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95

FOOD CORPORATION OF INDIA & ANR.

v.

YADAV ENGINEER & CONTRACTOR

(l~gust 6, 1982

[D.A. DESAI, A.P. SEN AND BAHARUL ISLAM, JJ.]

Arbitration Act 1940-Sectlon 34-scope o/-

1

"f(lking any pther steps ~n

the proceedings" meaniiJg of-notice of motion taken o~_t by plaintiff for interim

injunction-Defendant appeared and prayed for time to reply-Defendant's actio~

whether "step taken in the proceedings''.

'

Practice : atlention of single Judge drawn to a binding decision of Division

Bench of the same High Court-Decision not adverted to--Decision contrary to that

of Division' Bench-Propriety of.

Section 34 of the Arbitration Act 1940 provides that where_ one oft he

parties to an arbitration agreement commences any legal proceedings against the

other party in respect

of any matter agreed to be referred to

arbitration, any

party to such legal proceedings may at any

t.ime

befor~ tbe filing of a. Written

statement or taking any other step~ in the pro<;eedi"'gs apply to· tbe judicial

authority before whicb the proceedings are pending to

st_ay the proceedings and

the authority on being satisfied that the opposite

party is ready ~nd willillg to do

ajl things necessary to the proper conduct of the arbitration make an order stay·

ing the proceedings.

The contract entered into

by the respondent with the

appellant Corpora.

tion for handling and transportation

of the Corporation's goods contained an

arbitration clause authorising the Managing Director

of th¥ Corporation to

appoint an arbitrator in iespect

of any dispute

~,rising ou~ 9f tbe CQntr{l.~t

,.-between the parties. ·

Apprehending.breach of contract, the ·respondent filed a suit for a de<"·

laration that the contract was subsisting on. the date of the suit. The respondent

'prayed-for an ad interim injunction against the Corporation restraining it from

committing breach

of the

contract. On the notice being issued the District

Manager

of the Corporation appeared before tbe Court and sought time to

file

reply to the application fQr interim ilijunction. On the next day an application was

filed on behalf of tbe corporation that it was fully ready and· willing to have the

dispute resolved by arbitration under the subsisting arbitration agr~ement and

prayed that the suit be stared as provided in'

1 section J4 of the Arbilration A<;:t

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96 SUPREME COURT REPORTS (1983) J S.C.R.

The respondent alleged that section 34 was inapplicable in ·that when the

District Manager sought time

to

file a reply to the notice for interim injunction

it was a "step taken in the proceedings" within the meaning of section 34. '

. _Negativing the respondent's plea the Trial Court ,held that . the dispute ·

was covered by the arbitration clause~ It granted stay of further proceedings

in the suit and this

view was upheld by

tlte District Judge in the respondent's

appeal.

In the revision petition filed in the "High Court a single Judge although

his attention was drawn

to a

'binding precedent of a Division Bench of the same

High Court supporting the view that an application for filing a reply to the

notice,of motion taken out by the plaintiff for interim injunction was n9t a ''step

taken in the proceedings", without adverting to that decision, held that an

application

of

this· nature was a "step taken in the proceedings''' and that this

'disentitled'the Corporation from invoking the arbitration agreement.

On the question whether, where there is a subsisting valid arbitration

agreement between the parties, entering an appearance and contesting a petition

or notice

of motion for interlocutory, order constitutes a

"step in tife proc~ed~

ings" as would disentitle· the party to an order under seCtion 34 of the Arbitra·

tion Abt.

Allowing the appeal,

' . HELD: Contesting the application for interim injunction or for appoint·

mi:nt of a receiver or for interim relief by itself, without anything more, would

not constitute a "step in the proceedings" as would diSentitle the party to an

order under section

34 of the Arbitration Act. (119 F]

I. (a) Section 34 envisages that before a party to the arbitration agree·

meat seeks stay of the suit filed' by the opposite party it must disclose its

unequivocal intention

to abide by the arbitration agreement; but once the party

takes steps which

may indicate its intention to waive the benefit of the

arbitra·

tion agreement or abandons the right to claim the benefit by conduct, such party

would not

be entitled to enforce the agreement because there is a breach of the

agreement

by both parties di$entitJing them to claim any

benefit of the arbitra­

tion agreement. (105 DJ

flamji Dayawa/a & Sons (P) Ltd. v. Invest lmpori [1981] l S C.R. 899.

G followed.

H

(b) The general words "taking any other steps in the proceedings"

follow the specific expression ·'filing a written statemeLt" and both are used for

achieving the same purpose. Therefore the latteT general expression must be

constr,ued e;usdem generis with the specific expression just preceding to bring out

the alnbit of the latter. The expression "written statement" is a term of specific

connotation ordinarily signifying a reply to the plaint fi]ed by the plaintiff.

[106 Ej

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FOOD CORPORATION V. YADA V ENGINEER 97

(c) The expression ;,taking a~y other steps in the proceedings" does not

mean that every step taken in the Proceedings would-come "in the way of enforce~

ment of the arbitration ·agreement; the step must be such as ·would clearly and

unambiguously manifest .the intention to waive (he benefit of arbitration agree~

ffient and to acquiesce ill the proceedings commenced again.st the party' and-to

· get the dispute resolved by the court. Inter!ocutory proceedings are incidental

to the main proceedings and stand 'independe~t and alobf of the main dispute.

.When these interiocutory proceedings are. contested it cannot be said that the

party contesting them had displayed an unequivocal intention to waive thC.--.bene­

fit of the arbitration agreement or that it had submitted to the jurisdiction of

the court. [109 E-H]

Uitar Pradesh 'v. Ja~ki Saran Kai/ash Chandra (1974] 1 S.C.R. 31 .• referred

to.

I

' Sansar Chand Deshraj v. State of Madhya Pradesh AIR 1961 MP 322;

Nuruddin Abdulhusseih v. Abu Ahmed Abdul la/Ii, AIR 1950 Born. 127; Ana.ndkumar

Parmanand Kejrjwala & Anr. v. Kamaladevj Hirai a/ Kejrjwal, AIR 1970 Born.

231; Quee~s College Kanetra & Anr. v. The Co/fe~tor, Varanasi & 'ors., AIR 1974

All. 134; Biswanath Rungta v. Orjental Industrja/ Engjneerjng Co, Pvt. Ltd. & Ors.,

AIR 1975 Cal. 222; State of Gujarat & Ors.v. The Ghanshyam Salt Works AIR

1979 Guj. 215; Arjun Agarwal/av. Baidya Nath Roy.& Ors. AIR 1980. Cal. 354;

and M/s. Bhonrila/ Hirala/ & Ors. v. Prdbhu Dayal & A.nr., AIR 1980 Raj .. 9

7

approved. '

Suha/ Chandra Bhur v. Md. Ibrahim & Anr., AIR 1943 Cal. 484; Amrit­

raJ. Kothari v. Go/cha Financiers, ,AIR rJ966 Cal. 315; P. GannU Rao v. P. Thiaga­

raja Rao & Anr., AIR 1949 Madras 582 and Ku·nra Malla Reddy v. Soma Srinivas

.Reddy & Ors., AIR 1978 A.P. 289, not approved •.

In the_ instant case the District Manager of the Corporation only uppeared

before the court

in

Obedience to the notice on the notice of motion taken out for

ex parte ad interim injunction and Prayed for time to reply. '(he proceedings of

the court did not disclose· any step having been taken by the Corponilion~in the

'proceedings aS would. disentirle the· co·rpora'tion to an order under section 34.

Moreover, the application for stay filed on behalf Of the Corporati_on clearly

stated tha~ the "defendant is ready and Willing 'ichuck' foi-this purpose" which

ineans that it was' ready and willing to 'prOceed with the arbitration when

oommencetl. [119 HJ , .

