2013 Supreme(Bom) 1923

High Court of Judicature at Bombay
R.K. DESHPANDE, J.
Walchandnagar Industries Limited, through its Authorized Representative G.S. Agrawal & Others
Versus
Indraprastha Developers, through its Partner Mrs. Ujwala Mahendra Shah & Others
Writ Petition Nos. 722 of 2013 with 5775 of 2012 & Civil Revision Application No. 482 of 2012
Decided On : 25-09-2013

Headnote:Arbitration and Conciliation Act, 1996 - Sections 7, 16 and 45 - Doctrine of separability. - Held, if existence of contract is brought to an end, arbitration clause would not survive and when only a further performance of contract is brought to an end, arbitration clause would be enforceable. Though an arbitration agreement is part of the main contract, the law regards it as a collateral and independent part of the contract. And for valid reason, quite apart from the need to preserve the business efficacy of commercial dealings. The main contract defines substantive obligations and corresponding rights. An arbitration agreement is an agreement on dispute resolution which is independently capable of specific enforcement. Hence, an arbitration agreement can and does survive a termination, repudiation or frustration of the contract. The law has evolved the doctrine of separability as the basis for enabling parties to arbitrate, independent of the status of their contract. Judges in the common law world - and people in India are no exception - have advanced the doctrine of separability to ensure that the sanctity of arbitration is not destroyed by disingenuous litigants.

       The essential features of the doctrine of separability, are :

       (i) The arbitration agreement constitutes a collateral term in the contract which relates to the resolution of disputes and not to the performance of the contract. Whereas the substantive terms of a contract define the rights and obligations of the parties, an arbitration agreement provides for modalities agreed upon by parties for the resolution of their disputes. Parties agree thereby to have their disputes resolved before an arbitral tribunal as distinct from the ordinary Courts of law in the jurisdiction;

       (ii) Upon the termination of the main contract, the arbitration agreement does not ipso facto or necessarily come to an end;

       (iii) The issue as to whether the arbitration agreement survives or perishes along with the main contract would depend upon the nature of the controversy and its effect upon the existence or survival of the contract itself;

       (iv) If the nature of the controversy is such that the main contract would itself be treated as non est in the sense that it never came into existence or was void, the arbitration clause cannot operate, for along with the original contract, the arbitration agreement is also void. Similarly, though the contract was validly executed, parties may put an end to it as if it had never existed and substitute a new contract solely governing their rights and liabilities thereunder. Even in such a case, since the original contract is extinguished or annihilated by another, the arbitration clause forming a part of the contract would perish with it;

       (v) There may, however, be cases where it is the future performance of the contract that has come to an end. Such an eventuality may arise due to a number of circumstances, in which one or both the parties may be discharged from further performance. Termination of the contract by one party, repudiation of the contract by one party and its acceptance by the other and frustration of the contract are some of the circumstances. The controversy in such matters arises upon or in relation to or in connection with the contract. In all such cases, the contract is not put an end to for all purposes because there may be rights and obligations which had arisen earlier when it had not come to an end. The contract subsists for those purposes and the arbitration clause would operate for those purposes;

       (vi) The doctrine of separability requires, for the arbitration agreement to be null and void, inoperative or incapable of performance, a direct impeachment of the arbitration agreement and not simply a parasitical impeachment based on a challenge to the validity or enforceability of the main agreement. In other words, arguments for impeaching the arbitration agreement must be based on facts which are specific to the arbitration agreement. There may, of course, be facts which are specific to both the main agreement and the arbitration agreement, but there may well be facts which are specific to the main agreement, but not to the arbitration agreement. In the former case, the arbitration clause would perish with the main contract while in the latter case, it would not. Another way of considering the matter is whether it is the further performance of the contract that is brought to an end or it is the existence of the contract which is brought to an end. In the former case, where the further performance of the contract has been brought to an end, the arbitration clause would survive whereas when the existence of the contract is itself brought to an end, the arbitration clause would not survive. [Mulheim Pipecoatings GmbH v. Welspun Fintrade Ltd., 2014 (3) All MR 838].

       Arbitration and Conciliation Act, 1996 - Sections 7(3) and 7(4) - Arbitration agreement. - Held, an oral account of a document signed by parties cannot be an arbitration agreement. There is no arbitration agreement in writing shown. There is no correspondence which would constitute any such agreement. The statement of petitioner in the notice invoking arbitration itself is denied. These are the only three modes specified under the statute in which an agreement can be taken to be an agreement in writing. Section 7(4) is exhaustive.

