TaxTMI 
TaxTMI 
1982 (8) TMI 214
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....between the plaintiff and the 1st defendant for handling and transportation of the goods of the 1st defendant Corporation was subsisting on the date of the suit and restraining the defendant from committing breach of the same by handing over that work to some one other than the plaintiff. The suit was instituted on June 1, 1981, in the Court of the III Civil Judge, Class I, Gwalior. In the suit a notice of motion was taken out purporting to be under Order XXXIX, rules 1 and 2 read with s. 151 of the Code of Civil Procedure, for an interim injunction restraining the defendants from committing a breach of contract and from interfering with the work of handling and transport of goods of the 1st defendant Corporation by the plaintiff during the pendency of the suit. On the notice of motion being taken out the Court directed notice of the same to be served and the same was made returnable on the next day, June 2, 1981. On the returnable date the 2nd defendant, District Manager of the 1st defendant Corporation who had office in the City of Gwalior was served and he appeared through one Shri N.K. Modi, Advocate, filed the letter of authority (Vakalat) in favour of the learned advocate on ....
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.... Court in revision under s. 115 of the Code of Civil Procedure. The learned judge, though his attention was drawn to the binding decision of the Division Bench of the same High Court, did not refer to it in the judgment and relied upon a decision of the Adhara Pradesh High Court in Bajaj International v. Indian Tobacco Suppliers(1) and held that an application for filing reply to a notice of motion for interim injunction is a step taken in the proceeding which would disentitle the party from invoking the arbitration agreement. In support of this conclusion the learned judge also relied upon Abdul Qudoos v. Abdul Gani,(2) which decision clearly does not support any such proposition. The learned judge further observed that even if the view that the application filed by the 2nd defendant praying for time to reply to the notice of motion for interim injunction may not be treated as a step in the proceeding, yet the 1st defendant would not be entitled to a discretionary order under s. 34 of the Act on the ground that one of the conditions necessary for invoking the jurisdiction of the court under s. 34 is not satisfied inasmuch as nowhere in the application the 1st defendant has stated ....
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.... the second pre-condition is satisfied in that the application under s. 34 was filed before taking any other steps in the proceedings. What does the expression 'before taking any other steps in the proceedings' signify? Before ascertaining the scope and ambit of the expression it would be worthwhile to briefly narrate the raison d'etre for prescribing this condition. Ordinarily as provided in s. 9 of the Code of Civil Procedure all suits of a civil nature except suits of which cognizance is either expressly or impliedly barred would be triable by the courts set up for the purpose. If the dispute is of a civil nature the forum is one or the other court set up for the purpose. The State courts have been set up for an easy access by persons who seek resolution of their disputes. They must be disputes of civil nature and the cognizance of which is not either expressly or impliedly barred. Civil courts set up by the State having defined jurisdiction will be the forum for resolution of such disputes. Ordinarily, therefore, whenever a dispute of a civil nature arises the party claiming relief would approach the court having jurisdiction to resolve the dispute. The party against whom reli....
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....tract in the absence of an arbitration agreement. Therefore when in breach of an arbitration agreement a party to the agreement rushes to the court, unless a clear case to the contrary is made out the approach of the court should be to hold parties to their bargain provided necessary conditions for invoking s. 34 are satisfied. Arbitration Act prescribes various methods by which an arbitration agreement can be enforced. Section 20 enables parties to an arbitration agreement to approach the Court in the circumstances therein mentioned for a direction that the agreement be filed in the court and on such agreement being filed the Court is empowered to make an order of reference to the arbitrator. Provisions of Chapter IV provide for arbitration in suits. Section 34 prescribes one other method of enforcing arbitration agreement if a party to an arbitration agreement in breach of it approaches the court and files a suit in respect of a dispute covered by the arbitration agreement. Section 34 prescribes a method by which the other party to the arbitration agreement by satisfying the conditions prescribed in s. 34 can enforce the arbitration agreement by obtaining an order of stay of th....