2. If a single Judge hearing a matter is inclined to take a view contrary

to the earlier decision of a Division :(tench of the .same High Court it would be

judicial improoriety to ignore that decision but after referring to the binding

decision

he

may direct that the papers __ be placed before the Chief Justice of the

High Court to enable him to constitute a larger. division bench to examine the

question. Judicial comity demands that a binding decision to which attention

had been drawn should neither b~ ignored nor over~Iooked, [112·G-H]

. ~ . . ' . '

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98 SUPREME COURT REPORTS (1983] I S.C.R.

In the instant case although attention of the single Judge was drawn to

the binding decision of a Division Bench of the same High Court be did not

_ refer to it but relied upon ihe decision of another High Court which took the

contrary view.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3317

B of 1981.

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Appeal by Special leave from the judgment and order dated

the 20th November. 1981 of the Madhya Pradesh High Court" in

Civil Revision No. 696

of 1981.

K.K. Venugopa/ and S.K.

GamiJ.hir for the Appellant.

Soli J. Sorabjee, D.K. Katare and S.S. Khanduja for the

Respondent.

The Judgment

of the Court was delivered by

DESAI, J. A fond hope that a decision of this Court with the

sanctfon of Article 141 of the Constitution that the law laid down

therein will be the law

of the land would put an end to a raging

controversy amongst various High Courts stands to some extent

rudely shaken when the controversy with a slight variation bas again

been placed in the lap

of this Court.

· ·

For highlighting and then resolving the controversy facts in

dispute have a liltle or no relevance save and except mentioning

certain events. Respondent Yadav Engineer

& Contractor, a

part­

nership firm fil~d a suit against Food-Corporation of India, !st

defendant and Shyam Narain Nigam, District Manager of !st

defendant as 2nd defendant, for a declaration that .the contract

between the 'jllaintiff and the l st defendant for handling and trans­

portation of the goods of the l st defendant Corporation was sub­

sisting on 'the date of the suit an.d restraining the defendant from

committing breach

of the same by handing over that work to some

one

otherthan the plaintiff. The suit was instituted on June I,

1981, in the Court

of the III Civil Judge, Class I, Gwalior. In

the suit a notice of motion was taken out purporting to be under

Order XXXIX, rulefl and 2 read withs. 151 of the Code of Civil

Procedure, for an interim injunction restraining the defendants frow

commit'ting a breach of contract and from interfering with ·the work

\>f handlin~ and transport of goods of the !st defendant Corpora-

!

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FOOD CORPORATION v. YADAV E~OINEER (Desai, J.) 99

tion

by the plaintiff during the pendency of the suit.

On the notice

.

of motion being taken out the Court directed notice of the same to

be served and the· same was made returnable on the .next

day,

June 2, 1981. On the returnable date the 2nd defendant, District

Manager of the !st defendant Corporation who had .office in the

City

of Gwalior was served and .. he appeared through

one Shri N.K.

Modi, Advocate,

filed

the letter of authority (Vakalat) in favour of

the learned advocate on behalf of 2nd. defendant and the l~arned

advocate prayed for time for 'reply and arguments to the plaintiff's

application for temporary injunction'. The court acced~d to the

request and posted the matter

on June 3, 1981. An endorsement

appears

in the record that the

I st defendant Food Corporation of

India

was not served though the

, endorsement reads 'absent'.

However, the last line

in the proceeding makes it clear that the case

was posted on June 3, 1981' 'for reply argumennts and awaiting

service on June 3, 1981'.

When-the matter came up on the

·next day, i.e. June 3, 1981, an application was moved on· behalf· of

. '

!st defendant inviting the attention of the Court to ·the subsisting

11rbitration· agreement between the ·plaintiff and the !st defendant

and

which agreement authorised the Managing Director of the !st

defendant to appoint an arbritrator

in respect of any dispute

arising out

of the contract between the plaintiff and the lst

defen­

dant. It was-also stated that the !st defendant desires to have the

dispute, if any, resolved

by arbitration under the subsisting

arbitra­

tion agr,eement and that the defendant is fully ready and willing

(ichhuk) to go to arbitration. · The application concluded with a pra-

_y_er th.at under the circumstances the suit may be stayed as provided

in s. 34 of the Arbitration Act, 1940 ('Act' for short);

The learned trial Judge

was of the view that the dispute

bet­

ween the parties is covered by the arbitration agreement set out in

Article 19 of the contract between the plaintiff and the !st defendant.

The learned Judge negativeq the contention that.an application ·made

by the 2nd defendant for filing reply to the notice of motion taken

out

by the plaintiff for interim injunction is a step

take11 in the

proceedings

in view of the binding decision of a Division Bench of ~ .. -·•. the Madhya Pradesh High Court in Sansar Chand Deshra}v. State

of Madhya ,Pradesh.(') The learned judge accordingly ~ranteq stay

(1) A.I.R. 1961 MP 322.

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100 SUPREME COURT REPORTS (1983] I S.C.R.

of further proceedings in the suit as prayed for on behalf .of the

!st defendant. Plaintiff preferred an. app~al in the Court of the '· "'

District Judge, Gwalior. The learned ITI Additional District Judge,

before whom the appeal came

up

for hearing, agreed with the view

taken

by the learned trial judge and confirmed the order.

granting

stay of further proceedings in the suit and dismissed the appeal..·

Undaunted even by this second rejection plaintiff approached the High

Court in revision under s·. 115 of the Code of Civil Procedure. The

learned judge, though his attention

was drawn to the binding deci-

sion

of the Division Bench of the same High Court, did not refer to

it in the judgment and relied upon a decision of ihe Adhara Pradesh

High Court in

Bajaj International v. Indian Tobacco Suppliers(')

11nd held that an application for filing reply to a notice of motion

for interim injunction

is a step taken in the proceeding, which would

disentitle the party from invoking the arbitration agreement.

In

support of this conclusion the learned judge also .relied upon Abdul

Qudoos

v.

Abdul Gani,(

2

)

which decision clearly does not support

any such proposition. The learned judge further observed that even

if the view that the application filed

by the 2nd defendant praying

for time to reply to the notice

of motion for interim injunctioµ may

not be treated as a

step in the proceeding, yet the 1st . defendant

would not be entitled to a discretionary order under

s. 34 of the Act

on

the·gro1md that one of the conditions necessary for invoking the

jurisdiction

of the court under s. 34 is not satisfied

inasmuch as

nowhere in the application the

!st defendant bas stated that the

!st defendant at the time when the proceedings

were commenced

and still ·remains ready and willing to do all things ne.cessary for

the proper conduct-0f·the arbitration. For this additional reason

which was never urged on behalf

of the plaintiff either in the trial

court or

in the 1st appellate court and as would be presently pointed

out which

is contrary to the record the High

Court interfered

•

in revision, rSet aside the order of the trial court granting

stay and confirmed

by the appellate

1>ourt and rejected the applica-

tion for stay

of proceedings in

tbe suit. Hence this appeal by spe-

cial leave.

Section

34 of the Act

reads as under :

• •

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"34. Where any party to an arbitration agree- .l-•'

ment or any person claiming under him commences

(I) 'AIR 197.8 AP 8.

(2)JA.Ul.. 1954 Na~. 33Z,

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!i9ob .CORPORATiON v. YADAV ENGi~EER (besal, J.) 101

any legal proceedings against any other party to the

agreement or any person claiming nnder

him in

res­

pect of any matter agreed to be referred, any party to

, such legal proceedings may, at· any time before filing a

written statement or taking any other steps in the pro­

ceedings, apply to the judicial authority before which

the proceedings are pending to stay the proceedings;

, and

if satisfied that there is no snfficient reason why

the matter should.

not be referred in f1Ccordance with

the arbitration agreement and that the. apP,licant was,

at the time when the proceedings. were commenced,

and still remains, ready and willing to do all things

necessary to the prop.er conduct

of the arbitration, ·

such authority may make

an order staying the

pro­

ceedings."