       It does not contemplate that an oral account of a document signed by the parties would also be an arbitration agreement. Had that been so Section 7(4) would have mentioned that provision as sub-section ‘d‘. There may be various other circumstances by which a written agreement can be proved and accounted for but that is not within the contemplation of the Arbitration Act. An arbitration agreement is in writing only if it falls within sub-section a, b or c of Section 7(4). Upon such legislative mandate allowing a party to prove a written arbitration agreement by oral evidence of its contents by secondary evidence as specified in Section 63(5) of the Indian Evidence Act would be to legislate another sub-section which the Court cannot do.

       The purpose of this provision is to specifically exclude oral agreements unlike in a civil suit which can be filed on oral agreements so that an oral account of a written agreement can be tendered in evidence by way of secondary evidence.

       The purpose of having arbitration agreement only in writing rules out an oral agreement. This purpose would be destroyed if parties are allowed to claim orally as has been done in the instant case, that some agreement of some vague nature was entered into and which party can prove by oral evidence. This would open floodgates not only not contemplated but specifically excluded by the legislature.

       In view of the specific ambit of Section 7(4), the mandatory requirement of Section 7(3) must be read to require only, a written agreement to be produced for commencing any arbitration proceeding. Hence an application under Section 11 for appointment of arbitrator cannot be made in case where an arbitration agreement is not in writing and is not produced at the first instance.

       PARTNERSHIP ACT, 1932 - Section 48 - Limitation Act, 1963, Section 5 - Claim of partner of dissolved firm. - Where partnership was dissolved beyond three years therefore claim of partner of dissolved firm as co-owners of partnership property is barred by limitation. - In this case the petitioner accepts that there was no business of the partnership firm since many years and that only the suit property was taken in the name of the partnership and remained at that. The partnership is seen to have been dissolved beyond the period of three years. No accounts have been asked for or given. The claim for the share in the partnership property upon the dissolution which took place long years ago would stand barred as much as a suit for accounts.

       In view of these differences the claim of the partner of the dissolved firm or his legal heirs or representatives as co-owners of the property is not prima facie shown. The claim is prima facie seen to be barred by the Law of Limitation.

       Civil Procedure Code, 1908 - Sections 2(2), 9 and 21 - Decree of Court. - Decree passed by Court lacking territorial or pecuniary jurisdiction, not being void, can be challenged in appeal or revision.

       Civil Procedure Code, 1908 - Sections 2(2) and 9 - Decree of Court. - A decree passed by Court lacking inherent jurisdiction being null and void, cannot be challenged in appeal revision. - Certiorari, under Article 226 of the Constitution, is issued for correcting gross errors of jurisdiction i.e. when a subordinate Court is found to have acted (i) without jurisdiction - by assuming jurisdiction where there exists none, or (ii) in excess of its‘ jurisdiction - by overstepping or crossing the limits of jurisdiction, or (iii) acting in flagrant disregard of law or the rules of procedure or acting in violation of principles of natural justice where there is no procedure specified, and thereby occasioning failure of justice. When a subordinate Court has assumed a jurisdiction which it does not have or has failed to exercise a jurisdiction which it does have or the jurisdiction though available is being exercised by the Court in a manner not permitted by law and failure of justice or grave injustice has occasioned thereby, the High Court may step in to exercise its supervisory jurisdiction under Article 227. Be it a writ of certiorari or the exercise of supervisory jurisdiction, none is available to correct mere errors of fact or of law unless the following requirements are satisfied : (i) the error is manifest and apparent on the face of the proceedings such as when it is based on clear ignorance or utter disregard of the provisions of law, and (ii) a grave injustice or gross failure of justice has occasioned thereby.

       The High Court may intervene where the error is such, as, if not corrected at that very moment, may become incapable of correction at a later stage and refusal to intervene would result in travesty of justice or where such refusal itself would result in prolonging of the lis. This reserved and exceptional power of judicial intervention is not to be exercised just for grant of relief in individual cases but should be directed for promotion of public confidence in the administration of justice in the larger public interest whereas Article 226 is meant for protection of individual grievance. Therefore, the power under Article 227 maybe unfettered but its exercise is subject to high degree of judicial discipline pointed out above.

