Union of India v. Surjeet Singh Atwal

Ramaswami, J. This appeal is brought by special leave lrom the judgment of the Punjab High Court dated March 20, 1965 in FAO no. 82-D of 1963.

The said appeal was filed under s. 39 of the Arbitration Act, 1940 (hereinafter referred to as the Act) against the order of the Subordinate Judge, First Class, Delhi dated January 29, 1963 passed on an application under s. 20 of the Act by the Union of India for filing the arbitration agreement in court and to make a reference of the dispute to the officer mentioned in the agree-ment.

In the year 1942 tenders were invited by the Union of India for construction of certain runways and roads in an aerodrome

UNION 11. s. s. ATWAL (Rama.swami, 1.) 353 at Dalbhumgarh. The tender of the respondent, Surjeet Singh Atwal, was accepted and the agreement was executed on August 19 ·1944. Clause 25 of the agreement provided for the settle-m~nt of the disputes by reference to the arbitration of the Super-intending Engineer of the Circle for the time being, according to law. The res~ a1lcged .that he had completed the work entrusted· to him under the contract and made a claim of Rs. 50,000 on the basis of his last bill. On the other hand the· Union of India made a demand against the contractor for a sum of Rs. 5,09, 164 on the ground that the amount had been over-paid to the respondent. Ignoring the arbitration clause respon-dent filed a suit on the original side of the Calcutta High Court for the recovery of Rs. 50,000, being suit no. 531 of 1951. The Uriion of India made an application under s. 34 of the Act for the stay of the suit. The suit was consequently stayed and the matter was referred to the arbitration of the Superintending Engineer, Calcutta Aviation Circle, C.P.W.D. Calcutta. Before the arbitrator the Union of India made its counter-claim for a ~um of Rs. 5,09,164. The contractor objected to the entertain-ment of the countet'-claim. The stay of the suit which was granted by the Calcutta High Court was later on vacated. Pending the suit of the respondent in the Calcutta High Court, the Union of India filed an application under s. 20 of the Act in the Court of the Subordinate Judge, First Class, Delhi for getting the agree-ment of reference filed in the Court and for making the reference of the disputes between the parties to the arbitration of the Superintending Engineer, Central Circle No. 1, C.P.W.D. Calcutta. The respondent opposed the petition mainly on the sround that the court of Subordinate Judge, First Class, Delhi had no jurisdiction to entertain the application. It was contended that the appellant had filed an application under s. 34 of the Act for stay of the suit filed in the Calcutta High Court, and, there-fore any subsequent application relating to arbitration under the agreement should be filed in the Calcutta High Court. By its judg- .ment dated January 29, 1963 the Subordinate Judge, First Class, Delhi allowed the application of the appellant and ordered that the disputes between the parties be referred to. the Superintend-ing Engineer, Calcutta Circle No. 1, C.P.W.D. The learned Subordinate Judge held that the contract of the parties was con-cluded at Delhi llnd it was signed at Delhi on behalf of the res-pondent and, therefore, the Delhi court had jurisdiction to try the suit. Aggrieved by the judgment of the Subordinate Judge, First Class the respondent filed an appeal under s. 39 of the Act in the Punjab High Court. By his judgment dated January 11, 1965 D. K. Mahajlln J., allowed the appeal and set aside the order ofl the SUbordinate Judge, First Class and dismissed the applicatihn of. the 'appellan.t 'oo the ground that the Delhi court had no Jurisdiction to entertain an application under s. 20 of the

The question involved in this appeal is whether the applica-tion made by the appellant under s. 34 of the Act before the Cil!- cutta High Court was an application in a reference within the meaning of s. 31 ( 4) of the same Act. Section 2 ( c) of the Act defines "Court" thus :

"Court' means a Civil Court having jurisdiction to decide the questions forming the subject-matter of the reference if the same had been the subject-matter of a suit, but does not, except for the purpose of arbitration proceedings under section 21, include a Small Causes Court;"

Section 14 provides that the award may be filed in the court. Section 31 (I ) enacts that an award may be filed in any Court having jurisdiction in the matter to which the reference relates. Sectbn 3 I (2) provides that all questions regarding the validity. eft'ect or existence of an award or an arbitration agreement bet-ween the parties to the agreement shall be decided by the Court in which the award has been filed and by no other Court. Section 31 (3) states that all applications regarding the conduct of arbi-tration iiroceedings shall be made to the Court where the award has been filed and to no other Court. Section 3 I ( 4) reads as follows :

"Notwithstanding anything contained elsewhere in this Act or in any other law for the time being in force, where in any reference any application under this Act has been made in a Court competent to entertain it. that Court alone shall have jurisdiction over the arbitra-tion proceedings and all subsequent applications arising out of that reference and the arbitration proceedings shall be made in that Court and in no other Court."

Section 34 states :

"Where any party to an arbitration agreement or any person claiming under him commences any legal pro-ceedings 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 proceed-ings 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 arbitr!ltion agree-ment 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 con-

UNION v. s. s. ATWAL (Ramaswami, !.) 355 duct of the arbitration, such authority may make an order staying the proceedings."