The contours of the controversy are confined to one

of the

nega­

tive requirements of s. 34 to be fulfilled by a party seeking the

discretionary relief of stay of proceedings to qualify for the same.

It is not necessary . to reproduce all the relevant conditions for

attracting the application

of s. 34.

One of the conditions to be

·satisfied before an order under

s. 34 can be obtained is that the

party to the legal proceeding has at any time before

filing a written

statement or

ta)<:lng any other s'teps in the proceedings applied to the

judicial authority for stay of proceedings. In other words, a party

, seeking stay of proceedings must move the court with an application

under s. 34 before filing the written statement. to the suit or before

taking any other steps

in the proceedings. Admittedly, application

in the present proceedings · was filed before

fili~g the written

. statement. The q'uestiori is whether the .second pre-condition is

satisfied in that the applicati-On under s. 34 was filed before taking

any other &teps in the proceedings. What does the expression 'before

.taking any other steps

in the proceedings' signify?

Before ascertaining

the scope and ambit

of the expression it would be worthwhile

to

briefly narrate the raison d'etre for prescribing this condition.

. '

. -Ordinarily as provided in s. 9 of ;he Code 'or Civil Procedure

all suits

of a civil nature except suits· of which cognizance is either

expressly or impliedly barred would

be triable

by the cou~ts set up

for the purpose.

If the dispute is of a civil nature the

forum is one

or the other court set up for the purpose. The State courts have been

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SUPREME CoURT REPORTS U9s3i i s.c.a.

set up fdr an easy access by persons who seek resolution of their

disputes. They must be disputes

of civil nature and the cognizance

of which is not either expressly or impliedly barred. Civil courts

set up

by the State having defined

jurisdiction will be the forum for

resolution

of such disputes. Ordinarily, therefore, whenever a dispute· of a civil nature arises the party Claiming relief would

approach the court having jurisdiction to resolve the dispute._ The

party against whom relief

is sought will be informed of the

cogni·

zance of the dispute being taken by the court and it must come forth

and either concede that the dispute is genuine in whole or in part or

• defend the action. Sometimes a dispute as to jurisdiction, territorial

Or· pecuniary, is raised hut apart from such specific exclusions

claimed

by a party civil courts are set up .with the object of resolving

civil disputes. A forum thus may readily

be available and presumed to

be easily accessible. This is the prescribed mode

of·ac~ess to justice.

Arbitration Act carves out an exception to the general rule that the

forum for resolution

of civil disputes is the civil court having

jurisdic­

tion to deal with the same by providing that the parties to a dispute

by agreement unto themselves may choose a forum

of their choice

for settlement

of disputes between them in preference to the State

Courts. Undoubtedly, for making these agreements enforceable

sanction

of law is necessary.

· That is the object underlying the Act.

Industrial revolution bringing into existence international commer-·

cial transactions led to a search for finding a forum outside the

municipal law courts ·involving protracted and dilatory legal

process for simple, uninhibited

by intricate rules of evid.ence and

legal grammar. This explains resort to forums for arbitration

at

international level. No two contracting parties are under any legal

obligation to provide for an arbitration agreement.

· If the parties

enter into an arbitration agreement implying that they would like

that the disputes covered

by the agreement will be resolved by a

• •

forum of their choice, the approach of the court must be that

parties to the contract ar; held to their bargain. If in breach or

derogation of a solemn contract a party to an arbitration agreement

approaches the court and if the other side expeditiously approaches

the court ·invoking the court's jurisdiction to stay the proceedings so

that

by this negative process the

court forces the parties to abide by

the bargain, ordinarily the court's approach should

be and has been

to enforce agreements rather than to

find loopholes therein. More

often it

is found tbat solemn contracts are entered into on the

clearest understanding that any dispute arising out

of the contract

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FOOi> CORPORATION v. YADAV ENGINE~R (Desai, J.J JM

aQd covered by the contract shall be referred to arbitration. It may

be that one or the other party may not have entered into the contract

in the absence

of an arbitration agreement. Therefore when in breach

of an arbitration

agreement a party to. the agreement rushes to the

. .

·court, unless a clear case to the contrary is made out the· approach

of the court sl,iould be to hold partie~ to their bargain provided

necessary condition§ for invoking s." 34 are satisfied.

Arbitration Act prescribes various methods

by which an

arbit·

ration agreement can.be enforced. Section 20 enables parties to an

arbitration agreement to approach the Court in the ci.rcumstances

therein mentioned for a direction that the agreement be filed in the

court and on suth agreement being filed the Court is empowered to

make an order of reference to the arbitrator. Provisions of Chapter

IV provide for arbitration in. suits. Section 34 prescribes one other

method of enforcing arbitration agreement

if a party' to an

arbitra­

tion agreement in breach' of it approaches the court and files a

suit in respect

of a dispute covered by

the arbitratfon agree­

ment.

.

Section 34 prescribes a method by which the other party to

the. arbitration agreement bY. satisfying the conditions·prescribed in

s. 34 can enforce the arbitration agreement by obtaining an order

·of stay of the suit. It is crystal clear that once the suit is stayed the

. party

who in breach _of the arbitration agreement approaches the

court for relief will be forced to

go to arbitration and thus the

court

by this negative attitude of declining to proceed further with the

proceedings brought before ·it would enforce the arbitration agree­

ment. In order, therefore, to satisfy the court that the other party

to the arbitration agreement who would

be defendant in the suit is

ready and willing to abide

by the arbitration agreeme.nt and ready

to take

all steps necessary for the proper conduct of the arbitration,

·

it must show that it is not waiving or abandoning its right under

the arbitration agreement

or submitting to the jurisdiction of the

court thereby accepting the forum selected

by the plaintiff for

resolu­

tion of dispute and acquie.scing in it. In order to steer clear of this

charge the provision

is made in s. 34 for a:n application by the party

who

is brought to the.court by the opposite party in breach of the

• arbitration agreement io apply for stay before filing the written

statement

or before taking any other steps in

~he proceeding. This

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104 slli>RBMB COURT REPOll.ts [198j) I s.C.Il.

explains the purpose and object

in

s. 34.

underlying the provision contained

/

The contention and the resultant issue in.dispute must now be

neatly framed. The

primary-issue is: what action on the part of the·

defendan_t who is-sued in a court of law and-Who has a subsisting

valid arbitration agreement with the plaintiff, would_ constitute step

in the proceeding so as to disentitle him to stay of the suit which,

if granted, would enable ·him to enforce the arbitration agreement ?

Would entering an appearance and contesting petition or notice of

motion for interlocutory order constitute ·such step in the s~it or

proceedings as would disentitle the party to an order ·under s. 34 ?

The subsidiary point is, whether where in a suit filed in a court, a

prayer for an

ex parte ad

interim injunction is made either by an

application or

by .a notice of motion or an application is made for

appointment

of a receiver and either . ex parte ad interim injunction

is granted or. ex parre receiver is. appointed and the copies of the

pleadings and the order are served upon

the defendant, if the

defendant appears and requests the-court either to ·vacate the injunc­

tion or discharge the receiver or modify the orders"witbout filing a

· written· statement or making an. application for filing a written state­

ment to the plaint, could be be said to have tak_en a step in the

proceedings so as to disentitle him from obtaining stay of the

,suit

?

