1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SUMMONS FOR JUDGMENT NO. 343 OF 2008 IN SUMMARY SUIT NO. 2066 OF 2008 M/s. D.C. Textile Mills Pvt. Ltd. A Company incorporated under The Companies Act, 1956 Having its registered office at 15, Deepak Villa, Road No.4, JVPD Sacheme, Mumbai 400 056 ..Plaintiff versus Mr. Keval Kishan Arora Proprietor of M/s. Anuradha Processors Maakhan Dham , Plot No.725 11th Road, Khar (W) Mumbai-400 052 ..Defendant Mr. Arshad Shaikh i/b Sanjay Udeshi & Co. for Plaintiff Ms Seema Gupta i/b Ashok M. Saraogi for Defendant CORAM : A. A. SAYED , J. DATED : 30TH JUNE, 2009 JUDGMENT 1 The above Summons for Judgment has been taken out by the plaintiff praying that a judgment be entered against the defendant for a sum of Rs. 8,44,675/- with further interest at the rate of 18% p.a. on the principal amount of Rs. 7,85,745/- from 8th June,2007 till payment/realization and for costs. 2 2 The plaintiff is a company inter-alia engaged in the business of processing of man made fiber (Polyester Viscose Suiting). The case of the plaintiff is that they had entered into a Conducting Agreement dated 6-10-1998 with one M/s Anuradha Processors of which the defendant was the partner in respect of their factory premises on the ground and first floor on the plot No. E-26-1 MIDC Area, Tarapur, Boisar, Tal. Palghar, Dist. Thane alongwith machinery, fixture and furniture etc. M/s Anuradha Processors, the Conducting Operator under the said Conducting Agreement agreed to pay all bills of MSEB, MIDC, Telephone exchange, Excise dues, etc pertaining to the period of running the factory. The said Conducting Agreement was initially for a period of three years. Before the expiry of the Conducting Agreement it appears that the partnership firm of M/s Anuradha Processors was dissolved and the same become the proprietary concern of the defendant hereinabove. 3 The aforesaid Agreement on expiry, was renewed for a further period from 1st April, 2002 to 31st March, 2005 by Conducting Agreement dated 24-05-2002 between the plaintiff and the defendant as proprietor of M/s Anuradha Processors. By the said Agreement also the defendant interalia undertook to pay all bills of MSEB, MIDC, Excise, Telephone charge, Water Charges, other Government Charges/Semi Government charges and 3 the liabilities pertaining to a period of running and conducting the factory by M/s Anuradha Processors from 01-10-1998 to 31-03-2005. On expiry of the aforesaid Conducting Agreement, it was renewed further for a period of 12 months commencing from 1st April, 2005 to 31st March, 2006. The defendant again undertook to pay all the liabilities including water charges pertaining to period of which he was in occupation. 4 On 25th November, 2005 the defendant as a sole proprietor of M/s Anuradha Processors on one hand and the plaintiff on the other hand executed a Deed of Guarantee whereby the Conducting Agreements dated 6-10-1998, 24-05-2002 and 01-04-2005 were confirmed and it was inter alia agreed that the guarantor (defendant herein) as the Conducting Operator will pay all bills irrevocably and unconditionally, including water charges pertaining to period covering the aforesaid Conducting Agreements. 5 Sometime on 1st May, 2006, the defendant vacated and handed back the charge and possession of the factory which was being conducted by him to the plaintiff and the same was recorded in his letter dated 1-05-2006 to the plaintiff. By the said letter it was also recorded by the defendant that the Deed of Guarantee dated 25th November, 2005 shall continue to remain subsisting and binding till settlement of accounts and completion of all payment as set out in clause 7 of the Conducting Agreement dated 1st April, 2005. 4 6 After taking possession of the same from the defendant in May 2006, the plaintiff started running the factory. The plaintiff thereafter in the year 2007, received a letter dated 23-10-2007 from MIDC for payment amounting to Rs.7,85,745.45 being the differential water rate/charges for the period 1-11-2001 to 30-11-2002, during which period, the defendant was running the factory. It appears that this letter was written by MIDC in furtherance to their letter dated 8-6-2007 whereby instalments were granted to the plaintiff for payment of the aforesaid amount. According to the plaintiff, a copy of the said letter was also handed over by them to the defendant, but no payment was made by the defendant to them inspite of their request. In view of the demand of the said sum of Rs.7,85,745/- towards the dues of water charges that had been raised upon the plaintiff by MIDC vide their letters dated 8-06-2007 and 23-10-2007, the plaintiff was constrained part payment of a sum of Rs. 4 lacs. According to the plaintiff, the said payment was made without prejudice and to avoid the disconnection of the watter supply which could have affected their business. 7 The plaintiff once again by their letter dated 13-12-2007 called upon the defendant to pay the said water charges in terms of the guarantee given by the defendant. However, the defendant failed and neglected to comply with the same. The plaintiff therefore, by Advocates notice dated 24th 5 January, 2008 called upon the defendant to make payment of the aforesaid sum of water bills. In this letter, Additional bills to the tune of Rs. 1,55,37,835/- is also alluded to and it is stated that the said amount would be the defendant's liability as and when demanded by MIDC alongwith interest. 