Case: Rashtriya Ispat Nigam Ltd.  Vs. M/S. Verma Transport Company

The Appellant No.1 is a Public Sector Undertaking. It is engaged, inter alia, in the business of manufacturing and marketing of iron and steel products. The Respondent is a partnership firm. It is engaged in the business of consignment agents. It has its office at Jalandhar. A contract was entered into by and between the parties hereto in regard to the handling and storage of iron and steel materials of the Appellant at Ludhiana. The Appellants contend that one Shri Anil Verma, Partner of the Respondent-Firm had constituted various firms and companies and obtained several consignment agency contracts from the Appellant pertaining to Delhi, Faridabad, Chandigarh and Ludhiana etc. who conspired with certain officials of the Appellants and obtained payments @ Rs.140/- per M.T. in place of Rs.36/- per M.T. on a false plea that the Transport Union at Bahadurgarh did not permit transportation of goods without levy of a fee of Rs.100/- per M.T. on transportation of such goods. An investigation was conducted by the Central Bureau of Investigation and a criminal case was initiated against Shri Anil Verma and the concerned officials of the Appellants. Allegedly, with the object of presenting a clean image to the Appellants and with a view to avoid termination of all the contracts by them, a plea was put forth that Shri Anil Verma had resigned from the partnership firm as also from his other firms/companies. According to the Appellants, the said Shri Anil Verma was replaced by his family members as a partner of the said firm but he continued to be in complete control over the firms/companies. The contract of the Respondent was terminated by the Appellants on 23.05.2002. On the same day, a show cause notice was also issued to Shri Anil Verma as to why he and his firms/companies should not be black listedThe Respondent-Firm, however, filed a suit being Suit No.122 of 2002 for grant of permanent injunction restraining the Appellants herein from in any manner blacklisting the Respondent-Firm or terminating the consignment agency contract. On an application for injunction having been filed, the Civil Judge, Junior Division, directed the parties to maintain status quo in regard to the status of the Respondent-Plaintiff herein qua termination of the contract as also the order of blacklisting. The Appellants appeared to have sought for time to file written statement. They also filed a rejoinder to the counter affidavit to the application for injunction wherein it took a specific plea that the subject-matter of the suit being covered by the arbitration agreement entered into by and between the parties, it was not maintainable. On 07.06.2002, they filed an application under Section 8 of the 1996 Act, which was rejected by the Civil Judge, Junior Division by an order dated 03.10.2002, holding :The applicants/defendants have already filed a reply to application u/o 39 Rules 1 and 2 read with Section 151 CPC and sought 15 days time to file written statement clearly proves that the process of the suit has already begun and the defendants have already entered into a defence of the suit meaning thereby they have subjected themselves to the jurisdiction of the Civil Court. The defendants have not spelt out as to what is the dispute or difference between the parties. Rather, they have straightaway black listed the plaintiff firm, without giving them any notice regarding any dispute or difference, which was mandatory. From the perusal of the record, it is very much clear that there is no dispute or difference between the present firm and the company with regard to any of the transactions in the business between both of them. Rather, the company is at a dispute with a person, who no more exists as a partner in the plaintiff firm. The company also wrote appreciation letter to the Plaintiff firm for their cooperation for achieving the desired targets for the year 2001-02. The same was made possible because of untiring efforts made by the plaintiff of the present case. In the present case, the straightaway of black listing the firm is not justified, even the principal of natural justice goes in favour of the respondent/plaintiffA Revision Application filed by the Appellants before the High Court there against was dismissed by the impugned judgment, inter alia, on the premise that the application filed by them being not accompanied by the original arbitration agreement or a duly certified copy thereof, the same was not maintainable. A Review Application filed there against pointing out that such certified copy had in fact been filed, however, was not entertained.

Court's reasoning:
Section 34 of the repealed 1940 Act employs the expression steps in the proceedings. Only in terms of Section 21 of the 1940 Act, the dispute could be referred to arbitration provided parties thereto agreed. Under the 1940 Act, the suit was not barred. The Court would not automatically refer the dispute to an arbitral tribunal. In the event, it having arrived at satisfaction that there is no sufficient reason that the dispute should not be referred and no step in relation thereto was taken by the applicant, it could stay the suitReliance placed by the learned counsel on Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Another [(2003) 5 SCC 531] is misplaced.. Therein, not only a suit for dissolution of the firm was filed, but a different cause of action had arisen in relation whereto apart from parties to the arbitration agreement, other parties had also been impleaded. In the aforementioned fact situation, this Court held :Secondly, there is no provision in the Act that when the subject-matter of the suit includes subject-matter of the arbitration agreement as well as other disputes, the matter is required to be referred to arbitration. There is also no provision for splitting the cause or parties and referring the subject-matter of the suit to the arbitratorsIt was further stated :The next question which requires consideration is even if there is no provision for partly referring the dispute to arbitration, whether such a course is possible under Section 8 of the Act. In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action, that is to say, the subject-matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject-matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject-matter of an action brought before a judicial authority is not allowedSecondly, such bifurcation of suit in two parts, one to be decided by the Arbitral Tribunal and the other to be decided by the civil court would inevitably delay the proceedings. The whole purpose of speedy disposal of dispute and decreasing the cost of litigation would be frustrated by such procedure. It would also increase the cost of litigation and harassment to the parties and on occasions there is possibility of conflicting judgments and orders by two different forumsSuch a question does not arise herein as the parties herein are parties to the arbitration agreement and the question in regard to the jurisdiction of the arbitrator, if any, can be determined by the arbitrator himself in terms of Section 16 of the 1996 ActStrong reliance has been placed by Mr. Rai on a decision of this Court in Union of India v. Birla Cotton Spinning and Weaving Mills Ltd. [AIR 1967 SC 688 ] contending that when the dispute arises de hors the agreement, Section 8 of the 1996 Act would not be applicable. The said decision has no application in the instant case as a finding of fact was arrived at therein that the Union of India had withheld payment of a large sum of money on the specious plea that some amount in relation to another contract was due to it. The submission of the respondent therein was that no such contract had been executed by it. In the fact situation obtaining therein, this Court held:The evidence recorded by the Trial Court discloses that there was no dispute between the Company and the Union arising under the contract on which the suit was filed. The Union accepted liability to pay the amount claimed by the Company in the suit. The Union still declined to pay the amount asserting that an amount was due from the Company to the Union under a distinct contract. This amount was not sought to be set-off under any term of the contract under which the Company made the claim. The dispute raised by the Union was therefore not in respect of the liability under the terms of the contract which included the arbitration clause, but in respect of an alleged liability of the Company under another contract which it may be noted had already been referred to arbitration. The Union had no defence to the action filed by the Company: it was not contended that the amount of Rs. 10,625/- was not due to the Company under the contract relied upon by the Company. For enforcement of the arbitration clause there must exist a dispute : in the absence of a dispute between the parties to the arbitration agreement, there can be no referenceSuch is not the case hereFor the foregoing reasons, we are of the opinion that the application filed by the Appellants under Section 8 of the 1996 Act was maintainable. Before parting with the case, we may notice a disturbing state of affairs. Mr. Nariman made a statement before us that in view of the order of status quo passed by the learned Civil Judge, the Respondents have not only been working for the full term of five years contemplated under the agreement but also for the extended the period of ten years, to which they were not entitled. The order of injunction passed by the learned Trial Judge is not before us. The contention raised by Mr. Nariman if correct, we are sure that corrective measures shall immediately be taken by the court concerned.