2017(3) Law Herald (P&H) 2266 : 2017 LawHerald.Org 1306

IN THE HIGH COURT OF PUNJAB AND HARYANA

Before

Hon’ble Mr. Justice Raj Mohan Singh

CR No. 2819 of 2017

Ashok Kumar Sachdeva & Anr.

v.

Vinod Kumar Sachdeva & Ors.

Decided on 01/08/2017

For the Petitioners:         Mr. Arun Jain, Sr. Advocate, Mr. Sunil Sharma, Advocate.

For the Respondents:      Ms. Munisha Gadhi, Sr. Advocate, Mr. Viraj Gandhi, Advocate.

  • Arbitration and Conciliation Act, 1996, S.8–Arbitration Agreement-Once the
    existence of agreement between the parties is found containing arbitration
    clause, the jurisdiction of the civil Court in such matter is barred. (Para 13)
  • Arbitration and Conciliation Act, 1996, S.8–Arbitration Agreement– In the event of
    finding of existence of arbitration clause, the Court is obligated to refer the parties
    to arbitration
    The breach of agreement by any of the party to the agreement and
    even if, there is termination of agreement, the same will not affect the arbitration
    clause-The matter can be referred to the arbitration for reconciliation of dispute
    between the parties.
    (Para 8)

CASES CITED:

  1. Agn Gold Exims Ltd. v. Sri Lakshmi Knits & Wovens & Ors., (2007) 3 SCO 686 (Para 8)
  2. Branch Manager. M/s Magma Leasing & Finance Limited &Anr., v. Potluri Madhavilata & Anr., 2009(5)
    Law Herald (SC) (Para 8)

3    Bharat Rasiklal Ashra v. Gautam Rasikla Ashra & Anr, 2011(4) RCR (Civil) 869. (Para 8)

  1. Hindustan Petroleum Corporation Limited v. M/s Pinkcity Midway Petroleums, 2003 RCR (Civil) 686.
    (Para 13)
  2. Swiss Timing Ltd., v. Commonwealth Games 2010 Organizing Committee, (2014) 6 SCC 677. (Para 14)
    6 Rewa Electricais v. Movil, 2012(11) SCC 93. (Para 15)
  3. Kvaerner Cementation India Ltd. v. Bajranglal Agarwal & Anr., (2012) 5 SCC 214. (Para 16)
  4. Ayyasamy v. A. Paramasivam & Ors., 2016(4) Law Herald (SC) 2769 : 2016 LawHerald.Org 1899.
    (Para 16)

9    M/s Sundaram Finance Limited & Anr., v. T. Thankan, 2015(2) RCR (Civil) 920. (Para 18)

  1. Hema Khattar & Anr., v. Shiv Khera, 2017(3) RCR (Civil) 277. (Para 19)
  2. Anand Gajapathi Raju & Ors., v. P.V.G. RajU (Dead) & Ors., (2000) 4 SCC 539. (Para 19)

12!   Greaves Cotton Limited v. United Machinery and Appliances, 2017(1) RCR (Civil) 737. (Para 20)

  1. Booz Allen and Hamilton Inc. v. SBI Homes Finance Limited & Ors., 2011(5) RCR (Civil) 168 (Para 20)

JUDGMENT

Mr, Raj Mohan Singh, J.: – Vide this common order, CR No.2819 of 2017 titled Ashok Kumar Sachdeva and another v. Vinod Kumar Sachdeva and others and CR No.2820 of 2017 titled Ashok Kumar Sachdeva and another v, Vinod Kumar Sachdeva are being decided. Facts are taken from CR No.2819 of 2017.

  1. Petitioners have assailed the order dated 27.03.2017 passed by Civil Judge (Junior Division),
    Amritsar, whereby application under Section 8 of the Arbitration and Conciliation Act, 1996 (for
    short ‘the Act’) for referring the dispute to Arbitrator was dismissed.
  2. Plaintiff/respondent No.1 filed a suit for permanent injunction restraining defendants No.2 to
    4 (Canara Bank in different cities) from disbursing any loan or any other finance facility to and
    in the names of defendants No.1 and 2 (petitioners herein) as against the properties
    mentioned in the plaint. Plaintiff and defendant No.1 (petitioner No.1) are real brothers. There
    was a business establishment under the name and style of Sachdeva & Sons. The said
    business concern was a partnership concern in which plaintiff and defendant No.1 were
    The lands underneath the aforesaid business establishment were situated at
    different villages i.e. Chabba, Sangrana Sahib, TarnTaran Road, Amritsar. Originally, the lands
    situated in the aforesaid villages were purchased by the plaintiff and his deceased father
    namely Chaman Lai Sachdeva. Subsequently, the ownership of the aforesaid lands was
    transferred in the name of business concern, in which plaintiff and defendant No.1 were the
    partners. Initially, the plaintiff and defendant No.1 were the partners of the business concern,
    but subsequently, other relatives were also joined in the partnership concern. Due to some
    unfortunate incidents, a dispute arose between the partners and the civil suit came to be filed
    by plaintiff/respondent No.1. In para No.7 of the plaint, the plaintiff has referred to a
    Memorandum of Understanding dated 14.09.2010 arrived at between the plaintiff and
    defendant No.1. Clause 15 of the aforesaid Memorandum of Understanding reads as under:-

