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Issues: (i) Whether the defendant had waived its right to invoke the arbitration clause by instituting its own suit, so as to defeat the request for reference to arbitration; (ii) Whether the defendant was entitled to unconditional leave to defend in the summary suit; (iii) Whether the suit was liable to be stayed under Section 10 of the Code of Civil Procedure, 1908.
Issue (i): Whether the defendant had waived its right to invoke the arbitration clause by instituting its own suit, so as to defeat the request for reference to arbitration.
Analysis: The filing of a separate suit by the defendant on the same agreement was treated as conduct inconsistent with insisting on arbitration. On that basis, the Court held that the defendant could not simultaneously pursue its own civil action and invoke the arbitration clause against the plaintiff in the present suit.
Conclusion: The request to refer the dispute to arbitration was rejected and the application was dismissed.
Issue (ii): Whether the defendant was entitled to unconditional leave to defend in the summary suit.
Analysis: The agreement was read as a whole, and the security deposit clause was held to be linked to due performance of the contract. Since another suit concerning alleged breach, termination, damages, and validity of the agreement was already pending between the parties, the Court found that the dispute raised triable questions requiring evidence. The plea that the deposit was automatically refundable on any termination was not accepted at the leave stage.
Conclusion: The defendant was granted unconditional leave to defend and the application was allowed.
Issue (iii): Whether the suit was liable to be stayed under Section 10 of the Code of Civil Procedure, 1908.
Analysis: Once unconditional leave to defend was granted, the trial in the summary suit was held to have commenced for the purposes of Section 10. As the earlier suit between the parties involved directly and substantially the same issues, the statutory conditions for stay were treated as satisfied.
Conclusion: The suit was stayed pending the outcome of the earlier suit.
Final Conclusion: The arbitration plea failed, the defendant obtained leave to defend on the merits of the summary suit, and the proceeding was stayed in view of the pending earlier litigation between the parties.
Ratio Decidendi: In a summary suit, a dispute becomes fit for a Section 10 stay only after leave to defend is granted, and a party that institutes a parallel suit on the same contract may be taken to have waived reliance on arbitration for the same dispute.
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