Case: Union Of India Vs. Surjeet Singh Atwal

3. In the year 1942 tenders were invited by the Union of India for construction of certain runways and roads in an aerodrome 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 settlement of the disputes by reference to the arbitration of the Superintending Engineer of the Circle for the time being, according to law. The respondent alleged 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 overpaid to the respondent. Ignoring the arbitration clause respondent 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 Union of India made an application under Section 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 sum of Rs.5,09,164/-. The contractor objected to the entertainment of the counter-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 agreement of reference filed in the Court and for making the reference of the disputes between the parties of the arbitration of the Superintending Engineer, Central Circle No. 1, C.P.W.D. Calcutta. The respondent opposed the petition mainly on the ground 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 applications under Section 34 of the Act for stay of the suit filed in the Calcutta High Court, and, therefore any subsequent application relating to arbitration under the agreement should be filed in the Calcutta High Court. By its judgment 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 Superintending Engineer, Calcutta Circle No. 1, .C.P.W.D. The learned Subordinate Judge held that the contract of the parties was concluded at Delhi and it was signed at Delhi on behalf of the respondent 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 Section 39 of the Act in the Punjab High Court. By his judgment dated January 11, 1965 D. K. Mahajan J., allowed the appeal and set aside the order of the Subordinate Judge, First Class and dismissed the application of the appellant on the ground that the Delhi court had no jurisdiction to entertain an application under Section 20 of the Act.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 Section 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 agreement.

Court's reasoning:
Even so, we are of opinion that the application for stay of suit under Section 34 in the present case is not an application in a reference within the wider meaning given to the phrase by this Court in Kumbha Mawjis case, 1953 SCR 878   = (AIR 1853 SC 313) (supra). There are different sections in the Arbitration Act whereby an application is to be made even before any reference has been made. Section 8 for instance, provides for an application to invoke the power of the Court, when the parties fail to concur in the appointment of an arbitrator to whom the reference can be made. So also Section 20 provides for an application to file the arbitration agreement in Court so that an order of reference to an arbitrator can beare clearly applications 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 Section 31 (4) of the Act even though these applications are made before any reference has taken place. But an application under Section 34 is clearly not an application belonging to the same category. It has nothing to do with any reference. It is only intended to make an arbitration agreement effective and prevent a party from going to Court contrary to his own agreement that the dispute is to be adjudicated by a private tribunal.The conditions must be fulfilled in order to give a Court exclusive jurisdiction under Section 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 application must be made "in any reference".We do not, therefore, consider that an application for stay of suit under Section 34 is an application in a reference even within the wider meaning given to that phrase by this Court in Kumbha Mawjis case, (supra).The second condition imposed by Section 31 (4) is that the application for stay must be made to a Court competent to entertain it. It should be noticed that in Section 34 the expression "judicial authority" is used. The section provides for an application 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 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 Section 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 Section 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 Section 2 (c) of the Act. The view that we have expressed is borne out by the decisions of the Calcutta High Court in Choteylal Shamlal v. Cooch Behar Oil Mills Ltd., ILR (1954) 1 Cal 418; Britania Building and Iron Co. Ltd. v. Gobinda Chandra Bhattacharjee, 64 Cal WN 324 and Basanti Cotton Mills Ltd. v. Dhingra Brothers, AIR 1949 Cal 684  .