Case: Food Corporation Of India &amp; Anr Vs. Yadav Engineer &amp; Contractor

steps in the proceedings after appearance. Analysing that constitutes step in the proceedings, inter alia, it has been held that the filing of affidavits in answer to an application by the plaintiff for appointment of Receiver does not amount to taking a step in the proceedings [see Zalinoff v. Hammond, (1898) 2 Ch.D 92, referred to in Halsburys Laws of England, 4th Ed. Vol. 2, para 563, note 12]. Russell on Arbitration, 19th Edn., page 183, under the heading "steps held not to be in the proceedings", notes that filing affidavits in reply to plaintiffs affidavits in support of a motion for a Receiver in a partnership action is not a step in the proceedings. There are 5-6 other situations noticed by the author which, when individually analysed, would show that the steps taken with reference to interlocutory proceedings are ordinarily not held as steps in the proceedings. 32. Having thus critically examined both on principle and precedent the meaning to be given to the expression talling steps in the proceedings, we are clearly of the view that unless the step alleged to have been taken by the party seeking to enforce arbitration agreement is such as would display an unequivocal intention to proceed with the suit and acquiesce in the method of resolution of dispute adopted by the other party, namely, filing of the suit and thereby indicate that it has abandoned its right under the arbitration agreement to get the dispute resolved by arbitration, any other step would not disentitle the party from seeking relief under Section 34. It may be clearly emphasised that contesting the application for interim injunction or for appointment of Receiver or for interim relief by itself without anything more would not constitute such step as would disentitle the party to an order under Section 34 of the Act. 33. Reverting to the facts of this case it is crystal clear that the defendants had taken no steps in the proceedings which would disentitle them to a relief under Section 34. Suit was filed on June 1, 1981, impleading two defendants, Food Corporation of India, 1st defendant and Shyam Narain Nigam, 2nd defendant being the District Manager of the defendant Corporation. Along with the plaint a notice of motion was taken out for ex parte ad interim injunction. The Court issued notice on the notice of motion and made it returnable on the next day, i.e. June 2, 1981. When the matter was placed on Board of the Court on June 2, 1981, the proceedings show that the District Manager, 2nd defendant was served and appeared through Advocate Mr.N.K. Modi. Defendant 1 was shown absent with an endorsement the summons showing service not received back. Then comes what transpired on that day as disclosed in the proceedings of the day. The same may be extracted:"Mr.Modi filed Vakalatnama on behalf of defendant No. 2 and prayed for time for reply and arguments to the plaintiffs application for temporary injunction. Plaintiffs Counsel has no objection. Therefore, request is accepted. For reply arguments and awaiting service on 3rd June, 1981." On June 3, 1981, an application for stay of suit was made on behalf of the 1st defendant under Section 34. Ex facie, the proceedings did not disclose any step having been taken by the 1st defendant in the proceedings as would disentitle it to an order under Section 34. 2nd defendant was impleaded in his official capacity. Assuming the application of the 2nd defendant for filing reply to the interim injunction application also binds the 1st defendant though it was not served with the summons yet an application seeking time to file reply to an interim injunction application cannot be said to be a step in the proceedings as would display an unequivocal intention to proceed with the suit or would disclose that the defendants had acquiesced into the resolution of dispute by the Court or had abandoned the rights under the arbitration agreement. 34. The learned Judge also negatived the prayer for stay for the additional reason that the 1st defendant had not complied with another condition for relief under Section 34. The learned Judge found that in the application for stay the applicant had not stated that at the time when the proceedings were commenced it was ready and willing to do all things, necessary to the proper conduct of the arbitration and still remains ready and willing to do the same. The learned Judge held after referring to the averments in the application for stay that there is no averment to that effect. Plaintiff contesting the application had not raised this contention before the trial Court and the first appellate Court and that becomes evident from what the learned Judge has stated in the judgment that both the Courts have not taken into account this aspect of the case at all. Obviously the learned Judge ought not to have permitted the contention while hearing a revision petition under Section 115 of the Code of Civil Procedure. But apart from this, the finding of the learned Judge is contrary to record. The application for stay was read