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PETITIONER: SECURITY & FINANCE (P) LTD. & ANR.

       Vs.

RESPONDENT: DATTARAYA RAGHAV AGGE & ORS.

DATE OF JUDGMENT: 08/11/1968

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. SHAH, J.C. GROVER, A.N.

CITATION:  1970 AIR  720            1969 SCR  (2) 668  1969 SCC  (1) 181

ACT:     Arbitration  Act  10 of 1940, s.  35--Civil  suit  filed during pendency of dispute before arbitrator--Notice of suit given    under   s.   35   to   arbitrator   and    opposite party--Arbitrator   nevertheless   recording   evidence   of opposite  party  and giving  award--Whether  arbitrator  and opposite party guilty contempt of court and s. 3 Contempt of Courts Act (32 of 1952).

HEADNOTE:     A  hire-purchase agreement was entered into between  the appellants  and  respondent No. 1  Under  that  agreement  a motor transport truck was made available to respondent No. 1 for  doing  transport business. The agreement  contained  an arbitration clause for settlement of disputes When  disputes arose    reference    was    made    to    an    arbitrator. Respondent  No.  3  a praetising lawyer  was  named  as  the arbitrator.    During  the  pendency  of   the   arbitration proceedings  respondents Nos. 1 and 2 filed a civil suit  in which  they  claimed a declaration  that  the  hire-purchase agreement was brought about by fraud and was not binding  on them   on various grounds.  The suit was registered and  the court ordered summons to be issued to the two appellants.  A notice  was  also  issued  by   respondent  No.  1  to   the appellants  and  the arbitrator with a copy of  the  plaint. When  the  arbitrator  made an  award  after  recording  the evidence of the appellants respondents Nos. 1 and 2 filed an application  under s. 3 of the Contempt of Courts Act on the allegation  on that the appellants and respondent No. 3  had committed  contempt  of  court  in   proceeding   with   the arbitration reference in spite of the notice under s. 35  of the  Arbitration  Act  being  given  and  in  spite  of  the knowledge  of the suit which was filed by respondents 1  and 2.  The application was contested by the appellants as  well as the arbitrator.  The appellants contended that in obeying the  orders of the arbitrator to produce evidence  they  did not  commit any contempt.  Respondent No. 3 denied  that  he conducted the arbitration proceedings in order to defeat the object of the suit.  The High Court found the appellants and respondent  No.  3 guilty of contempt of court on  the  view

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that their conduct had a tendency to bring into contempt the proceedings before the Civil Court.  In appeal to this Court by certificate,     HELD: The High Court was in error in holding that in the circumstances of the case the appellants and respondent  No. 3 were guilty of contempt of court.     Section  35  of the Arbitration Act does  not  expressly prohibit  the arbitrator from continuing the hearing of  the reference.  Its only effect is that "all further proceedings in  a pending reference shall, unless a stay of  proceedings is  granted under s. 34, be invalid".  For this  consequence to  follow, however. two important and  distinct  conditions must  be satisfied, namely, (1) that such legal  proceedings must  be upon the whole and not merely part of the  subject- matter  of   the reference  and (2) that a  notice  of  such legal  proceeding must be given to the arbitrator.  Even  on the assumption that these conditions were satisfied the only effect is that the further proceedings before the arbitrator after  the  receipt of the notice are rendered  invalid  and there is no prohibition under s. 35 requiring the arbitrator not  to  carry  on the  arbitration  proceedings  after  the receipt of the notice. [672 G--673 B] 669     It  is  well established that an  authority  holding  an enquiry in good faith in exercise of the powers vested in it by  a  statute  is not guilty of contempt of  court,  merely because  a parallel enquiry is imminent or pending before  a court.   To  constitute the offence  of  contempt  of  court there  must be involved some ’act done or writing  published calculated  to  bring a court or a judge of the  court  into contempt or to lower his authority’ or ’something calculated to obstruct or interfere with  the  due course of justice or the lawful process of the court’. [673 C]     Reg. v. Gray [1900] 2 Q.B. 36, Arthur Reginald Perera v. The   King, [1951] A.C. 482, Tukaram Gaokar v. S.N.  Shukla, [1968]  3 S.C.R. 422 and Rizwan-ul-Hasan v. State  of  Uttar Pradesh, [1953] S.C.R. 581,  588, applied.     It  followed  therefore that even if the action  of  the appellants  and  respondent No. 1 in the  present  case  was assumed to be improper it would not justify the finding that they were guilty of contempt of court when their action  was in no way calculated to obstruct the course of justice or to prejudice the trial of the civil suit.

