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Babulal Singhania v. Pirudan Ojha Opposite Party.
Judgment Summary — B.C. Ray, J.
Factual and Procedural Background
The opinion arises from two Rules challenging orders made in two separate proceedings connected to the same partnership dispute between Pirudan Ojha and Babulal Singhania.
The plaintiff (Pirudan Ojha) instituted Title Suit No. 267 of 1974 in the Munsif's Court, Howrah seeking dissolution of the partnership "Siba Processing and Co." and accounts. The plaint alleged that the plaintiff held a 40% share and the defendant a 60% share, that the defendant refused to render accounts, removed account books and papers from the factory, defaulted on bank instalments and rent, and misappropriated partnership funds by paying cheques to fictitious customers. The plaintiff served a notice dissolving the partnership (dated 14-10-1974) and sought injunctive relief; an interim injunction was obtained.
The defendant filed an application under Section 34 of the Arbitration Act (1940) seeking a stay of the suit and reference to arbitration in terms of the partnership agreement (Clause 9). The Munsif (Order No. 18 dated 7-3-75) rejected that application on grounds that the partnership was dissolved by notice and that grave allegations of criminal misappropriation should not be referred to arbitration. The District Judge, Howrah affirmed that order on appeal (order dated 13-8-75). Civil Rule No. 3457 of 1975 challenges the appellate affirmance; its operation was stayed pending these Rules.
Separately, in Title Suit No. 22 of 1975 (Second Court of Subordinate Judge, Howrah), an application under Section 20 of the Arbitration Act was filed to file the arbitration agreement. In that suit, an application under Order 30, Rule 7 CPC sought appointment of a Commissioner to make an inventory of machinery, account books and related papers at the factory premises. The Subordinate Judge allowed that commission application by Order No. 28 dated 31-7-75. Civil Rule No. 3036 of 1975 challenged the commission order; that order's operation was also stayed pending these Rules.
Legal Issues Presented
- Whether the acts of the defendant (appearances, applications for adjournment, participation in injunction proceedings and seeking time to file written statements) constituted "taking any other steps in the proceedings" within the meaning of Section 34 of the Arbitration Act (1940), thereby precluding the defendant from obtaining a stay of the suit and reference to arbitration.
- Whether serious allegations of fraud and misappropriation in the plaint render the dispute inappropriate for reference to arbitration and require determination by the civil court rather than by arbitrators.
- Whether, after the rejection of the Section 34 application, the subsequent petition under Section 20 of the Arbitration Act and the application for appointment of a Commissioner (for inventory) were competent and properly entertained by the trial court.
Arguments of the Parties
Mr. Shyamacharan Mitter (learned Advocate for the petitioner in C.R. No. 3076)
- Contended that the defendant had appeared in Title Suit No. 267 of 1974 and repeatedly sought adjournments and time, including in the injunction matter; such acts constituted "taking steps" in the proceedings as contemplated by Section 34 of the Arbitration Act and therefore the courts below correctly rejected the Section 34 application.
- Submitted that the plaint contained serious allegations of fraud and misappropriation which could not be conveniently investigated by an arbitrator; hence it was appropriate for the civil court to try the matter.
- Argued that after the rejection of the Section 34 application a petition under Section 20 of the Arbitration Act was not competent and the subsequent application for appointment of an Inventory Commissioner ought to have been dismissed.
- Cited several decisions in support of the proposition that certain interlocutory steps amount to taking steps in the suit.
Mr. Barun Kumar Roy Chowdhury (learned Advocate for the defendant opposite party, Babulal Singhania, in C.R. No. 3076)
- Submitted that the defendant had to appear in the injunction matter and make applications (e.g., to contest the injunction or seek time) to avoid prejudice; such interlocutory acts are not "taking steps in the suit" within the meaning of Section 34, and therefore did not waive the right to seek stay and arbitration.
- Argued there was no remedy in the Arbitration Act to prevent a party from defending an interlocutory matter (such as an injunction) and that filing interlocutory applications should not be equated with submitting to the court's jurisdiction on the merits.
- Contended that the order appointing a Commissioner to inventory the machinery and account books was justified because the petitioner had allegedly removed account books and other papers, denied access to the opposite party, and failed to pay rents and bank instalments; hence the subordinate court's order was neither without jurisdiction nor erroneous.
