1. This application is made on behalf of the first defendant is C.S. No. 89 of 1947 under Section 34 of the Indian Arbitration Act of 1940 (which will hereafter be referred to as the Act in the course of this judgment) and for stay of proceedings in the suit in view of an agreement alleged to have been entered into between the parties that disputes between them should be referred to arbitration. The application is resisted on behalf of the plaintiff and the 2nd defendant. The main contention urged on behalf of the respondents is that it is too late now for the applicant to ask for stay of proceedings under Section 34 of the Act inasmuch as he has already taken "other steps in the proceedings" within the meaning of Section 34.

2. To appreciate these contentions it is necessary to state the facts very briefly. There was a partnership contract between the plaintiff and the defendants, the date of the deed of partnership being the 15th September, 1943. According to Clause (1) of that contract, in the event of any dispute between the partners regarding the partnership the same shall be settled by arbitration under the Indian Arbitration Act. The suit was filed by P. Thiagaraja Rao one of the parties to this contract against the other two partners for dissolution of partnership and for accounts, the date of the suit being 27th February, 1947. On the day following, the plaintiff filed an interlocutory application--Application No. 631 of 1947--in which he prayed for the following reliefs: an interim injunction pending disposal of the suit restraining the 1st defendant from drawing certain amounts, for the appointment of a commissioner to take an inventory of all documents, account books and vouchers in the premises mentioned in the application and to initial them, or in the alternative for attachment before judgment of the properties mentioned in Schedules A and B to the application, and for the appointment of a Receiver to take possession of all the assets of the firm. On this application, an ex parte order was made on the 28th February, 1947, directing notice to the respondents, granting interim injunction as prayed in Clause (a) of the notice of motion and appointing a commissioner for preparing an inventory and initialing the account books and documents. The notice in respect of the order for interim injunction was made returnable on the 3rd of March, 1947. On that date, the 1st respondent to that application who is the applicant here appeared by Mr. V. Ramaswami Aiyar. What transpired on the date on which he so appeared before the Court is to be found in the following order made on the 3rd of March:

The first defendant appears by Mr. Ramaswami Aiyar and wants ten days' time for filing counter affidavit. File counter affidavit and reply affidavit within ten days. With regard to prayer (a) Mr. Srinivasan for the plaintiff consents to the following modification of the order of interim injunction in respect of item 3 of schedule A of the summons. It is stated by Mr. Ramaswami Iyer that the 1st respondent has been permitted to overdraw from the Indian Bank on the security of the feed deposit of Rs. 72,000 mentioned as item 3 in schedule A. Mr. Srinivasan agreed that the fixed deposit may be used as security, for future overdrafts and that the order of interim injunction will not be enforced to the prejudice of the first respondent in respect of such overdrafts. Adjourned to the 14th March, 1947.

3. It is clear from this order that what happened on that date was that the present applicant through his learned Counsel asked for ten days' time for filing a counter affidavit and for modification of the order of interim injunction issued in respect of the prayer incorporated in Clause (a) of the notice of motion. By consent of the plaintiff's advocate this request was granted and the order of interim injunction was modified in the manner in which the present applicant wanted it to be modified. There was not a word said on that date that the applicant contemplated filing a petition under Section 34 of the Act for stay of proceedings in the suit and for reference to arbitration of the disputes involved in it. On the adjourned date, the present applicant appeared again by Mr. Ramaswami Iyer and stated for the first time that he intended filing an application for referring the dispute to arbitration. It was represented on his behalf that in view of this decision arrived at by him he had not yet filed a counter affidavit. The order made on the 14th of March after recording these facts proceeds to say, He also states that all the account books and vouchers have come back to the respondent from the auditors and that the commissioner already appointed may see those books and documents and prepare a list and also initial them.

The interim order of injunction as modified on the previous date of hearing was directed to continue and the application was ordered to be posted with the present application which Mr. Ramaswami Iyer said his client contemplated filing. According to the provisions of Section 34 of the Act, an application to stay proceedings and to refer the disputes to arbitration can be made only at any time before filing the written statement or taking any other steps in the proceedings.

4. The written statement in the suit has not yet been filed, but the respondents' learned Counsel contends that the applicant has taken " other steps in the proceedings " in view of the part taken by him in the prosecution of Application No. 631 of 1947. Mr. Ramaswami Aiyar on behalf of the applicant states that his client by participating in the manner already pointed out in Application No. 631 of 1947 cannot, in view of the authorities both English and Indian, be regarded as having taken a step in the proceedings by so doing. The question for determination therefore is whether he had taken a step in the proceedings which precludes him from maintaining this application.

5. Learned Counsel appearing on both sides have quoted English and Indian decisions in support of their respective contentions. In England the law relating to the subject as laid down in the English Arbitration Act of 1889, 52 and 53 Vict., Chapter 49 is to be found in Section 4 of the Act and the wording of the relevant part of the section is similar to that of the Indian Act of 1940.

An application for stay of proceedings can be taken out by a party before delivering any pleadings or taking any other steps in the proceedings.