,

Let the precedents rest for the time being and let an attenipt

be. made to ascertain the underlying intendment in enacting the

conditibµ in s. 34 which prescribes a mode of enforcing the arbitra­

tion agreemenf to the effect that if a party to an arbitration agree­

ment commences an action. the other party to the agreement, if)t

desires to enforce the agreement, may seek stay of the suit before

either

filing written

state~ent or taking "other steps in the proceeding.

Ordinarily the court would respect the sanctity

of contracts: A

valid arbitration agreement between the parties obliges

bot~ the

parties to the . agreement t9 ' act according to the terms

of the

agreement. A valid arbitration agreement envisages resolution

of·

dispute by a forum of the choice· of the parties and displaces the

state courts. Ordinarily, a party to a valid arbitration agreement

is not entitled unilaterally to commit a breach of the agreement or

ignore the agreement. Now, if a party to an arbitration agreement

bas

a· dispute to be resolved arisia·g out of the contract i.n which the

arbitration ~greement is incorporated and instead of invoking the

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Moo CORPORATION v. YADAV ENGINEER (Desai, J.) 105

· arbitratfon agreement-by inviting the parties to. appoint the arbit.rator.

it rushes to the court.in breach of the _agreement and files a suit, the

other party

is undoubtedly entitled to enforce the agreement. True, the other party is equally entitled to waive the benefit of the arbit·

ration agreement. If the other party desires to waive' the benefit of

the agreement it can appear in the suit and contact the suit. Such

· conduct would. demonstrably, show that both the parties have waived

the b~nefit flowing from the arbitration .agreement of getting the

dispute between them resolv.ed by a forum of their choice. But if .

the first party in breaph of the agreement files a suit the other party

to the agreement . must have an option and opportunity to enforce

the arbitration agreement. Section

34 prescribes a mode. and method

of enforcing the arbitration agreement. When a party to the

agree·

ment has filed a suit in breach of the -agreement and' the other party

to the agreement is dr~gged to the court, by staying .the suit at the

·instance -of the other party so dragged to the court the first party

consequently would

be forced to honour

the arbitration agreement ..

But before the other party to the arbitration egreement is entitled to

enforce the arbitration agreement· by stay of the silit it must disclose

·its unequivocal ihtention to abide by the agreement and, therefore,

s. 34 obliges such a party to ask for stay of the proceedings before

-such a party takes any steps which may unequivocally. indicate the

intention to waive the benefit

of the arbitration agreement.

Abandon-·

ment of a right. to seek resolution of dispute as' provided in the

arbitration agreement must be clearly-manifested

by the-step taken by,

such party.

Once such unequivocal intention is declared or abandon­

ment of the right to -claim the benefit of the agreement becomes

manifest from the conduct, such party would then' noi'be entitled

,, to enforce the arbitration agreement because. there is thu_s a breach

of !he agreement by both the par)ies disentitling both to claim any

benefit of the arbitration agreement. ·section 3:4 provides that a

party dragged to the court as defendant ·by another P.arty who is a

party tci the arbitration agreement must ask for stay of the proceed­

ings· before filling the written statement· or before takfog,any pther

step in the proceedings. That party must simultaneously show its

readiness and , willingness to do-all things necessary to the proper

conduct

of the arbitration. The legislature by making it mandatory

on the party seeking benefit

of the arbitration agreement to apply

for stay

of the proceedings before filing the written statement or

before taking any other steps in the proceedings unmistakably

poln·

ted out that filing of the written statement discloses such conduct on,

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106 Si:JPREM~ coi:JRt REPORTS [1983) i s.c.k.

the part of the party as would. unquestionably show that the party

has abandoned its rights under the arbitration agreement and bas

disclosed an unequivocal intention· to accept the forum of the court

for resolution

of the dispute by waiving its right to get the dispute

resolved

by a forum contemplated by

the· arbitration agreement.

When the party files written statement to the suit it discloses its

defence, enters into a contest and invites the court

to adjudicate

upon the dispute.

, Once .the court is invited to adjudicate upon the

dispute there is no question

of then enforcing an arbitration

agree·.

· ment by forcing the parties to resort to the forum of their choice

as set out in the a.rbiJration agreement. . This

flows from the well

settled principle that the court would normally bold the parties

to the bargain

(see Ramaji Dayawala & Sons

(P) Ltd. v. Invest

Import).(')

Apart from filing .written statement, what other step did the

legislature contemplate as

1

being t.aken in the proceedings which·

would disentitle the party to the suit from obtaining stay of the

· pr~~eedings which would have the effect of enforcing the arbitration

agreement ? General words 'taking any other steps in the proceed-.

ings' just follow the specific expression 'filing a written statement'

and both are used for achieving the same purpose. Therefore, the

latter general expression must be construed'

ejusdem

generis' with the

specific expression just preceding to bring out the ambit of the latter

Expression 'written statement'

is a term of

speCific co~notation

ordinarily signifying a reply to the plaint filed by the plaintiff.

Therefore, the expression· 'written statement' in . s. 34 signifies a

Lpecific thing, namely, filing an answer on merits to the plaint filed

by the plaintiff. This specific word is followed [by general words

'taking any other steps in the proceedings'. The principle

of ·ejusdem generls. must help.-in"finding·out the import· of the general

words because· it is a well established rule in the construction of

statutes that general terms following particula(ones apply to .such

persons or things as are

ejusdem genefis with these comprehended

in the language

of the legislature. In Ashbury Railway

·

Carriage & Iran Co. v. Riche,(') the question of construction

of the object of a Company : 'to cllrry on business of mechanical

engineers and general contractors', came

in for consideration and

o> [19811 1 s.c.R: 89!f.

(2) (1875) L.R. 7 H.L. 653.

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FOOD.CORPORATION v. YADAV ENGINEER (Desai, J.) 101 ·

it was said that the generality of the expression 'general contractors'

was limited to the previous words 'mechanical engineers' on the

principle ~f ejusdem generis. Filing of the written statement would

disentitle the party from seeking enforcement of arbitration agree­

ment by obtaining stay of proceedings because it is such an ~ct/on

behalf of the party entitled to enforce the. arbitration agreement .

which would disclose unequivocal intention of the party to give· up

the benefit

of the arbitration .agreement

and accept the method in

preference to the one set out in the arbitration agreement to the one

~·

· adopted by the other party by filing the suit and get the dispute

adjudicated upon· by the machinery of the court. If this is the

underlying intendment in providing that application for stay of the

proceedings must be

filed before the filing of the written statement,

·

the same conclusion must follow when instead of filing the written

statement the party has taken some other step in the proceedings.·

That some other step must indisputably be such step as would

manifestly display an unequivocal intention to proceed with the

• suit and to give up the right to h,ave the. matter dtsposed of by

arbitration. Each an.d every step taken in the proceedings cannot

come in the

way of the party seeking to enforce the arbitration

agreement by obtaining stay

of proceedings but

th~ step. taken by

the party must be such, step as would clearly and unmistakebly

indicate an intention on the P.art of such party to give up -the

benefit

of arbitration agreement and to acquiesce in the proceedings

commenced against the party and to get the dispute resolved

by the

court.

· A step taken in the suit wh~ch would disentitle the ·.party

from obtaining stay of proceeding must be such step as would

.display an unequivocal intention to proceed with the suit and to

abandon the benefit

of the arbitration agreement or

the right to

get the dispute resolved by arbitration;.

If the step in the proceedings contemplated by s. 34 must be

such step as would clearly, unambiguously and unequivocally disclose

the intention

of the party taking the step to give up the benefit of the

arbitration agreement

or its right of getting the dispute resolved by

arbitration and to acquiesce in the methodoiogy of resoluution of

dispute by court, would

an· appearence' in the suit for contesting

interlocutory applications such as application

for appointment of

receiver or ex parte ad interim injunction, mandatory

or· prohibitory,

and contesting the same be a step which would disclose an unequi­

vocal intention to proceed with the suit and to give up the benefit

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!OS sui>REME COURT REPOilts (1983) i s.C.R.

of ihe arbitration agreement? That is the controversy in the appeal

before us.

