THE HONOURABLE SRI JUSTICE B. PRAKASH RAO AND THE HONOURABLE SRI JUSTICE P. DURGA PRASAD APPEAL SUIT No.2300 OF 1999 JUDGMENT: (Per Hon’ble Sri Justice P. Durga Prasad) The unsuccessful plaintiff preferred this Appeal Suit against the judgment in O.S. No.120 of 1997 dated 07-06-1999 passed by the learned Senior Civil Judge, Nizamabad. 2. For the sake of convenience, the parties are referred to as arrayed in the suit before the trial Court. 3. The plaintiff has filed the suit before the trial Court for recovery of a sum of Rs.13,46,119/- from the defendant. 4. The necessary facts of the case, in brief, are that the plaintiff is a water reservoir supplying water to many areas in Telangana area. To carry out sedimentation of reservoir of the project, it required a fiberglass jet boat. The tender of the defendant was accepted for supply of fiberglass jet boat for a value of Rs.14,50,000/- vide tender letter dated 27-07-1989 and an agreement to that effect was entered into between the parties. As per the terms of the agreement, defendant was to supply fiberglass jet boat to the plaintiff within 6 to 8 months from the date of issue of supply order. The plaintiff made payment of Rs.3,21,646-65 paise through a demand draft dated 07-08-1989 as advance payment of 25% of the total value of the cost of the boat. The second stage payment of Rs.2,36,280/- was also made by the plaintiff through a demand draft dated 03-02-1990. That second stage payment was made after completion of the hull portion of the boat and after due certification of the Indian Registrar of Shipping. The defendant has given a bank guarantee to the extent of Rs.3,61,650/- after receiving two payments made by the plaintiff. Thereafter, the defendant delayed supply of the boat and started demanding more amount on the pretext of escalation of prices of engine and other parts due to foreign exchange variation and devaluation of Indian currency. Defendant also requested the plaintiff to grant extension of time up to 31-03-1992 for supply of the boat, which the plaintiff has accepted. However, the defendant failed to supply the boat within the extended time. Hence, the plaintiff wrote several letters to the defendant to comply with the terms of the agreement and to pay interest on the advance amount paid by the plaintiff, for which, defendant kept quite. Therefore, the plaintiff was forced to encash the bank guarantee to the extent of Rs.3,61,650/- and also imposed penalty of Rs.1,44,660/- towards liquidated damages as per the terms and conditions of the supply order. The plaintiff has suffered heavy loss and it could not carry out sedimentation work in the reservoir due to negligence on the part of the defendant and enormous irreparable loss was caused to the plaintiff, as such, it was forced to cancel the supply order given to the defendant. Accordingly, plaintiff got issued a legal notice on 14-04- 1996 to the defendant claiming a total sum of Rs.63,50,000/- and the defendant on receipt of the notice, admitted its liability, but requested the plaintiff to accept the boat even after cancellation of the supply order, for which plaintiff did not agree. By the date of filing of the suit, the total amount due from the defendant towards payment of interest, penalty and damages was Rs.13,46,119/-. Hence, the plaintiff filed the suit for recovery of the amount with interest. 5. The defendant filed its written statement contending that the tender presented by it was accepted by the plaintiff for a value of Rs.14,46,566-60 paise as per the terms and conditions of the supply order, he made all efforts to comply with the supply order of the boat within time, but the attitude of the plaintiff was changed and the plaintiff delayed in payments whenever he was asking for part payment as per the supply order. He got ready the fiberglass jet boat within the stipulated time. However, for the events beyond his control, he is not liable to pay damages to the plaintiff under the terms and conditions of the supply order. The plaintiff has deliberately forfeited the security deposit contrary to the terms and conditions of the supply order. The plaintiff was waiting for a chance to cancel the supply order and accordingly issued legal notice claiming Rs.63,00,000/- from it, for which he got issued suitable reply to the plaintiff and requested the plaintiff to hold tripartite meeting for settlement of the dispute. There is no clause in the agreement to claim interest. But, the plaintiff without any right realized the bank guarantee, as such, it is bound to return that amount. The plaintiff instead of referring the matter to the arbitration, filed the suit without any right. Hence, the suit is liable to be dismissed. 6. Based on the pleadings, the following issues were framed for trial by the trial Court: “1. Whether the disputes should have been decided by Arbitrator under terms of contract and if civil suit is not maintainable? 