C.R.No.5077 of 2010 #1# IN THE HIGH COURT FOR THE STATES OF PUNJAB AND HARYANA AT CHANDIGARH C.R.No.5077 of 2010 Date of decision: 08.2.2011 M/s Enco Engineers Combine Pvt Ltd ….Petitioner Vs. M/s Bhupindera Steel (P) Ltd ….Respondent CORAM: HON’BLE MR. JUSTICE JASWANT SINGH Present: Mr. Kulvir Narwal, Advocate for the petitioner. Mr. Vikas Chatrath, Advocate for the respondent. Jaswant Singh, J Petitioner-defendant has filed the present petition under Article 227 of the Constitution directing against the impugned order dated 19.4.2010 passed by the learned Civil Judge (Sr. Division), Faridabad whereby his application under Section 8 of the Arbitration and Conciliation Act, 1996 (for short “Act of 1996”) for referring the dispute to the Arbitration has been dismissed. Plaintiff-respondent filed a civil suit No.376 of 2009 for recovery of Rs.5,79,000/- for deficiency in payment made by the defendant-petitioner. During the pendency of the civil suit, in view of clause (13) of the purchase order dated 10.10.2007 (P.1), petitioner- defendant filed an application dated 15.12.2009 (P.4) under Section 8 of the Act of 1996 for referring the matter to the Arbitrator on the ground that the Civil Court has no jurisdiction. Notice of the application was given to the plaintiff-respondent, who filed his reply dated 10.3.2010 C.R.No.5077 of 2010 #2# (P.5) and after hearing both the parties, the said application was dismissed by the learned trial Court vide the impugned order dated 19.4.2010. Hence the present petition. Heard learned counsel for the parties and perused the paper book. Learned counsel for the petitioner has argued that the dispute raised by the plaintiff-respondent in the Civil Suit is squarely covered by Arbitration Clause No.13 of the Purchaser Order (P.1) and as such the learned trial Court has wrongly rejected the application dated 15.12.2009 and in fact ought to have referred the dispute to the Arbitrator. On the other hand, learned counsel for the respondent- plaintiff has fully supported the impugned order and submitted that on the basis of an invoice dated 14.2.2009 issued by the plaintiff and accepted by the defendant, the goods for an amount of Rs.2007460/- were sold to the defendant-petitioner and an amount of Rs.5,79,000/- is still outstanding and a civil suit for recovery of the same is filed before the learned Civil Court after serving a proper notice and the same is very much maintainable. It is further submitted that the subject matter of the present suit is not at all connected with the purchase order or with the interpretation of the terms and conditions of clause 13 thereof. Before proceeding further, it is necessary to take into consideration Section 8 of the Act of 1996, which reads as under: “8. Power to refer parties to arbitration where there is an arbitration agreement.- (i) 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 C.R.No.5077 of 2010 #3# first statement on the substance of the dispute, refer the parties to arbitration. ii) 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. Iii) 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.” A perusal of Section 8 reproduced here in above reveals that it is not the discretion rather obligatory on the part of the Judicial Authority to refer the matter to the Arbitrator in terms of agreement if a party files an application during the pendency of a suit not later than when submitting his first statement. Undisputedly in the present case an application dated 15.12.2009 (P.4) was filed by the defendant- petitioner at the appropriate stage before the learned Civil Court but the same has been rejected mainly on two counts; i) that non-payment of price is not a dispute under or arising out of a contract; ii) that clause no.13 of the Purchase Order is vague. I have minutely considered the facts and circumstances of the case as well as the impugned order and come to the conclusion that the reasoning adopted by the learned trial Court is wholly erroneous and not legally sustainable and the same is liable to be set aside due to the following reasons. So far as point No.1 is concerned, the same is shown to have been supported by the learned trial Court on the basis of judgment of Hon'ble Supreme Court in case of Union of India v. Birla Cotton Spinning and Weaving Ltd AIR 1967 SC 688. The reasoning given C.R.No.5077 of 2010 #4# by learned trial Judge in para No.7 of the impugned order to the effect that “the finding of the Hon'ble Supreme Court in above reported case are very clear, which clearly states that non-payment of price is not a dispute under or arising out of a contract” is misreading of the judgment in Birla Cotton's case. As a matter of fact in Birla Cotton's case, (supra), the plaintiff-respondent filed a Civil Suit No.386 of 1958 for recovery of Rs.10,625/- along with interest. Defendant-appellant filed an application under Section 34 of the Indian Arbitration Act, 1940 (for short “Act of 1940”) for stay of the Civil Suit alleging that a dispute had arisen between the parties and there being an arbitration agreement, the matter is covered under the arbitration clause but the learned trial Judge held