Sunday, 15 July 2018

Whether defendant can waive right to seek reference to arbitration?

In the same case, in para No. 25, the Hon'ble Supreme Court observed that, not only filing of the written statement in a suit, but filing of any statement, application, affidavit, by a defendant prior to the filing of the written statement will be construed as "submission of a statement on the substance of the dispute", if by filing such a statement/application/affidavit, the defendant shows his intention to submit himself to the jurisdiction of the Court and waives his right to seek reference to arbitration.

10. Same is the view taken by the Hon'ble Supreme Court in the case of Rashtriya Ispat Nigam Limited and another v. M/s. Verma Transport Company, MANU/SC/3491/2006 : AIR 2006 SC 2800. It also clarified in this case that waiver of a right on the part of the defendant to the lis must be gathered from the fact situation obtaining in each case. Same principle of law was also propounded by the Division Bench of Bombay High Court in a 1954 case of Jadavji Narsidas Shah and Company v. Hirachand Chatrabhuj, MANU/MH/0047/1954 : AIR 1954 Bom. 174. So now it would be necessary to examine the conduct of the defendants, who are applicants here to ascertain as to whether or not they have waived their right to seek arbitration and have submitted themselves to the jurisdiction of the Civil Court in the present case.

11. While it is true that the objection regarding maintainability of the suit because of the presence of the arbitration clause and the need for referring the dispute to arbitration under Section 8(1) of the Arbitration Act were expressed in clear words in an application filed by applicants to seek leave to defend and it is also true that while granting leave, the trial court did not decide on applicants objection as to maintainability of suit and need for referring the dispute to arbitration. But, it is seen from the record of the case that later on, these applicants never insisted upon the trial court to decide their objection on the maintainability of the suit as well as need for referring the dispute to arbitration. On the contrary, the applicants submitted their written statement in the suit. The filing of the written statement by the applicants, I must say, marked submission of their first statement on the substance of the dispute thereby showing their intention that the Civil Court must hear the parties and decide the dispute between the parties on it's own merits. This clearly amounted to waiver of the applicants' right to seek arbitration in the present case. Therefore, I do not think that later rejection of the application seeking rejection of plaint on the ground of maintainability of suit because of existence of arbitration clause by the trial court could be faulted with in any manner.

IN THE HIGH COURT OF BOMBAY (NAGPUR BENCH)

Civil Rivision Application No. 58/2017

Decided On: 15.09.2017

 Narayana Farm Produce Pvt. Ltd. Vs.  Jalaram Feeds

Hon'ble Judges/Coram:
S.B. Shukre, J.

Citation: 2018(3) MHLJ 292

1. Heard.

2. Rule. Rule made returnable forthwith.

3. Heard finally by consent.

4. The dispute between the applicants, who are the original defendants and the respondent, who is the original plaintiff, revolves around the maintainability or otherwise, of a summary suit before the Civil Court, filed under Order 37 Rule 2 of the Code of Civil Procedure (in short, "C.P.C.").

5. The learned counsel for the applicants submits that the suit as filed by the respondent in the instant case, is not maintainable because there is an agreement containing arbitration clause prescribing that in case of any dispute regarding any payment or interest payable on the amount due, the matter shall be referred to the sole Arbitrator appointed by the original plaintiff i.e. respondent. He submits that when an application was filed by the applicants seeking leave to defend the summary suit, a specific objection regarding maintainability of the suit, by virtue of the availability of arbitration mechanism for resolution of the dispute, was taken but the trial Court only granted leave to defend the suit and did not decide the objection about the maintainability of the suit. Therefore, he submits that it could not be taken in the instant case that the objection regarding maintainability of the suit was not raised at the time of submission of first statement on the substance of the defence. He also submits that the plaint filed by the respondent does not show that there is any cause of action as it has been stated by the applicants that the statement of account disclosing some payments to be made by the applicants to the respondent, was a promissory note, which in fact, is not correct in view of the definition of a promissory note under Section 4 of the Negotiable Instruments Act. He also submits that an application filed under Order 7 Rule 11 of the C.P.C. for rejection of plaint, can be filed at any point of time as held by the Hon'ble Supreme Court in the case of Saleem Bhai and others v. State of Maharashtra and others, MANU/SC/1185/2002 : (2003) 1 Supreme Court Cases 557.

6. Shri Dewani, learned counsel for the respondent submits that the main issue required to be decided when such an objection taken is as to whether or not the defendant has waived his right of arbitration and submitted himself to the jurisdiction of the Civil Court. He submits that in the instant case even though while granting a leave to defend the suit, the Civil Court did not decide the objection regarding maintainability of the suit because of availability of arbitration clause, later on, the applicants filed their written statement and thus submitted themselves to the jurisdiction of the Civil Court, which could also be construed as waiver of their right to seek arbitration in the matter. He further submits that while deciding such an application, only the plaint pleadings are required to be considered and if they are so considered, one would find that they disclose cause of action.

7. On going through the plaint pleadings, the application filed by the applicants for seeking leave to defend the suit and other documents forming part of the paper book, I find that there is a great substance in the argument of the learned counsel for the respondent and no merit in the submissions made across the bar by the learned counsel for the applicants.