8 A reply has been filed by the defendant wherein the defendant has questioned the maintainability of the suit as a summary suit. According to the defendant, the suit is not based on any liquidated sum and/or admitted liability as contemplated under the provision of Order-37 of Code of Civil Procedure. The defendant has further contended in his reply that, clause 13 of the Deed of Guarantee clearly states that any dispute and difference between the parties is to be referred to the arbitration and therefore, the suit itself was not maintainable. The defendant has stated that the claim alleged to have been made by MIDC authorities is not based on any authenticated document nor it indicates any protest having been made by the plaintiff in respect of such exorbitant bill for the period of one year as compared to the bills received by other parties and that since the bills are related to the period from 1-11-2001 to 30-11-2002, the claim was time barred. The defendant has referred to the Conducting Agreements and letter dated 1st May 2006 which states that the plaintiff is holding an amount of Rs. 12 lacs as and by way of Security Deposit and the same has not been refunded by 6 the plaintiff to the defendant and that the amount of Rs. 12 lacs in any case, if taken into consideration, would sufficiently cover the claim of the plaintiff. The defendant has therefore contended that he is entitled to unconditional leave to defend the suit and the Summons for Judgment be dismissed. 9 The learned Counsel for the plaintiff submitted that since no Application has been filed by the the defendant as contemplated under section 8 of the Arbitration and Conciliation Act, 1996, this Court would certainly have jurisdiction to decide the Summons for Judgment and there would be no question of referring the dispute to the Arbitration by the Court and merely by taking a plea in the reply to the Summons for Judgment in respect of the suit being not maintainable in view of Arbitration clause, would not take away the jurisdiction of this Court to decide the matter. The learned Counsel for the plaintiff in support of his contention has relied upon the cases of (1) Rashtriya Ispat Nigam Ltd. and another V. Verma Transport Co. reported in (2006), 7 SCC 275, (2) P. Anand Gajpathi Raju and others V. P.V.G. Raju (Dead) and others, reported in (2000) 4 SCC 539 (3) Kaiser Lands V. Ethel Robinson, reported in 2008 (4) Arb..L.R. 105 (Delhi). In so far as Security Deposit amount is concerned, the learned Counsel for the plaintiff has placed on record a copy of the letter dated 5th June, 2007, written by M/s. Anuradha Processors, the proprietary concern of 7 the defendant, addressed to the plaintiff, wherein it is stated by the defendant that the cheque of Rs. 75,000/- is forwarded to the plaintiff in full and final settlement and there are no dues pending towards the plaintiff. It is contended by the learned Counsel for plaintiff that if the Security Deposit amount was due, as contended by the defendant, the defendant would not have forwarded the amount aforesaid amount of Rs. 75,000/- vide his cheque to the plaintiff. The learned Counsel for the plaintiff argued that the water charges pertain to the period during which the defendant was in occupation of the factory premises, and under the Conducting Agreement as well as Deed of Guarantee, it was agreed by the defendant that the amount of water charges, even if it be raised in future by MIDC, would be the liability of the defendant. He therefore urged that the Summons for Judgment be made absolute and the suit be decreed as no triable issues have been raised by the defendant. The learned Counsel for the defendant on the other hand, reiterated what is stated by the defendant in his reply and submitted that in view of the arbitration clause in the Deed of Guarantee, the suit is not maintainable and this Court would have no jurisdiction to entertain and try the suit. It is contended that in any event, the defendant has a substantial defence and therefore entitled to leave to defend the suit and the Summons for Judgment be dismissed. 10 I have heard the learned Counsel for the parties and perused the 8 material on record. 11 The principal question which arises for consideration in the present case is whether this Court can adjudicate upon the Summons for Judgment or is the Court statutorily obliged to refer the dispute to arbitration? If the answer to the first part of this question is in the affirmative, then whether on merits, the defendant has raised any triable issues so as to grant him leave to defend the suit. 12 Since this principal legal issue centers around section 8 of the Arbitration and Conciliation Act, 1996, it would be necessary to reproduce the said section. It reads thus:- "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. 13 A bare reading of the above section and in particular the words "if a party so applies not later than when submitting his first statement on the 9 substance of the dispute", would indicate that unless the parties makes an application to refer the matter to arbitration and further that the said application is made before submitting his first statement on the substance of the dispute, the judicial authority will not automatically or mechanically refer the parties to arbitration. 14 In the case of P. Anand Gajpathi Raju and others (Supra) cited by the Counsel for the plaintiff, the Apex Court observed in para 5 as under:- "5. The conditions which are required to be satisfied under sub-sections (1) and (2) of Section 8 before the Court can exercise its powers are: (1) there is an arbitration agreement; (2) a party to the agreement brings an action in the Court against other party (3) subject-matter of the action is the same as the subject matter of the arbitration agreement; (4) the other party moves the court for referring the parties to arbitration before it submits his first statement on the substance of the dispute. ............." 