“that in case of any clarification needed or dispute arising, the same shall be referred for settlement and arbitration to revered late Maa Deva Ji and Surinder Kumar @ Chhindi Ji of Ghaziabad and if required, to any other person to be mutually appointed and decision of the arbitrator shall be binding on both the parties. The arbitration shall however, always be in accordance with the Arbitration and Conciliation Act 1996, as amended from time to time.”

  1. Plaintiff has pleaded that the liabilities taken over by J.M. Financial services were cleared with
    the joint efforts of the plaintiff, defendant No.1 and their family members. After clearance of
    such liabilities, defendant No.1 i.e petitioner No.1 started acting contrary to the spirit of

understanding. He intended to mortgage the properties of the business concern for discharging his individual liability, rather to discharge joint liabilities of the partners. Plaintiff claimed that the said intended effort of defendant No.1 was out of the purview of the aforesaid Memorandum of Outstanding and therefore, the suit in question was filed.

  1. Defendants No.1 and 2 (petitioners) filed an application under Section 8 of the Act for
    referring the dispute to the Arbitrator as per clause in the Memorandum of Understanding.
    Plaintiff/respondent No.1 filed reply to the said application. The existence of Memorandum of
    Understanding was an admitted fact between the parties as per para No.7 of the plaint itself,
    but, still plaintiff/respondent No.1 took the stand in the reply that the defendants (petitioners)
    be called upon to produce on record original Memorandum of Understanding for referring to
    the terms and conditions contained therein. ParaNos.4, Sand 11 of the reply are reproduced
    hereasunder:-

“4. Para No.4 of the application is denied being wrong and incorrect. The applicant may be called upon to produce on record such original memorandum of understanding for referring to the terms and conditions of the memorandum of understanding. It is absolutely wrong that it was ever agreed upon in between the parties thatin case of any dispute the matterwouldbe referred to the arbitrator for its adjudication. It was never agreed upon that such dispute would be referred to the arbitrator as claimed in the present case.

  1. That para No. 5 of the application is denied being wrong and incorrect. There is no such clause, neither it was ever agreed upon in between the parties that in case of arising of any dispute in between the parties, the matter would be referred to the arbitrator.
  2. Para No. 11 of the application is denied being wrong and incorrect. The facts and circumstances of the case do not warrant attraction of provision of Arbitration & Conciliation Act. The present application being moved with wrongful motive and with a wrongful intention deserves to be dismissed.”

6, Civil Judge (Junior Division), Amritsar vide order dated 27.03.2017 dismissed the application
by observing that the dispute of the nature as pleaded by the plaintiff was not covered under
the Arbitration Clause and the Civil Court has got jurisdiction and the protection of civil right of
the plaintiff cannot be left to contingent decision of the arbitrators. It was observed that once
the plaintiff has submitted to the jurisdiction of the Civil Court for protection of his civil right i.e
possession, then, in such circumstances, the matter cannot be referred to the arbitrators and
the subject matter cannot be adjudicated upon in two different Forums as it would lead to
contrary findings and would bring about multiplicity of the litigation.

7. I have heard learned counsel for the parties.

  1. Learned Senior Counsel for the petitioners by referring to the Arbitration Clause 15 in the Memorandum of Understanding contended that the subject matter of dispute is well within the competence of the arbitrators. The existence of Memorandum of Understanding was admitted by the plaintiff in para No.7 of the plaint itself. In reply to the application under Section 8 of the Act, mala fide stand has been taken by the plaintiff in para Nos.4 and 5, thereby, asking the petitioners to produce original Memorandum of Understanding. The existence of arbitration clause was never in dispute. By alleging contents as contained in para Nos.4,5 and 11 of the reply, the plaintiff has virtually brought the application of Section 16 of the Arbitration and Conciliation Act, 1996 into being. Learned Senior Counsel placed reliance upon AgriGold Exims Ltd. v. Sri Lakshmi Knits & Wovens and others, (2007) 3 Supreme Court Cases 686, The Branch Manager, M/s Magma Leasing & Finance Limited and another v. Potluri Madhavilata and another, [2QQ$(5) Law Herald (SC) 3479J; 2009(4) RCR (Civil) 900, Bharat Rasiklal Ashra v. Gautam RasiklaAshra and another, 2011(4) RCR (Civil) 869 and

