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Bhowanidas-Ramgobind v. Pannachand-Luchmipat

Calcutta High Court
Dec 15, 1924
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Structured Summary of the Opinion (Page, J.)

Factual and Procedural Background

This is an application by the first defendant (described in the plaint as "Pannachand Luchmipat, a mercantile firm carrying on business at 33, Armenian Street, Calcutta and at 2, Turner Road, Chitpore") for leave to enter an appearance and for a stay of proceedings pending a reference to arbitration. The defendant alleges it was never served with the writ of summons. The plaintiff asserts substituted service was effected twice: first by affixing a copy of the summons to the outer door of 33, Armenian Street after alleged attempts at personal service, and second by an attempted personal service at 102, Clive Street followed by affixing the summons to the outer door when the defendant allegedly refused service.

The Court considered whether the substituted services complied with Order V, rule 17 and whether, for the purposes of Section 19 of the Arbitration Act (IX of 1899), the defendant had taken a "step in the proceedings" (which would bar a stay pending arbitration). The defendant subsequently applied for leave to enter an appearance, filed a warrant of attorney, entered appearance, and applied for a stay of proceedings pending arbitration. The suit seeks damages for failure to deliver hessian cloth pursuant to two contracts containing an arbitration clause under the rules of the Bengal Chamber of Commerce.

Legal Issues Presented

  1. Whether the two instances of alleged substituted service (at 33, Armenian Street and at 102, Clive Street) were valid under Order V, rule 17.
  2. Whether the defendant had taken a "step in the proceedings" within the meaning of Section 19 of the Arbitration Act by (a) requesting a copy of the plaint and affidavit of service and/or (b) applying for leave to enter an appearance, thereby barring a stay of proceedings pending arbitration.
  3. Whether, assuming the conditions of Section 19 are otherwise satisfied, the Court should exercise its discretion to stay the suit and refer the matters to arbitration.

Arguments of the Parties

Plaintiff's Arguments

  • The plaintiff contends the writ of summons was duly served by substituted service on two occasions (33, Armenian Street and 102, Clive Street).
  • The plaintiff contends the defendant took a "step in the proceedings" by (i) applying for a copy of the plaint and the affidavit of service and (ii) by applying for leave to enter an appearance; therefore, under Section 19 of the Arbitration Act the defendant cannot obtain a stay.

Defendant's Arguments

  • The defendant alleges the firm was never served with the writ and that substituted service attempts were invalid.
  • The defendant sought leave to enter an appearance (after the Court granted leave) and applied for a stay of proceedings on the ground that the dispute falls within the arbitration clause and that the defendant was ready and willing to refer the matters to arbitration.
  • The defendant requested a copy of the plaint and affidavit of service from the plaintiff's solicitors; the defendant treated such a request as seeking information and not as taking a step in the proceedings that would bar an application under Section 19.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Buldeodas Lohia v. Subkarandas Goenka Interpretation of the requirements of Order V, rule 17 for substituted service. Used as prior exposition of what Order V, rule 17 requires; supports conclusion that affixing summons to outer door after limited attempts did not comply.
Ives and Barker v. Willans Meaning of "step in the proceedings" (authoritative view of Lindley, L.J.). Applied to hold that mere letters or requests for information are not "steps in the proceedings"; a step means something like issuing a summons or similar application to the Court.
Doleman & Sons v. Ossett Corporation That an agreement to arbitrate does not oust the Court's jurisdiction at Common Law. Cited to explain that, absent an award or submission to arbitration, parties retain the Common Law right to invoke the Court, and that Section 19 is a statutory mechanism to stay proceedings where conditions are met.
Fry v. Moore That applying for leave to enter an appearance may amount to waiver of irregularity in service. Cited among authorities to show that applications for leave to appear can have consequences (waiver) and therefore can be "steps" in some contexts.
Re Orr-Ewing; Orr-Ewing v. Orr-Ewing Further example that applying to enter an appearance can have the effect of waiving irregularities. Cited with Fry v. Moore to illustrate circumstances in which an application for leave to appear is considered a step.
Harris v. Taylor Authority on consequences of taking steps such as applying for leave to appear. Cited alongside other authorities to support the proposition that such applications can be treated as steps for certain legal effects.
Ford's Hotel Co. v. Bartlett Legislative intention behind allowing an application to stay proceedings: prevent parties from wasting costs by beginning litigation and then seeking stay to enforce arbitration clause. Quoted (Lord Halsbury) to support the proposition that Section 19 seeks early invocation of arbitration and prevents litigative waste; used in assessing legislative intent for Section 19.
Lucas Ralli v. Noor Mahomed That the intention of a party is to be gathered from the nature of the application and the Court may treat an application as a step even if the party protests otherwise. Cited as authority for the test that the Court should look to the form and nature of the application to decide whether it constitutes a step under Section 19.
Sarat Kumar Roy v. Corporation of Calcutta Same general principle as Lucas Ralli: Court infers intention from nature of application. Relied upon to support the approach of looking to the form and effect of the application when determining whether a step was taken.
Austin & Whiteley, Ltd. v. Bowleg (S.) & Son Illustration that a Court may treat certain acts as steps despite protests that the party wishes arbitration. Used with the other authorities to explain the test applied: examine the nature of the act and infer whether it amounts to a step in proceedings.

