or as to whether the breach by one of them goes to the root of the contract and entitles the other party to claim to be discharged from further performance; or as to whether events supervening since the agreement was made have brought the contract to an end so that neither party is required to perform further in all such cases it seems ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties in the proceedings before us and even more than that. As already noted, the arbitration agreement satisfies the requirements of Section 7 of the new Act. The language of Section 8 is peremptory. It is, therefore, obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement. Nothing remains to be decided in the original action or the appeal arising therefrom. There is no question of stay of the proceedings till the arbitration proceedings conclude and the award becomes final in terms of the provisions of the new Act. All the rights, obligations and remedies of the parties would now be governed by the new Act including the right to challenge the award. The court to which the party shall have recourse to challenge the award would be the court as defined in clause (e) of Section 2 of the new Act and not the court to which an application under Section 8 of the new Act is made. An application before a court under Section 8 merely brings to the court's notice that the subject-matter of the action before it is the subject-matter of an arbitration agreement. This would not be such an application as contemplated under Section 42 of the Act as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no provision corresponding to Section 34 of the old Act and Section 8 of the 1996 Act mandates that the judicial authority before which an action has been brought in respect of a matter, which is the subject-matter of an arbitration agreement, shall refer the parties to arbitration if a party to such an agreement applies not later than when submitting his first statement. The provisions of the 1996 Act do not envisage the specific obtaining of any stay as under the 1940 Act, for the reason that not only the direction to make reference is mandatory but notwithstanding the pendency of the proceedings before the judicial authority or the making of an application under Section 8(1) of the 1996 Act, the arbitration proceedings are enabled, under Section 8(3) of the 1996 Act to be commenced or continued and an arbitral award also made unhampered by such pendency. We have to test the order under appeal on this basis." See also Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums [(2003) 6 SCC 503]. The High Court, in our opinion, proceeded on a wrong premise. It posed unto itself wrong question. It refused to interfere in the matter opining that no notice had been served b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequent resignation as a partner was irrelevant for the purpose of consideration in regard to the maintainability of the application under Section 8 of the 1996 Act. Filing of a reply to the injunction application could also not have been a ground to refuse to entertain the plea taken by the Appellants that the suit should be referred to arbitral tribunal particularly when in its reply to injunction application, the appellant categorically stated : "1. That the present application under Order 39 Rules 1 and 2 read with Section 151 CPC is liable to be dismissed on the short ground that the plaintiff has himself admitted the existence of the arbitration clause and therefore, the present application under Order 39 Rules 1 and 2 read with Section 151 CPC is not maintainable and consequently the order of this Hon'ble Court is liable to be vacated." Thus, they did not submit themselves to the jurisdiction of the court. They did not waive their right. They in effect and substance questioned the jurisdiction of the court in proceeding with the matter. In fact, in its application filed under Section 8 of the 1996 Act, the Appellant raised a contention that the suit was liable to be dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filing the first statement on the substance of the dispute, in our opinion, the party cannot be said to have waived his right or acquiesced himself to the jurisdiction of the court. What is, therefore, material is as to whether the petitioner has filed his first statement on the substance of the dispute or not, if not, his application under Section 8 of the 1996 Act, may not be held wholly unmaintainable. We would deal with this question at some details, a little later. Our attention, however, was drawn by the learned counsel for the Respondent to The State of Uttar Pradesh and Another v. M/s. Janki Saran Kailash Chandra and Another [(1973) 2 SCC 96], which was distinguished in Food Corporation of India (supra), inter alia, stating that the view taken therein did not run counter to the view the court had taken. In Janki Saran Kailash Chandra (supra), an application for time to file written statement was considered to be a step in the proceedings. We have noticed hereinbefore the respective scope of Section 34 of the 1940 Act vis- '-vis the scope of Section 8 of the 1996 Act. In view of the changes brought about by the 1996 Act, we are of the opinion that what is necessary is disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existence of an arbitration agreement. Having regard to the provisions of the Act, they had, thus, shown their unequivocal intention to question the maintainability of the suit on the aforementioned ground. The submission of the learned counsel for the Respondents that the two different causes of action having been raised, namely, illegal termination of contract and blacklisting of the firm, Section 8 of the 1996 Act was not attracted is devoid of merit; inasmuch as according to the Respondents themselves, both the causes of action arose out of the terms of the contract. What was necessary was to consider the substance of the dispute. Once it is found that the dispute between the parties arose out of the contract, Section 8 of the 1996 Act would be attracted. Furthermore, as noticed hereinbefore, the High Court committed a manifest error in holding that the Respondent-Firm had been blacklisted without any notice as only a notice to show cause in that behalf had been issued. A final decision in regard to blacklisting of the Respondent-Firm was yet to be taken. The Respondents could file their show cause and could have satisfied the authorities of the Appellant No.1 that no case h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Section 16 of the 1996 Act. Strong reliance has been placed by Mr. Rai on a decision of this Court in Union of India v. Birla Cotton Spinning and Weaving Mills Ltd. [AIR 1967 SC 688] contending that when the dispute arises de' hors the agreement, Section 8 of the 1996 Act would not be applicable. The said decision has no application in the instant case as a finding of fact was arrived at therein that the Union of India had withheld payment of a large sum of money on the specious plea that some amount in relation to another contract was due to it. The submission of the respondent therein was that no such contract had been executed by it. In the fact situation obtaining therein, this Court held : "The evidence recorded by the Trial Court discloses that there was no dispute between the Company and the Union arising under the contract on which the suit was filed. The Union accepted liability to pay the amount claimed by the Company in the suit. The Union still declined to pay the amount asserting that an amount was due from the Company to the Union under a distinct contract. This amount was not sought to be set-off under any term of the contract under which the Company made the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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