Arbitration agreement generally provides for resolution

of

disputes either present or future by a forum of the choice-of the

parties.

Ordinarily, arbitration agreement· finds its place in con­

tracts, Apprehending that while preforming contract some disputes

may arise, care

is taken to incorporate an arbitration agreement in

the contract itself prescribing the forum for resolution

of such

disputes. To illustrate, partnership contracts incorporate

arbitra­

tion agreement for resolution of disputes arising out of the con­

tract of partnership. Building contracts these days incorporate

arbitration agreements. International · commercial transactions also

incorporate arbitration agreements. The purpose underlying

_ entering into arbitration agreement is to provide for resolution of.

disputes arising from the contract between the parties. Now, if a

party to an arbitration agreement files a suit seeking relief in respect

of disputes arising from 'the contract-the other party to the agree­

ment can either waive tb-e benefit of the arbitration agreement and

acquiesce in the suit

or enforce the arbitration agreement.

Such

conduci has specifically to be ·in relation to disputes covered by

arbitration agreement. But if a party to an arbitration agreement

files a suit

~nd simultaneously moves an inteilocu\ory application

such as an application for appointment

of receiver, usually to be , found in-suits for dissolution of partnership and rendering accounts,

or for an interim injui1ction to ward off a threatened or continuing

breach

of contract, irreparable harm would be suffered by the other party-to the arbitration agreement if it cannot contest "the interlocu-.

tory application on the pain of abandoning the benefit of aJbitration

agreement. A concrete illustration would

be both illuminating and

convincing. In a suit for dissolution

of partnership an~ accounts an

application for appointment

of receiver as

also an application for

interim injunction restraining the defendant .from u_sing the partner--

ship goods

or assets for continuing the

busfness are filed. The court

passes

ex parte interim order

a·nd issues notice calling upon the

defendant to show cause

why the same should not be made

. absolute. In-a running business appointment

of a receiver would

thoroughly dislocate the

'business and an injunction would bring to

standstill th~ fl~urishing business. If the defendant appears and

contests th~ application for appointment of receiver as also the

application for injunction, could be be said to display an unequivocal

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FOOD CORPORATION v. YADAV ENGINEER'(Desal; J.) 109

intention to give up the .ben~fit of the arbitration ·agreement and to

acquiesce iii the suit? The dispute between the parties is whether

the partnership should be dissolved as per the contract

of

partner­

ship. Interim injunction applicatio~ or application for appointment ,

of receiver have nothing to do ·directly of substantially with the

terms of the partnership. The main

or substantial dispute will be

.

/

covered by the plaint filed in lhe suit. Incidental proceedings for:

appointment

of receiver o'r for interim injunction

ar~ for the pro­

tection either of the property or, the interests of the parties. Now,

when. ex parte orders are obtained on ex parte avermerits the other

party cannot be precluded from coming and pointing: out that no

case

is made

out for granting interim reiief. It would be too cum,

bersome to expect the ·party first to apply for stay and then inviie

the court under

s. 41

{2) of the Act to vacate the injunction or to.

discharge the receiver, Giving the expression 'taking any 0th.er steps .

. in the proceedings' such wide connotation as making an application ·

for any purpose in the suit .such as vacating stay, dischar£e of the

receiver or eyen modifying the interim orders would work hardship

and would

be inequitousJo the party who is willing to abide by

the arbitration agreement and yet be forced

t-0. suffer the inequ y

of ex parte orders. Therefore,· the expression 'taking any other

steps

in the proceedings' must be given a narrow meaning in that

the

step· must be taken in the main proceeding of the. suit and it

must be such ,step as would clearly and unambiguously manifest the

·fotention to waive the benefit of tlle· arbitration agreement and to

acquiesce in .the proceedings. Interiocutory proceedings are · inci­

dental to the main proceedings. They liave a life till the disposal

of the main proceeding. As the suit or the proceeding is likely to

take some time before the dis'pute in the suit is finally adjudicated,

more often interim orders have to be macie for the protection of the

rights of the parties. Such interlocutory proceedings stand inde­

pendent and aloof of the main ,dispute between the parties involved

in the suit. They are steps taken. for facilitating the just and·

fair disposal of the main dispute. When these interlocutory

proceedings are contested it cannot be said that the party contesting

. .

such proceedings has· displayed an unequivocal intention to ··waive

the benefit of the arbitration agreement or that it has submitte.d

to the jurisdiction

of the

court~ WI;en ,; parte orders are made

at the back of the party the other party is forced to c6me to the

. . /·

9ourt to vindicate its right. Such _compulsion cannot disclose an'

· unambiguous intention to give up .the benefit of the arbitration

.

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110 SUPRBMB COURT REPORTS [1983] I s.c.tt.

.

"'agreement. Therefore,. taking any other steps in the proceedings

must be confined to taking steps

in the proceedings for resolution

of the substantial dispute in the suit. Appearing and contesting the interlocutory applications by seeking either vacation thereof or

modification thereof cannot be said to be displaying an unambiguous

intention to acquiesce

in the suit and to waive the benefit of the

arbitration agreement.

Any other

view would both be harsh and

inequitous and contrary to the underlying intendment

of the Act.

The first party which approaches

the, court and seeks an ex parte

interim order has obviously come to the ·court in breach of the

arbitration agreement.

By obtaining an ex parte order if it forces the

other party to the agreement to suffer the order, or

by merely con·

testing be imputed the intention of waiving the benefit of arbitration

agreement, it would enjoy an undeserved advantage. Such could not

be the underlying purpose of s. 34. Therefore, in our opinion, to

effectuate the purpose underlying

s. 34 the narrow construction of

the expression ·'taking

any other steps in the proceedings' as herein­

above set out appears to advance the object and purpose underlying

s. 34 and the purpose for which the Act was enacted .

•

. Having · examined the contention on the language of the

statute, the setting

in which it is placed, the underlying intendmeni

and the purpose it seeks to

s~rv~, let us turn to precedents. There

is a clear cut cleavage and divergence of opinion amongst various

High Courts. Allahabad, Bombay and later decisions

of

, Calcutta

High Court, Gujarat, Madhya Pradesh and Rajasthan High ·Courts

have taken the

view that appearing and contesting interlocutory

application is not

a' step taken in the proceedings so as to disentitle

the party from taking benefit

of the arbitration agreement by seeking

stay

of the suit.

On the other hand, earlier decisions of Calcutta

High Court, Delhi and Madras High Courts have taken .a contrary

view.

In Born bay there bas been a reference to a practice

com­

mended to us by Mr. Sorabji, learned counsel for th.e respondent

that to avoid the pitfall of

s. 34 even while contesting an

inter­

locutory application the party seeking to enforce the arbitration

agreement must enter appearance under protest. This practice

· not only does not commend to

us, but . way back in Nuruddin

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FOOD CORPORATION v. YADAV ENGINEER (Desai, J.) 111

.Abdulhussein v. Abu Ahmed Abdul Jalli,(

1

), Tendolkar, J. has

rejected it as one

of the doubtful legal import and utility.

One must

construe the section on its own language keeping

in view the purpose

and object

of

tfie enactment. One cannot add to the requiremen.t

-by introducing a practice brought. into vogue by 1Solicitors in

Bombay, whev no such practice ,exists elsewhere. in the -country.