contended that the provisions in terms of Section 8 of the Act are preemptory in nature. In the event of finding existence of arbitration clause, the Court is obligated to refer the parties to arbitration. The breach of agreement by any of the party to the agreement and even if, there is termination of agreement, the same will not affect the arbitration clause. The matter can be referred to the arbitration for reconciliation of dispute between the parties.

  1. Learned Senior Counsel further emphasized that the existence of Memorandum of
    Understanding was never in dispute. The grouse of the plaintiff was that the defendants/
    petitioners were intending to utilize the properties of the firm by way of creating encumbrance
    in order to discharge their individual liability, rather to satisfy the joint liabilities of the partners,
  2. Per contra, learned Senior Counsel for the respondents submitted that as per Memorandum
    of Understanding, there were specified joint liabilities of the firm, which were to be discharged
    by the partners. The properties at serial No.1 to 7 were mortgaged to the banks/financial
    institutions against the loans raised and the group was to discharge the liabilities thereunder
    towards liability of paying to M/s J.M. Financial Asset Reconstruction Company (P) Limited,
    liability towards State Bank of India Town Hall Amritsar Branch and liability towards Kotak
    Mahindra Bank Limited (in account of Sachdeva & Sons Rice Mills Limited). Parties mutually
    agreed that realization of scrap, machineries, installations etc. and immovable properties
    comprising of land and building including all the rights attached thereto, shall first be utilized
    for discharging the liabilities towards banks/financial institutions/private lenders and any other
    source from where the firm had raised funds. Liabilities towards Government and Semi
    Government offices and institutions, liabilities towards staff and employees and liabilities
    towards creditors and suppliers were also to be discharged at the first instance.
  3. With the aforesaid understanding, Memorandum of Understanding was executed and it was
    agreed in pursuance of the agreement and in consideration of the premises that the parties
    have agreed that till the time all liabilities are finally settled and cleared, no party shall utilize
    the proceeds for the purposes other than for discharge of the liabilities. Any amount previously
    realized against the assets of the joint ownership by any of the party, but utilized for its own
    individual use shall be forthwith added back in the joint property. Learned Senior Counsel
    further submitted that the liability qua M/s J.M. Financial Asset Reconstruction Company (P)
    Limited has already been discharged by the partners, but now the property on which premises
    of the plaintiff is situated, the defendant wants to create encumbrance over the same by way
    of mortgage to Canara Bank so as to discharge his liability and that has prompted plaintiff/
    respondent No.1 to file the suit in question.

12.1 have considered the submissions made at the bar.

  1. In Hindustan Petroleum Corporation Limited v. M/s Pinkcity Midway Petroleums, 2003
    RCR (Civil) 686, the Hon’ble Apex Court while interpreting under Sections 8 and 16 of the
    Arbitration and Conciliation Act, held that once the agreement and existence of arbitration
    clause are admitted then as per mandatory language of Section 8 of the Act, the Court is
    bound to refer the dispute to the Arbitrator. The question whether that arbitration clause applied
    to the facts of the dispute, has to be raised and decided before the Arbitrator. The Arbitrator is
    competent and has the jurisdiction to adjudicate upon and decide upon his jurisdiction and
    validity and existence of arbitration agreement with reference to arbitrability of the subject
    matter of dispute under arbitration clause. Once the existence of agreement between the
    parties is found containing arbitration clause, the jurisdiction of the civil Court in such matter
    is barred.
  2. The application under Arbitration and Conciliation Act is meant to encourage alternate mode

of redressai of dispute. Once the bilateral agreement is executed between the parties and the same provides for arbitration clause by way of alternate mode of redressai. then, it would be just and appropriate to honour the onerous obligations. The ratio of Hindustan Petroleum Corporation Limited’s case (supra) was approved in Swiss Timing Ltd., v. Commonwealth Games 2010 Organizing Committee, (2014) 6 SCO 677.