over to us and a copy was submitted for our perusal. In para 2 of the application it is clearly stated that ‘the defendant is ready and willing (ichhuk) for this purpose?. It appears that the original application was in Hindi. The important word used in the application is ichhuk which, it was agreed, would mean ready and willing. It is followed by the expression for this purpose which would imply that the 1st defendant was always ready and willing to proceed with the arbitration when commenced and is shown to be ready and willing at the time of applying for stay. Therefore, the 1st defendant had complied with the requirement of his readiness and willingness to go to arbitration. Therefore, the learned Judge was clearly in error in interfering with the order of the trial Court confirmed by the 1st appellate Court on this ground also.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]10. Let the precedents rest for the time being and let an attempt be made to ascertain the underlying intendment in enacting the condition in Section 34 which prescribes a mode of enforcing the arbitration agreement to the effect that if a party to an arbitration agreement commences an action the other party to the agreement, if it desires to enforce the agreement, may seek stay of the suit before either filing written statement or taking other steps in the proceedings. A valid Arbitration agreement envisages resolution of dispute by a forum of the choice of the parties and displaces the State Courts. Ordinarily, a party to a valid arbitration agreement is not entitled unilaterally to commit a breach of the agreement or ignore the agreement. Now, if a party to an arbitration agreement has a dispute to be resolved arising out of the contract in which the arbitration agreement is incorporated and instead of invoking the arbitration agreement by inviting the parties to appoint the arbitrator it rushes to the Court in breach of the agreement and files a suit, the other party is undoubtedly entitled to enforce the agreement. True, the other party, is equally entitled to waive the benefit of the arbitration agreement. If the other party desires to waive the benefit of the agreement it can appear in the suit and contest the suit. Such conduct would demonstrably show that both the parties have waived the benefit flowing from the arbitration agreement of getting the dispute between them resolved by a forum of their choice. But if the first party in breach of the agreement files a suit the other party to the agreement must have an option and opportunity to enforce the arbitration agreement. Section 34 prescribes a mode and method of enforcing the arbitration agreement. When a party to the agreement has filed a suit in breach of the agreement and the other party to the agreement is dragged to the Court, by staying the suit at the instance of the other party so dragged to the Court the first party consequently would be forced to honour the arbitration agreement. But before the other party to the arbitration agreement is entitled to enforce the arbitration agreement by stay of the suit it must disclose its unequivocal intention to abide by the agreement and, therefore, Section 34 obliges such a party to ask for stay of the proceedings before such a party takes any steps which may unequivocally indicate the intention to waive the benefit of the arbitration agreement. Abandonment of a right to seek resolution of dispute as provided in the arbitration agreement must be clearly manifested by the step taken by such party. Once such unequivocal intention is declared or abandonment of the right to claim the benefit of the agreement becomes manifest from the conduct, such party would then not be entitled to enforce the arbitration agreement because there is thus a breach of the agreement by both the parties disentitling both to claim any benefit of the arbitration agreement. Section 34 provides that a party dragged to the Court as defendant by another party who is a party to the arbitration agreement must ask for stay of the proceedings before filing the written statement or before taking any other step in the proceedings. That party must simultaneously show its readiness and willingness to do all things necessary to the proper conduct of the arbitration. The Legislature by making it mandatory on the party seeking benefit of the arbitration agreement to apply for stay of the proceedings before filing the written statement or before taking any other steps in the proceedings unmistakably pointed out that filing of the written statement discloses such conduct on the part of the party as would unquestionably show that the party has abandoned its rights under the arbitration agreement and has disclosed an unequivocal intention to accept the forum of the Court for resolution of the dispute by waiving its right to get the dispute resolved by a forum contemplated by the arbitration agreement. When the party files written statement to the suit it discloses its defence, enters into a contest and invites the Court to adjudicate upon the dispute. Once the Court is invited to adjudicate