Section 34

is even invoked in rural backward areas. The highly ·skilful solicitor's draftmanship cannot provide as escape route to an

unwary litigent. We are, therefore, not disposed to accept the sug­

gestion that in order to avoid any pitfall of being denied the benefit

of arbitration agreement the party seeking to enforce the agreement

must enter an appearance under protest because we. affirm what

Tendolkar,

J. has said.

It reads as under :

"It appears to me therefore that the addition of tbe

words

'under protest' to an

appea~ance filed in court

in cases

not covered by

0. 30, R.S. Civil P. C., is

meaningless when neither the jurisdiction 'or the Court

nor the validity

of the writ or service is challenged. H is not challenged where a defendant. files an·

-appearance under protest under the prevailing practice

because he desires to apply for stay under the Arbitra­

tion Act. Therefore, whatever may be , the reason

for the practiee which has grown up; it seems

to

rrie

clear-that there is no obligation on the defendant to

follow this practice of doubtful import and utility

and he

is at

liberty'· to file an · unconditionaJ.

appearance.''

Before we turn to the only decision of this Court in State

of Uttar Pradesh v. Janki Saran Kai/ash Chandra,(') which ai one

stage was expected

to resolve the controversy, we may

briefly' refer

to the decisions of the various High Courts to which our attention

was drawn.

. . _ We would first refer to the decisions ·which take the view that .

app~arin.g to contest interlocutory application either for vacating

the mtenm orders .or modification of the same does not constitute a

(l) AIR 1950 Born. 127.

(Z) [1974) I S.C.R. 31.

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112 SUPREME COURT REPORTS '

I

[1983] ! S.C.lt.

step in the proceedings which would disentitle the party to .an order

. of stay under s. 34. In Nuruddin Abdulhussein, (supra) learneil single

judge

of the Bomliay High Court held that the

true test for determi­

niµg whether an act is a step in the proceedings is not ~o much the

question as to whether it

is an application-although, of course,

that would

be a satisfactory test in

many cases-but whether the act

displays an unequivocal intention to proceed with the suit and to

give up the right io have the

matter. disposed of by arbitration. In

reaching this conclusion the Court relied upon Pord's Hotel Co. -v.

Bartlett,(') where Lord Shand observed. as under;

·, _ '.' ... this appears to me to have been in effect an

abandonment of the ·proposal to have the subject of the

-cause disposed of by arbitration" .•

The contention that when the defendant filed an unconditional

appearance, presumably having reference to the practice that had

grown up in Bombay High Court of appearance under protest. it

was a step in th~ proceeding as contemplated by s. 34 was negatived

and stay was granted. In Sansar Chand Deshraj, (supra) a Division

Bench cif the Madhya Pradesh' High Court approved the decision in

Nuruddin Abdulhussein, and held that mere filing of a reply to an

application for interim relief

by

way· of appointment of a receiver or

for issue

of an injunction

does not constitute a step in the proceed­

ing which would indicate that there .;, in effect abandonment of the

. proposal to have the _subject of cause disposed of by arbitration. It

may be pointed out here that the Division Bench decision of the

Madhya Pradesh High Court which wa' in terms binding on the

learned Judge of the High Court; and H was specifically submitted

to us that even though the attention of the learned judge

was invited

he-neither referred to

it nor distjnguished it. Times without number

this Court has observed that considerations

of judicial propriety

and decorum require that if a learned single Judge hearing a

matter

is

in~Jined to take the view contrary to the earlier

decision · of a Division Bench -of the same High Court, it

would

be 'judicial impropriety to ignore that

, decision but after

referring to the binding decision

he may direct that the papers be

placed before the Chief Justice of the High Court

tci enable him to

constitute a larger Bench to examine the question. Judiciai"Comity

.(!) [1896] A.C. \,

. ,

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FCOD CORPORATION v. YADAV ENGINEER (Desai, J,) 113

deman.ds that a binding decision .to which attention has been drawn

should neither

be ignored nor overlooked (see Mahadeo/al Kanodia v

..

The Administrator General of West Bengal,(') Sh~i Bhagwan & Anr v."

Ram Chand & Anr., (

2

)

and

St~te of Gujarat v. Ramprakash P. Puri ·

& Ors). (

8

).

. /.,

Jn Anandkumar Parmanand Kejriwala & Anr. v. Kama/adevi

Hiralal Kejriwdl,(I) a Division Bench of the Bombay High Court

approved the decision

of the learned single judge in Nuruddin

Abdul·

hussein and observed that the test of making an application being

styled as the step

in the proceedings is neither a

sok t<;st nor a

conclusive test and what

is such, a

step. in the ·procee\!ings has been

settled

by the decision of Tendolkar, J. The defendant having filed

appearance under protest and reserved the right

to

move the Court

for referring the dispute to arbitrat!on, contested the notice of,

motion take.n out for appointment of receiver and injunction in both .

of which ex parte order was made would not constitute a step in

the proceedings as would disentitle the defendant to an order

under

s.

34.·

Jn Queens College Kanetra & Anr. v, The Collector, Varanasi

·. &. Ors.,(') the defendant first applied for stay of proceedings under

s.

34 and after the court granted stay of proceedings requested the co~rt that the ex parte ad interim injunction be vacat@d. Two ·ob·

jections .were taken on behalf of the plaintiffs to this request of the

d<;fendant. One being that when the suit is stayed the· court

bas

no jurisdiction to deal with any part of the suit and secondly that' if the application for ad interim injunction had been contested

bef'ore obtaining stay

of the suit it would have been a .step in the . ·suit and the defendant would not have been entitled to an order for

stay

of the suit and,

therefore, his action 'Constituted a step in the.

proceeding. The Court negatived both the contentions and observed

that there could be no doubt th~t the act of the defedant to get an ·

· ex parte order of injunction vacated does not indicate ~n unequivo­

car intention to proceed with the siiit and to give up the righi to

(I) [!960] 3 SCR 578.

(2) [!965] 3 S.C.R. 218 at p, 228.

(3) [1970] 2 S,C,R, 875.

(4) AIR 1970 Bo.m. 231.

(5) AIR 1974 AU. 134.

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114 SUPREMB COURT REPORTS [1983)' 1 S.C.°!"•

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sion the Court approved the decision of the Madhya Pradesh High ~ ~

Court in Sansarchand and the decision of the Punjab High Court in

M/s. Charandas & Sons v. M/s. Harbhajan Singh Hardit Singh.(')

In Sri Ram Shah v. Mastan Singh & Ors.,(

2

)

a Division Bench

of Allahabad High Court approved the decision in Queens

College

Kane tr a.

In Biswanath Rungta v. Orlential Industrial Engineering Co.

Pvt. Ltd. & Ors.,(') a learned single Judge of the Calcutta High

' '

Court after referring to the decision of this court in Janki Saran

Kailashchandra

held that when the defendant sought to circumvent

~

the ex parte injunction obtained by the plaintiff he could. not be said "'

to have taken such a ste;; in the proceeding a> would disentitle him

to a relief under s. 34.

In Stata of Gujarat & Ors. v. The Ghanshyam Salt Works.('), a

learned single Jndge of the Gujarat High Court accepted the Allaha­

bad, Punjab a.nd Madhya Pradesh decisions as laying down the

correct

law and dissented from the view raken.in the earlier Calcutta

and Madras

cases. The learned

judge was of the view that appearing

an<! contesting an interim injunction application would not consti­

tute such a step as would dise·ntitle the defendant to an order under

s. 34. While reaching this conclusion he observed that the question

as to interim relief

is decided only on the

basis of the prima facie

case and nothing is decided finally. In such a case, therefore, to

prevent a defendant from contesting the interim application on the

pain of losing bi~ right to get the dispute decided by arbitra­

tion may, in a given case, work injustice, and a functional

'

approach in the matter of interpretation of the relevant words is ~

called for.