Plaintiff's (Opposite Party) Contentions — as recorded in the plaint and objections
- Contended that the plaintiff had come into management only from 14-9-1971 and that there was no valid and subsisting agreement between the parties; that the partnership business had been dissolved prior to institution of the suit (by notice dated 14-10-74); and that the Section 34 application should be rejected.
- Alleged serious misconduct by the defendant (removal of books, misappropriation, default) supporting the contention that the civil court should decide the dispute rather than arbitration.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Nuruddin Abdul Husein v. Abu Ahmed Abdul Jalli, AIR 1950 Bom 127 | Two tests: whether an act is an application and whether the act displays an unequivocal intention to proceed with the suit rather than to have matter decided by arbitration; filing appearance is not necessarily a step in proceedings. | Used to frame the legal test — whether acts display unequivocal intention to proceed with the suit; the court considered that certain acts did display such intention. |
| Sansarchand Deshraj v. State of Madhya Pradesh, AIR 1961 Madh Pra 322 | Filing a reply to a plaintiff's application for a temporary injunction does not amount to "taking other steps" in proceedings under Section 34; opposing injunction does not necessarily abandon arbitration rights. | Noted as authority holding that opposing an interlocutory injunction application may not signify election to litigate on merits; weighed against other cases. |
| Queens College, Konetra v. Collector, Varanasi, AIR 1974 All 431 | Act of defendant to vacate ex parte order of injunction does not indicate unequivocal intention to proceed with suit; interlocutory adjudication distinct from adjudication of the claim. | Cited as supportive precedent for defendant's position that interlocutory steps may not be "steps" for Section 34 purposes; the court distinguished it on facts. |
| Amritraj Kothari v. Golecha Financiers, AIR 1966 Cal 315 | Dissenting view that filing opposition to an interlocutory application is as much a step in the proceedings as filing a written statement. | Cited to demonstrate judicial divergence; court recorded this contrary view but ultimately preferred authorities indicating the defendant's acts here did amount to steps. |
| Dunichand Sons & Co. v. Fort Gloster Industries Ltd., AIR 1962 Cal 541 | Mere entering of appearance is not a step in the proceeding within the meaning of Section 34. | Noted as supporting proposition that appearances per se may not constitute "steps"; contrasted with the broader pattern of acts in the present case. |
| United Provinces Government v. Shri Har Nath, AIR 1949 All 611 | An application for adjournment to file written statement was held to be a step in the proceeding within Section 34. | Relied upon among authorities showing that seeking adjournments/time can amount to taking steps in the suit; helped support conclusion that defendant's applications were steps. |
| Karnani Industrial Bank Ltd. v. Satya Niranjan, AIR 1924 Cal 789 | Verbal prayer by counsel for further time to file written statement is taking a step in the proceeding. | Used as authority that even oral requests for time may constitute taking steps; supported court's view on the significance of such acts. |
| Sarat Kumar v. Corporation of Calcutta, (1907) ILR 34 Cal 443 | Application for time to file written statement is a step in the proceeding (under earlier Arbitration Act provisions). | Cited as historical precedent consistent with view that seeking time is a step indicative of submission to court jurisdiction. |
| Subal Chandra Bhur v. Md. Ibrahim, AIR 1943 Cal 484 | Filing application for adjournment and applying for leave to inspect books/records indicates acquiescence in court adjudication rather than arbitration. | Relied upon to show that seeking directions and inspection points to election to have dispute decided by court; supported conclusion in present case. |
| Sadhan Kumar v. Sunil Kumar, AIR 1948 Cal 59 | Filing an application for time to file a written statement is taking other steps in the proceeding under the Arbitration Act (1889/1940). | Included among authorities that support the proposition that seeking time constitutes a step; aided the court's conclusion that the defendant had taken steps. |
| Bortes S.A. v. Astrouic Compania Naviors S.A., AIR 1970 Mad 323 | Applying to vacate or vary an interim injunction amounts to taking steps in the proceeding within Section 34. | Cited for the proposition that interlocutory applications directed at interim orders can be steps; supported court's view that interlocutory engagement may waive arbitration rights in some circumstances. |
| Joy Lall & Co. v. Gopiram Bhotica, AIR 1920 Cal 685 | Request to direct plaintiff to furnish security for costs held to be taking a step in the proceedings. | Used to illustrate that a variety of interlocutory requests have been treated as steps in proceedings. |
