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State Bank Of India vs Mrs. P.R.P. Exports

Madras High Court|30 January, 2009

JUDGMENT / ORDER

[in both C.R.Ps.] C.R.P.Nos.3581 and 3582 of 2008 are filed under Article 227 of Constitution of India to set aside the fair and decretal orders dated 13.10.2008 passed in I.A.No.10113 of 2008 in O.s.No.4033 of 2008 and I.A.No.13000 of 2008 in O.s.No.4322 of 2008 on the file of the XV Assistant City Civil Court, Chennai, and allow the petitions, referring the parties to arbitration in accordance with law.
The petitioners are defendants in the Suits filed by the respondent in O.S.No.4033 of 2008 and O.S.No.4322 of 2008, on the file of the XV Assistant City Civil Court, Chennai. The respondent filed two applications in I.A.No.10113 of 2008 and I.A.No.13000 of 2008 respectively in the said suits for interim injunctions under Section 8 of the Arbitration and Conciliation Act. [Hereinafter referred to as "Act"].
2. The respondent is engaged in the business mainly in quarrying of granite on its own lands and on leasehold lands and also carrying on manufacturing activities arising out of and in the course of quarrying granite and selling the same and also buying and selling of dimensional granite blocks, processed, cut and polished granites. The respondent is the Managing Partner of the establishment who has been given full power to conduct the business of the firm. He filed both the suits praying for declaration, consequential injunction and for permanent injunction challenging the set of contracts/agreements entered into between the parties as null and void and in violation of RBI Guidelines, opposed to public policy and unenforceable and not binding on him in O.S.No.4033 of 2008. In O.S.No.4332 he has prayed for grant of declaration and consequential permanent injunction challenging the ISDA Master Agreement entered into between the parties as null and void, illegal and in violation of RBI guidelines, opposed to public policy and unenforceable and not binding upon him.
3. In both suits he filed two applications in I.A.No.9411 of 2008 and I.A.No.9992 of 2008 for interim injunction and the Court below passed an order of status-quo on 18.06.2008 and 22.06.2006 respectively. These petitioners carried the matter before this Court in revision in C.R.P.No.2005 of 2008 and 2213 of 2008 challenging the orders of status-quo describing them as violative of mandatory provisions of Order 39, Rule 1 & 2 and the orders prevent the bank from exercising its rights under DRT and SARFAESI Act and other rules also. By means of a common order, this Court dismissed both Civil Revision Petitions on 31.07.2008.
4. These petitioners filed two applications in I.A.No.10113 in O.S.No.4033 of 2008 and I.A.No.13000 of 2008 in O.S.No.4322 of 2008 under Section 8 of the Arbitration and Conciliation Act, 1996, to refer the dispute between the parties for arbitration. The respondent filed counters and after hearing both sides, learned XV Assistant Judge, City Civil Court, Chennai, dismissed both the applications on 13.10.2008 by means of a common order, which is under challenge before this Court in these Civil Revision Petitions.
5. In the affidavits filed by these petitioners in both I.As. (I.A.Nos.10113 and 13000 of 2008) filed under Section 8 of the Arbitration and Conciliation Act have alleged that the respondent has not disclosed full facts of the case and he has omitted to mention about the arbitration clause in the schedule to the Master Agreement dated 24.05.2007 entered into between him and the bank. As per clause (m) (b) (i) of the Master Agreement, provision has been made to refer the matter to arbitration for settlement in case of any difference of opinion, dispute or controversy arising in any of the transaction effected pursuant to the agreement. In the light of the stipulations in the agreement any dispute can be referred to the arbitration. Section 8 of the Act is mandatory that a judicial authority before which an action is brought in a matter which is subject matter of any arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the disputes, refer the parties to an arbitration. The transaction that has arisen out of the agreement pertaining to derivatives. Even though agreement for derivatives have been attacked on the ground that it is opposed to public policy and it is wagering contract, no relief is sought for with regard to the agreement. Since the dispute is only with regard to few of the transactions, it can be decided in an arbitration proceedings. The suit itself has been filed with an ulterior motive and speculative intent motivated by the object of obstructing the legally enforceable contract. In the light of the specific clause with regard to arbitration, it is well settled law that it is one of the cardinal principles that court has to keep in view is that the where there is an arbitration clause in a contract, referring the parties to the Arbitration is the more expedient and proper course to follow.