  1. In Rewa Electricals v. Mow’/, 2012(11) SCO 93, it was held by the Hon’ble Apex Court that
    the Legislature in Section 16 of the Act made it clear that any obligation with regard to objection
    or validity of arbitration agreement has to be treated as an agreement independent of other
    terms of the contract. The contentious issues should not be gone into or to be decided at the
    stage of appointment of arbitrator and no time should be wasted in such an exercise. The
    remedy of the aggrieved party is to raise the objections before the arbitral Tribunal. The
    arbitral Tribunal is always empowered under Section 16 of the Act to rule about its own
    It is, therefore, open to the plaintiff to raise all these issues and pleas before the
    arbitral Tribunal, including all the pleas. The Arbitration Act in itself is a complete code and
    provides for all channels of adjudication.
  2. In view of Section 16 of the Arbitration and Conciliation Act, 1996, it is explicitly clear that the
    arbitral Tribunal has the power to rule on its own jurisdiction even when any objection with
    reference to existence or validity of arbitration agreement is raised. A conjoint reading of sub
    Sections (2), (4) and (6) of Section 16 of the Arbitration Act would make it clear that such a
    decision would be amenable to be assailed within the ambit of Section 34 of the Arbitration Act.
    The Act does not make any specific provision excluding any category of dispute on the ground
    of its being nonarbitrable. Once there is an arbitration clause with clear and unambiguous
    meaning, then in such an event, judicial intervention would be very limited and minimal. Even
    after the arbitral Tribunal rules on its jurisdiction and decides that arbitration clause is valid, the
    aggrieved party has to weight till final award is pronounced and thereafter, the aggrieved party
    would be entitled to raise any objection before the Court in the proceedings under Section 34 of
    the Act while challenging the arbitral award. The ratio in Kvaerner Cementation India Ltd. v.
    Bajranglal Agarwal and another, (2012) 5 SCC 214 has been relied by the Hon’ble Apex Court
    in a subsequent judgment i.e. Ayyasamy v. A. Paramasivam and others, [2016(4) Law
    Herald(SC) 2769:2016 LawHerald.Org 1899]: 2017(2) RCR (Civil) 518.
  3. From the aforesaid proposition, it can be noticed that respondent No.1 would be having a
    right to file objection in terms of Section 34 of the Arbitration Act only after passing of the award
    by the arbitral Tribunal/Arbitrators.
  4. In M/s Sundaram Finance Limited and another v. T. Thankan, 2015(2) RCR (Civil) 920,
    it was held that once an application in due compliance of Section 8 of the Act is filed, the
    approach of the Civil Court should be not to see whether Court has jurisdiction, but it should
    see whether its jurisdiction has been ousted. The general law should yield to special law-
    generalia specialibus non derogant.
  5. In the recent judgment passed by the Hon’ble Apex Court i.e. Mrs. Hema Khattar and
    another v. Shiv Khera, 2017(3) RCR (Civil) 277, the ratio of P. Anand Gajapathi Raju and
    others v. P.V.G. Raju (Dead) and others, (2000) 4 SCC 539 was relied and it was endorsed
    that once the conditions which are required to be satisfied under sub Sections 1 and 2 of
    Section 8 of the Act are fulfilled, the Court is bound to refer the matter to a arbitrator/arbitrators.
    Conditions which are required to be satisfied are that-

“(1) there is an arbitration agreement;

(2) a party to the agreement brings an action in the Court against the other party;

 

  • subject matter of the action is the same as the subject matter of the arbitration agreement;
  • the other party moves the Court for referring the parties to arbitration before it submits his first
    statement on the substance of the dispute.”

It was held that the language of Section 8 of the Act is pre-emptory in nature, therefore, it is mandatory for the Civil Court to refer the dispute to a arbitrator/arbitrators.

  1. Similar view has been expressed by the Hon’ble Apex Court in Greaves Cotton Limited v.
    United Machinery and Appliances,
    2017(1) RCR (Civil) 737, wherein while relying upon the
    ratio of Booz Allen and Hamilton Inc. v. SBI Homes Finance Limited and others, 2011(5)
    RCR (Civil) 168, the Hon’ble Apex Court emphasized upon the aforesaid proposition.
  2. Respondent No. 1 would be having remedy of objection under Section 34 of the Act only
    after passing of the arbitral award by the Arbitrator.
  3. In view of observations made hereinabove, I deem it appropriate to set aside the impugned
    order dated 27.03.2017 passed by CivilJudge (Junior Division), Amritsar and allowed the
    application under Section 8 of the Arbitration and Conciliation Act, 1996. Trial Court is directed
    to do the needful in the aforesaid context.
  4. A photocopy of this order be placed on the file of connected case.