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INDIAN DRUGS AND PHARMACEUTICALS LTD., LKO. versus M/S AMBIKA ENTERPRISES, GORAKHPUR

High Court of Judicature at Allahabad

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Indian Drugs And Pharmaceuticals Ltd., Lko. v. M/S Ambika Enterprises, Gorakhpur - CIVIL REVISION No. 505 of 2001 [2007] RD-AH 11810 (12 July 2007)

 

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HIGH COURT OF JUDICATURE OF ALLAHABAD

Court No. 6

Civil Revision  No. 505 of 2001

Indian Drugs and Pharmaceuticals Ltd   ... Defendant/Applicant

Versus

M/s. Ambika Enterprises ... ... ... Respondents

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Hon'ble Janardan Sahai, J

The plaintiff-respondent M/s. Ambika Enterprises  filed a suit for recovery of money against the applicant Indian Drugs and Pharmaceuticals Ltd. Its case is that it was appointed on commission as a special stockist by the applicant under an agreement dated 21.5.1992. The agreement contains an arbitration clause in para 21 which reads as under:-

"21. In the event of any dispute on different between the parties arising out of or in connection with or in relation to this agreement the same should be referred to the arbitration of Chairman and Managing Director, IDPL who may enter upon reference himself or may nominate any other officer of IDPL as an Arbitrator, if any vacancy occur in the appointment of an Arbitrator, the same shall also be filled by Chairman and Managing Director, IDPL. The Special Stockist  agrees that even if the Chairman and Managing Director of his nominee has acted in his executive capacity in the concerned mater, he can still be appointed as an Arbitrator. If for any reason, the arbitration cannot be carried on by Chairman and Managing Director or his nominee of this agreement is superseded by the Court then there shall be no arbitration. The decision of the Arbitrator shall be final, conclusive and binding on both the parties."

An application was filed by the defendant-applicant under Section 8 of the Arbitration and Conciliation  Act 1996 hereinafter called the 'Act' that in view of the arbitration clause the dispute be referred to Arbitration. The trial court (Additional Civil Judge, Senior Division) by its impugned order dated 29.8.2001 rejected the application. It held on a reading of the provisions that neither under Section 8 nor under Section 11 (2) of the Act nor under para 21 of the agreement had  it (the Court of Additional Civil Judge Senior Division) power to appoint an Arbitrator. It referred to the definition of 'Court' under Section 2 (e) and held that it meant the Principal Civil Court of original jurisdiction  or the High Court. It referred to Section 11 and held  that it was the Chief Justice who could appoint an arbitrator under that provision.

I have heard Sri K.K. Arora learned counsel for the applicant and Sri Arvind Srivastava learned counsel for respondent.

It was submitted by the counsel for the applicant that the view taken by the trial court is erroneous and under clause 21 of the agreement there is an Arbitrator already named to decide a dispute, which may arise between the parties and recourse to Section 11 for getting an arbitrator appointed is not required and in the plain terms of Section 8 the trial court was required to refer the dispute to the Arbitrator already named in para 21. In my opinion the contention has merit.

           Sri Arvind Srivastava counsel for the respondent, however, contended that the additional Civil Jude, Senior Division, Gorakhpur is a court and not a judicial authority and it is only a judicial authority referred to in Section 8 of the Act, which can refer a dispute to the Arbitrator and no reference under that Section can be made by the Court to the Arbitrator.

           The term 'Judicial Authority' has not been defined under the Arbitration act. Section 2 (e) of the Act however defines the word 'court' to mean "the Principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject of the arbitration if the same had been the subject matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any court of Small Causes". The expression 'Judicial Authority' on  its plain language, however, is a wide expression and would include all authorities required to act judicially when deciding a dispute. It would include also the Court.  In SBP & Co. Vs. Patel Engineering Ltd. And another  [ (2005) 8 SCC 618] a Constitution Bench of the Supreme Court in para 19 observed as follows:-

"19.   Section 8 of the Act contemplates a judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement, on the terms specified therein, to refer the dispute to arbitration. A judicial authority as such is not defined in the Act. It would certainly include the court as defined in Section 2 (e) of the Act and would also, in our opinion, include other courts and may even include a special tribunal like the Consumer Forum (see Fair Air Engineers (P) Ltd. Vs. N.K. Modi [1996 (6) SCC 385]."