In

'Arjun Agarwal/a v. Baidya

Nath· Roy & Ors.,(

6

) a learned

single Judge of Calcutta High Court did not follow the earlier

·Calcutta decisions in view· of the decision of this Court in Janki

(!) AIR·t952 Punj. 109.

(2) AIR 1970 All. 288.

(3) AIR 1975 Cal. 222.

(4) AIR 1979 Guj. 215.

l') A.I.R. 1980 Cal. 354,

t

POOi> CORPORATION v. YAl>Av ENGINEER (Desai, J.j 115

Saran's case and agreed w h the decision in /Jiswanaih Rungta's ·

cas~.

In M/s. Bhonrilal Hiralal & Ors. v. Prabhu Dayal & Anr.,(')

a learned single Judge or'the Rajasthan High 'court after a review of

large number of decisions agreed with the Allahabad, Bombay and

Madhya Pradesh and lat~r Calcutta decisions and held that appear­

ing to contest an interlocutory application is· not a step in the

11rooeedings as would disentitle the . defendant t~ an order under

s, 34. ,

•

•

•

•

We would now refer to the set of decisions which take the

. ~ contrary view. In Subai Chandra Bhur v. Md. Ibrahim & Anr.(

2

) S.R.

f Das, J:, after referring to Ives & Barker v. Willans,(') and two earlier

' decisions of the Calcutta High Court concluded that in order to

· constitute' a step in the proceedings the act· in question:must be :.

(a) an application made to the Court either on summons ; or (b)

such an act as would indicate , that the party is acquiescing in the

method adopted

by the other side of having the disputes decided by

the Court. The second test is beyond question invariably

followpd

because if the party entitled to tbe benefit of arbitration agreement

by taking such step in the suit indicates that it is acquiescing inio

the method adopted by the other side for resolution of dispute, such

partr cannot at a later stage seek. to enforc~ the arbitration agree­

ment

by praying for stay of the suit. But with respect, merely ·• · making some applications in the. suit without examining the pJ!rpose,

object and implication of making ·the application would not always

.constitute snch step

as would disentitle the party making

sudh appli­

cation from seeking relief 'under

s. 34 on the short

grqurid that by

~merely making the application it has either abandoned jts right to

~""· enforce the arbitration agreement: by praying for stay of suit or has

.-ac<juiesced into the mode adopted by the opposite party for resolu­

tion of dispute. Every application ✈礠a party in the'.suit has to be

examined keepinglin view the purpose and the object in making the

application and what does the conduct

of the party making the

application disclose. After formulating the aforementioned test

the·

(I) AIR 1980 J.laj. 9.

(2) AIR 1943 Cal. 484.

(3l [1894] 2 Ch. 478.

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116 SUPREME COURT llEPORfS [1983] 1 s.c.a.

l~ilrned judge proceeded to apply the test to the facts before him

with which

we are not concerned. This decision was followed by

. the same High Court in

Amritraj Kothari v. Go/cha Financiers,(') and

, it was observed that it is difficult to make a distinction between filing

a written statement

in suit and filing an opposition to. an interlocu-

tory application in that

suit-both ,of them are ;taking step in the

suit'. The decision in

Sansarchand Deshraj was dissented from. It

. may, however be pointed out that"in the later decisions in Biswanath

Rungta

and Arjun Agarwal/a, the same High Court after

referring' to

the aforementioned {wo . decisions took the contrary view for which

reliance was placed' on the decisiop of this Court in Janki Saran's

case. The test formulated by the Calcutta High Court in the recent

decisions

is that the step which would disentitle the defendant from .

taking the benefit

of s. 34 must be

such step unequivocally showing ~"

that the party had acquiesced in the mode of resoiution of the dispute

adopted

by the other side or had abandoned its right to enforce the

. '

arbitration agreement. It was further observed that if an injunction

is obtained or a

receiver is appointed or a prayer to that effect is

made, any step taken to

get the order vacated or circumscribe the

injunction without in any

way touching upon the main dispute in

· the plaint would not be such a step as would disentitle the party

from obtaining stay

of the proceedings. To that extent the earlier

Calcutta

view is whittled down and the later decisions have adopted

the trend

of decisions in other

High Courts. • .

The earliest decision

of the Madras High Court is P. Gannu

Rao v. P. Thiagaraja Rao & Anr.(

2

)

Examining the ambit of the

expression 'taking step in the proceedings', it

was held that if

some­

thing is done by the party concerned which is in the nature of an

application to the court it

will necessarily come

under the category

of a step in the proceedings. After formulating this test the Court

held that when

ex parte interim injunction was served upon the

defendant and

'the defendant appears and prays for modification of

the injunction it constitutes a step in the proceedings which would

disentitle him from obtaining stay

of the suit. In reaching this

conclusion the Court amongst others placed reliance on the decision

of Das, J.

i~· Subal Chandra Bhur' s case; The ·Madras High Court

H (I) A.LR. 1966 Cal. 315 •

. (2) A.I.R. 1949 Mad .. 582.

•

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POOD CORPORATION v. Y'ADAV ENGINEER (Desai, J.) 117

has consistently followed this view in M/ s. Borte~ S. A .. v, Astouic

Compania Naviors S.V.,(

1

) & S. Ramalingam Chettiar v. S. Sarves­

waran & .Ors.(')

The Delhi ,High Court in M/s. Dadri Cement Co. & Anr. v .

. M/s. Bird & Co. Pvt. Ltd.,(') after referring to a large number of

decisions but particularly lhe Madras cases and early Calcutta cases

ultimately based t~e decision on the facts of the case. The Court

distinguished the decision of the Madhy~ Pradesh High Court in

Sansarchand Deshraj' s case observing that that is the decision based

on the facts

o(that case. The Delhi High

Court has not addressed .

.itself to the controversy under discussion.

'

In Kunta Malla Reddy v. Soma Srlnivas !?.eddy & Ors.,(4)

It was held that the expression 'steps in the proceedings' in s. 34

also comprehends step in interlocutory proceedings also. In reaching

this conclusion r~Jiance was placed on the decisions of the Madras

High Court.

A review

of these precedents would unmistakably indicate that

the trend

of tbe authorities . points in the direction of not treating

every application made

-in the suit ·as a step iu the proceeding nor

~ntering.appearance with a view to contesting the petition for interim

relief such as injunction or appointment of receiver as being steps in

the proceedings. Therefore, with respect,· the decisions taking the

contrary

view do not commend to us.

I

It is at this stage that ·we must refer to the decision in Jankl

Sarcn' s case in ~ome detail. In that case J anki Saran_ Kailashchandra

filed a suit against State of U.P. ·and Divisional Forest Officer,

Bijnor fo~ recovery of damages alleging breach of contract. The

/

summons in the suit issued to the State of U.P. was served on the

District Government Counse'l. On September 2, 19?6, the District

. Government Counsel

filed an appearance slip in the

Court and also

put in-.a formal application praying for· one month's time for the

purpose

of filing written statement.

On October 1, 1966 the

'District Government Counsel filed an applicatioµ under s. 14 of

the Act pleading that there was an arbitration cl~use· in the contr!lct

(I) A.J.R. 1970 Mad. 323.

(2) A.I.R. 1977 Mad .. 189.

" ' (3) A.l.R. 1974 Delhi 223.

(4) A.l.R 1978 A.P. 289.

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118 • SUPREME COURT jlEPORTS [1983] I s.c.R.

between parties to the suit and the State of U . .P. being willing to

refer the matter to arbitration the suit should

be stayed. The trial

court granted the motion for stay of suit.