| W.F. Ducat & Co. Pvt. Ltd. v. Hiralal Pannalal, AIR 1976 Cal 126 | The power to grant a stay under Section 34 of the Arbitration Act is discretionary and must be exercised judicially, not automatically. | Cited to record the discretionary nature of stay applications under Section 34; the court observed that stay is not to be granted as a matter of course. |
| Biswanath Rungta v. Oriental Industrial Engineering Co. Pvt. Ltd., AIR 1975 Cal 222 | Parties' conduct in interim orders may be aimed at protecting rights during dispute; such conduct may not necessarily indicate submission to court jurisdiction on merits. | Court distinguished the facts of that case from the present case and found it not applicable here. |
| C.M. Karanji & Co. v. Indo-China Trading Co. Ltd., (1952) 56 Cal WN 763 | Arbitrators are competent to decide questions both of law and fact; arbitration should be carried into effect even for difficult questions of law. | Referred to by defendant's argument that arbitrators could decide allegations of fraud; court acknowledged the view but relied on other authorities and facts to hold the matter fit for court determination. |
| Union of India v. Hind Galvanizing & Engineering Co. Pvt. Ltd., AIR 1973 Cal 215 | Where disputes involve complicated questions of law it may be proper for the civil court rather than arbitration to decide them; a trial judge's rejection of Section 34 on that ground may not be unreasonable. | Relied upon to support the proposition that complicated or serious legal questions (and by analogy grave allegations) may justify refusal to refer disputes to arbitration; court found this supportive of the lower courts' conclusion. |
Court's Reasoning and Analysis
The court examined (a) the sequence of procedural acts by the defendant in Title Suit No. 267 of 1974, and (b) the substance of the plaint alleging serious fraud and misappropriation. On the procedural question, the court applied the established two-fold test (as articulated in authority) for whether an act constitutes "taking any other steps in the proceedings" under Section 34: not merely whether an action is an application, but whether the act unequivocally demonstrates an intention to proceed with the suit before the court rather than to submit the dispute to arbitration.
The court reviewed authorities on both sides of the issue — cases holding that interlocutory acts (such as applying for adjournment, seeking time to file written statements, applying in injunction proceedings, seeking inspection of books) constitute taking steps, and decisions suggesting that opposing interlocutory applications (e.g., for interim injunctions) may not necessarily indicate an election to litigate on merits. The court observed there is judicial divergence but placed weight on the line of authorities that treat applying for adjournment/time and engaging in interlocutory proceedings as indicative of an intention to have the dispute decided by the court.
Applying those principles to the present facts, the court found that the defendant had: appeared in the suit; repeatedly prayed for time in the injunction matter to file objections; applied for adjournments of the ex parte hearing; was directed to take copy of the plaint; filed petitions under Section 34 only after having taken such steps. The court concluded that these acts "clearly and unequivocally display an intention on the part of the defendant to submit to the jurisdiction of the court in order to have the controversy decided in the suit."
On the substantive question of arbitrability, the court considered the plaint's allegations of "serious and grave" fraud and misappropriation (loans sanctioned to the partnership allegedly paid to fictitious customers, removal of books, defaults). While the defendant relied on authority that arbitrators can decide questions of law and fact, the court noted other authorities holding that where disputes involve complicated legal issues or grave allegations, it may be proper for the civil court to try them. The courts below had concluded that such grave allegations were appropriately tried by the civil court and not by arbitrators; this conclusion was not found to be unreasonable or capricious.
Because the court held that (i) the defendant had taken steps in the suit within the meaning of Section 34 and thus could not successfully apply for a stay and reference to arbitration, and (ii) the nature of the allegations warranted determination by the civil court, the court also held that the subsequent order (in the separate Title Suit No. 22 of 1975) allowing appointment of a Commissioner for inventory could not be upheld in the circumstances prevailing after the rejection of the Section 34 application.
Holding and Implications
Holding:
- The court held that the defendant's acts (appearances, repeated applications for time and adjournments, participation in injunction proceedings) amounted to "taking steps" in the proceedings within the meaning of Section 34 of the Arbitration Act, 1940, thereby debarring the defendant from obtaining a stay of the suit and reference to arbitration.
