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High Court Of Calcutta
SUJIT KUMAR SINHA
MAGMA LEASING LIMITED - Appellant
Versus
NEPC MICON LIMITED - Respondent
G. A. 1665 Of 1997
Decided On : 08/12/1997
ARBITRATION - STAY OF SUIT - SECTION 8 OF THE ARBITRATION AND CONCILIATION ACT, 1996 - PARTY ENTITLED TO MAINTAIN APPLICATION - INTERPRETATION OF PHRASE "NOT LATER THAN WHEN SUBMITTING HIS FIRST STATEMENT ON THE SUBSTANCE OF THE DISPUTE" - APPLICABILITY OF SECTION 3 OF THE FOREIGN AWARDS (RECOGNITION AND ENFORCEMENT) ACT, 1961 - CONSTRUCTION OF CODIFYING STATUTE - ARBITRATION AGREEMENT - TIME LIMIT FOR REFERENCE TO ARBITRATION - FRAUD - DISCRETION OF COURT TO REFUSE REFERENCE TO ARBITRATION.
Fact of the Case:
Plaintiff, a financial institution, purchased five wind turbine generators from the first defendant and let them to the said defendant on hire-purchase agreements. The agreements contained an arbitration clause. The first defendant issued post-dated cheques for the instalments and additional hire-charges, but several cheques were dishonoured. The plaintiff instituted a suit for recovery of the amounts due and possession of the generators. The first defendant applied for a stay of the suit and reference to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996.
Finding of the Court:
The Court held that the first defendant was not entitled to maintain the application for stay of suit and reference to arbitration because it had already instituted suits in this Court and in the Madras High Court in respect of the same agreements, thereby giving a complete go-bye to the arbitration agreement. The Court also held that the first defendant was estopped from maintaining the application by reason of its conduct in instituting the aforesaid suits.
Issues: 1. Whether the first defendant was a "party" entitled to maintain the application for stay of suit and reference to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996. 2. Whether the phrase "not later than when submitting his first statement on the substance of the dispute" in Section 8(1) of the Arbitration and Conciliation Act, 1996 refers to the suits instituted by the first defendant. 3. Whether Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 is in pari materia with Section 8 of the Arbitration and Conciliation Act, 1996. 4. Whether the arbitration agreement was applicable to the situation where the plaintiff apprehended that the first defendant might alienate or dispose of the hired generators. 5. Whether fraud alleged by the plaintiff against the defendants was a ground for refusing reference to arbitration.
Ratio Decidendi: 1. The Court held that the "party" referred to in Section 8(1) of the Arbitration and Conciliation Act, 1996 is a party who is entitled to maintain the application thereunder. The party to the arbitration agreement who has himself instituted a suit is clearly not the "party" envisaged. 2. The Court held that the phrase "not later than when submitting his first statement on the substance of the dispute" in Section 8(1) of the Arbitration and Conciliation Act, 1996 does not refer to the suits instituted by the first defendant. The submission of the substance of the dispute by the party seeking to invoke the arbitration agreement takes place when such party requests for the dispute to be referred to arbitration in terms of Section 21 of the said Act or when under Section 11 of the said Act, he applies for the appointment of an arbitrator. 3. The Court held that Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 is not in pari materia with Section 8 of the Arbitration and Conciliation Act, 1996 and as such, the cases cited under that Act were not applicable. 4. The Court held that the arbitration agreement expressly provided that recourse thereto can only be had if reference is made "within six months of the arising of a dispute". The dishonour of the cheques took place long prior to the application for stay of suit and reference to arbitration. 5. The Court held that the allegation of fraud made by the plaintiff in its affidavit-in-opposition did not find place in its plaint filed in the suit and therefore, the said ground of fraud could not be urged by the plaintiff as a defence to the application for stay of suit and reference to arbitration.
Final Decision: The application for stay of suit and reference to arbitration was dismissed.
( 1 ) THE Court : This is an application by the first defendant under Section 8 of the Arbitration and Conciliation Act, 1996 ("the said Act" for short) for stay of this suit and for reference to arbitration.
( 2 ) THE cause of action of the plaintiff as laid in its plaint which is an annexure to the present application is stated briefly hereinafter :-The plaintiff is a financial institution. As and by way of financial accommodation the plaintiff purchased from the first defendant its five several wind turbine generators that the said defendant had set up in village Nallurpelayam in the district of Coimbatore, Tamil Nadu ("the said generators" for short) and let the same to the said defendant on and subject to the terms and conditions contained in five several hire-purchase agreements in writing all dated 14th June, 1995 ("the said agreements" for short ). The said agreements were each executed by the said defendant but not by the second defendant. Each of the said agreements is identical in terms and contains an arbitration clause to which I shall refer presently. Copies of the said agreements which are annexures to the plaint are also annexures to the present application.
( 3 ) IN terms of the said agreements the first defendant executed demand promissory notes in favour of the plaintiff and the second defendant executed letters of guarantee. Simultaneously, with the execution of the aforesaid documents the first defendant also made over to the plaintiff fifty five several post-dated cheques for Rupees 11,45,883/- each covering the amounts of the agreed quarterly instalments payable under each of the said agreements. The said defendant also made over to the plaintiff eleven several post-dated cheques in payment of the additional hire-charges in consequence of increase in the rate of interest aggregating Rs. 96,565/- for each quarter from 1st October, 1995 and ending 1st April, 1998.
( 4 ) IT is the case of the plaintiff that the cheques issued by the first defendant in respect of the fourth, fifth, sixth and seventh instalments aggregating Rs. 2,32,07,355/- were dishonoured by non-payment and that by several letters addressed on its behalf REFERRED TO in its plaint, the plaintiff gave notice of the dishonour of the said cheques and called upon the defendants to pay the said amounts. Thereafter criminal proceedings were initiated by the plaintiff and during their pendency the defendants made payment of the fifth instalment that had fallen due under the said agreements and thereupon the said criminal proceedings were withdrawn by the plaintiff. Other criminal proceedings in respect of the other dishonoured cheques are still pending.
( 5 ) IT is the further case of the plaintiff that by reason of the aforesaid default each of the said agreements stands determined and that the plaintiff has become entitled to demand payment of all the instalments under the said agreements with interest thereon. By reason of the premises the plaintiff has become entitled to be paid by the defendants the sum of Rs. 5,00,52,810/ -. The plaintiff also claims to be entitled to take possession and remove the said generators. It is stated that the first defendant by its letter dated 26th October, 1996 purported to terminate each of the said agreements on the grounds stated therein. The plaintiff denies having received the bank draft for Rs. 10 lacs alleged to have been sent under cover of letter dated 3rd October, 1996 by the said defendant, and REFERRED TO in its said letter dated 26th October, 1996. The plaintiff has also not accepted the conditional offer made by the said defendant by its said letter for delivery of the said generators to the plaintiff. The plaintiff also claims that the purported termination of the said agreements by the said defendant by its said letter is invalid, void and of no effect. It is on the aforesaid basis that the plaintiff has claimed in its suit a decree for Rs. 5,00,52,810/- together with in
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