6. In the Counter filed by the respondent, following are stated:
6.(i) It is denied that the respondent omitted to mention about the arbitration clause in the plaint since the suit itself is to challenge the Master Agreement between the parties. The Civil Court alone has got jurisdiction and powers to decide the nature of the contract and the Arbitration Tribunal lacks powers. The Civil Court can itself decide about the validity and enforceability of contracts/transactions and the question of invoking Section 8 of the Act does not arise and any matter can be referred to arbitration that the agreement /contract is not disputed/challenged by any of the parties. The allegations in the affidavit as regard the aspects that the dispute with regard to transaction that has arisen out of the agreement pertaining to derivatives is incorrect. The allegations made in Para 5 are perse false to the knowledge of the deponent and the deponent is guilty of perjury. There is no bar to challenge the transaction when they are against the public policy and violation of RBI guidelines. The principle stated in para 8 of the affidavit is not applicable to the facts of this case. To put it in a nut shell,
a) The validity and enforceability of the contracts/ Agreements are being challenged in toto by the Respondent.
b) When the entire contracts/ transactions / Agreements are challenged in entirety, the Applications are bound and liable by the rules and regulations as stated in the scheduled contracts.
c) This Court alone got jurisdiction to decide about enforceability of the contracts / Agreements and whether it is opposed to public policy under Section 23 and wagering nature under Section 30 of the Contract Act.
d) The Civil Court alone has got jurisdiction and powers to decide the nature of the contract and Arbitration Tribunal lacks aforesaid powers.
e) Moreover, the Respondents are entitled to establish their case by adducing oral and documentary evidence in a detailed manner in the trial in which the Applicants are entitled to contradict by way of rebuttal evidence.
f) There is no bar in law to challenge the contracts / Agreements and the respondent has proceeded against the Applicant only as per law and it cannot be faulted with.
6.(ii) As per direction in C.R.P.Nos.2005 and 2213 of 2008, the petitioners have to file application to vacate the interim order in I.A.No.9411 of 2008 and to face the enquiry in the injunction application. Instead of filing counter in the injunction application these petitions have been filed. Hence the petitions may be dismissed.
7. The learned XV Assistant Judge, City Civil Court, Chennai has dismissed both the applications by observing that the Court cannot act mechanically to refer the parties to an arbitration without considering the validity of the agreement which contains arbitration clause, that the petitioners have already made their first statement on the substance to the dispute in C.R.P.Nos.2005 and 2213 of 2008 which can very well be treated as "first statement" in proceedings before filing these proceedings under Section 8 of the Act and hence they are not competent to maintain the present applications, that the Court can very well decide the issues and that the conditions expressly stated in para 8 of the Act are not satisfied and the reference cannot be made at this stage.
8. The sum and substance of plaints in both suits go to the effect that the Master Agreement is opposed to public policy and the contracts with the bank are null and void, illegal and in violation of RBI guidelines. From the order of status quo passed in the applications for interim injunctions, the petitioners preferred two Civil Revision Petitions before this Court in C.R.P.Nos.2005 and 2213 of 2008 and both of them suffered dismissal before this Court on 30.07.2008. It is the bottom line contention of the respondent that in as much as in the grounds of Civil Revision Petitions, the petitioners have met all the pleadings incorporated in the plaint, it has to definitely be treated as their first statement on the substance of the dispute and since the present petitions under Section 8 of the Act have been filed afterwards, they are not legally sustainable and hence they have to face dismissal.
9. The learned Senior Counsel for the petitioners Mr.R.Muthukumarasamy would make a stress on the point that whatever may be the grounds adduced in the Civil Revision Petitions, they are only connected to the supplementary proceedings and by no stretch of imagination they could be treated to be "first statement on the substance of the dispute" and no question of waiver of right has arisen as against these petitioners and the present dispute between the parties ought to be referred to arbitration.
10. Contending on the other side of the coin, learned Senior Counsel for the respondent Mr.T.R. Rajagopalan would submit that the grounds mentioned in the Civil Revision Petitions filed by these petitioners reflected direct denial of the pleadings contained in the plaints and it could not be decided that the said Civil Revision Petitions are stages in the supplementary proceedings and they have to be treated as first statement on the substance of the dispute and that the present claim of the petitioners has to be rejected in view of their waiver of right. They subjected themselves to the jurisdiction of the Civil Court by preferring Civil Revision Petition before this Court and not projecting their contention before the Court below as to the jurisdiction of the Court, the learned Senior Counsel further added.