upon the dispute there is no question of then enforcing an arbitration agreement by forcing the parties to resort to the forum of their choice as set out in the arbitration agreement11. Apart from filing written statement, what other step did the legislature contemplate as being taken in the proceedings which would disentitle the party to the suit from obtaining stay of the proceedings which would have the effect of enforcing the arbitration agreement? General words taking any other steps in the proceedings just follow the specific expression filing a written statement and both are used for achieving the same purpose. Therefore, the latter general expression must be construed ejusdem generis with the specific expression just proceeding to bring out the ambit of the latter. Expression ‘written statement is a term of specific cannotation ordinarily signifying a reply to the plaint filed by the plaintiff. Therefore, the expression written statement in Sction 34 signifies a specific thing, namely, filing an answer on merits to the plaint filed by the plaintiff. This specific word is followed by general words taking any other steps in the proceedings. The principle of ejusdem generis must help in finding out the import of the general words because it is a well established rule in the construction of statutes that general terms following particular ones apply to such persons or things as are ejusdem generis with these comprehended in the language of the Legislature14. Having examined the contention on the language of the statute, the setting in which it is placed, the underlying intendment and the purpose it seeks to serve, let us turn to precedents. There is a clear-cut cleavage and divergence of opinion amongst various High Courts. Allahabad, Bombay and later decisions of Calcutta High Court, Gujarat, Madhya Pradesh and Rajasthan High Courts have taken the view that appearing and contesting interlocutory application is not a step taken in the proceedings so as to disentitle the party from taking benefit of the arbitration agreement by seeking stay of the suit. On the other hand, earlier decisions of Calcutta High Court, Delhi and Madras High Courts have taken a contrary view32. Having thus critically examined both on principle and precedent the meaning to be given to the expression talling steps in the proceedings, we are clearly of the view that unless the step alleged to have been taken by the party seeking to enforce arbitration agreement is such as would display an unequivocal intention to proceed with the suit and acquiesce in the method of resolution of dispute adopted by the other party, namely, filing of the suit and thereby indicate that it has abandoned its right under the arbitration agreement to get the dispute resolved by arbitration, any other step would not disentitle the party from seeking relief under Section 34. It may be clearly emphasised that contesting the application for interim injunction or for appointment of Receiver or for interim relief by itself without anything more would not constitute such step as would disentitle the party to an order under Section 34 of the Act34. The learned Judge also negatived the prayer for stay for the additional reason that the 1st defendant had not complied with another condition for relief under Section 34. The learned Judge found that in the application for stay the applicant had not stated that at the time when the proceedings were commenced it was ready and willing to do all things, necessary to the proper conduct of the arbitration and still remains ready and willing to do the same. The learned Judge held after referring to the averments in the application for stay that there is no averment to that effect. Plaintiff contesting the application had not raised this contention before the trial Court and the first appellate Court and that becomes evident from what the learned Judge has stated in the judgment that both the Courts have not taken into account this aspect of the case at all. Obviously the learned Judge ought not to have permitted the contention while hearing a revision petition under Section 115 of theCode of Civil Procedure. But apart from this, the finding of the learned Judge is contrary to record. The application for stay was read over to us and a copy was submitted for our perusal. In para 2 of the application it is clearly stated that ‘the defendant is ready and willing (ichhuk) for this purpose?. It appears that the original application was in Hindi. The important word used in the application is ichhuk which, it was agreed, would mean ready and willing. It is followed by the expression for this purpose which would imply that the 1st defendant was always ready and willing to proceed with the arbitration when commenced and is shown to be ready and willing at the time of applying for stay. Therefore, the 1st defendant had complied with the requirement of his readiness and willingness to go to arbitration. Therefore, the learned Judge was clearly in error in interfering with the order of the trial Court confirmed by the 1st appellate Court on this ground also.