- The court further held that in view of the serious allegations of fraud and misappropriation alleged in the plaint, it was appropriate for the civil court to try the matter rather than to refer it to arbitration.
- Accordingly, Civil Rule No. 3457 of 1975 was discharged without costs; Civil Rule No. 3036 of 1975 was made absolute without costs; Order No. 28 dated 31-7-1975 (in Title Suit No. 22 of 1975), which allowed issuance of a commission for making inventory, was set aside; all interim orders were vacated; and the records were directed to be sent down to the court below expeditiously.
Implications:
The direct consequence was that the defendant could not obtain a stay under Section 34 or a reference to arbitration because of his prior procedural conduct; the civil suit proceeds in the court. The order appointing a Commissioner in the other suit was set aside in light of these findings. The opinion does not purport to establish a new general precedent beyond applying and reconciling existing authorities; it confines its decision to the facts and legal principles applied to this dispute.
Order signed by B.C. Ray, J.; N.C. Mukherji, J. agreed. Order accordingly.
B.C Ray, J.:— These two Rules arise out of two orders passed in Misc. Appeal No. 35 of 1975 and Title Suit No. 22 of 1976 respectively. Civil Rule No. 3457 of 1975 is directed against the order passed on 13th of August, 1975 by the District Judge. Howrah in Misc. Appeal No. 35 of 1975 affirming the order No. 18 dated 7-3-75 passed by the Munsif, First Court, Howrah in Title Suit No. 267 of 1974 rejecting the application under Section 34 of the Arbitration Act. Civil Rule No. 3036 of 1975 is directed against the order No. 28 dated 31st July, 1975 passed by the Subordinate Judge, Second Court, Howrah in Title Suit No. 22 of 1975 allowing the plaintiff opposite party's application under O. 30, R. 7 of the CPC for issue of a commission for making inventory of the articles and account papers as mentioned in the petition. On the prayer of both the parties these two rules were heard together.
2. The opposite party, Pirudan Ojha in Civil Rule No. 3457 of 1975 instituted on Nov. 21, 1974 a suit being Title Suit No. 267 of 1974 in the First Court of Munsif, Howrah against the defendant petitioner Babulal Singhania for dissolution of partnership and for accounts stating inter alia that the plaintiff and the defendant carried on the partnership business under the name and style of “Siba Processing and Co.” at premises No. 4, Gopalram Pathak Road, on the basis of an agreement executed and registered by them on June 6, 1960 which was subsequently amended by a deed of agreement dated September 14, 1971, that in the said business the plaintiff has 40% share and the defendant has 60% share, that there were differences with the defendant who refused to render any account of loans taken from United Commercial Bank and defaulted in payment of instalment to the bank and of the monthly rents to the landlord of the factory premises. It has also been alleged that the defendant removed all account books and other relevant papers from the office of the factory and the loans sanctioned by the bank in favour of the partnership firm were actually paid by cheques to different customers of the partnership business most of whom were fictitious customers and the defendant thus misappropriated a huge sum of money. The plaintiff on October 14, 1974, served a notice for dissolution of the partnership which was a partnership-at-will on the defendant and he repeatedly requested the defendant to settle all disputes by referring to Arbitration in terms of the partnership agreement but without any effect. Hence this suit has been filed.
3. The opposite party, it is stated in the petition, tried to have an ex parte decree in the said suit but the defendant petitioner on coming to know of the same appeared in the said suit and filed an application under Section 34 of the Arbitration Act, 1940 for stay of further proceedings of the said suit and for referring the disputes to Arbitration in accordance with the terms of Cl. 9 of the partnership agreement.
4. The plaintiff opposite party filed a written objection contending inter alia that the plaintiff came into the management of the firm only on and from 14-9-1971, that there was no valid and subsisting agreement between the parties, that the partnership business had been dissolved prior to the institution of the suit by a notice dissolving the partnership firm and the petitioner requested to settle the disputes by Arbitration but without any effect and as such the application under Section 34 of the Arbitration Act should be rejected.
