State of Uttar Pradesh & ANR Vs.
Janki Saran Kailash Chandra & ANR [1973] INSC 89 (23 April 1973)
DUA, I.D.
DUA, I.D.
ALAGIRISWAMI, A.
VAIDYIALINGAM, C.A.
CITATION: 1973 AIR 2071 1974 SCR (1) 31 1973
SCC (2) 96
CITATOR INFO:
F 1982 SC1302 (13,18,20,22,27) F 1989 SC 635
(7,9) F 1990 SC 893 (6)
ACT:
Arbitration Act 1940, S. 34-District
Government Counsel accepting summons along with copy of written statement in
suit for damages for breach of contract against State Government-Filing memo of
appearance and asking for adjournment-whether in doing so "any other step
in the proceedings" is taken within meaning of s. 34-State Government's
plea for stay of suit under s. 34 whether could be entertained in circumstances
of case-It was better to have suit for large sum tried by court rather than by
arbitrator.
HEADNOTE:
The plaintiffs (respondents herein)
instituted a suit for the recovery of damages for breach of contract impleading
the State of U.P. (through the Collector of Bijnor) as the first defendant, and
the Divisional Forest Officer, Bijnor as the second defendant. The summons in
the. suit issued to the State of U.P. were served on the District Government
Counsel. On September 2. 1966 the said counsel filed an appearance slip in the
court and also put in a formal application praying for one month's time for the
purpose of filing written statement. This prayer was granted. On October 1,
1966 the District Government counsel filed an application under s. 34 of the Arbitration
Act pleading that there was an arbitration--clause in the agreement between the
parties to the suit and the State of U.P. being willing to refer the matter to
arbitration the suit should be stayed. The trial court held that the dispute
was subject to arbitration clause and since the State of U.P. had not taken any
steps in the suit proceedings and had also not filed the written statement the
suit was liable to be stayed. On appeal the High Court held that the action of
the District Government Counsel in applying for time to file the written
statement amounted to taking a step in the proceedings within the meaning of s.
34 of the Arbitration Act. On this view the defendant was held disentitled to
claim that the suit should be stayed. By special leave the defendants appealed to
this Court.
Dismissing, the appeal,
HELD : (i) Taking other steps in the suit
proceedings within the meaning of s. 34 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.
[37E-F] A recognised agent like the District Government Counsel can scarcely be
considered to appear voluntarily in a case on behalf of the Government in the
sense of being unauthorised by his client for the simple reason that he is
authorised by virtue of statute to appeal, act and make applications on behalf
of the Government. Indeed in the present case the District Government Counsel
also filed in the Court the usual appearance slip. If he wanted time for
further consultations, he could and should have specifically made a prayer to
that effect.
[38C] The State took the benefit of the
adjournment. It would be somewhat irrational and perhaps incongruous to permit
the State, after having taken the benefit of the adjournment, to plead that the
application for adjournment was not made on instructions and was unauthorised.
[38E] (ii) The argument that the trial court's discretion had been erroneously
reversed by the High Court was equally devoid of merit. If the appellants
application was for adjournment for the purpose of filing the written
statement, then there was no question of any case of discretion by the trial
court. Discretion with regard to stay under s. 34 of the arbitration Act is to
be exercised only when an application under that section is competent.[38G]
(iii) Keeping in view the long delay after the commencement of the suit and the
fact that the suit was for a very heavy amount by way of damages for breach of
contract. it would be more satisfactory on the whole to have the suit tried in
a competent court of law in the normal course rather than by a lay 32
arbitrator who was not bound either by the law of evidence or by the law of
procedure. [39B] United Provinces Government v. Sri Har Nath, A.I.R. 1949 All.
611, Union of India v. Hans Raj Gupta & Co. A.I.R. 1957 All. 91, Punjab
State v. Moji Ram, A.I.R 1957 Punjab 223, State of Himachal Pradesh v. Lalchand
Shahi, A.I.R. 1953 H.P. 75. Harbans Lal v. National Fire & General Insurance
Co. Ltd., A.I.R. 1955. Notes on Unreported Cases (Punjab) 4917 (Delhi), The
Printers (Mysore) Private Ltd. v. Bothen Joseph, [1960] 3 S.C.R. 713, Joharimal
and others v. Fatehchand and others A.I.R.1960, Raj. 67, Anderson Wright Ltd.,
v. Morarn & Co. A.I.R. 1955 S.C. 53. Sarat Kumar Ray v. Corporation of
Calcutta, I.L.R. 34 Cal. 443, Adward Hadbons v. Juggilal, A.l.R . 1943 Bom.