11. Before entering into the discussion on the points in issue it is advantageous to have extraction of the arbitration clause in ISDA Agreement which is contained in clause m (b) (i) which goes thus:-
"(a) In the event of any claim, difference, dispute or controversy arising between party. A on one hand and party B and/or any Credit Support Provider of Party B on the other hand, arising under this agreement or/out of or in connection with this Agreement, the Schedule, any Transaction, bargain or dealing entered into or effected pursuant to this Agreement, including without limitation, the execution, validity, enforcement, breach, performance, interpretation, implementation, alleged material breach, termination or expiration of this Agreement, the Schedule and/or any Transaction, bargain or dealing entered into or effected pursuant to this Agreement, such claim, difference, dispute or controversy shall be referred and settled by arbitration. The arbitration shall be conducted in Mumbai in accordance with the provisions contained in the arbitration and Conciliation Act, 1996.
(b) The Tribunal shall consist of these arbitrators. Each party shall individually nominate one arbitrator each. The third arbitrator (who shall be Chairman of the Tribunal) shall be appointed by the Two arbitrators nominated by the parties.
(c) The language of the Arbitration shall be English and all arbitrator shall be fluent in English. The Tribunal shall state the reason for its decisions in writing and shall not make such decisions on the basis of the principle of ex aequo et bono or as amiable compositeur."
Section 8 of the Act reads thus:
"8. Power to refer parties to arbitration where there is an arbitration agreement (1) A Judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.
(2) The application referred to sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or duly certified copy thereof.
(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made."
12. The Learned Senior counsel for the petitioners placed much reliance upon a decision of the Honourable Supreme Court in AIR 2006 SC 2800 = 2006 (7) SCALE 565 = 2006(7) SCC 275 [Rashtriya Ispat Nigam Limited and Anr. v. Verma Transport Company] in which the principles have been formulated to ascertain what is "the first statement on the substance to the dispute" and the impact of the contentions of the parties in their pleadings which have got legal consequences on the application of the provision under section 8 of the Act. The Apex Court has held that filing reply in an injunction application is not at all "first statement on the substance to the dispute" and the party who relied upon section 8 of the Act should have challenged the jurisdiction of the Court and in the absence of those things it has to be concluded that that the said party waived his right. The operative portion of the Judgment is as follows:
"18. Filing of a reply to the injunction application could also not have been a ground to refuse to entertain the plea taken by the Appellants that the suit should be referred to arbitral tribunal particularly when in its reply to injunction application, the appellant categorically stated:
1. That the present application under Order 39 Rules 1 and 2 read with Section 151 CPC is liable to be dismissed on the short ground that the plaintiff has himself admitted the existence of the arbitration clause and therefore, the present application under Order 39 Rules 1 and 2 read with 151 CPc is not maintainable and consequently the order of this Hon'ble Court is liable to be vacated.
Thus, the did not submit themselves to the jurisdiction of the Court. They did not waive their right. They in effect and substance questioned the jurisdiction of the Court in proceeding with the matter. In fact, in its application filed under Section 8 of the 1996 Act, the Appellant raised a contention that the suit was liable to be dismissed and the order of injunction vacated in view of the arbitration clause."
13. In the above said case in the counter filed by the defendants for the injunction application, they have questioned the jurisdiction of the Court and they did not submit themselves to the jurisdiction of the Court and hence Their Lordships reached conclusion that the petition filed by them under Section 8 of the Act is maintainable.
14. Taking advantage of this proposition, Learned Senior Counsel appearing for the respondent would contend that the facts in the present case are distinguishable. Here, these petitioners have not filed any counter nor filed any petition to vacate the interim order before the Court below and they have challenged the said order before this Court by filing Civil Revision Petitions, by means of which they subjected themselves to the jurisdiction of the Court by challenging the order before this Court thereby consciously waived their right and in the Civil Revision Petitions they have not made mention about the presence of the arbitration clause and that the matter has to be referred to arbitration. This Court sees considerable force in his argument.
