1983 Supreme(AP) 280

Andhra Pradesh High Court
Judges : A.SEETHARAM REDDY, C.V.RAMULU
N.V.Chowdary - Appellant
Versus
Hindustan Steel Works Construction Ltd., Visakhapatnam - Respondent
Decided On : 08-24-83

The first and essential prerequisite to making an order of stay under Section 34 of Arbitration Act, is that there is a binding arbitration agreement between the parties to the suit which is sought to be stayed and it is incumbent upon the Court to decide the same.

Headnote:

SEETHARAMA REDDY, J. ( 1 ) THESE two C. M. As. Arise out of a common order and so they will be disposed of by a common judgment. ( 2 ) THE appellant filed a suit in O. S. No. 150/83 on the file of the Ist Additional Subordinate Judge, Vizag. , for permanent injunction and pending the same, he filed I. A. 291/83 for interim injunction restraining the respondent from terminating the contract. The interim injunction was granted. Thereafter the respondent filed two applications I. A. 280/83 for vacating the interim injunction and I. A. 281/83 for stay of trial of the suit under Section 34 of the Arbitration Act. By common order dated 15-7-1983, the injunction was vacated and stay of the trial of the suit was ordered. Hence, the aforesaid two C. M. As.

Fact of the Case:

Visakhapatnam Steel Project (V. S. P.), entered into a contract with the respondent-company, a Government of India Undertaking, with the 100% share-capital, for levelling up the entire land within the area earmarked towards the Project. The respondent in turn entered into various subcontracts, the one being in favour of the appellant-sub-contractor herein. The work entrusted to the appellant involved levelling and grading works in Zone XI consisting of three groups and an agreement was formally drawn on 2-4-1983. The letter of intent, however, was given to the appellant by the respondent on 7-12-1982. The total value of the work involved is to the extent of Rs. 5. 23 crores and it has to be completed within a period of eight months from the date of the letter of intent, involving 21. 89 lakhs C. Mt. Of earth work. The work was commenced from the date of letter of intent itself. But, by 7-5-1983, the work turned out was to the extent of 4. 2 lakhs Cubic metres only and the remainder was to the extent of 17. 87 lakhs Cubic metres to be carried out within the remaining period of three months as the last day of contractual period being 7-8-1983.

Finding of the Court:

The appellant filed the aforesaid suit with the sole prayer of permanent injunction restraining the respondent from terminating the contract on the grounds, inter alia, that, time is not the essence of the contract and even the contractual period will expire only on 7-8-1983 which is again subject to extension from time to time, the necessary mobilisation advance promised was not made in time as per the agreement so as to keep pace with the work; the running account bills also were delayed for long, the drawings as per the terms of the contract were not supplied and specific area of the excavation, levelling and grading as well as dumping of the earth were not made available which contributed to the delay in the execution of the work; the arbitration is beyond the pale of condition No. 110 of the agreement and, therefore, the suit should not be stayed. The counters filed by the respondent took the contra position stating, inter alia, that, time was the essence of the contract; the poor execution of the work resulted in breach of the agreement; the mobilisation advance could not be made because the contractor failed to give bank guarantee as stipulated; there is no delay in payment of running bills; the drawings were not a must even otherwise they form part of tender notice; co-ordinate were, however, admittedly provided for and since hardly 1/5th of the work was executed for a period of five months and the remaining period was hardly three months, the respondent-Company was justified in issuing the impugned notice and inasmuch as the work turned-out was appallingly low, resulting in breach of the contractual terms, which certainly fell within the ambit of arbitration clause laid down under Condition 110 of the agreement and so the trial of the suit should be stayed.

Issues: 1. Whether the dispute raised herein is covered by the arbitration Condition No. 110 of General Conditions of Contract. 2. Even if it is, whether the suit filed should be stayed or not. 3. Whether the time is the essence of the contract; and 4. Pending the arbitration proceedings, whether the respondent could be interdicted from terminating the contract by the issue of injunction.

Ratio Decidendi: 1. The first and essential prerequisite to making an order of stay under Section 34 of Arbitration Act, is that there is a binding arbitration agreement between the parties to the suit which is sought to be stayed and it is incumbent upon the Court to decide the same. 2. In order that a stay may be granted under Section 34 of the Arbitration Act, it is necessary that the following conditions should be fulfilled; (i) the proceeding must have been commenced by a party to an arbitration agreement against any other party to the agreement; (ii) the legal proceeding which is sought to be stayed must be in respect of a matter agreed to be referred; (iii) the applicant for stay must be a party to the legal proceeding and he must have taken more steps in the proceeding after appearance. It is also necessary that he should satisfy the Court not only that he has, but also was at the commencement of the proceedings ready and willing to do everything necessary for the proper conduct of the arbitration; and (iv) the Court must be satisfied that here is no sufficient reason why the matter should not be referred to arbitration in accordance with the arbitration agreement. 3. It is well settled both in England as well as in India that the power conferred upon the Court to stay the legal proceeding is entirely a matter of discretion. It is equally settled that he discretion must be exercised judicially. There is no and cannot be any strait-jacket formula which should govern the exercise of the said discretion. The fact that the appellate Court would have taken a different view if the decision had rested with them, would not justify interference with the trial Courts exercise of discretion. 4. Under Section 34 of the Arbitration Act, the Court insists, unless sufficient reason to the contrary is made out, upon compelling the parties to abide by the entire bargain, for not doing so would be to allow a party to the contract to approbate and reprobate.

Final Decision: Two C. M. As. Are dismissed.