       

          Sri Arvind Srivastava counsel for respondent submitted that the observations made by the Supreme Court that the expression 'judicial authority' would include a court are mere casual observations and have no binding effect. The words 'Court' and 'Judicial Authority' he contends are two entirely different concepts and the legislature therefore consciously used the word 'court' in other provisions where it intended to confer power upon a 'Court' such as in Sections 9 and 34 of the Act. He also relied upon the decisions in Engineering Mazdoor Sabha and another Vs. Hind Cycles Ltd.  [AIR 1963 SC 874], Jaswant Sugar Mills Ltd. Vs. Lakshmi Chand and others [AIR 1963 SC 677) and Officer on Special Duty (Land Acquisition) and another Vs. Shah Manilal Chandulal and others [1996 (9) SCC 414]

           In Para 4 of the judgement of Engineering Mazdoor Sabha [AIR 1963 SC 874) the Apex Court held as follows:_

"Article 136 (i) refers to a Tribunal in contradistinction to a Court. The expression "a court  in the technical sense is a Tribunal constituted by the State as a part of ordinary hierarchy of courts, which are invested with the State's inherent judicial powers. The Tribunal as distinguished from the court, exercises judicial powers and decides matters brought before it judicially or quasi-judicially, but it does not constitute a court to the technical sense. The Tribunal, according to the dictionary meaning, is a seat of justice; and in the discharge of the functions, it shares some of the characteristics of the court. A domestic Tribunal appointed in departmental proceedings, for instance, or instituted by an industrial employer cannot claim to be a Tribunal under Art. 136 (1). Purely administrative Tribunals are also outside the scope of the said Article. The Tribunals which are contemplated by article 136 (1) are clothed with some of the powers of the courts. They can compel witnesses to appear follow certain rules of procedure; the proceedings before them are required to comply with rules of natural justice; they may not be bound by the strict and technical rules of evidence but, nevertheless, they must decide on evidence adduced before them; they may not be bound by other technical rules of law, but their decisions must, nevertheless, be consistent with the general principles of law. In other words, they have to act judicially and reach their decisions in an objective manner and they cannot proceed purely administratively or base their conclusions on subjective tests or inclinations. The procedural rules which regulate the proceeding before the Tribunals and the powers conferred on them in dealing with matters brought before them, are sometimes described as the 'trappings of a court' and in determining the question as to whether a particular body or authority is a Tribunal or not, sometimes a rough and ready test is applied by enquiring whether the said body or authority is clothed with the trappings of a court."  

              What flows from the passage above cited is that the common feature between a court and a tribunal is that both "act judicially" and reach their decisions in an objective manner upon evidence. The mere fact however that a body is required to act judicially may not be sufficient to constitute it a court or a tribunal. A court is a tribunal constituted by the State as a part of the ordinary hierarchy of courts which are invested with the States inherent judicial powers. A tribunal is a body required to act judicially. It may or may not be clothed with the trappings of a court. In Management Committee of Montfort Senior Secondary School Vs. Vijay Kumar and others [(2005) 7 SCC 472] the Supreme Court interpreted the expression judicial authority. It also quoted a passage from R .v. London County Council [1931 (2) KB 215] which contains a definition of judicial authority. Para 17 of the apex court's judgement is quoted:

"17. R .v. London County Council judicial authority was defined as under:

"It is not necessary that it should be a court in in the sense in which the Court is a court; it is enough if it is exercising, after hearing evidence, judicial functions in the sense that it has to decide on evidence between a proposal and an opposition and it is not necessary to be strictly a court."

The characteristics referred to in paras 13 and 14 of the judgement in the Montfort case for determining whether the Tribunal in that case was a judicial authority are similar to those possessed by a tribunal having the trappings of court. It appears therefore that the expression judicial authority used in section 8 refers to all such bodies which are required to act judicially in deciding a dispute whether courts in the strict sense or tribunals at least those which have the trappings of a court.  The Apex Court in Jaswant Sugar Mills Ltd case [AIR 1963 SC 677] has held that the tribunals referred to in Article 136 are those which have the trappings of a court. It appears that the term judicial authority would include also tribunals of the nature referred to in Article 136. The Apex Court has laid down a criteria of three tests for determining whether an act or decision is judicial. These tests are spelt out in para 13 of the judgement as follows:

"13. To make a decision or an act judicial, the following criteria must be satisfied:

1)it is in substance a determination upon investigation of a question by the application of objective standards to facts found in the light of pre-existing legal rules;

2)it declares  rights or imposes upon parties obligations affecting their civil rights; and

3)that the investigation is subject to certain procedural attributes contemplating an  opportunity of presenting its case to a party, ascertainment of facts by means of evidence if a dispute be on questions of fact, and if the dispute be on question of law on the presentation of legal argument, and a decision resulting  in the disposal of the matter on findings based upon those questions of law and fact."