222, Roop Kishore v. U.P. Government A.I.R. 1945 All. 4, Ford's Hotel Co. Ltd.
v. Lartlet, [1896] A.C.I (H.L.) and J.N. Shalu & Co. v. Hirachand, A.I.R.
1954, Bom. 174, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 1701 of 1971.
Appeal by special leave from the judgment and
order dated February 10, 1971 of the Allahabad High Court in F.A. from Order
No. 187 of 1967.
G. N. Dikshit and O. P. Rana, for the
appellants.
Mohan Behari Lal, for the respondents.
The, Judgment of the Court was delivered by
DUA J.-In this appeal by special leave the State of U.P. and the Divisional
Forest Officer, Bijnor (defendants in the trial court in the
plaintiff-respondents' suit) challenge the judgment and order of a learned
Single Judge of the Allahabad High Court, allowing the plaintiff-respondents'
appeal and setting aside the order of the trial court staying the suit under s.
34 of the Arbitration Act.
The plaintiffs had instituted a suit for the
recovery of Rs. 69,556.27 by way of damages for breach of contract impleading
the, State of U.P. (through the Collector of Bijnor as the first defendant and
the Divisional Forest Officer, Bijnor as the second defendant. The summons in
the suit issued to the State of U.P. were served on the District Government
Counsel. On September 2, 1966 the said counsel filed an appearance slip in the
court and also put in a formal application praying for one month's time for the
purpose of filing written statement. This prayer was granted. On October 1 1966
the District. Government counsel filed an application under s. 34 of the Arbitration
Act pleading that there was an arbitration clause In the agreement between' the
parties to the suit and the State of U.P. being willing to refer the matter to
arbitration tie suit should be stayed. The trial court held that the dispute
was subject to arbitration clause and since the State of U.P. had not taken any
steps in the, suit proceedings and had also not filed the written statement the
suit was liable to be stayed. So holding the application of the State
Government was allowed and the suit stayed.
On appeal by the plaintiff the High Court
relying on two of its earlier decisions in United Provinces Government v.. Sri
Har Nath(1) and Union of India v. Hans Raj Gupta & Co. (2), held that
action of (2) A.I.R. 1957 All. 91 (1) A.I.R. 1949 All, 611.
33 the District Government Counsel in
applying for time to file the written statement amounted to taking a step in
the proceedings within the meaning of S. 34 of the Arbitration Act. On this
view the defendant was held disentitled to claim that the suit should be
stayed. The appeal was accordingly allowed and the order of stay set aside.
In this Court Shri G. N. Dikshit learned
counsel for the State of U.P. strongly contended that the District Government
Counsel had no instructions to ask for adjournment for the purpose of filing
the written statement and, therefore, his action in applying for adjournment
for that purpose cannot bind the State of U.P. with the result that application
for stay of proceedings in the suit under S. 34 of the Arbitration Act could
not be held to be incompetent. It was also contended that the trial court
having granted stay in its discretion the High Court was in error in reversing
that order and setting it aside on appeal. According to this submission the
discretion had been exercised by the trial court which could not be.
considered to be either unreasonable or
contrary to any recognised principles and the High Court should, therefore,
have upheld it.
The counsel relied in support of his
submission on Punjab State v. Moji Ram(1). In that case on the date fixed by
the trial court for appearance of the defendant, the Government pleader, with
one Kartar Singh Sub-Divisional Officer, appeared and asked for time to :file
written statement as instructions with a copy of the plaint had not been
received. Adjournment was granted and a date was fixed for filing the written
statement. On the adjourned date the Government pleader filed an application
for stay of the suit under s. 34 of' the Arbitration Act. On these facts the
High Court observed that the Government pleader had merely acted as a volunteer
and asked for adjournment on the assumption that in due course he would receive
instructions from the Government. The Government as a defendant, therefore,
could not be said to have taken any step in the proceedings. The application
for adjournment in those circumstances was held really to amount to a prayer to
get time to discover the exact nature of the suit and nothing more. The
application thus could not be said to have been made with a view to taking a
step in the proceedings within the contemplation of S. 34 of the Arbitration
Act. Reliance was next placed on State of Himachal Pradesh v. Lalchand'
Shahi(2) whereit was observed by the learned Judicial Commissioner that no
person can be deemed to take any step in a proceeding who is not aware of what
the proceedings are and, the prayer for adjournment of the case made by a
counsel, who up till the moment of making the request for adjournment had
received no instructions from his client, did not amount to taking of a step in
the proceeding within S. 34 of the Arbitration Act. Harbans Lal v. National
Fire & General' Insurance Co. Ltd.(3) is also a decision by a learned
single Judge. of the Punjab High Court. In that case the branch office of the
de(2) A.I.R. 1953 H. P. 75..
