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Case Number

Civil Suit No. 5 of 1960

Advocates

S.P.Gupta and Ishwar Singh
for Plaintiff
Jaywant Singh
Advocate General
for Defendant.

Judges

Hon'ble Sh. Justice Janki Nath Wazir

Acts

SECTION 2 ARBITRATION ACT
Section 2 clause (a) of the Arbitration Act.8.
SECTION 34 ARBITRATION ACT

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Smart Summary

Concise Analytical Summary of the Opinion

Factual and Procedural Background

The plaintiff filed a suit claiming recovery of Rs. 25,000 for breach of a contract. The defendant applied under Section 34 of the Arbitration Act for a stay of the suit and for reference of the dispute to the arbitrator named in the parties' agreement. The defendant first appeared through the Advocate General on 15-12-1960 and was allowed one month to file a written statement. On 7-3-1961 the Advocate General filed a regular Vakalatnama and, on the same day, an application under Section 34. The plaintiff filed objections to that application and argued the matter on 7-4-1961. The defendant filed the original agreement (marked Ex. D) containing the clause relied upon.

Legal Issues Presented

Whether the clause in Ex. D constitutes an "arbitration agreement" within the meaning of Section 2(a) of the Arbitration Act (i.e., whether the clause, despite not using words like "arbitration" or "reference", amounts in substance to an agreement to submit disputes to arbitration).
Whether the defendant waived any right to have the dispute referred to arbitration by remaining silent and not replying to a notice served under Section 80 of the Code of Civil Procedure before the suit was filed.
Whether the Chief Engineer (the person designated by the agreement) is disqualified for bias or because he would be a material witness, such that the court should refuse to exercise its discretion under Section 34 and should not refer the matter to him for arbitration.
Whether the court should exercise its discretion under Section 34 to stay the suit and refer the dispute to the arbitrator named in the agreement.

Arguments of the Parties

Defendant's Arguments

The agreement (Ex. D) provides that disputes between the parties are to be decided by the Chief Engineer PWD Jammu & Kashmir and that his decision is final and binding; accordingly the court should stay the suit and refer the dispute to the agreed arbitrator under Section 34.
The defendant came up to the court at the proper time — before filing a written statement or taking other effective steps — and so is entitled to move under Section 34.

Plaintiff's Arguments

The arbitration clause in Ex. D is not an arbitration agreement within the meaning of Section 2(a) because it does not use words indicating submission to arbitration (such as "reference" or "arbitration") and does not expressly show that the parties submitted to arbitration.
The defendant waived any right to arbitrate by failing to reply to a pre-suit notice served under Section 80 of the CPC.
The Chief Engineer would be a material witness for the plaintiff and, therefore, would be biased; referring the matter to him would violate the rules of natural justice and the court should refuse to exercise its discretion to refer the dispute.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Governor-General v. Simla Banking and Industrial Co., AIR 1947 Lah 215	The absence of the words "arbitration", "arbitrator" or "reference" is immaterial if the clause, in substance, shows that the parties agreed to have the matter decided by a person of their selection whose decision would be final, conclusive and binding.	The court relied on this authority to support the conclusion that Ex. D, read in substance, is an arbitration agreement under Section 2(a) even though it does not use the specific words "arbitration" or "reference".
Daulat Ram Rala Ram v. State of Punjab, AIR 1958 Punj 19 (Punjab High Court)	Silence or omission to reply prior to commencement of proceedings (for example, to a Section 80 notice) does not necessarily amount to a waiver of the right to ask for a stay under the relevant arbitration provision; additionally, an official (e.g., Superintending Engineer) employed by a party is not disqualified merely by that employment absent proof of bias.	The court used this authority to hold that (a) the defendant's failure to reply to an S.80 notice did not constitute waiver of the statutory right under Section 34 to move for a stay before filing a written statement, and (b) the Chief Engineer's position and employment did not, without more, disqualify him or establish a reasonable probability of bias.