Court's Reasoning and Analysis

The Court conducted a two-part analysis: (A) validity of substituted service; and (B) whether the defendant had taken a "step in the proceedings" under Section 19 of the Arbitration Act.

(A) On substituted service under Order V, rule 17:

  • First alleged service (33, Armenian Street): The plaintiff's gomasta and the Sheriff's peon attempted personal service but, after failing, affixed a copy of the summons to the outer door. The Court held this did not satisfy Order V, rule 17. Citing Buldeodas Lohia v. Subkarandas Goenka, the judge explained that substituted service requires reasonable diligence to ascertain the defendant's whereabouts. Because the plaintiff knew (or alleged) that the defendant also resided or carried on business at 2, Turner Road, Chitpore, the plaintiff should have made inquiries there before resorting to substituted service at 33, Armenian Street. No attempt was made at 2, Turner Road; therefore the first alleged service was invalid.
  • Second alleged service (102, Clive Street): Even assuming the defendant had been found there and refused service, the mere affixing of the summons to the outer door was insufficient unless the premises were where the defendant ordinarily resided, carried on business, or personally worked for gain. The only support for 102, Clive Street being such a place was a statement by the Sheriff's peon, who the Court found not in a position to know the fact. Further documentary memoranda and the plaintiff's own earlier petition suggested the firm's head office was at 2, Turner Road and business at 33, Armenian Street. On that basis, the Court concluded the second alleged substituted service was also invalid.
  • Conclusion on service: The necessary preliminary steps for valid substituted service were not taken; accordingly the Court granted the defendant leave to enter an appearance.

(B) On Section 19 of the Arbitration Act — whether a "step in the proceedings" was taken:

  • The Court accepted that the dispute fell squarely within the arbitration clause of the contracts and that the defendant was ready and willing to refer the matters to arbitration.
  • The plaintiff argued the defendant took a step in the proceedings by (i) requesting a copy of the plaint and affidavit of service, and (ii) applying for leave to enter an appearance. If a step had been taken after appearance and before applying under Section 19, Section 19 would bar a stay.
  • On (i): The Court followed Lindley L.J.'s interpretation of the equivalent English statute (Ives and Barker v. Willans) and held that asking for a copy of the plaint is merely a request for information and does not constitute a "step in the proceedings". Letters between solicitors or requests for information are not steps in the technical sense.
  • On (ii): The Court acknowledged authorities showing that applying for leave to enter an appearance can, for certain purposes (for example, waiver of irregular service), be treated as a step. However, the Court analysed the legislative purpose of Section 19 — to give effect to arbitration agreements without permitting parties to waste time and money in litigation and then belatedly seek arbitration. The Court reasoned that Section 19 expressly requires that the applicant for a stay must have entered an appearance before applying; consequently, a mere application for leave to enter appearance (which, if granted, enables compliance with the condition precedent of appearance) should not be treated as a bar to a subsequent application under Section 19.
  • The Court applied the test established by previous authorities (that intention is to be gathered from the nature of the application) and concluded the defendant's application for leave to enter an appearance did not indicate an intention to litigate the merits. It was reasonable to infer the application was made to enable the defendant to take the procedural step necessary to apply for a stay. Therefore the application was not a "step in the proceedings" within Section 19.
  • On that basis, and being satisfied that (a) there was no sufficient reason why the matters should not be referred in accordance with the submission, and (b) the defendant was ready and willing to arbitrate, the Court exercised its discretion under Section 19 to stay the suit and refer the matters to arbitration.