5. On March 7, 1975, the learned Munsif, First Court, Howrah by Order No. 18 rejected the application holding that the partnership agreement was not in force as the plaintiff dissolved the partnership by a notice dated 14-10-74 and there was serious allegation of criminal misappropriation against the defendant which should not be referred to the Arbitrator for adjudication.
6. On appeal the said judgment and order was affirmed by the learned District Judge, Howrah who dismissed the appeal.
7. It is against this order this Rule has been issued and the hearing of the suit has been stayed till the disposal of the Rule.
8. The opposite party, Babulal Singhania in Civil Rule No. 3076 of 1974 filed on March 19. 1975 an application under Section 20 of the Arbitration Act being Title Suit No. 22 of 1975 in the Second Court of Subordinate Judge, Howrah praying that the arbitration agreement be filed in court. In the said suit the opposite party, Babulal Singhania filed an application under O. 39, R. 7 of the CPC for appointment of a Commissioner for making an inventory of the machineries and account books lying in the factory premises at 4, Gopalram Pathak Road, P.S Liluah. The petitioner filed an objection as to the maintainability of the said application under Section 20 of the Arbitration Act as well as of the application for an appointment of an inventory Commissioner on the grounds inter alia that the application for stay of the suit filed by the opposite party under Section 34 of the Arbitration Act has been rejected and that no decision has been made as to filing of the arbitration agreement as provided in Section 20 of the Arbitration Act.
9. On July 31, 1975, the learned Subordinate Judge, Second Court, Howrah, allowed the application for issue of a commission for making inventory of the articles and account papers.
10. It is against this order this Rule has been obtained. There is an order of stay of operation of the impugned order till the disposal of the Rule.
11. Mr. Shyamacharan Mitter, learned Advocate for the petitioner in C.R No. 3076 contended that the defendant opposite party has appeared in Title Suit No. 267 of 1974 and prayed for adjournment of the suit. The defendant also made an application for adjournment of the said suit on the ground that the writ of summons with a copy of the plaint had not been served on him and also prayed for a direction for service of copy of the plaint on him for filing a written statement. Mr. Mitter has also submitted that the defendant also appeared and prayed for time in the injunction matter and on his prayer the hearing of the injunction petition was adjourned. The defendant also filed an application for adjournment of hearing of the injunction matter. Mr. Mitter has submitted that all these acts on the part of the defendant constituted taking steps in the proceedings as provided in Section 34 of the Arbitration Act and as such the courts below rightly rejected the application for stay of the suit. Several decisions have been cited by Mr. Mitter on this point. Mr. Mitter has further submitted that in the plaint of Title Suit No. 267 of 1974 there is serious allegation of fraud and misappropriation against the defendant, Babulal Singhania during the period he was in management of the said partnership business. These allegations of fraud and misappropriation, it has been submitted by Mr. Mitter, cannot be conveniently investigated by the Arbitrator and as such the courts below were right in holding that it was proper that this grave and serious allegations should be investigated and decided by civil court and not by Arbitrator,
12. Mr. Mitter has lastly submitted that after the rejection of the application under Section 34 of the Arbitration Act the petition under Section 20 of the Arbitration Act was not competent and the application filed therein for the appointment of an Inventory Commissioner ought to have been dismissed by the Court below.
13. Mr. Barun Kumar Roy Chowdhury learned Advocate for the defendant opposite party, Babulal Singhania in C.R No. 3076 of 1975 has submitted that the order of injunction had already been issued against the defendant and the defendant had no other alternative than to appear in the said injunction matter and to file objection to contest the same otherwise he would be greatly prejudiced if the injunction order had been made absolute. It has been further submitted that there is no provision in the Arbitration Act to remedy this wrong. Mr. Roy Chowdhury has further submitted that the suit was fixed for ex parte hearing and as such the defendant appeared in the suit through his lawyer and the defendant had to make an application for adjournment on the ground that the writ of summons with a copy of the plaint had not been served on him and for serving a copy of the plaint on him in order to acquaint himself with the statements and allegations made in the plaint. This, it has been submitted, cannot be considered to be taking any steps in the suit. It has also been submitted that an interlocutory matter is not a part of the proceeding in the suit and the filing of an application for time to file objection against the injunction petition and to contest the injunction matter is not taking a step in the proceeding as provided in Section 34 of the Arbitration Act. The courts below, it has been submitted were wrong in rejecting the application under Section 34 of the Arbitration Act filed by the defendant opposite party,
14. Mr. Roy Chowdhury has also submitted that the petitioner has removed account books and other papers from the office of the factory premises to his house and the petitioner has not allowed the opposite party any access to the account books. The petitioner did not pay the monthly rents of the factory premises to the landlord and also of the Instalments in respect of loans to the bank. It has therefore been prayed that a Commissioner be appointed to make an inventory of machinery parts as well as account books and other relevant papers lying in the factory premises at Liluah. The order passed by the learned Subordinate Judge allowing the said application for issue of a commission for making inventory of those articles is not without jurisdiction nor it is illegal or erroneous and as such the same is not liable to be revised.