15 In the case of Sukanya Holdings (P) Ltd. V. Jayesh Pandya and another , reported in (2003) 5 SCC 531, the Hon'ble Supreme Court in para 12 held as under:- "For interpretation of Section 8, Section 5 would have no bearing because it only contemplates that in the matters governed by Part I of the Act, the judicial authority shall not 10 intervene except where so provided in the Act. Except Section 8, there is no other provision in the Act that in a pending suit, the dispute is required to be referred to the arbitrator. Further, the matter is not required to be referred to the Arbitral Tribunal, if: (1) the parties to the arbitration agreement have not filed any such application for referring the dispute to the arbitrator; (2) in a pending suit, such application is not filed before submitting first statement on the substance of the dispute; or (3) such application is not accompanied by the original arbitration agreement or duly certified copy thereof. This would, therefore, mean that the Arbitration Act does not oust the jurisdiction of the civil court to decide the dispute in a case where parties to the arbitration agreement do not take appropriate steps as contemplated under sub-sections (1) and (2) of Section 8 of the Act." 16 The Hon'ble Supreme Court, in the case of Rashtriya Ispat Nigam Ltd. V. Verma Transport Co. (Supra) cited by the learned Counsel for the plaintiff, has interpreted section 8 of the Arbitration and Conciliation Act, 1996. In that case, in the application for injunction taken out by the plaintiff, the defendant had filed a reply wherein he took a specific plea that as the subject matter of the suit is covered by the arbitration agreement entered into between the parties, the suit was not maintainable. The defendant subsequently filed an application for reference to arbitration under section 8 of the Arbitration and Conciliation Act, 1996. The said application for reference under section 8 was however, rejected by the Lower Court, inter alia on the ground that since the defendant had already filed a reply to interim injunction on the substance of the dispute prior in point of time, they had subjected themselves to the jurisdiction of the Civil Court. 11 The Hon'ble Apex Court in para 19 held : "19. Section 8 confers a power on the judicial authority. He must refer the dispute which is the subject-matter of an arbitration agreement if an action is pending before him, subject to the fulfillment of the conditions precedent. The said power, however, shall be exercised if a party so applied not later than when submitting his first statement on the substance of the dispute". In para 36 the Apex Court has observed as follows:- "36. The expression "first statement on the substance of the dispute" contained in section 8(1) of the 1996 Act must be contradistinguished with the expression, "written statement". It employs submission of the party to the jurisdiction of the judicial authority. What is, therefore, needed is a finding on the part of the judicial authority that the party has waived its right to invoke the arbitration clause. If an application is filed before actually filing the first statement on the substance of the dispute, in our opinion, the party cannot be said to have waived its right or acquiesced itself 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." In para 38 it is observed- "what is necessary is disclosure of the entire substance in the main proceeding itself and not taking part in the supplemental proceeding." In para 39 the Apex Court held that "Supplemental and incidental proceedings are not part of the main proceeding." In para 42 of the said ruling it is further observed by the Apex Court that, "Waiver of a right on the part of a defendant to the lis must be gathered from the fact situation obtaining in each case". 17 In the case of Kaiser Lands V. Ethel Robinson (Supra) of Delhi High Court, relied upon by the learned Counsel for the plaintiff, the Court 12 having found no arbitration agreement and having further found the application under Section 8 of the Act to have been filed after the defendant No.5/applicant had filed his first statement on the substance of the dispute, the Application u/s 8 of the Act was dismissed with costs by the Court. 18 In the case of Atul Singh and others V. Sunil Kumar Singh and others, reported in (2008) 2 Supreme Court cases 602, the Hon'ble Supreme Court observed in para 19 as follows:- "19. There is no whisper in the petition dated 28-2-2005 that the original arbitration agreement or a duly certified copy thereof is being filed along with the application. Therefore, there was a clear non-compliance with sub-section (2) of Section 8 of the 1996 Act which is a mandatory provision and the dispute could not have been referred to arbitration. Learned Counsel for the respondent has submitted that a copy of the partnership deed was on the record of the case. However, in order to satisfy the requirement of sub-section (2) of Section 8 of the Act, Defendant 3 should have filed the original arbitration agreement or a duly certified copy thereof along with the petition filed by him on 28-2-2005, which he did not do. Therefore, no order for referring the dispute to arbitration could have been passed in the suit." 19 A learned Single Judge of this Court in the case of Pamvi Consultancy Services Ltd. V. Global Syntex (Bhilwara) Ltd., (2002) 4, Mah LJ. 748 has held that when there is no such application under section 8 of the Arbitration and Conciliation Act, 1996, there was no question of the Court suo moto directing the parties to arbitration by invoking the arbitral clause. 