15. In para 19 of the above said Supreme Court Judgement, Their Lordships referred a Judgment in Food Corporation of India v. Yadav Enginner and Contractor [1983 (1) SCR 95] wherein it was opined that interlocutory proceedings are only incidental proceedings to the main proceedings and thus any step taken in the interlocutory proceedings does not come within the purview of main proceedings. Their Lordships proceeded to clarify the said aspects i.e., which has to be treated as reply to the main proceedings, by referring to a decision in State of Uttar Pradesh and Anr. v. Janki Saran Kailash Chandra and Anr. [MANU/SC/0004/1973], that what is necessary is disclosure of the entire substance in the main proceeding itself and not taking part in the supplemental proceedings, that disclosure of a defence for the purpose of opposing a prayer for injunction would not necessarily mean that substance of the dispute has already been disclosed in the main proceedings. The petitioners have not taken part in the Interlocutory Applications by filing applications to vacate the interim injunctions. They preferred Civil Revision Petitions before this Court contending the disclosure of entire substance in the main proceedings itself and hence it is to be treated that they have made their first statement on the substance to the dispute earlier to the filing of these applications.
16. In the opinion of the Supreme Court in the said decision, Section 8(1) of the Act must be contra-distinguished with the expression 'written statement'. It employs submission of the party to the jurisdiction of the judicial authority and what is, therefore, is needed is a finding on the part of the judicial authority that the party has waived his right to invoke the arbitration clause and if an application is filed before actually filing the first statement on the substance of the dispute, the party cannot be said to have waived his right or acquiesced himself to the jurisdiction of the Court. Such circumstance is not available in this case on hand. As adverted to supra, since the petitioners subjected themselves to the jurisdiction of the Court below, it has to be observed that they waived their right to invoke the arbitration clause.
17. Learned Senior Counsel for the petitioners also draws attention of this Court to a decision rendered by this Court reported in 2008 (4) CTC 1 [Kotak Mahindra Bank Ltd., v. Sundaram Brake Lining Ltd and 2 others] wherein the learned Judge has distinguished the scope of the provisions in Sections 8, 11, 16, 45 and 54 of the Act and the powers exercisable by judicial authority under three different situations enumerated in Section 8, 45 and 54. The learned Judge has also discussed in extenso of the applicability of the above said provisions in given circumstances. But the point in issue covered by the present proceedings was not discussed in the above said case, i.e., the party's submitting of his first statement on the substance of the dispute as envisaged in Section 8 (1) of the Act has not been dealt with, since there had been no occasion for this Court in the said case.
18. Learned Senior Counsel for the respondents garnered support from a decision of this Court in 2001 (3) CTC 656 [Wankanner Jain Social Welfare Society rep. by President v. Jugal Kishore Sapani] in which it is held that the term"first statement", available in Section 8(1) of the Act need not necessarily be a written statement and that the filing of the counter is the first statement. However, in view of opinion expressed by the Supreme Court as mentioned above, this observation will not stand as far as the present case is concerned. These petitioners have not filed their Counter and no occasion has arisen to hold whether the contents in their counter would constitute "first statement".
19. In the grounds of the Civil Revision Petitions, the petitioners have alleged that they have filed applications under Section 8 of the Act and it is not the case that the petitioners after disposal of the Civil Revision Petitions had come before the trial court and filed petition under Section 8 of the Act which was heard pending the earlier Civil Revision Petitions before this court and in such circumstance the finding of the Court below that "first statement on the substance of the dispute" said to have been made by these petitioners in the revision petitions before the High Court, is erroneous. The Court has to see whether the Civil Revision Petition Nos.2005 and 2213 of 2008 were filed anterior to the filing of I.A. application under Section 8 of the Act. If the revision petitions were filed earlier to the petitions under Section 8 of the Act, it can be observed that the petitions under Section 8 of the Act are not maintainable. It is also to be scrutinised whether in the earlier Civil Revision Petitions these petitioners have projected their defence meeting the allegations set out in the plaints and if such substance were placed before the court prior to filing of Interlocutory Applications under Section 8 of the Act, then it could be concluded that such interlocutory applications are not maintainable.
20. As far as the filing of the previous Civil Revision Petitions before this Court is concerned C.R.P.No.2005 of 2008 was filed on 24.06.2008. C.R.P.No.2213 of 2008 was filed on 07.07.2008. The two petitions in I.A.No.10113 of 2008 was filed on 30.06.2008 and I.A.No.13000 of 2008 filed on 08.07.2008 on a later point of time after filing of the Civil Revision Petitions before this Court. Hence, it is obvious that prior to the filing of the petitions under Section 8 of the Act, the Civil Revision Petitions were filed before this Court.