On appeal the High Court

held that the action of the District Government. Counsel in applying

for time to

file the written statement amounted to taking a step in

'

the proceedings within the meaning of s. 34 of the Act, and set aside

the order

of the trial court and rejected the request for stay of

proceedings. State of

U.P. approached this Court against the

order

of the High Court. Rejecting the appeal this Court observed

as under :

"To enabfo a defendant to obtain an order. staying

the suit, apart from other conditions mentioned in

s. 34 · of the Arbitration Act, he is required to present his appli­

cation praying for stay before filing his written. statement

or taking any other. step in the suit proceedings. In the

present case the written statement

was indisputably not

filed before the application for stay was presented. The

question

is whether any other step was taken

in·. the procee­

ding as contemplated by s. 34, and it is this point with

which we 'are dire:ctly concerned in the present case. !~king

other steps in the suit proceedings connotes the idea of-

• doing soll]ething in a.id of the progress of the suit or sub­

mitting to the jurisdiction of the Court for the purpose

of adjudication of the merits of the controversy in the

suit"'

The view herein taken not only does not run counter to the view we·

have taken but in fact clearly supports the view because the pertinent

observation

is that taking step in the proceeding which would

disentitle a party to obtain a stay

of the suit must be doing

someth­

ing in aid of the.progress of the suit 9r submitting to the jurisdiction

of the court for the purpose of adjudication of the merits of the

controversy ill the suit. In other words, the step must aecessarily

manifest the intention

of the party

tq abandon or waive its right to

go to 11rbitr~tion or acquiesce in the dispute being decided by court.

Jn fact, the

view taken in

-this case should have quelled the contro­

-\lersy but it continued to figure in one form or the other and that is

why we have dealt with the matter in detall.

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•

FOOD CORPORATION d, YADAV ENGINEER (Desai, J.)

In this context it is advantageous to refer to the provision

contained

ins. 4 of Arbitration Act,

1950, of the United Kingdom.

It provides that

in order to be eligible to obtain stay of proceedings

the defendant must have taken no steps

in the proceedings after

appearance. Analysing what constitutes

step in the proceedings,

Inter a/ia, it has been held that the filing of affidavits in answer to

an application

by the plaintiff for appointment of receiver does not

amount to taking a step

jn the proceeding (see Zalinoff' v.

Hammond (

1

)

referred to in Halsbury's Laws of England, 4th End,

Vol. 2, para 563 note 12). · Russell on Arbitration, 19th Edn.,

page 183, under t·he heading "steps held not to be in the pro­

ceedings", notes that fi!ing affidavits in reply to plaintiff's affidavits

in support of a motion for a receiver in a partnership action is not a

step

in the proceedings. There are

5-6 other situations noticed by

the author ·which, when individually analysed, would show that the

steps taken with reference to interlocutory proceedings are ordinarily

not held

as .steps in the proceedings.

Having thus critically examined both

on principle and prece­

dent the meaning to

be given to the expressi0n 'taking steps in the

proceedii;igs,' we are clearly oft.he view that unless the sfep alleged

to have

been taken by the party seeking to enforce arbitration agree­

ment

is

·such 'as would display an unequivocal' intention to ·proceed

with the suit and acquiesce in the method of resolution of dispute

adopted

by the other party, namely, filing

of-the suit and ;thereby

indicate that it has abandoned its right under

the arbitration agree­meJ!t to get the dispute resolved by arbitration, any othe~ step ·

would not disentitle the party from seeking relief under s. 34. Ii

may be clearly emphasised that contesting the application for interim

injunction or for appointment of a receiver or for interim relief

by

itself without anything more would not constitute such step as would

disentitle the party to an order.under

s. 34 of the Act.

Reverting to the facts

of this case it is crystal clear that

·the

defendants had taken no steps in the proceedings which would

~ disenti.tle the~ to a relief under s. 34. Suit was filed on June I,

1981, 1mpleadmg twp defendants, Food Corporation of India Jst

defendant. and Shyam Narain Nigam, 2nd defendant, being the

District Manager of the !st defendant Corporation. Alongwith the

plaint a notice of motion

wa:s ta ken out for ex parte ad interim

. .

(!) [1898) 2 Cb. D. 92.

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120 SUPREME COURT REPORTS [1983] 1 s.c.Ji..

injunction. The Court issued notice on .the notice of motion and

made it returnable

on the next day, i.e. June 2, 1981. When the

matter

was placed on

Board of the Court on June 2, ·]981; the pro­

ceedings show that the District Manager, 2nd Defendant was served

and appeared through Advocate Shri N.K. Modi. Defendant I was

shown absent with an endorsement 'the summons showing service

not received back'. Then comes what transpired ·On that day as

disclosed

in 'the proceedings of the day. The same may be

extracted :

.

'

"Shri Modi filed Vakalatnama on behalf of defendant

No. 2 and prayed for time for reply and· arguments to

the plaintiff's application for temporary injunction.

Plaintiff's counsel has no objection. Therefore, request

is

1

accepted.

For reply arguments and awaiting service on 3rd

June 1981."

On June 3, 1981, an application for stay of suit was made on behalf

-· 1 •

. of the !st .. defendant. under s. 34. Exfacie, the proceedings did not

disclose any step having been taken

by the !st defendant in the

proceedings

as

would disentitle it to an order under s. 34. 2nd

defendant

was 'impleaded in his official capacity. Assuming the

application

ofthe 2nd defendant for filing reply to the interim

injunction application also binds the I

st defendant though it was not

served with the summons

yet an application seeking time to file reply'

to an interim injunction application cannot be said,

t,o be a step in

the proceedings as would display an unequivocal intention to

pro­

ceed with the suit or would disclose that the defendants had

acquiesced into the resolution

of dispute by the court or had abandon~d the rights under the arbitration agreement;

-:,

The learned judge also-negatived the prayed for stay for

the additional reason that the

1st defendant had not

com-'

plied with another condition for relief under s. 34. The

learned judge found that 'in the application for stay the

applicant had not stated that at the time when the proceedings were

commenced it was ready and willing to do all things necessary to

the proper conduct of the arbitration and still remains ready .and

willing to

do the

same.· The learned judge held after referring to the

avern1ents in the application for stay that there· is no averment to

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•

>-.. ..

FOOD co.RPORATION v. YADAV ENGINEER (Desai, J.) 121

that effect. Plaintiff" contesting the application had not raised ·

this contention before the trial court "arid the first appellat~

court and that becomes .evident from what the learned judge

. has stated in the judgment that

b.oth the courts have not

taken into account this aspect

of the case at all. Obviously .the

learned judge ought not to have permitted the contention while

hearing a revision petition under

s. 115 of the Code of Civil

Proce­

dure. But apart from this,. the finding of 'the learned judge is

cont.rary to record. The application for stay was read over to us

and a copy was submitted for onr perusal. . In para 2 of the appli­

calion it is dearly stated that 'the defendant · is ready and willing

(ichhuk) for this purpose: It appears that the original application

was in Hindi. The important word used in the application is ichhuk

whicli, it was agreed, would mean ready and willing. '1t is fol!Qwed

by the expression 'for this purpose' which would imply that the lst

defendant

was always ready and. willing to proceed with

the arbitra­

tion when commenced and is shown to be ready and willing at the

time of applying for stay. Therefore, the !st defendant had comp­

lied with the requirement of his readiness a:nd. willingness to go· to

arbitration. Therefore, the learned judge was clearly in error in ,

interfering with the order of the trial court confirmed by the !st

appellate court on this ground also.

Accordingly

we hold-that the learned judge of

the High Court

. was clearly in error in interfering. with the order made by the trial

court and confirmed in appeal granting stay

of the

·suit. The judg­

. ment of the High Court is accordingly set aside and th·e one made

by the trial-court and confirmed in appeal is ·restored with no order

as to costs.

P.B.R.

ppea/ allowed.

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