Court's Reasoning and Analysis

The court proceeded in a step-by-step fashion, applying statutory definitions and precedent to the facts before it:

Examination of the arbitration clause: The court noted the arbitration clause (Ex. D) was written and signed by both parties. It cited Section 2(a) of the Arbitration Act, which defines an "arbitration agreement" as "a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not." The court observed that the statute requires a written agreement to submit disputes to arbitration but does not mandate use of specific words such as "arbitration" or "reference." The court therefore focused on the substance of the clause rather than its form.
Substance-over-form application: Reading the clause — "For any dispute between the contractor and the Department the decision of the Chief Engineer PWD Jammu and Kashmir, will be final and binding upon the contractor" — the court concluded that, in substance, the parties agreed that disputes should be settled by the Chief Engineer and that his decision would be final and binding. The court treated this as amounting to an arbitration agreement within Section 2(a), relying on the Lahore High Court authority (Governor-General v. Simla Banking and Industrial Co.) for the proposition that omission of the word "arbitration" is immaterial where the substance shows agreement to refer disputes to a selected decision-maker whose determination is final.
Timeliness and statutory right under Section 34: The court accepted that the defendant moved under Section 34 at a proper time (i.e., before filing a written statement or taking other steps). It treated Section 34 as conferring a statutory right to move the court for a stay and reference after proceedings have been commenced against a party.
Waiver argument (Section 80 notice): The court rejected the plaintiff's contention that the defendant had waived the right to arbitrate by failing to reply to a Section 80 notice. It held that mere silence before the suit is not sufficient to constitute waiver of the statutory right under Section 34. The court emphasized that a Section 80 notice serves a different purpose — to give time to decide whether to contest a claim — and does not impose a duty to reply; it relied on precedent (AIR 1947 Lah 215 and AIR 1958 Punj 19) to support this analysis.
Alleged bias of the Chief Engineer: The court considered the plaintiff's contention that the Chief Engineer would be a material witness and biased. The court found no basis to assume the Chief Engineer had any personal interest in the matter or would act unfairly. The court observed that if any bias existed (as alleged by the plaintiff), it would be in the plaintiff's favour, not against them, and thus the plaintiff was not in a position to complain. It also accepted the presumption that a high-ranking official such as the Chief Engineer would act impartially and discharged his duties properly, following reasoning in the Punjab High Court decision (AIR 1958 Punj 19).
Discretion under Section 34 and final assessment: Balancing the statutory right, the substance of the arbitration clause, timeliness, absence of waiver, and lack of convincing proof of bias, the court concluded that the case was appropriate for a stay and referral to the arbitrator named in Ex. D.

Holding and Implications

Holding: The court allowed the defendant's application under Section 34. The suit was stayed and the dispute was referred to the Chief Engineer P.W.D. for arbitration. There was to be no order as to costs. The petition was allowed.

Implications:

Direct effect: The suit before the court is stayed and the parties' dispute must be decided through arbitration by the Chief Engineer as specified in Ex. D; the defendant's application under Section 34 succeeded and there is no order as to costs.
Broader precedent: The opinion applies established principles (substance over form in arbitration clauses; the limited effect of pre-suit silence under Section 80; and the presumption of impartiality of departmental officers acting as arbitrators). The court did not state that it was creating any new legal principle beyond those it applied from existing authorities.

End of summary — derived exclusively from the provided opinion text.

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Dewan Chand v. State Of J. And K.

1. This is an application filed by the defendant under Section 34 of the Arbitration Act for staying the suit and referring the matter in dispute to the arbitrator appointed by the parties under the arbitration agreement. The suit was filed by the plaintiff for recovery of Rs. 25000/- due to breach of a contract committed by the defendant. The defendant appeared through the Advocate General on 15-12-60 and was allowed a month's time to file his written statement. It appears, however, that the Advocate General filed a regular Vakalat Namma after getting instructions from his client on 7-3-1961 and on the same day he filed an application under Section 34 of the Arbitration Act. The plaintiff has also filed his objections to this application and the matter was argued before me on 7-4-1961. The original agreement between the parties which formed the basis of the suit has also been filed by the defendant which is marked Ex. D. in the case.