JUDGMENT: CRIMINAL  APPELLATE JURISDICTION: Criminal Appeal No. 49  of 1967.     Appeal from the judgment and order dated August 14, 1964 of  the  Bombay  High Court, Nagpur  Bench  in  Misc.  Civil Application No. 13 of 1963. Mohan Behari Lal, for the appellants. V.K. Sanghi and Ganpat Rai, for respondents Nos. 1 and 2. The Judgment of the Court was delivered by     Ramaswami,  J.   This appeal is brought  by  certificate from  the  judgment of the Bombay High  Court  Nagpur  Bench dated August 14, 1964 by which the appellants were convicted for  contempt  of  Court of Civil  Judge,  Junior  Division, Nagpur  and sentenced to pay a fine of Rs. 200/-  each.   By the  same  judgment respondent no. 3, Sri Ram Nath  Vig  was also  convicted for contempt and sentenced to pay a fine  of Rs. 100/-.     It  appears that a hire-purchase agreement  was  entered into  between the appellants  and respondent no. 1   on   or

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about August 12, 1959.  Under that agreement a motor   truck was  made available to respondent no. 1 for doing  transport business.   The   hire-purchase   agreement   contained   an arbitration  clause  for  settlement  of  disputes   arising between the parties.  It appears that subsequently  disputes did arise between the parties and a reference was made to an arbitrator to settle the disputes.  Resportdent  no.  3, Sri Ram Nath Vig  who is a  practicing  lawyer in Delhi was  the person  named  as arbitrator in  the  arbitration  agreement itself and the dispute was submitted to him on or about June 25, 1962 at the instance of the appellants.  Thereafter  the arbitrator   gave  notice  of  the  reference  and   invited statements  of  the parties.  He fixed the  hearing  of  the arbitration   matter before him on July 17, 1962.  The  case of  respondent  no. 1 is that he did not receive  notice  of this date from the arbitrator and 4Sup. C.I./69--10 670 therefore  he  did  not  appear on  the  date  fixed.    The arbitrator adjourned the hearing of the reference to another date, namely, August 29, 1962.  The contention of respondent no. 1 is that he was not given intimation of this date  also but   this  point  is  controverted  by   the   respondents. Respondents nos. 1 and 2 filed a Civil Suit in the Court  of Civil  Judge, Senior Division,  Nagpur  on August 30,  1962. In  this  suit  they claimed a declaration  that  the  hire- purchase  agreement was brought about by fraud and  was  not binding on them on various grounds.  The suit was registered and  the  court  ordered summons to be  issued  to  the  two appellants. Meanwhile, the arbitrator postponed the  hearing of  the  reference to September 15, 1962 and it  is  alleged that  he  issued  fresh notices to the parties on  September 1,  1962.   The hearing was again adjourned to  October  23, 1962 and it is said that resportdent no. 3 made an award  on October 24, 1962.  It has been found by the High Court  that on October 18, 1962 a notice was issued by respondent no.  1 to  the  appellants and the arbitrator with ’a copy  of  the plaint.   This  notice  was received by  the  appellants  on October  22,  1962.  In spite of this notice,  evidence  was recorded  by the arbitrator on October 23, 1962 and he  made the award on the next day  directing respondent  no.  1   to pay Rs. 20,400/-.  The allegation of the arbitrator is  that he received the notice sent on October 18, 1962 on the  next day of the award i.e., on October 25, 1962.  It appears that in  the  civil suit filed by respondents 1 and 2  which  was registered as Civil Suit no. 657 of 1962 on the file of  the Civil Judge, Junior Division, the first date of hearing  was fixed,  on  October 15, 1962.  On that date  the  appellants filed an application under s. 34 of the Arbitration Act  for staying  the proceedings before the court.  No progress  was made in the suit which was adjourned to November 6, 1962 and again   to  November  28,  1962  at  the  instance  of   the appellants.  Finally  on November 28,  1962  the  arbitrator informed  respondent no. 1 that he had made the  award.   On these  facts respondents 1 and 2 filed an application  under s.  3 of the Contempt of Court’s Act for action being  taken ,against  the two appellants, respondent no. 3 and one  more person.   According to  respondents 1 and 2  the  appellants and  respondent  no. 3 had committed contempt  of  court  in proceeding with the arbitration reference in spite of notice under s. 35 of the Arbitration Act being given and in  spite of the knowledge of the suit which was filed by  respondents 1  and 2.  The application was contested by the  ’appellants as  well as the arbitrator. The case of the  appellants  was that  the  suit  itself was not sustainable  and  they  were unaware  that participation in the  arbitration  proceedings