21.(i) As for the contents in the earlier C.R.P.Nos.2005 and 2213 of 2008, specific objections are available as regards the claim of the plaintiff and pleadings in the plaint. It is stated in C.R.P.No.2005 of 2008 that the declaratory relief sought for in the plaint is with regard to the transaction that has arisen out of a concluded contract without challenging the underlying basic contract, the respondent had sought for a declaration to declare the transaction as null and void, while the contract is still in subsistence and that the various contracts challenged by respondent as wagering and opposed to public policy they are not produced before the Court; the transactions which were forming part of the contract were taking place over a period of 1 1/2 years and pertaining to those transactions an ex-parte order of status quo ought not to have been granted; the transactions were governed by the regulations and notifications framed / issued by Reserve Bank of India from time to time; the suit is not maintainable as no consequential relief has been sought for pursuant to the declaration claimed by the plaintiff,
21.(ii) the suit has been filed with an oblique motive to deny the respondent bank their substantive and statutory right to recover the money due to the bank; the suit has filed with an ulterior motive to prevent the bank from debiting the amount to the account of respondent in the event of any liability arising out of the concluded contract; the Court shall not normally interfere in the commercial transactions which will affect the smooth and free flow of trade and commerce; several Crores of rupees are involved in the transactions challenged by the respondent and no proper court fee has been paid for seeking the relief and that as per Section 34 of SARFEASI Act there is a specific bar on the Civil Court from interfering with the action taken under SARFEASI Act which is within the domain of D.R.T. and D.R.A.T.
22.(i) It is contended in C.R.P.No.2213 of 2008 that the suit is barred by Section 12 of C.P.C., that under Order 2 Rule 2(1) of C.P.C. every suit should have included whole of the claim, as per legal consequences in Rule 2 (2) and Rule 2(3) of Order 2 of C.P.C.; once a plaintiff files a suit into the court and thereby avails a remedy given to him, he cannot be permitted to institute a fresh suit in respect of the same subject matter by withdrawing or abandoning or abandoning; filing of successive suits are abuse of process of court and also opposed to public policy, that transactions were governed by the regulations and notifications framed by Reserve Bank of India from time to time;
22.(ii) the suit is not maintainable as already a similar suit is pending in the same court and the suit had been filed with oblique motive to deny the bank their substantive and statutory right to recover money due to the bank under SARFEASI Act or the Recovery of debts due to banks and Financial Institution Act; the suit has been filed with an ulterior motive to prevent the bank from debiting the amount to the account of the respondent in the event of any liability arising out of the concluded contract, that the court shall not normally interfere in the commercial transaction which will affect the smooth and free flow of trade and commerce, that as per Section 34 of SARFEASI Act there is a specific bar on the Civil Court from interfering with the action taken under SARFEASI Act which is within the domain of D.R.T. and D.R.A.T.
23. The above said grounds set out in the earlier Civil Revision Petitions are answers which constitute defence of these petitioners in the suits itself. The grounds could not be considered to be mere reply to the injunction applications. Hence the necessary corollary thereof is that the petitioners have already submitted their first statement on the substance of the dispute prior to the filing of the application under Section 8 of the Act.
24. In the light of the discussion made above and following the legal principles laid down by the Supreme Court, it is held that assigning the grounds in the Civil Revision Petitions filed by the petitioners earlier before this Court are "first statement on the substance of the dispute" since they are directly pertaining to the pleadings contained in the plaints and in view of this matter, these applications which have been filed on the later point of time after filing of the Civil Revision Petitions are not sustainable and by not pleading about the arbitration clause and the possible remedy under Section 8 of the Act in the Civil Revision Petitions, they have to be treated to have waived their right to the relief under this section by means of which they have to be non-suited. This Court does not find any infirmity in the order passed by the Court below which deserves to be confirmed, accordingly the same are confirmed.
In the result, both the Civil Revision Petitions are dismissed. No costs. Consequently connected miscellaneous petitions are also dismissed.
30..01..2009 Index : yes Internet : yes ggs To The Registrar, City Civil Court, Chennai-104. S. PALANIVELU,J ggs order in: C.R.P. (P.D.) Nos.3581 and 3582 of 2008 and M.P.Nos.1 of 2008 DATED : 30..01..2009
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Title

State Bank Of India vs Mrs. P.R.P. Exports

Court

Madras High Court

JudgmentDate
30 January, 2009