       Civil Procedure Code, 1908 - Section 21, 115 - Distinction between territorial/pecuniary and inherent - Lacking of. - The law on the point of lack of inherent jurisdiction on one hand and the lack of territorial or pecuniary jurisdiction on the other hand, can be summarized as under :

       (i) A decree passed by the Court lacking territorial or pecuniary jurisdiction does not automatically become void; at the most it becomes voidable, in the sense that it could be challenged in an appeal or revision on limited grounds.

       (ii) A decree passed by a Court with lack of inherent jurisdiction becomes null and void in law and its validity can be set up whether and whenever it is sought to be enforced or relied upon - be it at the stage of execution or even in the collateral proceedings.

       (iii) The factors, like waiver, acquiescence, consent estoppel, etc., are not at all relevant in the case of a decree passed by a Court with lack of inherent jurisdiction; whereas, these factors are relevant where a decree is passed by a Court with lack of pecuniary and territorial jurisdiction.

       (iv) The question of valuation of a suit or an appeal is closely interlinked to some extent with the question of payment of Court-fee and pecuniary jurisdiction of the Court, and the provisions relevant are Sections 8 and 11 of the Suits Valuation Act, Section 8 and 14 of the Bombay Court Fees Act, Sections 24 and 8 of the Bombay Civil Courts Act, and Section 21 of the Civil Procedure Code.

       (v) The question of categorization or classification of a suit under the different provisions of the Bombay Court Fees Act, which may not have any bearing on the question of pecuniary jurisdiction of Court, can independently be dealt with.

       Civil Procedure Code, 1908 - Section 96 - Power of First Appellate Court. - First Appellate Court is empowered to review, re-assess and re-examine evidence on record and substitute findings of fact.

       Civil Procedure Code, 1908 - Section 115 - Revisional jurisdiction under. - High Court, in Revisional jurisdiction, is not entitled to re-assess, re-examine evidence on record and to substitute findings of fact for that of subordinate Court. - In order to understand more precisely the extent of the jurisdiction of the High Court under Section 115 of the Code of Civil Procedure, the distinction between the appellate jurisdiction and original jurisdiction.

       The right of appeal is a statutory substantive vested right and it inheres in no one. It is a continuation of the original proceedings and the provisions applied at the time of the institution of the suit are operative even in respect of an appeal. In fact, the entire proceedings are before the Appellate Court. The Appellate Court has a power to review, re-assess, re-examine the evidence on record and to substitute the findings of fact for those of the subordinate Court. A right of appeal carries with it a right of re-hearing on facts.

       Section 115 of CPC is a source of power of the High Court to satisfy itself that the subordinate Court has decided a case by acting within the bounds of its authority and has acted in accordance with law. It has the supervisory control, which is exercised by the High Court over the functioning of the subordinate Court. It is not linked with any substantive right and it is discretionary in nature. It does not confer a right upon the litigant aggrieved by an order of the subordinate Court to make an. Application to the High Court for the reliefs. It concerns with jurisdiction and jurisdiction alone of the subordinate Court to pass an order. In revisional jurisdiction, the High Court is not entitled to re-assess, re-examine the evidence on record and to substitute the findings of fact for that of the subordinate Court. A litigant does not carry with him a right of re-hearing by the revisional Court on facts.

       Civil Procedure Code, 1908 - Order VI, Rule 17 - Amendment of written statement. - Amendment, sought in pleadings, changing cause of action, setting up a fresh claim which becomes barred by limitation, not to be allowed. - The Court while allowing an amendment must record a finding that in spite of due diligence, the party could not have raised the matter before the commencement of the trial or that the events sought to be brought on record by way of an amendment have occurred subsequent to the commencement of trial.

       The facts and grounds in the application for amendment must be clearly stated to bring out a case that the delay caused was beyond the control and diligence of the party proposing the amendment. Whether a party had acted with due diligence or not, would depend upon the facts and circumstances of the case and no hard and fast rule or strait jacket formula can be laid down.

       Civil Procedure Code, 1908 - Order VI, Rule 17 - Constitution of India, Articles 226 and 227 - Writ petition challenging an order on amendment application. - Writ petition, challenging an order granting or refusing to grant an amendment, can be entertained by High Court.