(1) A.I.R. 1957 Punjab 223.
(3) A. 1. R. 1955 Notes on Unreported Cases
(Punjab) 4917 (Delhi) 4-L944SupCI/73 34 fendant company had only received the
summons of the suit filed by the plaintiff, a day previous to the date of
appearance. It was observed by the learned single Judge that presumably it was
in the circumstances necessary to obtain instructions from the head office of
the Company and, therefore, a mere oral application for an adjournment for filing
a written statement could not be regarded as a step in the proceedings which
disentitled the defendant company from applying for stay under s. 34 of the Arbitration
Act. In The Printers (Mysore) Private Ltd. v. Pothen Joseph() it was observed
that where discretion under s. 34 of the Arbitration Act has been properly and
judiciously exercised by the trial court the appellate court would not be
justified in interfering with such exercise of discretion merely on the ground
that it would have taken a contrary decision if it had considered the matter at
the trial stage.
If, however, it appears to the appellate
court that the trial court had exercised its discretion unreasonably or
capriciously or had ignored relevant facts or had approached the matter
injudiciously it would be the appellate court's duty to interfere. Shri Dikshit
did not submit that the earlier decisions of the Allahabad High Court in the
cases of Sri Har Nath (supra) and Hans Raj Gupta & Co. (supra) laid down an
erroneous rule of law. His contention on the other hand in substance was that
where the counsel without any instructions asks for ad adjournment, though
ostensibly, for filing the written statement, the prayer, if it is likely to
affect his client prejudiciously, should be const rued to mean as if it was for
seeking time merely to get instructions, so that the client's interests do not
suffer. This, he added, is a matter to be decided on the facts and
circumstances of each case. He cited Joharitnal and others v. Fatehchand and
others (2 ) as enunciating correct test in such cases, specifically relying on
the following observations at page 71 in para 23 :-A "On principle and
judicial authority, we consider that the following propositions maybe easily
deduced:
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 no 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 under S. 34 of the Act, if it
can be held that he could have actual or construction knowledge of his right in
(1) [1960]3 S.C.R. 13.
(2) A.I.R. 1960 Raj. 67.
35 the event of the exercising due diligence
and that in spite of that he participated in the proceedings of the Court.
(3)Prima facie, an application for time to
file written statement should raise a presumption that the defendant 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." Passing reference was also made by the appellant's counsel
to an unreported decision of this Court in Anderson Wright Ltd. v. Moran Co.
Ltd. C.A., 452 of 1959 decided on December 1, 1961. That case had earlier come
up to this Court when the essential requirements of s. 34 of the Arbitration
Act were analysed and stated : Anderson Wright Ltd. v. Moran & Co. Ltd.(1).
The case was remanded to the High Court for a fresh decision of the appeal from
the order of stay made by the trial court after 'determining the question
whether the plaintiff was in fact a party to the agreement. Incidentally, it
may be pointed out that in that case this Court on appeal against the judgment
and order of the High Court made after remand declined to stay the suit having
regard to the considerable delay since the institution of the proceedings and
to the fact that questions relating to custom of the market and the liability
of Moran (plaintiff) under S. 230 of the Contract Act have to be determined.
Power to stay was not considered enforceable as a matter of course. It was said
there "We think that in this case at this stage, nearly ten year after the
institution of the suit. we should not remand this proceeding to the High Court
for determination of the same question over again. In our view, power under s.
