INDIA CEMENTS CAPITAL FINANCE LIMITED V KWALITY SPINNING MILLS LIMITED Vs. MEYYAPPAN APPLICATIONS NOS 2789

JUDGEMENT

(1.) FOR the Applications filed by the defendants under Order 14, rule 8 of the Original Side Rules read with section 8 of the Arbitration and Conciliation Act, 1996, and also under section 22 of the Sick Industrial Companies Act.

(2.) THE case in brief is as follows : THE plaintiff instituted a suit for declaration that they are the sole and absolute owners of the suit schedule machinery, for a mandatory injunction directing them to deliver the schedule mentioned properties to them at Chennai, and also for permanent injunction. THE existence of the alleged hire purchase agreement dated March 31, 1997, is denied. THE transaction between the two companies is nothing but a loan transaction is evidently clear from the documents. THE transaction was styled and named as "hire purchase agreement" so as to enable the plaintiff to obtain a tax benefit towards depreciation. THE plaintiff not being the owner of the schedule mentioned equipment, is not entitled to re-possess the same. This court does not have the jurisdiction to entertain the suit in view of the valid arbitration agreement that has come into existence between the parties. THE plaintiff caused a legal notice dated May 30, 1998, and the same was received on June 11, 1998. Clause 18(a) of the said hire purchase agreement also empowers the managing director of the plaintiff-company to appoint a sole arbitrator under the Arbitration Act, 1940, to decide all disputes or claims arising out of the said agreement. THE defendant also sent a reply dated June 23, 1998. THE plaintiff had suggested that the dispute/claim be referred to arbitration under the 1996 Act by a sole arbitrator to be appointed by their chairman. THE defendant replied that they are not agreeable for having an arbitrator appointed by their chairman; but, however, communicated their willingness to refer the dispute under section 11 of the Arbitration and Conciliation Act, 1996. Section 11 deals with appointment of arbitrators. If the parties fail to agree on an arbitrator within 30 days from the receipt of a request by one party to the other, the appointment shall be made, upon request, by the Chief Justice. THE plaintiff has ignored the reply dated June 23, 1998, in totality and filed the present suit before the court. An arbitration agreement means an agreement by the parties to submit to arbitration all or certain dispute which have arisen between them.

(3.) IN fact, the plaintiff in the legal notice dated May 30, 1998, sent to the defendant has stated that as there is no managing director on the said date, the chairman of the company will nominate the arbitrator. IN the reply notice sent by the applicant dated June 11, 1998, they have denied the existence of the hire purchase agreement and, alleged that their signatures were taken in blank forms. However, in the end, they have expressed their willingness to refer the dispute to an arbitrator appointed by the court under section 11(5) of the Act. Now, the short question that has to be decided is whether the filing of the suit by the plaintiff without invoking the provisions of the Arbitration Act is proper and correct or whether the plaintiff was justified in filing the suit. Section 5 of the Arbitration and Conciliation Ordinance Act, 1996 (hereinafter referred to as "the Act"), relates to the extent of judicial intervention, wherein it is observed that notwithstanding anything contained in any other law for the time being in force, in matters governed by this part, no judicial authority shall intervene except where so provided in this part. Section 7 relates to arbitration agreement, which means an arbitration by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. According to sub-clause (3), an arbitration agreement shall be in writing. According to sub-clause (4), an arbitration agreement is in writing if it is contained in a document signed by the parties. If that is taken into consideration, the signature of the applicant in the document is not disputed, but according to the applicant, it was signed in blank forms. However, considering the fact that there is an arbitration agreement between the parties, prima facie it is clear that the parties should resort only to arbitration. Section 8 relates to power to refer parties to arbitration where there is an arbitration agreement. According to sub-clause (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 sub-stance of the dispute, refer the parties to arbitration. The language employed 'shall" is relevant to be considered. There is vast difference between the language employed under section 34 of the old Act and under section 8 of the new Act. When there is a clause for arbitration in the agreement between the parties, it is mandatory and this is one more circumstance to show that the plaintiff ought to have referred the matter for arbitration invoking the provisions of the said Act.