8. It is well settled law that an application under Order 7 Rule 11 of C.P.C. can be filed by the defendant at any stage of the suit, and this is reflected in the case of Saleem Bhai v. State of Maharashtra (supra). But, this would be so only in those cases, where the objection is not taken on the maintainability of a suit on the ground of availability of alternate mechanism in the nature of arbitration. Whenever rejection of a plaint is sought on the ground that alternate mechanism of arbitration is available and referral of the dispute to arbitration is also sought under Section 8(1) of the Arbitration and Conciliation Act, 1996 (for short, "Arbitration Act"), the condition prescribed in this very provision of law would come into play. This condition is that the referral of the dispute to arbitration must be sought by the defendant not later than the date of submitting his first statement on the substance of the dispute. In the case of Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and others, MANU/SC/0533/2011 : AIR 2011 SC 2507, the Hon'ble Supreme Court has elaborated the procedure to be adopted by the parties, for seeking such referral of the dispute to the arbitration. The Hon'ble Supreme Court has held that, in such a case, the Court will have to decide: (i) whether there is an arbitration agreement among the parties; (ii) whether all the parties to the suit are parties to the arbitration agreement; (iii) whether the dispute which is the subject matter of the suit falls within the scope of arbitration agreement; (iv) whether the defendant had applied under Section 8 of the Act before submitting his first statement on the substance of the dispute; and (v) whether the reliefs sought in the suit are those that can be adjudicated upon and granted in an arbitration.

9. In the same case, in para No. 25, the Hon'ble Supreme Court observed that, not only filing of the written statement in a suit, but filing of any statement, application, affidavit, by a defendant prior to the filing of the written statement will be construed as "submission of a statement on the substance of the dispute", if by filing such a statement/application/affidavit, the defendant shows his intention to submit himself to the jurisdiction of the Court and waives his right to seek reference to arbitration.

10. Same is the view taken by the Hon'ble Supreme Court in the case of Rashtriya Ispat Nigam Limited and another v. M/s. Verma Transport Company, MANU/SC/3491/2006 : AIR 2006 SC 2800. It also clarified in this case that waiver of a right on the part of the defendant to the lis must be gathered from the fact situation obtaining in each case. Same principle of law was also propounded by the Division Bench of Bombay High Court in a 1954 case of Jadavji Narsidas Shah and Company v. Hirachand Chatrabhuj, MANU/MH/0047/1954 : AIR 1954 Bom. 174. So now it would be necessary to examine the conduct of the defendants, who are applicants here to ascertain as to whether or not they have waived their right to seek arbitration and have submitted themselves to the jurisdiction of the Civil Court in the present case.

11. While it is true that the objection regarding maintainability of the suit because of the presence of the arbitration clause and the need for referring the dispute to arbitration under Section 8(1) of the Arbitration Act were expressed in clear words in an application filed by applicants to seek leave to defend and it is also true that while granting leave, the trial court did not decide on applicants objection as to maintainability of suit and need for referring the dispute to arbitration. But, it is seen from the record of the case that later on, these applicants never insisted upon the trial court to decide their objection on the maintainability of the suit as well as need for referring the dispute to arbitration. On the contrary, the applicants submitted their written statement in the suit. The filing of the written statement by the applicants, I must say, marked submission of their first statement on the substance of the dispute thereby showing their intention that the Civil Court must hear the parties and decide the dispute between the parties on it's own merits. This clearly amounted to waiver of the applicants' right to seek arbitration in the present case. Therefore, I do not think that later rejection of the application seeking rejection of plaint on the ground of maintainability of suit because of existence of arbitration clause by the trial court could be faulted with in any manner.

12. As regards the second ground on which rejection of the plaint has been sought by the applicants, I would say this ground being based upon merits of the matter, cannot be considered while exercising power under Order 7 Rule 11 of C.P.C. and therefore, I would further say, the trial court was right in rejecting this objection as well.

13. It must be made clear here that the rejection of the plaint on a ground relating to the cause of action is possible only when the ground is based upon non-disclosure of cause of action and is found to be with substance. But, if the objection is that there is no cause of action to file a suit, the objection is beyond the permissible limits of court's power to reject a plaint under Order 7 Rule 11(a) C.P.C., for such an objection touches upon the merits of the case and cannot be decided just by looking into the pleadings in the plaint and documents, if any, which are part of the pleadings in the plaint. One must be aware of fine distinction between a contention that the plaint does not disclose a cause of action and the submission that there is no cause of action to file a suit. The former can be decided by merely considering the plaint pleadings as they stand, and if they disclose, in the reckoning of the plaintiff, cause of action, the court is obliged to accept it as it is and court cannot say it is wrong to contend that cause of action exists; for, that would be a consideration on merits beyond the scope of power under Order 7 Rule 11 C.P.C. The latter kind of objection can only be decided by considering the defence of defendants and evidence, if any, and so it is out of pale of power under Order 7 Rule 11 C.P.C.

14. In this case the objection relating to cause of action is that since statement of account contended by respondent-plaintiff to be a promissory note is in reality not a promissory note as defined under Section 4 of the N.I. Act, 1881, there is no cause of action to file a summary suit. Such an objection surely cannot be decided by just looking into the plaint and would call for examination of the defence of the applicants and documentary evidence as well for it's adjudication. That is like going into the merits of the issue and so, was not rightly considered by the trial court.

15. In this view of the matter, I find no merit in the application. Application deserves to be rejected.

16. Application stands rejected.

17. Parties to bear their own costs.

18. Rule is discharged.


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