Holding and Implications

Core Rulings:

  • The plaintiff's two alleged substituted services were held to be invalid under Order V, rule 17.
  • The defendant was granted leave to enter an appearance.
  • The defendant's application for a stay of proceedings under Section 19 of the Arbitration Act was allowed and the suit was stayed so that the matters in dispute could be referred to arbitration pursuant to the contractual arbitration clause.
  • The defendants were awarded their taxed costs of the motion. The Court granted liberty to apply.

Implications: The direct effect of the decision is that the litigation is stayed and the dispute is to proceed to arbitration under the parties' agreement; the defendant may defend the arbitration rather than litigate in Court. The opinion explains and applies the legal tests for valid substituted service under Order V, rule 17 and for what constitutes a "step in the proceedings" under Section 19 of the Arbitration Act, but it does not purport to establish a new general rule beyond the application of those tests to the facts of this case.

Note: This summary reproduces and synthesizes only the information expressly set out in the provided opinion.

Show all summary ...

Page, J.:— This is an application by the first defendant for leave to enter an appearance, and for a stay of the proceedings pending a reference to arbitration of the matters in dispute in this suit. In the plaint this defendant is described as “Pannachand Luchmipat, a mercantile firm carrying on business at 33, Armenian Street, in the town of Calcutta as well as at 2, Turner Road, Chitpore.” The defendant alleges that this firm has never been served with a writ of summons in the suit. The onus of pro ring the service is upon the plaintiff. The plaintiff alleges that the summons was duly served on two occasions by substituted service. As regards the first alleged service there is evidence that in June 1924 She plaintiff's gomasta went with the Sheriff's peon to No. 33, Armenian Street, in order to serve the defendant there: that he failed to effect personal service, and that after calling upon the defendant three times to accept service a copy of the summons was affixed to the outer door of 33, Armenian Street, by the Sheriff's peon. In my opinion, such a mode of service does not comply with the requirements of Order V, rule 17. I had occasion recently to state what, in my opinion, those requirements were, and I need not repeat them: Buldeodas Lohia v. Subkarandas Goenka(1). It was not enough in the circumstances that the plaintiff, in order to become entitled to take advantage of the provisions for substituted service, should have called once, twice or any number of times at 33, Armenian Street. A plaintiff must use reasonable diligence to ascertain the whereabouts of the defendant, and where, as in this case the defendant, according to the plaintiff, resided both at 33, Armenian Street, and at 2, Turner Road, Chitpore, the plaintiff cannot be held to have used reasonable diligence to discover the defendant's whereabouts if he did not make enquiries for the defendant at both of these places. No attempt, however, has been made at any time to serve the defendant at 2, Turner Road, Chitpore and, in my opinion, the first alleged service does not constitute a valid service of the writ of summons. As regards the second alleged service, that is, at 102, Clive Street, it is stated that Atmaram, the plaintiff's gomasta, on the 16th September in company with the Sheriff's peon attempted to serve the writ of summons upon the defendant personally at 102, Clive Street. The defendant does not dispute that 102, Clive Street, is a place where Pannachand Luchmipat was sometimes to be found, or that I he offices of the Jute Baler's Association of which he is a member were there located. Assuming, however, against the defendant's contention, that the defendant was in fact found at 102, Clive Street by Atmaram and the peon on that day, and that the writ of summons was then and there offered to him for acceptance, and also that he refused the service thereof, in my opinion, the second alleged service is inadequate because; after the defendant had refused to accept service, all