Two conditions must be fulfilled in order to give a Court ex-clusive jurisdiction under s. 31 ( 4) of the Act. In the first place an application under the Arbitration Act must be made to the Court competent to entertain it. In the second place, the appli-cation must be made "in· any reference." It was contended on behalf of the respondent that an application for stay of suit under s. 34 of the Act was an application made "in a reference" with-in the meanin,I!; of s. 31 ( 4) of the Act. In support of this pro-position reference Will! made to the decision of this Court in Kumbha Mawji v. Union .of India(') in which it was held that the phrase "in any reference'' in s. 31 ( 4) of the Act was com-prehensive enough to cover an application first made after the arbitration is completed and a final award made and the sub-i>ection is not confined to applications made during the pendency of the arbitration proceCding. It was pointed out that sub-s. ( 1) of s .. 31 determines the jurisdiction of the court in which an award can be filed and that sub-ss. (2), (3) and (4) of s. 31 were intended to make. that jurisdiction effective in three different ways ( 1 ) by vesting in one court the authority to deal with all questions regarding the validity, effect or existence of an award or an arbitration agreement, (2) by casting on the persons con-cerned the obligation to file all applications regarding the con-duct of arbitration proceedinits or otherwise arising out of such proceedings in one court, and (3) by vesting exclusive jurisdic-tion in the court in which the first application relating to the mattef was filed. The context, therefore, of sub-s. ( 4) wonld seem to indicate that the sub-section was not meant to be con-fined to applications made during;the pendency of an arbitration. The necessity for clothing a single court with effective and ex-clusive jurisdiction, and to bring about by the combined opera-tion of these three provisions the avoidance of conflict and scramble is_ equally essential whether the question arises during the pendency of the arbitration or after the arbitration is com-pleted or before the arbitration is commenced. It was, therefore. held that the expression "in any reference" in s. 31 ( 4) should be construed as "in the course of a reference". Even so, we are of opinion that the application for stav of suit under s. 34 in the present case is not an application in a reference within the wider me.aning given to that phrase by this Court in Kumbha Mawji's ease(1). There are different sections in the Arbirtation Act whereby an application is to be made even before any refe-rence has l)een made. Section 8 for instance, provides for an application to invoke the power of the Court, when the parties

(l) (1953] s.c.R. 878.

356 SUPREME COURT llBPOllTS [1970] 1 S.c.R. fail to concur in the appointment of an arbitrator to whom the reference can be made. So also s. 20 provides for an application to file the arbitration agreement in Court so that an order of reference to an arbitrator can be made. These are clearly appli-cations anterior to the reference but they lead to a reference. Such applications are undoubtedly applications "in the matter of a reference" and may fall within the purview of s. 31 ( 4) of the Act even though these applications are made before any ref.e-rence has taken place. But an application under s. 34 is clearly not an 11pplication belonging to the same category. It has noth-ing to do with any reference. It is only intended to make an arbi-tration agreement effective and prevent a party from ~oing to Court contrary to his own agreement that the dispute IS to be adjudicated by a private tribunal.

We do not, therefore, consider that an application for stay of suit under s. 34 is an application in a reference even within the wider meaning given tr' that phrase by this Court in Kumbha Mawjfs case( 1 ). The second condition imposed bys. 31(4) is that the application for stay must be made to a Court competent to entertain it. It should be noticed that in s. 34 the expression "judicial authority" is used. The section provides for an appli-cation to a judicial authority before whom a legal proceeding is pending for the stay of that proceeding. An application for stay of legal proceeding to a judicial authority before whom it is s pending IS an application under the Arbitration Act to a judicial authority competent to entertain it. But the judicial authority need not necessarily be a court competent under s. 2 ( c) to decide the question forming the subject matter of the reference. A party to an arbitration agreement may choose to file a suit in a court which has no jurisdiction to go into the matter at all and merely because the defendant in such a suit has to make an ,application to that Court under s. 34 of the Act for the stay of the suit it cannot be said that the Court which otherwise has no jurisdiction in the matter becomes a Court within the meaning of s. 2(c) of the Act. The view that we have expressed is borne out by the decisions of the Calcutta High Court in Chotey/al Sham/al v. Cooch Behar Oil Mills Ltd.('); Britannia Building &: Iron Co. Ltd. v. Gobinda Chandra Bhattacharjee (1) and Basanti Cotton Mills Ltd. v. Dhingra Brothers(').

For these reasons we consider that the application for stay under s. 34 of the Act cannot be treated as an applicatiOlll in a reference under s. 31 ( 4) of the Act. Therefore, tile Subordinate Judge, F'JISt Class, Delhi was right in holding that the application

(1) (19531 S.C.R. 878. (2) J.L.R. [195411 Oil. 418, 13) LXTV C.W.N. 325. (4) A.LR. 1949 Cal.. 684.

UNION v. s. S. ATWAL (Ramaswami, 1.) 357 under s. 20 of the Act was maintainable in his Court and for mak-ing a referelllCe of the dispute to the arbitrator mentioned in the agreement. Accordingly we set aside the order of the Punjab High Court and restore the order of the Subordinate Judge, First Class, Delhi dated January 29, 1963 allowing the application filed by the appellant llilder s. 20 of the Arbitration Act, 1940. The appeal is allowad with costs. .

L13 Sup, Cl/67-9. ·