       Civil Procedure Code, 1908 - Order VI, Rule 17 - Specific Relief Act, 1963, Section 10 - Amendment of pleadings. - In a suit for specific performance of contract, on amendment, introducing a plea of readiness and willingness, can be permitted.

       Civil Procedure Code, 1908 - Order VI, Rule 17, Section 96 - Constitution of India, Articles 226 and 227 - Writ petition against order on Amendment application. - Writ petition, challenging on order passed on an application for amendment of pleadings, is maintainable. - As has been held by the Apex Court in para 26 of Surya Dev Rai‘s case, 2003 (4) All MR 761 (SC), the High Court may refuse to exercise its jurisdiction under Articles 226 and 227 of the Constitution of India, when an alternate remedy is available by way of appeal or revision, having regard to the Legislative policy formulated on experience and expressed by enactments where the Legislature in exercise of its wisdom has deliberately chosen certain orders and proceedings to be kept away from exercise of the appellate and revisional jurisdiction in the hope of accelerating the conclusion of proceedings and avoiding delay and procrastination, which is occasioned by subjecting every order at every stage of the proceedings to judicial review by way of appeal or revision. So long as an error is capable of being corrected by a superior Court in exercise of the appellate or revisional jurisdiction, though available to be exercised only at the conclusion of the proceedings, it would be a sound exercise of discretion on the part of the High Court to refuse to exercise the power of superintendence during the pendency of the proceedings, to respect the Legislative wisdom.

       Frequent intervention in pending proceedings creates an impediment and obstructs the smooth flow of proceedings before the Courts below. It breaks the continuity and causes the delay in termination of the proceedings. The jurisdiction of the High Court under Article 226 and/or 227 of the Constitution of India, therefore, needs to be exercised sparingly with great care, caution and circumspection. The exercise of jurisdiction should not be a counter-productive, but it should be to advance the substantial justice by suppressing mischief. This, however, does not mean that the Court should overlook or ignore the patent perversity and gross errors resulting in manifest failure of justice or causing an irreparable loss to a party aggrieved. Sometimes, the timely correction of such errors saves multiplicity of proceedings and avoids travesty of justice. The timely correction of errors has got its own significance, in the sense that if the correction or remedial measures are not taken at an interlocutory stage, the position may subsequently become irreversible or incapable of being remedied once the proceedings are concluded.

       Civil Procedure Code, 1908 - Order VI, Rule 17, Proviso - Expression “due diligence“. - Expression “due diligence“ used in proviso to Order VI, Rule 17 of CPC, determines scope of party‘s constructive knowledge of claim. - “Due diligence“ means careful and persistent application and effort. It means the diligence as a prudent man would exercise in the conduct of his own affairs. Unless the party takes prompt steps, mere action cannot be accepted after the commencement of the trial. The due diligence determines the scope of party‘s constructive knowledge of the claim. It is a kind of reasonable investigation, which is necessary before claiming the reliefs.

       The due diligence is distinct from ignorance. In spite of knowledge, ignorance by a party or an Advocate cannot be a matter of due diligence. The neglect to perform an action, which one has an obligation to do, cannot be called as a mistake.

       Civil Procedure Code, 1908 - Order VI, Rule 17, Proviso - Proceedings for Amendment. - Court, while allowing on amendment, must record a finding that inspite of due diligence, party could not raise matter before commencement of trial. - The challenge to an order granting or refusing to grant an amendment can be entertained by the High Court in its jurisdiction under Article 226 or 227 of the Constitution of India, essentially on the grounds :

       (i) that the Court has failed to record its findings on the relevant aspects and the findings recorded are based upon certain irrelevant aspects;

       (ii) that the findings recorded by the Court on the conditions to be satisfied are erroneous and against the well-settled principles of law or on misreading of the averments in the plaint and the proposed amendment; and

       (iii) that the Court has committed an error or an irregularity in the decision-making process, which has resulted in failure of justice.

       When the challenge is on the ground No. (i) above, it may call for remand of the matter back to the lower Court to record the specific findings on the questions not decided, or where the decision is based upon irrelevant factors. When a challenge is on the ground No. (ii), the High Court may have to find out whether the decision is based upon the correct appreciation of the original pleadings and the proposed amendment. The High Court may have to see whether the conditions precedent have been complied with and that the case falls or does not fall within the prohibitory criteria laid down by the decisions. In case of challenge on ground No. (iii), if the Court finds that an order suffers from an error or an irregularity, which has occurred in the decision-making process resulting in failure of justice, it may thereafter decide the course of action to be adopted in the facts and circumstances of the case either to decide the application on its own merits or to remand the matter back to the lower Court for fresh consideration.