that was done was that the peon affixed a copy of the summons on the outer door of 102, Clive Street Mr. Khaitan contended that to affix a copy of the summons on the outer door of premises in which a defendant is found and where the defendant has refused to accept service a sufficient compliance with the provision of Order V, rule 17, but it is to be observed that in order duly to effect substituted service it is necessary for the proper officer to affix the summons on the outer door, or some other conspicuous part of the house in which the defendant ordinarily resides or carries on business or personally works for gain and except for a statement by the Sheriff's peon (who, am I satisfied, was not in a position to know the fact) to the effect that “102, Clive Street is where the said firm is located,” there is no evidence that 102, Clive Street was where the defendant ordinarily resided or carried on business or personally worked for gain. Further, not only does it appear from two memoranda annexed to Atmaram's affidavit that this defendant purported to carry on business at 33, Armenian Street, with a head office at 2, Turner Road, Chitpore, but an application having been made on the 9th July 1924 by the plaintiff for leave to effect substituted service the plaintiff stated that “for greater safety, your petitioners have been informed that the defendant firm was carrying an business at 2, Turner Road, in Chitpore in the suburbs of Calcutta in the jurisdiction of the District Judge's Court, Alipore and that your petitioners submit that a fresh summons be issued under the seal of the Hon'ble Court.” No attempt has been made, however, as I have said, to effect personal service at this address. In these. I circumstances I hold that the necessary. I preliminary steps were not taken to justify the plaintiff in effecting service by a mode of substituted service. I, therefore, granted the defendant leave to enter an appearance. The defendant thereupon filed his warrant of attorney and entered an appearance, and on the plaintiff consenting that the second part of the plaintiff's motion should be heard forthwith the defendant applied that all further proceedings in the suit should he stayed pending a reference of the matters in controversy therein. The suit is brought to recover damages, for the alleged failure of this defendant to deliver a large quantity of hessian cloth pursuant to two contracts of sale dated 15th September 1923 and the 5th October 1923. It was a term of each of the said contracts that “any dispute whatsoever arising on or out of this contract shall be referred to arbitration, under the rules of the Bengal Chamber of Commerce applicable for the time being, for decision and such decision shall be accepted as final and binding on both parties to this contract. The a ward may, at the instance of either party and without notice to either of them, be toad a rule of the High Court of Judicature at Port William in Bengal. Admittedly the claim in this suit is within Aha ambit of the arbitration clause, but the plaintiff resists the defendant's application that the proceedings herein should be stayed on the ground that the defendant has taken a step in the proceedings, and, having regard to Section 19 of the Arbitration Act (IX of 1899) the Court has no jurisdiction to stay the suit. By S. 19 it is provided that where any party to a submission to which this Act applies or any person claiming under him commences any legal proceedings against any other party to the submission or any person claiming under him in respect of any chatter agreed to be referred a party to such legal proceedings may at any time after appearance and before filing a written statement or taking any other steps in the proceedings apply to the Court to stay the proceedings and the Court, if satisfied that there is no sufficient reason why the matter should no be referred in accordance with the submission and that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings.” The defendant not having been served did not enter an appearance as directed in the summons, and the suit was placed in the undefended list. On the 1st December the defendant's attorney wrote to the plaintiff's attorney:

