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1996 Supreme(Kar) 433
KARNATAKA HIGH COURT
Kumar Rajaratnam, J.
MADHYA PRADESH ELECTRICITY BOARD – PETITIONER
v.
THE MANAGER VIJAYA BANK & ANOTHER – RESPONDENTS
CRP No. 3157 & 3158 of 1991
Decided on: August 5, 1996.
Sh. V. Vendanta Iyengar, Advocate, for the Petitioner.
Sh. Umesh R. Malimath, Advocate, for the Respondent.
Contesting an interlocutory application does not amount to waiver under Section 34 of the Arbitration Act.
Headnote:
waiver - arbitration - Section 34 of the Arbitration Act - [Section 34 of the Arbitration Act] - The court discussed the interpretation of Section 34 of the Arbitration Act and the concept of waiver. It highlighted the key legal provisions and their interpretations, emphasizing that contesting an interlocutory application does not disentitle a party from seeking protection under Section 34 of the Arbitration Act. The court's decision was influenced by the Supreme Court's ruling in the Food Corporation of India case, which clarified the scope of 'taking any other steps in the proceedings' and emphasized the intention to proceed with the suit and abandon the right to arbitration.
Fact of the Case:
The petitioner, Madhya Pradesh Electricity Board, challenged an order passed by the Additional Civil Judge, related to a contract with the second respondent. The second respondent sought an injunction against the petitioner from invoking the Bank Guarantee, leading to suits in the Court of Munsiff at Hubli.
Finding of the Court:
The Court found that the petitioner had not waived its right under Section 34 of the Arbitration Act by contesting an interlocutory application, as it did not indicate an intention to abandon the right to arbitration.
Issues: The main issue was whether the petitioner had waived its right under Section 34 of the Arbitration Act by contesting an interlocutory application and voluntarily appearing before the Court.
Ratio Decidendi: The court held that contesting an interlocutory application does not disentitle a party from seeking protection under Section 34 of the Arbitration Act, as clarified by the Supreme Court's ruling in the Food Corporation of India case.
Final Decision: The orders of the learned Munsiff, Hubli, dated 24th October, 1987 in O.S. Nos. 461 of 1987 and 635 of 1987 in I.A. Nos. VIII and VI were set aside, and there was a stay of all further proceedings in O.S. Nos. 461 and 635 of 1987 pending disposal of the proceedings before the Arbitration Tribunal. Both the Civil Revision Petitions were allowed.
Kumar Rajaratnam, J. - The petitioner is the Madhya Pradesh Electricity Board. The petitioner challenges the order passed by the Additional Civil Judge, in Miscellaneous Appeal Nos. 48 and 49 of 1989 arising out of the orders in I.A. Nos. VIII and IV in O.S. Nos. 461 and 635 of 1987 on the file of the Principal Munsif, Hubli.
2. It is stated that a contract was entered into between the petitioner and the second respondent. The contract was on a turn-key basis for completion of a project that was to be handed over to the second respondent. It is also stated that the second respondent having defaulted with respect to certain terms of the contract, the petitioner was obliged to rescind the contract. As per terms of the contract, the second respondent was directed to deposit the amount given by way of Bank Guarantee.
3. The second respondent first approached the Madhya Pradesh Arbitration Tribunal and obtained an injunction against the petitioner from invoking the Bank Guarantee. An ex-parte order was passed by the Tribunal in favour of the second respondent. The petitioner entered appearance and after hearing the petitioner the said order came to be vacated on 30-7-1987. While the matter was pending before the Madhya Pradesh Arbitration Tribunal, the second respondent having failed to obtain the order before the Tribunal, instituted two suits in the Court of Munsiff at Hubli, in O.S. Nos. 461/87 and 635/87. The second respondent sought a permanent injunction restraining the Bank (first respondent) from paying any amounts to the petitioner under the Bank Guarantee. In the suits at Hubli, the petitioner was not made a party. The second respondent obtained an interim injunction against the petitioner from encashing the Bank Guarantee. The petitioner got wind of the same and filed two applications under Order 1, Rule 10 of the C.P.C. to implead itself as a necessary party to the suit. More importantly the other application was for seeking a stay of the suits under Section 34 of the Arbitration Act since the contract contained a reference to arbitration.
4. The petitioner was impleaded by the Court. However, the application by the petitioner under Section 34 of the Arbitration Act to stay the suits came to be rejected on the ground that the petitioner having voluntarily entered appearance before the Court and having filed objections to the interlocutory application had by its conduct waived its right under Section 34 of the Arbitration Act. Both the Courts below the Trial Court as well as the Appellate court took the view that the petitioner having voluntarily appeared before the Trial Court had waived its right under Section 34 of the Arbitration Act.
5. Section 34 of the Arbitration Act reads as follows :
"Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings".
A perusal of Section 34 of the Act clearly indicates that a party to the contract may at any time before filing a written statement or taking any other steps in the proceedings apply to the judicial authority before which the proceedings are pending to stay the proceedings. Both the Courts below erroneously relied on a Division Bench judgement of this Court reported in M.V. Jannu v. Mrs. Latha M. Rai