       The process to be adopted is to go through the original pleadings to find out real controversy involved in the matter and to find out from the proposed amendment whether it is necessary for deciding the real controversy involved. The question whether nature of suit or cause of action changes or not, can also be decided by comparing the pleadings. It is a matter of fulfillment of conditions to be seen. It is a matter of appreciation of pleadings.

       Civil Procedure Code, 1908 - Order VII, Rule 11, Section 96 - Constitution of India, Articles 226 and 227 - Partly rejection of plaint. - Where a plaint was rejected in part, plaintiff may invoke jurisdiction of High Court under Articles 226 and 227 of Constitution. - In a case when a decision relating to the jurisdiction of the Court is based upon conspectus of facts, then a question of appreciation or re-appreciation of the evidence on record, may arise. For example, the cases of bar of limitation, bar of Respondent judicata, bar under Order II, Rule 2 of CPC, and the matters of like nature, where the parties lead oral and documentary evidence, and on conspectus of facts, the decision is arrived at by the trial Court either that the suit is barred by law of limitation, or by a principle of Respondent judicata or by a principle under Order II, Rule 2 of CPC.

       The High Court may not exercise its jurisdiction in such situation. The reasons would be (i) the trial Court does not act beyond the jurisdiction, neither it fails to exercise the jurisdiction vested in it; (ii) the trial Court is bound to decide the right, may decide wrong, and merely because it has decided wrongly, it does not amount to doing something which it had no jurisdiction to do; (iii) it is not the function of the High Court under Section 115 to appreciate or re-appreciate the evidence on record and to come to a conclusion different than the one arrived at by the Court below; (iv) the High Court cannot act as a Court of Appeal and substitute the view on facts taken by the trial Court; (v) Section 115 does not confer a jurisdiction upon the High Court to correct the errors of fact, howsoever gross they may be, or even the errors of law, not touching the jurisdiction of the Court; (vi) the exercise of jurisdiction by the High Court shall deprive a statutory right of appeal available to the party to challenge the findings of fact recorded by the Court below to answer a preliminary issue either in the negative, (vii) the error, if any, can be corrected in more convenient and effective manner in wider jurisdiction of appeal; (viii) it is possible that if the suit is dismissed on merits, the decision on preliminary issue may lose its significance; and (ix) if any appeal is preferred against dismissal of suit, then in terms of sub-section (1) of Section 105 read with Order XLIII, Rule 1-A or under Order XLI, Rules 22 and 33 of CPC, it can be urged in such appeal by the defendant that the trial Court could not have passed such an order and the Appellate Court is bound to decide the same on its own merits.

       Civil Procedure Code, 1908 - Order VII, Rule 11(b), (c), Sections 21, 96 and 115 - Constitution of India, Articles 226 and 227 - Rejection of objection to pecuniary jurisdiction. - Test to interfere with order rejecting objection to pecuniary jurisdiction, is same for appeal and revision.

       Civil Procedure Code, 1908 - Order VII, Rule 11(d), Sections 9-A and 115 - Rejection of objection to jurisdiction. - When a decision in respect of jurisdiction of Court is based upon conspectus of facts then High Court cannot exercise its jurisdiction under Section 115 of CPC.

       Constitution of India - Articles 226 and 227 - Interference with Interlocutory orders. - Interference with every interlocutory orders at every stage of proceeding by High Court in exercise of its jurisdiction under Articles 226 and 227 of Constitution, not proper.

       Constitution of India - Articles 226 and 227 - Writ of certiorari. - Writ of certiorari, under Article 226 of Constitution, is issued for correcting gross errors of jurisdiction. - In all the stated situations, when a test to interfere in such order is the same so far as appeal and revision is concerned, there cannot be a different test to interfere in such order in exercise of jurisdiction either under Section 115 of CPC or under Article 226 or 227 of the Constitution of India. In such a situation, the High Court will be slow in interfering with such an order at an interlocutory stage, when such question can be more conveniently and effectively dealt with in a regular appeal against a decree or a final decision.