2. The contention of the defendant is that as by virtue of agreement Ex. D the parties had agreed to refer their dispute to the Chief Engineer for arbitration, the court should stay the proceedings and refer the matter to the arbitrator. It is well settled that where parties agree that their disputes should be settled by arbitration, any of the parties has got a right to move the court to stay the suit provided the party concerned is willing to perform its obligation and Iks come up to the court before tiling the written statement or before taking steps in the proceedings. It is conceded in this case that the defendant has come up at the proper time, that is, before filing his written statement or before taking any effective steps in the proceedings.

3. The application has been resisted by the plaintiff on two grounds. In the first place the objection of the plaintiff is that the arbitration clause contained in the agreement is not an arbitration clause as contemplated by Section 2(a) of the Arbitration Act. Secondly, it has been contended that the defendant must be deemed to have waived his right to settle the dispute by arbitration.

4. I would first take up the question at the validity of the arbitration agreement. The arbitration clause contained in the agreement Ex. D runs as follows:

“For any dispute between the contractor and the Department the decision of the Chief Engineer PWD Jammu and Kashmir, will be final and binding upon the contractor”.

5. The clause thus contained in the agreement is in writing and is signed by both parties. There is no dispute on this question. Mr. Prakash appearing for the plaintiff argued that as there are no words in this agreement showing that there has been actual submission or reference to arbitration by any of the parties, hence this is not an arbitration agreement within the meaning of Section 2(a) of the Arbitration Act. It is also contended that the word, “Arbitration” has not also been used in this clause.

6. Section 2(a) of the Arbitration Act reads as under:

“Arbitration Agreement means a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not”.

7. A perusal of this clause clearly shows that all that the statute requires is that there should be a written agreement to submit a dispute to arbitration. It is not necessary that the words “reference” or “arbitration” should actually be used in the agreement, if the agreement in substance amounts to an arbitration agreement within the meaning of Section 2 clause (a) of the Arbitration Act.

8. The clause of the agreement quoted above, clearly indicates that the parties have agreed that any dispute between the contractor and the department i.e the plaintiff and the defendant should be referred to the Chief Engineer and that his decision shall be final and binding on the parties. It is true that the word “reference” is not used in this clause nor it has been mentioned that the Chief Engineer should be the arbitrator, but looking to the substance of the clause, there can be no doubt, that the parties agreed that any dispute between them should be settled by the Chief Engineer.

9. In my opinion, whenever, there is an arbitration I clause the court should look to the substance rather than to the form of it and the mere fact that words like “reference” or “arbitrator” do not find place in the said agreement does not show that the agreement is not an arbitration agreement within the meaning at Section 2(a) of the Arbitration Act. I am fortified in my view by the decision of the Lahore High Court reported in Governor-General v. Simla Banking and Industrial Co., AIR 1947 Lah 215, where their Lordships made the following observations:

“It is true that the words ‘arbitration’ ‘arbitrator’ or ‘Arbitration Agreement’ do not appear in the clause but that is, in my view, immaterial as long as the parties can be found to have agreed to allow the matter to be decided by a person of their own selection whose decision was to be final, conclusive, and binding on them”.

10. Under these circumstances, I am clearly of the view that clause 10 of the agreement between the parties is an agreement which amounts to an arbitration agreement within the meaning of Section 2(a) of the Arbitration Act and, therefore, the application of the defendant on this ground is maintainable.

11. The next contention raised by the learned counsel for the plaintiff was that the defendant had waived his right to settle the dispute by arbitration. This argument is based on the circumstance that although the plaintiff had given a notice under Section 80 of the CPC to the defendant before filing the suit yet the defendant did not reply to the notice.

