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CASE NO.: Appeal (civil)  326 of 2007

PETITIONER: M/s. Agri Gold Exims Ltd

RESPONDENT: M/s. Sri Lakshmi Knits & Wovens & Ors

DATE OF JUDGMENT: 23/01/2007

BENCH: S.B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T (Arising out of SLP(C) No. 7148 of 2006)

S.B. Sinha, J.         Leave granted.

       An order of the Andhra Pradesh High Court dated 16th December,  2005 passed in Civil Revision Petition No. 5241 of 2004 directing the  parties to take recourse to the provisions of the Arbitration and Conciliation  Act, 1996 (for short "the 1996 Act") opining that the suit filed by the  appellant herein was not maintainable, is in question before us.

       Appellant and the predecessor-in-interest of the respondents entered  into a Memorandum of Understanding on 8.05.2002 in relation to their  businesses of export.  The same Memorandum of Understanding contained  an arbitration clause in the following terms:

       "In case of any dispute between the two parties,  the same shall be referred to Arbitration, by two  Arbitrators, nominated by each of the parties.  The  Award of the Arbitrators shall be binding on both the  parties."

       Disputes and differences arose between the parties.  However, the  person who was managing the affairs of the respondents \026 firms passed  away.  His daughter thereafter took over the business of the firms.  By a  letter dated 03.08.2003, it was stated:

       "It is with great sorrow and regret that we write to  inform you the said demise of our beloved Mr. R.  Srivatsan, Managing Director of our Company on the 1  August, 2003 at 20-45 hrs after a brief illness.  He  suffered a massive heart attack and succumbed.

       However the business interests of the company  will be continued to fulfil his cherished goal and vision.   Our company will strive to carry forward his legacy  which will serve as a beacon light in all our future  endeavours.                  We wish to reiterate all our customers that  business will be carried on a usual and all our  commitments and obligations shall be made without any  interruption.

       We seek your fullest co-operation at this juncture

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to achieve and end results and fulfill Mr. R. Srivatsan’s  cherished dreams."

       They entered into a purported settlement of dispute in relation to the  amount due and owing to the appellant.  In terms of a letter dated  08.08.2003, it was stated:

"We observe that you have charged interest of  Rs.827755/- which amount could kindly waive.   Out of the principal balance amount of Rs.17.50  lakhs, we are in a position to pay at best Rs.5 lakhs  only.  We have arrived at this figure after  thoroughly analyzing our situation.  We are  confident that such a large and prestigious  Company like yours will definitely lend as your  hand of friendship and bail us out of our current  situation."

       They asked for waiver of some interest, etc. which allegedly was  accepted by it.  The respondents issued five post dated cheques of Rs.  11,25,000/- each, which were forwarded by a letter dated 9th January, 2003  stating: "We are enclosing herewith five post dated cheques  Bearing Nos.: 574351 TO 574355 (5 Cheques) drawn  ICICI Bank Ltd., Mount Road, Each R. 11,25,000/-  (Eleven Lakhs Twenty Five Thousand only) towards  settlement of your outstanding calculated on approximate  basis.

Once the overseas bills are realized we shall arrive at the  exact amount balance.  And if anything to be paid, we  shall pass it on the same to you by a separate cheque with  in 30 days time."

       The said cheques were presented to the bank.  Payments in terms of  three cheques bearing Nos. 574351 dated 21.4.2003, 574352 dated  21.5.2003 and 574353 dated 21.6.2003 were honoured whereas the fourth  cheque bearing No. 574354 dated 21.7.2003 was dishonoured on  29.07.2003.                    Admittedly, Respondents without prejudice to their rights and  contentions sent a demand draft bearing number 028881 drawn on  18.08.2003 for a sum of Rs. 11,25,000/- which was accepted by the  appellant.  Yet again on 12.09.2003, the respondents without prejudice to  their rights sent another demand draft bearing number 029612 for a sum of  Rs. 11,25,000/-.

       Before receipt of the said payments, however, the appellant filed a suit  in the District Court at Vijaywada for a decree for a sum of Rs. 36,14,887/-,  the cause of action wherefor was stated as under:

"The cause of action has arisen on 08-05-2002 when the  memorandum of Understanding was executed between  the plaintiff and the Defendant, and on all subsequent  dates when the various transactions took place and on   29-07-2003, when the Cheque dated 21-07-2003 issued  by the 1st Defendant was dishonoured."

       Dishonour of the cheques was not put as a cause of action for the suit.

       In the said suit, the following prayers were made:

"(a)    For the Suit amount of Rs.36,14,887/- (Rupees  Thirty Six Lakhs Fourteen Thousand Eight  Hundred and Eighty Seven only).  

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(b)             For future interest @ 24% p.a. on Rs.53,79,149/-          (Rupees Fifty three Lakhs Seventy nine Thousand          One Hundred and Forty Nine only) from the date          of the suit till the date of realization."