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....ation for filing a written statement to the plaint, could he be said to have taken a step in the proceedings so as to disentitle him from obtaining stay of the suit ? Let the precedents rest for the time being and let an attempt be made to ascertain the underlying intendment in enacting the condition in s. 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 proceeding. Ordinarily the court would respect the sanctity of contracts. A valid arbitration agreement between the parties obliges both the parties to the agreement to act according to the terms of the agreement. 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 ....
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.... 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 agreement. This flows from the well set....
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....ntendment in providing that application for stay of the proceedings must be filed before the filing of the written statement, the same conclusion must follow when instead of filing the written statement the party has taken some other step in the proceedings. That some other step must indisputably be such step as would manifestly display an unequivocal intention to proceed with the suit and to give up the right to have the matter disposed of by arbitration. Each and every step taken in the proceedings cannot come in the way of the party seeking to enforce the arbitration agreement by obtaining stay of proceedings but the step taken by the party must be such step as would clearly and unmistakebly indicate an intention on the part of such party to give up the benefit of arbitration agreement and to acquiesce in the proceedings commenced against the party and to get the dispute resolved by the court. A step taken in the suit which would disentitle the party from obtaining stay of proceeding must be such step as would display an unequivocal intention to proceed with the suit and to abandon the benefit of the arbitration agreement or the right to get the dispute resolved by arbitration. ....
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....nterlocutory application on the pain of abandoning the benefit of arbitration agreement. A concrete illustration would be both illuminating and convincing. In a suit for dissolution of partnership and accounts an application for appointment of receiver as also an application for interim injunction restraining the defendant from using the partnership goods or assets for continuing the business are filed. The court passes ex parte interim order and issues notice calling upon the defendant to show cause why the same should not be made absolute. In a running business appointment of a receiver would thoroughly dislocate the business and an injunction would bring to standstill the flourishing business. If the defendant appears and contests the application for appointment of receiver as also the application for injunction, could he be said to display an unequivocal intention to give up the benefit of the arbitration agreement and to acquiesce in the suit ? The dispute between the parties is whether the partnership should be dissolved as per the contract of partnership. Interim injunction application or application for appointment of receiver have nothing to do directly or substantially wi....
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....refore, taking any other steps in the proceedings must be confined to taking steps in the proceedings for resolution of the substantial dispute in the suit. Appearing and contesting the interlocutory applications by seeking either vacation thereof or modification thereof cannot be said to be displaying an unambiguous intention to acquiesce in the suit and to waive the benefit of the arbitration agreement. Any other view would both be harsh and inequitous and contrary to the underlying intendment of the Act. The first party which approaches the court and seeks an ex parte interim order has obviously come to the court in breach of the arbitration agreement. By obtaining an ex parte order if it forces the other party to the agreement to suffer the order, or by merely contesting be imputed the intention of waiving the benefit of arbitration agreement, it would enjoy an undeserved advantages. Such could not be the underlying purpose of s. 34. Therefore, in our opinion, to effectuate the purpose underlying s. 34 the narrow construction of the expression 'taking any other steps in the proceedings' as herein-above set out appears to advance the object and purpose underlying s. 34 and the p....
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.... Arbitration Act. Therefore, whatever may be the reason for the practice which has grown up, it seems to me clear that there is no obligation on the defendant to follow this practice of doubtful import and utility and he is at liberty to file an unconditional appearance." Before we turn to the only decision of this Court in State of Uttar Pradesh v. Janki Saran Kailash Chandra,( [1974] 1 S.C.R. 31) which at one stage was expected to resolve the controversy, we may briefly refer to the decisions of the various High Courts to which our attention was drawn. We would first refer to the decisions which take the view that appearing to contest interlocutory application either for vacating the interim orders or modification of the same does not constitute a step in the proceedings which would disentitle the party to an order of stay under s. 34. In Nuruddin Abdulhussein, (supra) learned single judge of the Bombay High Court held that the true test for determining whether an act is a step in the proceedings is not so much the question as to whether it is an application-although, of course, that would be a satisfactory test in many cases-but whether the act displays an unequivocal intentio....