There can be no doubt that a court satisfies all the three tests laid down for determining whether the decision is judicial. In para 15, the Supreme Court observed;-

"15. Adjudication of a court or tribunal must doubtless be judicial; but every authority which by its constitution or authority specially conferred upon it is required to act judicially, is not necessarily a tribunal for purpose of Article 136. A tribunal, adjudication whereof is subject to appeal, must beside being under a duty to act judicially, be a body invested with the judicial power of the State. ...... "

       The decision of the Supreme Court in question involved in the case of Officer on Special Duty (Land Acquisition) (Supra) [1996 (9) SCC 414] relied upon by Sri Arvind Srivastava is not on the point as the question involved there was whether the Land Acquisition Officer is a court or not.  

It is true that the legislature was conscious of the distinction between a 'court' and 'judicial authority' and has therefore used the expression 'court' in certain provisions and judicial authority in others such as in Section 8. The reason appears to be that the expression 'court' has been defined under the Act in a limited sense as, the Principal Civil Court of Original jurisdiction and the High Court. This definition is so limited that even subordinate courts, which are undoubtedly part of the ordinary hierarchy of courts in the technical sense are not covered thereunder. Moreover, bodies such as tribunals, which are required to act judicially and have the trappings of a court are also not covered under that definition. The legislature has it appears therefore used the expression, 'judicial authority' in Section 8 to cover courts as well as tribunals at least those having the trappings of a court to meet a situation where while deciding a dispute such a body is confronted with an arbitration agreement. It therefore follows that while the term 'court' as defined in the Act is a narrow expression and would not include even subordinate courts in the district which are courts even in the technical sense, the term 'judicial authority' is an expression of wider meaning and would include a 'court' as well as a Tribunal at least such which has the trappings of a court. Under Sections 9 and 34 of the Act the expression 'court' has been used in the limited sense defined under Section 2 (e) as the power was intended to be conferred only upon such courts.

            Sri Arvind Srivastava then submitted that the dispute between the parties is not covered under Clause 21 of the agreement. On this point learned counsel for the applicant submitted that under Section 16 of the Act the question whether the arbitration clause applies or not has to be decided by the Arbitral Tribunal and  as soon as the civil court comes to the conclusion that there is an arbitration agreement, it has to refer the dispute to the arbitral tribunal. He relied upon a decision of the Apex Court in Hindustan Petroleum Corporation Ltd. Vs. M/s. Pinketty Midway Petroleum [AIR 2003 SC 2881]  In that case the Apex Court relying upon provisions of Section 16 of the Arbitration Act held that the decision as to whether the dispute is covered under the arbitration clause or not is also one of the questions which can be decided by the arbitral tribunal and the court has no jurisdiction to decide that question.  In SBP & Co. Vs. Patel Engineering [2005 (8) SCC 618] the apex court while dealing with the question whether the power exercised by the Chief Justice under Section 11 of the Act is a judicial or administrative power has considered the scope of Section 8 and certain other provisions of the Act. It was held by the Apex Court that the Chief Justice while exercising power under Section 11 of the Act exercises a judicial power. Construing the scope of the power under Section 8 of the Act it was held by the Apex Court that the court is required to decide the question whether there is an arbitration agreement and also whether the dispute is covered under the arbitration clause.  The decision of the Apex Court in SBP Co. (Supra) being a decision of the Constitution Bench and later in point of time would prevail over that in the Hindustan Petroleum Corporation case.