       Respondents in the said suit filed an application praying for reference  of the dispute to the arbitral tribunal in terms of the arbitration clause  contained in the said Memorandum of Understanding and contended that the  suit filed by the appellant was not maintainable.  By reason of a letter dated  23.08.2004, the said application was dismissed opining that no dispute  existed between the parties for reference to an arbitration.

       On a revision application filed by the respondents herein, the High  Court, however, reversed the said order by the impugned judgment.

       Mr. Annam D.N. Rao, learned counsel appearing on behalf of the  appellant, would submit that keeping in view of the fact that the respondents  herein had accepted their liabilities, it cannot be said that there existed a  dispute or dispute by and between the parties within the meaning of Clause  20 of the Memorandum of Understanding dated 8.05.2002.  According to the  learned counsel, as the respondents accepted their liability, pursuant whereto  and in furtherance whereof, they issued post dated cheques, a suit for  realization of the amount under the said cheques would not attract the  provisions of the 1996 Act.

       Mr. Anupam Lal Das, learned counsel appearing on behalf of the  respondents, on the other hand, submitted that in view of the fact that the  respondents had paid the balance amount of Rs. 22,50,000/- by way of two  demand drafts dated 18.08.2003 and 12.09.2003, on its own showing, the  appellant has no subsisting cause of action and, thus, it should withdraw the  suit.          Difference between Section 34 of the Arbitration Act, 1940 and  Section 8 of the 1996 Act is distinct and apparent.  Section 8 of the 1996 Act  makes a radical departure from Section 34 of the 1940 Act.  The 1996 Act  was enacted in the light of UNCITRAL Model Rules.

       We need not dilate on this issue as this aspect of the matter has been  considered by this Court in  Rashtriya Ispat Nigam Limited & Anr. v. M/s.  Verma Transport Company [2006 (7) SCALE 565], wherein this Court  noticed:

"Section 34 of the repealed 1940 Act  employs the expression ’steps in the proceedings’.   Only in terms of Section 21 of the 1940 Act, the  dispute could be referred to arbitration provided  parties thereto agreed.  Under the 1940 Act, the  suit was not barred.  The Court would not  automatically refer the dispute to an arbitral  tribunal. In the event, it having arrived at  satisfaction that there is no sufficient reason that  the dispute should not be  referred and no step in  relation thereto was taken by the applicant, it could  stay the suit.                   

Section 8 of the 1996 Act contemplates  some  departure from Section 34 of the 1940 Act.   Whereas Section 34 of the 1940 Act contemplated  stay of the suit; Section 8 of the 1996 Act  mandates a reference.  Exercise of  discretion by  the judicial authority, which was the hallmark of  Section 34 of the 1940 Act,  has been taken away  under the 1996 Act.  The direction to make  reference is not only mandatory, but the arbitration

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proceedings to be commenced or continued and  conclusion thereof by an arbitral award remain  unhampered by such pendency.  [See  O.P.  Malhotra’s  ’The Law and Practice of Arbitration  and Conciliation’, 2nd Edition, pp. 346-347]"       

       Respondents had not filed any written statement in the suit.  They had  not disclosed their defence.  They indisputably had raised a dispute in regard  to the claim of the appellant.  We have noticed the arbitration agreement  entered into by and between the parties.  It is of wide amplitude.  The  arbitration agreement brings within its fold dispute of any nature  whatsoever.  It is in broadest term.  Respondents had made payments  without prejudice to their rights and contentions.  Payments were made  keeping in view the ongoing business relationship between the parties.  Out  of the five post dated cheques, two were dishonoured.  But, despite  pendency of the suit, payments had been made to satisfy the claim of the  appellant in respect of the cheques which were dishonoured.  Sufficient  explanation has been offered by the respondents therefor.  Certain  contingencies of events, as indicated hereinbefore, are not in dispute.  If the  suit was confined to the amount in respect of those two cheques, the  contention of Mr. Rao could have been accepted.  But it is not so.

       The term ’dispute’ must be given its general meaning under the 1996  Act.   

       In P. Ramanatha Aiyar’s Advanced Law Lexicon, 3rd edition, page  1431, it is stated:

"In the context of an arbitration the words  "disputes" and "differences" should be given their  ordinary meanings.  Because one man could be  said to be indisputably right and the other  indisputably wrong, that did not necessarily mean  that there had never been any dispute between  them\005"

       Admittedly, the appellant’s claim is not confined to the question  regarding non-payment of the amount under the two dishonoured cheques.   Thus, there existed a dispute between the parties.  Had the dispute between  the parties been confined thereto only, the same had come to an end.

       Appellant evidently has taken before us an inconsistent stand.  If he  was satisfied with the payment of the said demand drafts, he need not pursue  the suit.  It could have said so explicitly before the High Court.  It cannot,  therefore, be permitted to approbate and reprobate.

       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. v. Pinkcity Midway Petroleums, (2003) 6  SCC 503 and Rashtriya Ispat Nigam Limited (supra)]  No issue, 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.     

       For the reasons aforementioned, there is no merit in this appeal which  is dismissed accordingly with costs.  Counsel’s fee assessed at Rs. 25,000/-.