It will thus be seen that the Indian Act has adopted the identical words with regard to the participation of the party concerned in the proceedings pending in the Court by laying down that it is only before he has taken any other steps in the proceedings that he can apply for stay of the suit.

6. Mr. Ramaswami Aiyar places reliance upon the following summary of the law as laid down in Halsbury's Laws of England, Hailsham Edn., volume 1 at page 639, paragraph 1087, and on the cases given in the foot-notes in support of the summary. The passage may be read in full:

The applicant must have taken no step in the proceedings after appearance. A party who makes any application whatsoever to the Court, even though it be merely an application for time, takes a step in the proceedings.

Delivering of a defence, application to the Court for leave to interrogate or for a stay pending the giving of security for costs or the extension of time for delivery of defence, are steps in the proceedings. Even attendance at an ordinary summons for directions issued by the plaintiff and permitting an order to be made thereon without objection amounts to taking a step in the action. On the other hand, neither a notice requiring a statement of claim nor a request by letter for extension of time for pleading nor the filing of affidavits in answer to an application by the plaintiff for the appointment of Receiver amount to taking a step for in the proceedings.

7. According to Mr. Ramaswami Aiyar the participation of the applicant in the proceedings in the interlocutory application is analogous to the conduct of a party who merely files affidavits in answer to an application by the plaintiff for the appointment of a receiver and therefore on the authority of the English decisions quoted in the foot-notes to the passage read above, the applicant's conduct did not amount to eking a step in the proceedings.

8. In the English decision relied on by Mr. Ramaswami Iyer are Ives and Barker v. Willans (1894) 2 Ch. 478, 484 and Zalinoff v. Hammond (1898) 2 Ch. D. 92. In the first of these cases Lindley, L.J., stated the law in the following words:

The authorities shew that a step in the proceedings means something in the nature of an application to the Court, and not mere talk between solicitors or solicitors' clerks, nor the writing of letters but the taking of some step, such as taking out a summons or something of that kind, which is, in the technical sense, a step in the proceedings.

9. This passage is quoted in the decision in Zalinoff v. Hammond (1898) 2 Ch. D. 92 by Stirling, J. That was the case in which there was an application made by the plaintiff for the appointment of a receiver in support of which he filed certain affidavits and all that the defendants did was to file affidavits in answer to these. After quoting the observations of Lindley, L.J., in Ives and Barker v. Willans (1894) 2 Ch. 478, 484 the learned Judge states as follows in his judgment:

It seems to me that the mere filing of affidavits in defence to a motion for a receiver is not in the nature of an application to the Court and consequently not a 'step in the proceedings' within the meaning of the section. By such a step is meant a substantive step taken by a party. It may be that a very limited application to the Court--such as taking out a summons for extension of time--would be enough. That has been so decided in Ford's Hotel Co. v. Bartlett (1896) A.C. 1,4 In Brighton Marine Palace and Pier, Ltd. v. Woodhouse (1893) 2 Ch. D. 486 before North, J., the motion was ordered to stand over to the trial and it does not appear whether affidavits had been filed or not.

But I do not think in this case the defendant has taken a ' step in the proceedings ' within the meaning of the Act, and therefore I think I ought to make an order in accordance with the application. That being so, the motion for a receiver will stand over, for it may be useful hereafter, until after the arbitrator has decided all questions in the action, of which this may be one.