Dear Sir.

An order has this day been made directing our client to make an application for leave to enter an appearance herein. We shall be obliged if you will send us a copy of the plaint, and the affidavit of service at once on the usual terms.

Yours faithfully,

A.N MITTER & BASU.

2. The plaintiff contends that the defendant he taken a step in the proceedings (i) by applying for a copy of the plaint and (ii) by making an application for leave to enter an appearance.

3. With respect to the first alleged step it is enough to state that I agree with the view expressed by Lindley, L.J as to the meaning of Section 4 of the English Arbitration Act, 1889, which is couched in language almost identical with that to be found in Section 19 of the Indian Arbitration Act. His Lordship observed that “The authorities show 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.”: Ives and Barker v. Willans(2). Moreover, to apply for a copy of the plaint is merely to seek information in order that the defendant may ascertain the nature of the plaintiff's claim. In so doing the defendant does not, and is not to be deemed to, indicate his acquiescence in the course adopted by the plaintiff for the purpose of settling the dispute which has arisen, for until he is made aware of the plaintiff's cause of action he is not in a position to elect whether he will proceed by way of arbitration or will assent to the litigation which has been commenced against him. Ae regards the second ground which the plaintiff urges in support of his contention it is well to bear in mind that an agreement to refer a dispute to arbitration does not oust the jurisdiction of the Court. Notwithstanding such an agreement at Common Law the parties or any of them are at liberty to invoke the assistance of the Court to settle the controversy which has arisen and the Court is hound to entertain she suit. The only remedy at Common Law open to a party to the agreement is to seek damages for the breach of the agreement to refer the matter to arbitration. But this remedy would usually be found to be nugatory for under the circumstances the plaintiff would not be able to prove more than nominal damages of course, the parties' to such an agreement either before or after action is brought are at liberty to settle the dispute by submitting the subject-matter thereof to arbitration and obtaining an award thereon. But in the absence of such an award the Common Law right of the parties or any of them to have recourse to the Court for the purpose of settling the dispute remains unaffected by an agreement to refer the matter to arbitration; see Doleman & Sons v. Ossett Corporation(3). Under Section 19 of the Arbitration Act, however, upon the fulfilment of the conditions therein provided, the Court in its discretion may stay the proceedings in the suit pending a reference to arbitration. Now, I am satisfied that the defendant is and at all material times has been, ready and willing to refer to arbitration the matters in dispute in the suit, and, in my opinion, there is no sufficient reason why the matters' should not be referred in accordance with the submission. But in order to conform to the provisions of S. 19 the defendant must apply to the Court “after appearance and before filing a “written statement or taking any other step in the “proceedings”. Now, in my opinion, to move the Court for leave to enter an appearance is, for certain purposes, to, take a step in the proceedings. For example, a party taking such a step would be deemed to have waived any irregularity in the service of the writ to which he applies for leave to appear: see Fry v. Moore(4), Re Orr-Ewing, Orr-Ewing v. Orr-Ewing(5). Harris v. Taylor(6). The question which I have to determine is whether such an application is a step in she proceedings within Section 19 of the Arbitration. Act. Now, I apprehend that the intention of the Legislature in enacting S. 19 was that in a proper case the Court should give effect to the agreement for arbitration into which the parties had entered. It was not, however, intended that a party should lie by and after having wasted time and money in litigation should apply for a stay of the proceedings in order that the dispute should be settled by arbitration. “The intention of the Legislature in giving effect to the contract of the parties and saying that one of them should be entitled to make an application to insist that the matter should be referred according to the original agreement was that they should at once and before any proceedings were taken specify the terminus a quo and that if an application to stay proceedings was made under those circumstances then the Court should enforce the contractual obligation to go to arbitration. That seems to me a very wise provision that costs should not be thrown away in beginning to litigate,” per Lord Halsbury, Lord Chancellor, Ford's Hotel Co. v. Bartlett(7). Any act in the nature of an application to the Court which indicates that a party is willing that the suit should proceed, in my opinion, would be a step in the proceedings within Section 19 of the Indian Arbitration Act. The intention of the party is to be gathered from the nature of application which is made, and if, having, regard to the form of the application, the Court is of opinion that a step has been taken it will so hold, notwithstanding that the party may in truth and in fact have no such intention, or that the application is coupled with a protest that the party desires that the matters in dispute should be referred to arbitration; see Lucas Ralli v. Noor Mahomed(8), Sarat Kumar Roy v. Corporation of Calcutta(9) Austin & Whiteley, Ltd. v. Bowleg (S.) & Son(10). Applying this test to the motion before the Court I am clearly o: opinion that the defendant's application for leave to enter an appearance was not a step in the proceedings within Section 19 of the Arbitration Act. It is not a reason-able deduction from such conduct that the defendant intends to resist the suit on they merits. It is equally reasonable to infer therefrom that he intends thereafter to make a preliminary objection to the matter being made the subject of litigation at all. Nay more, the language used in the section leads me to the same conclusion, for it is therein expressly provided that the party making an application under the section for a stay of the proceedings must before so doing have entered an appearance. It is not reasonable to suppose that the Legislature intended that a party should be held to have taken a step in the proceedings within Section 19 of the Arbitration Act merely because he has made an application which, if granted will place him en train for fulfilling a condition precedent to an application to stay being duly made in accordance with the provisions of the section. In my opinion, the defendant's application must succeed, and the proceedings in the suit Will be stayed in order that the matters in dispute therein may be referred to arbitration pursuant to the agreement entered into between the parties Liberty to apply. The defendants are to have their taxed costs of this motion in any event.

4. Application allowed.