that before Section 34 could be invoked, the suit must raise dispute in respect of the matter agreed to be referred to Arbitration and not independent of it as no dispute was raised by the Union of India- defendant about its liability to pay amount claimed by the plaintiff- respondent and the only dispute, which was raised, was in respect of liability of the plaintiff-respondent under another contract and, therefore, it was held that the suit could not be stayed and appeal against the order refusing to stay the suit was also dismissed by this court and ultimately matter went before the Hon'ble Supreme Court and the appeal filed by the defendant-appellant was dismissed. As a matter of fact, the relevant part of a judgment, which is quoted by learned trial Court in para 6 of its impugned order is actually the reproduction of paragraph 9 of the judgment reported as AIR 1979 Delhi 64 titled as M/s Pearl Hosiery Mills v. Union of India and another. Subsequently, the said paragraph 9 was C.R.No.5077 of 2010 #5# reproduced in paragraph 4 of the judgment titled as Hindustan Copper Ltd, Jhunjhunu v. Assam Bearing Agencies, Delhi, AIR 1980 Delhi 238 and thereafter the same was quoted in paragraph 2 of the judgment of Delhi High Court in case titled as MONPORTE IMPEX PVT LTD v. HARVEEN BALI AND OTHERS PLR 2000 (2) 60 and thus the finding of learned trial Court that this was the reasoning given by Hon'ble Supreme Court that non-payment of price is not a dispute under or arising out of a contract suffers from total non-application of the mind as there was no such reasoning in the judgment of Hon'ble Supreme Court in Birla Cotton's case. In my considered opinion, in view of the petitioner- defendant having moved an application under Section 8 of the Act of 1996 for reference to arbitration before giving any statement on the dispute, the present matter is, thus, fully covered under the provisions of Section 8 of the Act of 1996, which has been considered and interpreted by Hon'ble Supreme Court in a case reported as Hindustan Petroleum Corporation Ltd v. Pink City, Midway Petroleums (2003) 6 SCC 503 in which it is clearly held that the Civil Court has no jurisdiction to entertain a suit after an application under Section 8 is made for arbitration and the relevant part of the paragraph 24 of the judgment is reproduced hereinbelow: “We have come to the conclusion that the civil court had no jurisdiction to entertain a suit after an application under Section 8 of the Act is made for arbitration. Therefore, we are of the opinion that the trial court erred when it rejected the application of the appellant filed under Sections 8 and 5 of the Act. In such a situation, refusal to refer the dispute to arbitration would amount to failure of justice as also causing irreparable injury to the appellant. For the said reason, we are of the opinion that the High Court has erred in coming to the conclusion that the appellant was not entitled to the relief under Section 115 CPC.” C.R.No.5077 of 2010 #6# There is another judgment of Hon'ble Supreme Court reported as P Anand Gajapathi Raju and others v. P.V.G Raju (Dead) and Others (2000) 4 SCC 539 and that also is applicable to the facts and circumstances of the present case and in that case it was held in paragraph 8, which reads thus: “8. In the matter before us, the arbitration agreement covers all the disputes between the parties 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 peremtory. 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 the court trying the action may or may not have had jurisdiction to try the suit to start with or be the competent court within the meaning of Section 2(e) of the new Act.” So far as the finding of the learned trial Court on point No.2 that clause 13 of the Purchase Order dated 10.10.1997 is vague is also not tenable. The copy of Purchase Order dated 10.10.1997 is placed on record as P.1 and the perusal of the same reveals that said C.R.No.5077 of 2010 #7# clause is very clear, exhaustive and categoric and relates to Arbitration; which inter alia provides that “any dispute or difference between supplier and Enco of any kind arising at any time or stage whatsoever out of, in connection with or incidental to the purchase order including any dispute or difference regarding interpretation of terms and conditions or any clause thereof shall be referred to Arbitration in Delhi or Gurgaon Courts” and, therefore, there is no doubt that the said clause is vague and the finding of the learned trial Court on that count also is wholly erroneous and liable to be set aside. Keeping in view the facts and circumstances discussed hereinabove, this court is left with no option but to set aside the impugned order dated 19.4.2010 passed by ld. Trial Court. Accordingly, the petition is allowed and the impugned order is set aside and the application dated 15.12.2009 (P.4) filed by defendant-petitioner stands allowed and the learned trial Court is directed to refer the dispute pending in Civil Suit No.376 of 2009 dated 3.9.2009 titled as M/s Bindra Steel Pvt Ltd v. M/s Enco before it to arbitration. February 08, 2011 ( JASWANT SINGH ) manoj JUDGE