15. The plaintiff, Pirudan Ojha, admittedly filed Title Suit No. 267 of 1974 for dissolution of partnership and for accounts against the defendant, Babulal Singhania in November, 1974 after serving a notice dated 14-10-74 dissolving the partnership business which is a partnership-at-will. In the said suit the plaintiff filed an application for temporary injunction and obtained an order of interim injunction whereby the defendant had been restrained from disturbing or interfering with the carrying on the business by the plaintiff petitioner until the hearing of the said application. It also appears that the defendant after serving of notice of the injunction petition on him appeared in the suit and prayed for time to file objection. The injunction matter was adjourned accordingly. This is evident from Order No. 6 dated Dec. 4, 1974. It is also evident from Order No. 9 dated 7-1-75 that the defendant filed a petition praying for an adjournment to enable him to file objection in the injunction matter. The hearing of the injunction matter was adjourned to a subsequent date. It also appears from Order No. 10 dated 15-1-75 that the defendant made an application for adjournment of the ex parte hearing of the suit and the said prayer was granted and the defendant was asked to file a written statement by certain date and he was directed to take copy of the plaint from the record. It also appears from Order No. 12 dated 5th February, 1975 that the defendant filed a petition praying for adjournment in the injunction matter. On the same day the defendant also filed a petition under Section 34 of the Arbitration Act praying for stay of further proceeding in the said suit and for referring the matter to Arbitration for adjudication of the disputes. It is also evident from the application for temporary injunction that the material averments of the plaint have been mentioned and the relief claimed in the plaint has also been stated clearly. The question now is whether these acts on the part of the defendants amount to taking steps in the proceeding within meaning of Section 34 of the Arbitration Act. Section 34 of the Arbitration Act specifically provides that the defendant has to file such an application for stay of the proceedings before filing any written statement or taking any other steps in the proceedings.
16. In AIR 1950 Bom 127, Nuruddin Abdul Husein…Plaintiff; v. Abu Ahmed Abdul Jalli…Defendant.* it has been observed by Tendolkar J. that the two tests for determining whether an act is a step in the proceedings is not so much the question as to whether it is an application-although, of course, that would be a satisfactory test Sin many cases - but whether the act displays an unequivocal intention to proceed with the suit or to have the matter disposed of by arbitration. Filing of an appearance in court is not an application of any kind but is an act which is incumbent upon the defendant to do by virtue of R. 117 of the High Court Rules for preventing a suit for being set down as being undefended and therefore it is not a step in the proceedings.
17. In AIR 1961 Madh Pra 322, Sansarchand Deshraj v. State of Madhya Pradesh, it has been observed that the filing of a reply to the application of the plaintiff for securing of a temporary injunction and asking the said application itself does not amount to “taking other steps in the proceedings” by the defendant within the meaning of Section 34 of the Arbitration Act. Opposing the application for temporary injunction is not an unequivocal intention on behalf of the defendant to choose to give up his right under the agreement to refer the dispute to arbitration. This decision has been followed in AIR 1974 All 431 Queens College, Konetra v. Collector, Varanasi, where it has been held by Mathur. J. that the act of the defendant to get an ex parte order of injunction vacated does not indicate an unequivocal intention to proceed with the suit and to give up the right to have the matter disposed of by arbitration. The adjudication of the injunction matter does not amount to adjudication of the claim in the suit itself.