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....rt approved the decision of the learned single judge in Nuruddin Abdulhussein and observed that the test of making an application being styled as the step in the proceedings is neither a sole test nor a conclusive test and what is such a step in the proceedings has been settled by the decision of Tendolkar, J. The defendant having filed appearance under protest and reserved the right to move the Court for referring the dispute to arbitration, contested the notice of motion taken out for appointment of receiver and injunction in both of which ex parte order was made would not constitute a step in the proceedings as would disentitle the defendant to an order under s.34. In Queens College Kanetra & Anr. v. The Collector, Varanasi & Ors.,( AIR 1974 All. 134.) the defendant first applied for stay of proceedings under s. 34 and after the court granted stay of proceedings requested the court that the ex parte ad interim injunction be vacated. Two objections were taken on behalf of the plaintiffs to this request of the defendant. One being that when the suit is stayed the court has no jurisdiction to deal with any part of the suit and secondly that if the application for ad interim injunc....
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....udge of Calcutta High Court did not follow the earlier Calcutta decisions in view of the decision of this Court in Janki Saran's case and agreed with the decision in Biswanaih Rungta's case. In M/s. Bhonrilal Hiralal & Ors. v. Prabhu Dayal & Anr.,( AIR 1980 Raj. 9.) a learned single Judge of the Rajasthan High Court after a review of large number of decisions agreed with the Allahabad, Bombay and Madhya Pradesh and later Calcutta decisions and held that appearing to contest an interlocutory application is not a step in the proceedings as would disentitle the defendant to an order under s. 34. We would now refer to the set of decisions which take the contrary view. In Subal Chandra Bhur v. Md. Ibrahim & Anr.( AIR 1943 Cal. 484) S.R. Das, J., after referring to Ives & Barker v. Willans,( [1894] 2 Ch. 478.) and two earlier decisions of the Calcutta High Court concluded that in order to constitute a step in the proceedings the act in question must be: (a) an application made to the Court either on summons; or (b) such an act as would indicate that the party is acquiescing in the method adopted by the other side of having the disputes decided by the Court. The second test is beyond qu....
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....ribe the injunction without in any way touching upon the main dispute in the plaint would not be such a step as would disentitle the party from obtaining stay of the proceedings. To that extent the earlier Calcutta view is whittled down and the later decisions have adopted the trend of decisions in other High Courts. The earliest decision of the Madras High Court is P. Gannu Rao v. P. Thiagaraja Rao & Anr.( A.I.R. 1949 Mad. 582) Examining the ambit of the expression 'taking step in the proceedings', it was held that if something is done by the party concerned which is in the nature of an application to the court it will necessarily come under the category of a step in the proceedings. After formulating this test the Court held that when ex parte interim injunction was served upon the defendant and the defendant appears and prays for modification of the injunction it constitutes a step in the proceedings which would disentitle him from obtaining stay of the suit. In reaching this conclusion the Court amongst others placed reliance on the decision of Das, J. in Subal Chandra Bhur's case. The Madras High Court has consistently followed this view in M/s. Bortes S.A. v. Astouic Compani....
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....t, and set aside the order of the trial court and rejected the request for stay of proceedings. State of U.P. approached this Court against the order of the High Court. Rejecting the appeal this Court observed as under: "To enable a defendant to obtain an order staying the suit, apart from other conditions mentioned in s. 34 of the Arbitration Act, he is required to present his application praying for stay before filing his written statement or taking any other step in the suit proceedings. In the present case the written statement was indisputably not filed before the application for stay was presented. The question is whether any other step was taken in the proceeding as contemplated by s. 34, and it is this point with which we are directly concerned in the present case. Taking other steps in the suit proceedings connotes the idea of doing something in aid of the progress of the suit or submitting to the jurisdiction of the Court for the purpose of adjudication of the merits of the controversy in the suit"' The view herein taken not only does not run counter to the view we have taken but in fact clearly supports the view because the pertinent observation is that taking step in ....
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....ly emphasised that contesting the application for interim injunction or for appointment of a receiver or for interim relief by itself without anything more would not constitute such step as would disentitle the party to an order under s. 34 of the Act. 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 s. 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 1st defendant Corporation. Alongwith 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 Shri 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 e....