34 to stay the proceedings where there is an arbitration agreement is not
enforced as a matter of course. The Court may be satisfied in a particular
case, having regard to the circumstances that the matter should not be referred
'in accordance with the arbitration agreement. Having regard to the
considerable delay that ha,; taken place since the institution of tile
proceeding and the fact that questions as to custom of the market fall to be
determined and also of the fact that the liability if any of Morans under S.
230 of the Contract Act has to be ascertained in the light of the surrounding
circumstances, (1) A.I.R. 1955 S. C. 53.
36 we think this is a case in which the
hearing of the suit, in the interest of both the parties should not be held up
but the dispute should be tried in the civil court instead of by the
arbitrator." Shri Dikshit submitted that just as a Counsel cannot bind his
client by his admission and the client can disown it, similarly the appellant
in this case can disown the act of his counsel as unauthorised in seeking
adjournment for filing a written statement, on the ground that no instructions
had been issued to the Counsel to make such a prayer.
Shri Mohan Behari submitted in reply that
there was no material on the record that the counsel applying for adjournment
on behalf of the State had no instructions. The counsel, according to the
submission, must be presumed to have been duly empowered to take all steps that
were necessary to be taken in the court in connection with the proceedings on
the date he appeared and filed his appearance slip in the Court. Shri Mohan
Behari also relied on Sarat Kumar Ray v. Corporation of Cakutta(1), Adward
Hadbons v. Judggilal(2) and Roop Kishore v. U.P. Government(3) in addition to the
two Allahabad judgments referred to in the impugned judgment, for the
submission that the prayer for adjournment for filing a written statement is a
step in aid as contemplated by s. 34 of the Arbitration Act. In Roop Kishore's
case (supra), it was emphasised that the whole burden should be upon the
defendant to establish the circumstances which would lead to the result that
effect should not be given to the prima facie meaning of the application for
adjournment. In that case reference in support of the view adopted was made
inter alia to Sarat Kumar Ray (supra) and Ford's Hotel Co. Ltd. v. Larlet(4).
J. N. Shah & Co. v. Hirachand(5) is a case where in a summary suit the
defendant has filed an affidavit in reply setting out defences and had asked
for leave to defend and that was held to amount to a step in proceedings. In
Dr. V. R. Vaidra v.
Union of India (C.R. 347/67) decided by the
Bombay High Court on April 1, 1970 reported in 1970 Maharashtra Law Journal
(notes of case) at p. 12 (Case No. 20), in accordance with the summons the
counsel for the defendant prayed for adjournment for filing a written
statement. On the next day, the defendant applied for stay under s. 34 of the Arbitration
Act. The court stayed the suit. This order was affirmed on appeal. On revision,
the High Court set aside these orders and declined stay. It was observed that
the counsel must be deemed to have prayed for adjournment for filing a written
statement under instructions and it was not open to the defendant to say that
there were no instructions to that effect. The fact that the vakalatnama was
not filed when adjournment was prayed for, was considered inconsequential. It
was also added that the discretion in the matter of stay had to be exercised on
sound judicial principles.
In our view, there is no serious infirmity in
the impugned judgment of the High Court and we are unable to find any cogent
ground (1) I.J.P,. 34 Cal,. 443. (2) AJ.R. 1943 Bom. 228.
(3) A.I.R. 1945 All. 24. (4) (1896) A.C. 1.
(H. L.) (5) A.I.R. 1954 Bom, 174.
37 for interference under Article 136 of the
Constitution. The legal position with respect to the scope and meaning of s. 34
of the Arbitration Act admits of little doubt, the language of this section
being quite plain. When a party to an arbitration agreement commences any legal
proceedings against any other party to the said agreement with respect to the
subject matter thereof, then the other party is entitled to ask for such
proceedings to be stayed so as to enable the arbitration agreement to be
carried out. It is, however, to be clearly understood that the mere existence
of an arbitration clause in an agreement does not by itself operate as a bar to
a suit in the court. It does not by itself impose any obligation on the court
to stay the suit or to give any opportunity to the defendant to consider the
question of enforcing the arbitration agreement. The right to institute a suit
in some court is conferred, on a person having a grievance of a civil nature
under the general law.
It is a fundamental principle of law that
where there is a right there is a remedy. Section 9 of the Code of Civil
Procedure confers this general right of suit on aggrieved person except where
the cognizance of the suit is barred either expressly or impliedly. A party
seeking to curtail this general right of suit has to discharge the onus of
establishing his right to do so and the law curtailing such general right has
to be strictly complied with. To enable a defendant to obtain an order staving
the suit apart from other condition mentioned in s. 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 s. 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.