18. In AIR 1966 Cal 315, Amritraj Kothari…Applicant; v. Golecha Financiers…. the view expressed in AIR 1961 Madh Pra 322 has been dissented from by Mullick, J. who has observed:—
“It is difficult to make a distinction between filing a written statement in the suit and filing an opposition to an interlocutory application in that suit; both of them are ‘taking steps in the suit’. Filing an affidavit in an interlocutory application is as much taking a step in the proceeding as filing a written statement or filing an affidavit-in-opposition to an application under O. 12, R. 6. Interlocutory proceeding is a proceeding in the suit itself and any steps taken in the proceeding is a step taken in the suit. Arbitration Act empowers the court to pass suitable interim orders in respect of matters agreed to be adjusted by arbitration.”
19. In 66 Cal WN 821: (AIR 1962 Cal 541), Dunichand Sons and Co. v. Fort Gloster Industries Ltd., the case in short is that the plaintiff Dunichand and Sons instituted a suit against Fort Gloster Industries Ltd. for a decree for a certain sum of money or alternatively for an enquiry into the damages and for other reliefs. On the service of writ of summons the defendant on 17-7-61 executed a warrant of attorney in favour of Messrs. Khaitan and Co. This was filed before the Registrar on 18-7-61 and on the same day appearance was entered in the suit on behalf of the defendant. On 17-7-61 i.e before the warrant was filed an application under Section 34 of the Arbitration Act was taken and the same was made returnable on 24-7-61. It has been observed that mere entering appearance is not a step in the proceeding within the meaning of Section 34 of the Arbitration Act
20. In AIR 1949 All 611, United Provinces Government…(Defendant); v. Shri Har Nath…(Plaintiff). the plaintiff filed a suit for certain reliefs against the defendant, U.P Government. The defendant made an application for time to file a written statement. Sometime thereafter the defendant made an application under Section 34 of the Arbitration Act for stay of the suit. The application was rejected and the said order was affirmed on an appeal. It was held that an application for adjournment to file a written statement was a step in the proceeding within the meaning of Section 34 of the Arbitration Act,
21. In AIR 1924 Cal 789, The Karnani Industrial Bank Ltd. v. Satya Niranjan, it has been observed that verbal prayer by defendant's counsel for further time to file written statement is taking a step in the proceeding.
22. In (1907) ILR 34 Cal 443, Sarat Kumar v. Corporation of Calcutta it was held by Woodroffe J. that application for time to file written statement is a step in the proceeding within Section 19 of the Indian Arbitration Act, 1899 (Act 9 of 1899).
23. In AIR 1943 Cal 484, Subal Chandra Bhur v. Md. Ibrahim the counsel for the defendant appeared in the suit and applied for and obtained time to file his client's affidavit-in-opposition to the application for appointment of a receiver and also applied for and obtained directions and leave to inspect the books of accounts and records. It was observed by his Lordship S.R Das, J. that the filing of such an application would indicate that the party acquiesced in the method adopted by other side of having the dispute decided by the court and not by Arbitrator.
24. In AIR 1948 Cal 59, Sadhan Kumar v. Sunil Kumar, it has been observed that the filing of an application for time to file a written statement is taking other steps in the proceeding as provided in Section 19 of the Arbitration Act, 1889 or Section 34 of the Arbitration Act, 1940 and therefore a person who has applied for time to file a written statement is not entitled at a later date to apply for stay of proceeding under Section 34 of the Arbitration Act, 1940.
25. In AIR 1970 Mad 323, Bortes S.A v. Astrouic Compania Naviors S.A, it was observed that making an application in the suit with a prayer to vacate the interim injunction amounts to taking steps in the proceeding within the meaning of Section 34 of the Arbitration Act and as such the defendant was disentitled to ask for stay of the suit.
26. In AIR 1920 Cal 685, Joy Lall and Co. v. Gopiram Bhotica the defendant appeared before the court and asked the court to direct the plaintiff to furnish security for costs. It was held that that Act on the part of the defendant amounted to taking steps in the proceedings.
27. In 81 Cal WN 219: (AIR 1976 Cal 126), W.F Ducat and Co. Pvt. Ltd. v. Hiralal Pannalal it has been observed by S.K Roychowdhury J. that the power of the court to grant a stay of suit under Section 34 of the Arbitration Act, 1940 is discretionary and must be exercised judicially. It is not as a matter of course that a stay of a suit may be granted.