Section 16 of the Arbitration Act gives power to the arbitral tribunal to decide its own jurisdiction. If a matter comes before the Arbitral Tribunal under Section 16 of the Act before the parties take recourse to Section 8 or 11 of the Act, the Arbitral Tribunal would decide whether the dispute is covered under the arbitration clause or not. It also appears to be implicit in Section 8 that the court where the suit is pending would have to decide whether the dispute is one to which the arbitration clause is attracted before it makes the reference. There thus appears to be clash between Sections 8 and 16 on the point whether the decision of the court or that of the arbitral tribunal would prevail on the question of jurisdiction. The scheme of the provisions of the Act indicate that the apparent clash between Sections 8 and 16 is resolved in the manner that if a party approaches the Civil Court and the arbitration clause is put forth as a bar to its jurisdiction, the Civil Court would have to decide whether there is an arbitration agreement and whether the dispute before it falls under the arbitration clause. If it comes to the conclusion that there is an arbitration clause and also that the dispute falls under the arbitration clause it has no option but to refer the dispute to arbitration. However, if it comes to the conclusion that the dispute is not covered under the arbitration clause it would proceed to decide the dispute. It was held in the S.B.P. Co. case that the decision of the civil court at the pre reference stage would on the question of jurisdiction be binding upon the parties and the tribunal. A Civil Court is a Court of plenary jurisdiction. It can therefore decide whether the dispute is covered by the arbitration clause so as to take away its jurisdiction. Thus it is clear that the view taken by the court below that it could not refer the dispute to arbitration is erroneous.

It was then submitted by Sri Arvind Srivastava that if two remedies are available to a party and it choses to avail any of them it cannot be compelled to avail the other remedy of arbitration chosen by the other party. In support of his contention he relied upon a decision of the Apex Court in Management Committee of Montfort Senior Secondary School (Supra). That was a case in which statutory right of appeal was given to an employee. In the contract of employment between the employee and employer there was an arbitration clause. The employee preferred an appeal before the Tribunal under the Delhi Schools Education Act and a question arose as to whether  the arbitration clause would come in as a bar to the remedy of appeal. In this context the Apex Court held that if there were two remedies, it was open to a party to avail the remedy of his choice and the arbitration clause would  not be treated as a bar to the remedy. The court observed that the plaintiff is the dominus litis in his case. The Delhi Schools Education Act is a Special Act. It gives a statutory right of appeal to the Tribunal. The case is distinguishable. The statute governing the service conditions of an employee is equally binding upon the employer and employee and if the employee avails of a statutory remedy the employer cannot object. Section 9 of the CPC gives  jurisdiction to the civil court to decide all disputes of civil nature. The civil court  has to enforce the contract between the parties unless the contract is void or voidable and the party at whose instance it is voidable choses to avoid it. If the parties by contract agree to have their dispute decided by arbitration the civil court is only enforcing the agreement when it refers the dispute to arbitration. Section 8 of the Arbitration & Conciliation Act gives effect to this position and it provides that if there is an arbitration clause the dispute be referred to the arbitrator. The Arbitration and Conciliation Act 1996 is a special Act. It provides  a special forum for adjudication of disputes where there is an arbitration clause. Section 8 of the Act would prevail over Section 9 CPC. If the dispute is referable in terms of Section 8 of the Act the judicial authority would have no option but to refer. In M/s. Agri Gold Exims Ltd Vs.  M/s. Sri Lakshmi Knits & Wovens & Ors.  [JT 2007 (2) SC 602] it was held in para 23:-

"23. Section 8 of the 1996 Act is peremptory in nature. In a case where there exists an arbitration agreement, the court is under obligation to refer the parties to arbitration in terms of the arbitration agreement (see Hindustan Petroleum Corpn Ltd Vs. Pinkcity Midway Petroleums [JT 2003 (6) SC 1, (2003) 6 SCC 503] and Rashtriya Ispat Nigam Limited (supra). No issue therefore therefore, would  remain to be decided in a suit. existence of arbitration agreement is not disputed. the high court, therefore, in our opinion,was right in referring the dispute between the parties to arbitration."

In the circumstances the order of the Civil Judge, Senior Division, Gorakhpur dated 29.8.2001 is set aside and the matter is sent back to the trial court for a fresh decision upon the point as to whether the dispute is covered under the arbitration clause. If the trial court comes to the conclusion that the dispute is covered under the arbitration clause, it will refer the matter to arbitration. Counsel for the parties agree that the trial court may be directed to decide the suit within a time bound period. Accordingly the trial court is directed to decide the suit expeditiously and if possible within a period of four months form the date a certified copy of this order is filed before it by either of the parties.

The civil revision is allowed.

Dt. 12.7.2007

sn


Copyright

Reproduced in accordance with s52(q) of the Copyright Act 1957 (India) from judis.nic.in, indiacode.nic.in and other Indian High Court Websites

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