2. Whether the delay in supply of Jet Boat was due to non payment of any amount by the plaintiff to the defendants? 3. Whether the “force majure” as stated in the written statement is the reason for delay in supply of jet boat? 4. Whether the plaintiff is entitled to refund of the amount paid with interest at the rate of 24% p.a.? 5. Whether the plaintiff is entitled to damages and if so, at what amount. 6. To what relief ?” 7. To substantiate its case, plaintiff got examined its Superintending Engineer as PW.1 and got marked Exs.A-1 to A-4. On behalf of the defendant, its Managing Director was got examined as DW.1 and got marked Exs.B-1 to B-10. 8. Taking into consideration the oral and documentary evidence adduced by both sides, the trial Court held issue No.1 in favour of the defendant holding that the dispute covered by the suit ought to have been referred to an Arbitrator and the civil suit is not maintainable, and not decided issue Nos.2 to 5 basing on the finding given on issue No.1. Aggrieved of the same, plaintiff preferred this appeal. 9. The learned Advocate General appearing on behalf of the appellants has pleaded that the Court ought to have been taken into consideration with regard to referring of the matter to the Arbitrator before commencement of the trial and the finding of the lower Court after full pledged trial, the matter ought to have been referred to the Arbitrator is erroneous and as such the said finding is liable to be set aside. 10. None appeared on behalf of the respondent in spite of service of notice. 11. The lower Court after conducting full pledged trial in the suit held that the suit is barred under Section 5 of the Arbitration and Conciliation Act, 1996 (for short, the Act) and thereby dismissed the suit. The lower Court by taking into consideration of facts of the case has come to the conclusion that the Act is applicable to the present facts of the case and in view of the bar under Section 5 of the Act, the suit is not maintainable. 12. As per the pleadings, the defendant has pleaded in his written statement that the dispute ought to have been referred to the Arbitrator and instead, the plaintiff has filed the suit without any right and the lower Court also framed the issue that whether disputes should have been decided by Arbitrator under terms of contract and the civil suit is not maintainable. 13. Section 5 of the Act deals with extent judicial intervention. Section 8 of the Act deals with Power to refer parties to arbitration where there is an arbitration agreement. In the present case as per the pleadings, there is an arbitration clause in the agreement dated 27-07-1989. As per Section 8(1) of the Act 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. Therefore, as per Clause 8(1) of the Act, the party who pleads that there is a clause in the agreement he has to apply to the Court at the time of filing of his first statement about the subsistence of the arbitration clause and then the Judicial Authority can refer the matter for Arbitrator. In the present case, the respondent has not applied to the lower Court for referring the matter to Arbitrator in view of the existence of the arbitration clause in the agreement. But, he has only pleaded that the suit is not maintainable in view of the arbitration clause. In view of Section 8(1) of the Act, if there is any existence of arbitration clause in the agreement and if the suit is filed, the defendant has to apply to the Court bringing the said facts to the notice of the Court and then the Court would refer the matter to the Arbitrator. In the present case, the respondent has not made any application before the lower Court with regard to existence of arbitration clause in the agreement and for referring the matter to the Arbitrator and simply pleaded that the suit is not maintainable. When such a plea is taken, the lower Court ought to have decided the issue as a preliminary issue and ought not to have allowed the parties to adduce the evidence and finally disposed of the matter on merits as the suit is not maintainable. Since the respondent has not applied for referring the dispute to the Arbitrator as contemplated under Section 8(1) of the Act, it is deemed that he waived the said right of referring the matter to the Arbitrator when the matter was taken up on merits. Therefore, the said finding of the lower Court is liable to be set aside. Hence, it is just and necessary to remit the matter back to the trial Court for deciding of all the other remaining issues on merits. 14. Accordingly, the appeal is allowed setting aside the impugned judgment dated 07-06-1999 in O.S. No.120 of 1997 on the file of Senior Civil Judge, Nizamabad and the matter is remitted to trial Court for deciding of all the remaining issues in accordance with law. No order as to costs. ___________________ B. PRAKASH RAO, J January 28, 2011. __________________ P. DURGA PRASAD, J PV