28. In AIR 1975 Cal 222, Biswanath Rungta v. Oriental Industrial Engineering Co. Pvt. Ltd., the case in short was that the plaintiff who was one of the directors of the company filed a suit and in the said suit he made an application for injunction restraining the defendant from operating the Bank account. An interim order of injunction was obtained. The defendant, thereafter appeared and prayed for an order that the bank should be restrained from allowing the plaintiff from operating the bank account. The said prayer was granted. It was held by Sabyasachi Mukharji, J. that the conduct only represents the intention of the defendant that during the period the disputes would last either in court or in arbitration each of the parties should be restrained from having the use of the money. From this conduct it is not evident that the defendant has either done anything in aid of the suit or submitted to the jurisdiction of the court for the purpose of adjudication of the controversy in the suit. The order of injunction having been made what the defendant did was to circumscribe it to such extent that the rights of the parties were protected until the disputes were decided. The facts of the case are different from the facts of the present case and as such this decision has no application to the present case.
29. Thus on a consideration of all the decisions mentioned before the conclusion is irresistible that the acts of the defendant in praying for time both in the injunction matter for filing objection as well as in the suit orally and by written application clearly and unequivocally displays an intention on the part of the defendant to submit to the jurisdiction of the court in order to have the controversy decided in the suit. As such these acts amount to taking steps in the suit within the meaning of Section 34 of the Arbitration Act, 1940 (Act X of 1940). This debars the defendant from making an application under Section 34 of the Arbitration Act for stay of the said suit and for referring the disputes for adjudication in the arbitration proceedings.
30. It also appears from para. 2 of the plaint of Title Suit No. 267 of 1974 that serious allegations of fraud and misappropriation of loans sanctioned in the name of the partnership business and paid to the fictitious customers of the defendant during the period when the defendant, Babulal Singhania was in charge of the management of the partnership business have been made against the defendant in the plaint. Such serious and grave allegations can be properly investigated and decided by the Court in the suit and not by the Arbitrator in an arbitration proceeding. It has been contended on behalf of the defendant that the arbitrators are competent to decide questions both of law and of facts and as such only because allegations of fraud and misappropriation have been made against the defendant in the plaint they do not by themselves debar decision of those disputes by the arbitrator in an arbitration proceeding. Reference has been made in this connection to a Bench decision of this Court reported in (1952) 56 Cal WN 763, C.M Karanji and Co. v. Indo-China Trading Co. Ltd. where it has been held that the arbitrators are Judges both of law and of facts and however difficult question of law the subject-matter of dispute may involve, the arbitration proceeding should be carried into effect. In AIR 1973 Cal 215, Union of India v. Hind Galvanizing and Engineering Co. Pvt. Ltd., it has been observed that where the dispute involved complicated questions of law it is proper that the matter should be decided in the suit rather than the matter being referred to arbitration. It has been further held that the decision of the trial Judge who rejected the application under Section 34 of the Arbitration Act on that ground should not be called either unreasonable or capricious and so it would not be interfered with In appeal.
31. In this case the courts below have held that the suit should be heard by the civil court and its proceedings should net be stayed under Section 34 of the Indian Arbitration Act in view of the serious and grave allegations of fraud and misappropriation made against the defendant. We do not find any infirmity in this finding and as such we are not inclined to interfere with the said finding. Moreover the findings arrived at by the courts below cannot be said to be unreasonable or capricious and as such the same cannot be set aside in this revisional application.
32. We have already held that the application under Section 34 of the Arbitration Act was rightly rejected by the Courts below. The impugned order dated July 31, 1975 passed in Title Suit No. 22 of 1975 allowing the petition for issue of a commission for making inventory of the articles and accounts papers as mentioned in the petition in such circumstances cannot be upheld and the same is liable to be set aside,
33. In the premises aforesaid the Civil Rule No. 3457 of 1975 is discharged without costs and Civil Rule No. 3036 of 1975 is made absolute without costs. The Order No. 28 dated July 31, 1975 passed in Title Suit No. 22 of 1975 is hereby set aside. All interim orders are vacated. Let the records be sent down to the Court below as expeditiously as possible,
34. N.C Mukherji, J.:— I agree.
35. Order accordingly.
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