10. It will be seen from the extracts read above that if something is done by the party concerned which is in the nature of an application to the Court, it will necessarily come under the category of a step in the proceedings. There is authority for this position both in England and in India. But mere writing of letters or the filing of affidavits in the office of the Court to resist the appointment of a receiver without making an application to the Court either orally or in writing cannot, according to judicial authority, amount to taking a step in the proceedings. In Bhowanidas Ramgobind v. Pannachand Luchmipat (1924) I.L.R. 52 Gal. 453. Page, J., took the view that applying for a copy is merely to seek information in order that the defendant may ascertain the nature of the plaintiff's claim. Until he knows that he will not be in a position to check whether he would proceed by way of arbitration or take part in the litigation which has been commenced against him. In Joylal and Co. v. Gopiram Bhotica (1920) I.L.R. 47 Cal. 611 the defendant asked for security for costs. That was held to be taking a step in the proceedings, because it disclosed his willingness to proceed in the action after security was given. In Ford's Hotel Co. v. Bartlett (1896) A.C. 1,4. a summons was taken out for extension of time to file the written statement. That was held to be a step in the proceedings. In Sarat Kumar Roy v. Corporation of Calcutta (1907) I.L.R. 34 Cal. 443 a similar view was taken although an attempt was made to distinguish it from the English case on the ground that the defendant when applying for time clearly expressed the intention of enforcing the clause to refer the dispute to arbitration. The Karnani Industrial Bank, Ltd. v. Satya Niranjan Shaw (1924) 28 C.W.N. 771 is authority for the view that it is immaterial whether a written application is made for extension of time to file a written statement or it is done verbally by the defendant's lawyer. In County Theatres and Hotels, Ltd. v. Knowles (1902) 1 K.B.D. 481 an action was brought for breach of a written contract which contained an agreement to refer matters in dispute between the parties. The defendant attended at Chambers on the hearing of a summons for directions taken out by the plaintiffs, on which an order was made that the plaintiff and defendant should respectively make discovery of documents. The defendant subsequently applied under Section 4 of the Arbitration Act, 1889, for stay of proceedings. It was held that the defendant had taken a step in the proceedings, and was therefore not entitled to a stay. In Richardson v. Le Maitro (1903) 2 Ch. D. 222 attendance by a defendant before the Master on a summons for directions taken out by the plaintiff and acquiescence without protest in a common form order for delivery of pleadings was held to be taking a step in the proceedings within the meaning of Section 4 of the Arbitration Act of 1889 and the defendant was held to be precluded from moving to stay proceedings under that section. In Ochs v. Ochs Bros. (1909) 2 Ch. D. 121 the defendants attended before a Master on the usual summons for directions taken out by the plaintiff, which the Master proposed to treat as a summons for an account and the defendants gave an undertaking to furnish an account as a term of the summons standing over. This was held to be taking a step in the proceedings under Section 4 of the Arbitration Act which precluded the defendants from obtaining a stay of proceedings under that section. It was also held that in such a case it was not necessary that an order should have actually been made. In the case reported in Subar Chandra Bhar v. Mahomed Ibrahim I.L.R. (1943) 2 Cal. 298 the case-law on the subject is discussed and the view expressed is that a defendant can be said to have taken a step in the proceedings within the meaning of Section 34, if an application is made to the Court by or on his behalf orally or in writing or something in the nature of such application and an acquiescence on the part of the defendant is to be inferred from the application in the Court deciding the dispute between him and the plaintiff. There the application was by the plaintiff for appointment of a receiver. The defendants' counsel applied to the Court orally and obtained an adjournment of the hearing of the plaintiff's application and also obtained certain directions relating to inspection of the books and documents of the firm. Subsequently the defendant applied under Section 34 of the Act of 1940 for a stay of the suit on the ground that the suit was in respect of a matter agreed to be referred to arbitration. It was held that by applying for an adjournment and for directions the defendant had taken a step in the proceedings within the meaning of Section 34 and was not entitled to a stay of the suit. The learned Judge set forth the acts done on behalf of the defendant as appeared from the Court minutes made by the Assistant Registrar on the date the events took place. This record showed that an application was made for an adjournment on behalf of the defendant. The Court granted the adjournment for three weeks and directed that an affidavit for possession should be filed within a fortnight and reply by a certain date following. The Court also directed, Interim order to continue. Liberty to either party to have inspection of the books and documents of the office of the S.D.O., Ranchi, on two days' notice to one another's solicitors.

11. In the present case, as pointed out by Mr. Radhakrishnayya something more than this did take place. Not only did the defendants' learned Counsel apply for an adjournment for filing counter-affidavit which application was granted, but he also got the terms of the interim order of injunction modified. On the next adjourned date, he stated that his account books and vouchers were all open for inspection and scrutiny by the Commissioner appointed by the Court, since they were got back from the auditors. The fact that on that occasion he mentioned that he was going to apply for stay of proceedings under Section 34 will not affect the position so far as Section 34 of the Act is concerned. On the authorities discussed above I have no doubt that the defendant in this case who now applies for stay of proceeding in the suit did take a step in the proceedings within the meaning of Section 34 both on 3rd March, 1947, and on 14th March, 1947, when application No. 631 of 1947 in C.S. No. 89 of 1947 came on for hearing. The wording of the section is general inasmuch as reference is made to a step in the " proceedings " and not a step in the " suit." The interlocutory application in the suit will certainly come under the category of proceedings and since the defendant did take a step in the proceedings he is precluded from applying under Section 34 of the Act for stay of the suit.

12. This is sufficient for dismissing the application, but Mr. Radhakrishnayya also refers to the fact that in the suit questions of fraud are raised and consequently the Court should exercise its discretion in refusing the stay asked for.

13. The questions of granting a stay is left by the section to the discretion of the Court. There is no doubt that this discretion must be judicially exercised. In the English Act there is express provision made in Section 14(2) for meeting such cases. According to that provision, where an agreement between any parties provides that disputes which may arise in future between them should be referred to arbitration and the disputes which so arise involve the question whether any such party has been guilty of fraud, the Court shall, so far as may be necessary to enable that question to be determined by Court, have power to order that the agreement shall cease to have effect, and power to give leave to revoke any submission made thereunder. There is no such corresponding provision in the Indian Arbitration Act of 1940, to order that the agreement shall cease to have effect and that the submission should be revoked, but in exercising a discretion to stay proceedings, the Court can in effect, in suitable cases, exercise a similar power. Here, however, such an occasion has not arisen, because there has been no reference made to arbitration and there is no application for revoking the submission to arbitration.

14. In view of the conduct of the applicant in Application No. 631 of 1947 he is precluded from applying for stay of proceedings and for reference of the disputes between the parties to arbitration.

15. The application must therefore be dismissed with costs of the plaintiff and the 2nd defendant. The advocate's fee for the plaintiff is fixed at Rs. 100 and for the second defendant at Rs. 35.