13 20 Another learned Single Judge of this Court, Nagpur Bench, in the case of Ganesh Trading Company V. Government of Maharashtra, 2007 (4) Mah.L.J. 715 held that under Section 8 of the Arbitration and Conciliation Act 1996, it is mandatory that the party seeking reference has to make an application in writing and when there was no such application under section 8, the Court could not have made a reference and it did not get jurisdiction to make such a reference. 21 It cannot be gainsaid that in the case in hand, had an application under section 8 of the Arbitration and Conciliation Act 1996, been filed by the defendant, this Court would have had no jurisdiction in the matter and it would have been incumbent on this Court to refer the dispute to arbitration keeping in mind the mandate of section 8 and the object and purpose of the said enactment, provided the requirement under section 8 (2) was also fulfilled by the defendant. However, in the instant case, though the arbitral clause in the Deed of Guarantee stands admitted, the defendant has failed to file any application under section 8 of the Arbitration and Conciliation Act, 1996 to refer the dispute to arbitration. Thus, in absence of such application having been filed by the defendant under Section 8 of the Arbitration and Conciliation Act, 1996, having regard to the principles laid down by the aforestated judgments, it is not possible to accept the contention of the 14 defendant that this Court is obliged to refer the dispute to arbitration and ought not to adjudicate upon the Summons for Judgment. Besides, the defendant has also not filed the Deed of Guarantee or duly certified copy thereof before this Court as contemplated under section 8(2) of the Arbitration and Conciliation Act, 1996. 22 It must however, be borne in mind that in the present case, we are concerned with the Summons for Judgment. Ordinarily, the reply of the defendant to the Summons for Judgment would be his first statement on the substance of the dispute as contemplated under section 8 of of the Arbitration and Conciliation Act, 1996, inasmuch as in a Summons for Judgment taken out in a Summary Suit, the occasion for filing written statement may not arise if leave to defend is refused and consequently a decree is passed. However, as discussed hereinbelow, since in the instant case, I have granted leave to defend the suit to the defendant, the defendant would still have an opportunity to make such application under section 8 of the Arbitration Act, 1996 before he files his written statement in the suit. 23 Insofar as the merits of the matter is concerned, I find that the defendant has specifically stated in his reply that plaintiff is holding an amount of Rs. 12 lacs as and by way of Security Deposit and the same has not been refunded by the plaintiff to the defendant and that if the said 15 amount of Rs. 12 lacs is taken into consideration it would sufficiently cover the claim of the plaintiff. Pertinently, there is no rejoinder filed by the plaintiff controverting this statement. Infact, the letter dated 5th June, 2007 addressed by the defendant to the plaintiff which is placed on record by the learned Counsel for the plaintiff, specifically records that the cheque of Rs. 75,000/- is forwarded to the plaintiff towards full and final settlement. The letter uses the words "full and final settlement", "no dues" and "whole accounts have been settled as on date". To say that inspite of the aforesaid letter dated 5-06-2007, which letter is later in point of time than the Deed of Guarantee dated 25-11-2005, the defendant was still liable, would in my view be required to be proved in trial by the plaintiff by leading evidence. To my mind this letter dated 5-06-2007, coupled with the fact of non filing of rejoinder controverting the facts stated in the reply of the defendant would be sufficient enough to conclude that the defendant has raised triable issues in the matter. Besides, I find that the Deed of Guarantee dated 25-11-2005 speaks about future liability which had at the time not crystallized and therefore not determined or liquidated amount as contemplated under Order 37 (2)(b)(iii), nor does the said Deed of Guarantee speak about any agreement to pay interest as claimed by the plaintiff in the suit. It further appears on perusal of the Deed of Guarantee that the plaintiff and/or the Association of unit holders had protested the demand of water charges. However the plaintiff has not alluded to or 16 indicated the outcome of the same in his pleadings. I am therefore inclined to grant the defendant unconditional leave to defend the suit. In the circumstances, I pass the following order. ORDER I The defendant is granted unconditional leave to defend the suit. II Suit to stand transferred to the list of suits of commercial causes. III The suit shall appear before the learned Prothonotary and Sr. Master under the caption - for filing written statement. IV It would be open for the defendant to file an application under section 8 of the Arbitration and Conciliation Act, 1996 to have the matter referred to arbitration, subject to the condition that this application is made before filing of the written statement. 24 Summons for Judgment to stand dismissed. ( A. A. SAYED, J.)