According to the appellant (State of U.P.).
the District Government Counsel is authorised by the Code of Civil Procedure to
receive summons on behalf of the State : vide ground No. 3 in the petition for
special leave. Indeed, the District Government counsel was in fact so served.
It is not the appellant's case that the summons were not accompanied by a copy
of the plaint in accordance with law and, therefore. the District Government
Counsel. was not aware of the nature of the case. A copy of the plaint,
therefore. must be held to have been duly served on the District Government
Counsel who under Order XXVII. Rule 2 of the Code of Civil Procedure was
authorised to act for the Government and was deemed to be the recognized agent
by whom appea rances, acts and applications could be made or done on behalf of
the Government. The District Government Counsel in the present case was thus
fully empowered to appear and act for and on behalf of the Government and also
to make applications on its behalf. If the said counsel wanted time for the
purpose of having fuller instructions, he could have asked for it specifically,
for he was 38 not a layman ignorant about the legal position but a professional
lawyer retained by the Government for the purpose of acting and pleading on
behalf of the Government as a recognised agent. He, however, chose instead to
ask for time specifically for filing written statement and this act he
purported to do on behalf of the State Government which he was fully empowered
to do. The State took benefit of his appearance and his successful prayer for
adjournment of the case by one month for the purpose of filing the written
statement. In those circumstances, it is hardly open to the State Government to
plead that the District Government Counsel was not authorised to seek adjournment
on its behalf for this purpose. An oblique suggestion thrown on behalf of the
appellant that the District Government Counsel had merely volunteered to appear
without instructions, presumably taking the cue from the decision of the,
Punjab High Court in the case of Moji Ram (supra) is merely to be stated to be
rejected. A recognized agent like the District Government Counsel can scarcely
be considered to appear voluntarily in a case on behalf of the Government in
the sense of being unauthorised by his client for the simple reason that he is
authorised by virtue of statute to appear, act and make applications on behalf
of the Government. Indeed in the present case the District Government Counsel
also filed in court the usual appearance slip. If he wanted time for further
consultations, he could and should have specifically made a prayer to that
effect.
It is, however, idle to contend that he can
be considered to have merely volunteered without authority to appear and ask
for time for filing the written statement. The argument of appearance by a
recognized agent as a mere volunteer is extremely difficult to appreciate. The
State, as already observed, took the benefit of the adjournment. It will be
somewhat irrational and perhaps incongruous to permit the State, after having
taken the benefit of this adjournment, to plead that the application for
adjournment was not made on instructions and was unauthorised. To accede to the
State Government the right to do so would clearly be unjust to the opposite
party which could have rightfully objected to the adjournment, had there been
any indication that the prayer was not being made on instructions from the
State Government. September 2, 1966 was fixed in the summons for filing written
statement. Failure to do so would have entailed consequences prejudicial to the
State Government.
Those consequences were avoided by making an
application for extension of time for filing written statement which must have
been understood by the opposite party. as also by the court, to be on
instructions by the State Government.
The argument that the trial court's
discretion has been erroneously reversed by the High Court is equally devoid of
merit. If the appellant's application was for adjournment for the purpose of
filing written statement, then there is no question of any exercise of
discretion by the trial court. Discretion with regard to stay under S. 34 of
the Arbitration Act is to be exercised only When an application under that
section is otherwise competent. Incidentally it is worth noting that even the
order of the trial court is not included by the appellant in the paper book and
we do not know the reasoning of that court for 39 granting stay. But on the
view that we have taken that omission is of little consequence.
Finally, as a result of the decision of the
High Court the only consequence is that the suit will now have to be tried by a
competent court on the merits in accordance with law.
Keeping in view the Icing delay after the
institution of the suit and the fact that the suit is for a very heavy amount
by way of damages for breach of contract, it will, in our opinion, be more
satisfactory on the whole to have the suit tried in a competent court of law in
the normal course rather than by a lay arbitrator who is not bound either by
the law of evidence or by the law of procedure. This course can certainly in no
way be considered unjust or prejudicial to the appellant as to require
interference by this Court.
This appeal accordingly fails and is
dismissed with costs.
G.C. Appeal dismissed.
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