12. In my opinion, the contention does not appear to be well founded. Section 34 gives a statutory right to a party to move the court after the proceedings are taken against him, and therefore mere silence on the part of a party concerned before the suit cannot amount to such a waiver so as to deprive the defendant of his statutory right, granted to it under this section. Moreover, a mere notice under S. 80, does not impose any duty on the defendant to reply to the allegation of the plaintiff. I am supported in my view by the decision of the Lahore High Court reported in AIR 1947 Lah 215, where while considering an identical argument their Lordships observed as follows:

“According to the language of the section, the question as to when a party to an arbitration against whom legal proceedings have been commenced is entitled to ask for stay of the proceedings has to be determined by the choice which he makes not before the proceedings are commenced but after they have been commenced. The silence of the party applying for stay of his omission to remind the party, which has started the proceedings, of his duty not to start them under the agreement between the parties before the proceedings have been started do not, in my view, seem to be material. It is only when a suit or a proceeding has been commenced against a party that the latter can make up his mind as to whether he would apply for stay or not. If he decides to ask for stay he can do so at any time ‘before filing a written statement or taking any other steps in the proceedings’ and not thereafter. But during that period (i.e after the suit or proceedings have been commenced and before a written statement has been filed) which is given to him by law his choice is unfettered and remains unaffected by his silence or omission such as referred to above”.

13. It is obvious that a notice under Section 80 of the CPC is served for quite a different purpose. Its object is to give sufficient time to the person who is served with the notice to decide whether he wishes to contest the case and if so, he is given sufficient time to make out his defence. The notice, therefore, does not impose any duty on the defendant to reply to the allegations of the plaintiff prior to the filing of the suit.

14. To the same effect is the decision of the Punjab High Court, reported in Daulat Ram Rala Ram v. State of Punjab, AIR 1958 Punj 19 where also it was pointed out that silence of a party before the proceedings is not of any serious consequence. Under these circumstances, I am unable to agree with the contention that the silence of the defendant in replying to the notice given by the plaintiff under Section 80 of the CPC amounts to waiver.

15. The last contention put forward by the plaintiff was that as S. 34 confers discretion on the court, the court should refuse to exercise that discretion, because the Chief Engineer who has been selected as an arbitrator, was in the instant case, a person who would be the most material witness for the plaintiff as he had in his capacity as Superintending Engineer taken certain decisions in favour of the plaintiff. It was also contended that due to these circumstances, the arbitrator was a biased person, and therefore, if the matter is referred to him, the rules of natural justice would be violated.

16. I am however, unable to agree with this contention. There is no reason to suppose that the Chief Engineer has any personal interest in the matter and he would, therefore, be biased to that extent. Moreover, even if he is biased, he would be biased, on the allegations of the plaintiff, in their favour and not against them. Such a grievance, therefore, could have been made by the defendant but not by the plaintiff.

17. At any rate, the question of bias does not arise because the Chief Engineer not having any personal interest in the matter and being a very high and responsible officer is not expected to do injustice to the parties. I am fortified in my view by the decision of the Punjab High Court reported in AIR 1958 Punj. 19, where their Lordships have made the following observations:

“Normally the parties to an arbitration are entitled to have their disputes settled by an unbiased arbitrator with no interest in the result of the proceedings. The fact that the Superintending Engineer is interested to the extent that he is employed and paid by the respondent would by itself, be not sufficient to disqualify him from acting as arbitrator. It has not been shown that the Superintending Engineer is biased or that there is probability that he would fee biased. In the absence of any indication to the contrary, the presumption is that the gentleman, holding such a high office would keep in mind the duties and responsibilities of an arbitrator and would act as an honest, disinterested and impartial tribunal, absolutely uninfluenced by the fact that he is the head of the department to which the dispute relates. I shall expect that he would realize that his position as an arbitrator is more responsible than that of a judge and that he would act with scrumptious fairness, because his award is to be the final judgment on the rights of the parties before Mm”.

18. The contention of the plaintiff, therefore, on this score also must be overruled.

19. For the reasons given above, I am, therefore, satisfied that this is a fit case in which the prayer of the defendant for staying the suit and for referring the dispute to the Chief Engineer P.W.D for arbitration must be allowed.

20. The application is accordingly allowed, and the suit is stayed. The dispute is referred to the Chief Engineer for arbitration. In the circumstances of the case, there Will be no order as to costs.

EE/D.

21. Petition allowed.

Dewan Chand v. State Of J. And K.

Concise Analytical Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Defendant's Arguments

Plaintiff's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Dewan Chand v. State Of J. And K.

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