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after  receipt of notice was precluded by law and that  they honestly  and  bona  fide  believed   that   they  were  not expected to take any action after the receipt of the  notice without  direction  from  the arbitrator.  It  was  for  the arbitrator  to  take a decision in the matter  and  ’if  the arbitrator decided to pro- 671 ceed  with the arbitration, they only obeyed the  orders  of the arbitrator and therefore had not committed any contempt. The  defence of respondent no. 3 was that in completing  the arbitration and giving his award he was only performing  his duty.  He denied that it was necessary for him to await  the result of the stay application alleged to have been made  by respondent no. 1 in  the Nagpur Court as he was of the  view that  the  subject-matter in the Nagput Court  was  not  the whole  subject-matter  under arbitration, Respondent  no.  3 denied  that  he  had  any bias or  that  he  conducted  the arbitration proceedings in order to defeat the object of the suit and to place an impediment in the conduct of the  suit. The High Court rejected the contention of the appellants and of  respondent  no.  3  and held  that  the  action  of  the appellants  in participating in the arbitration  proceedings and the conduct of respondent no. 3 constituted contempt  of court  as  the  conduct  of respondent  no.  3  and  of  the appellants  had  a  tendency  to  bring  into  contempt  the proceedings before the Civil Court.     It  is necessary at this stage to set out  the  relevant provisions of the Arbitration Act (X of 1940).  Sections 32, 33, 34 and 35 are to the following effect:                     "32.  Notwithstanding  any law  for  the               time being in force, no suit shall lie on  any               ground  whatsoever  for a  decision  upon  the               existence,   effect   or  validity    of    an               arbitration agreement or award, nor shall  any               arbitration  agreement or award be set  aside,               amended,  modified  or  in  any  way  affected               otherwise than as provided in this Act."                     "33.   Any  party  to   an   arbitration               agreement  or any person claiming   under  him               desiring   to  challenge  the   existence   or               validity  of  an arbitration agreement  or  an               award   or  to  have  the  effect  of   either               determined  shall apply to the Court  and  the               Court shall decide the question on affidavits:                     Provided  that where the Court deems  it               just   and  expedient,  it may  set  down  the               application  for  hearing on  other  evidence,               also,   and  it  may  pass  such  orders   for               discovery  and particulars as it may do  in  a               suit."                     "34.  Where any party to an  arbitration               agreement  or  any person claiming  under  him               commences  any legal proceedings  against  any               other  party  to the agreement or  any  person               claiming  under him in respect 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   proceedings,  apply  to   the   judicial               authority before which the proceedings are               672               pending  to  stay  the  proceedings,  and   if               satisfied  that there is no sufficient  reason               why  the  matter  should not  be  referred  in               accordance with the arbitration agreement  and

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             that  the applicant was, at the time when  the               proceedings were commenced, and still remains,               ready  and willing to do all things  necessary               to the proper conduct of the arbitration, such               authority  may  make  an  order  staying   the               proceeding."                     "35.  (1 ) No reference nor award  shall               be   rendered  invalid  by  reason   only   of               commencement  of  legal proceedings  upon  the               subject-matter  of  the  reference,  but  when               legal  proceedings  upon  the  whole  of   the               subjectmatter  of  the  reference  have   been               commenced  between  ’all the  parties  to  the               reference and a notice thereof has been  given               to  the  arbitrators  or  umpire  all  further               proceedings,  in  a pending  reference  shall,               unless a stay of proceedings is granted  under               section 34, be invalid.                     (2)  In  this  section  the   expression               ’parties   to  the  reference’  includes   any               persons claiming under any of the parties  and               litigating under the same title."     In  our opinion, the High Court was in error in  holding that  in the circumstances of this case the  appellants  and respondent  no. 3 were guilty of contempt of court.   It  is not  disputed  that there was an arbitration clause  in  the agreement  between  the appellants and respondent no. 1  and in terms of the arbitration clause respondents 1 and 2 had a fight  to refer the dispute to the arbitrator.  It  is  also not disputed that a reference to the arbitrator was made  by respondents 1 and 2 long before the institution of the civil suit.   It  is also apparent that in view  of  the  admitted existence  of  the  hire purchase  agreement  containing  an arbitration  clause  the remedy of respondent no. 1  was  to move   the  Civil Court under s. 33 of the  Arbitration  Act challenging  the existence or validity of  the  ,arbitration agreement  and  to  have  its  effect  determined.   It  was contended  on behalf of the appellants that a separate  suit was  barred under s. 32 of the Arbitration Act.  We  do  not wish  to  express any opinion on this point in  the  present case.   Even  on  the  assumption that  the  suit  filed  by respondents  nos. 1 and 2 in the Nagpur Court is  competent, the question arises whether the arbitrator was bound to stay the   proceedings  beforehim  after  he  got   notice   from respondents  1 and 2 of ’the institution of the civil  suit. Section  35  of  the  Arbitration  Act  does  not  expressly prohibit  the arbitrator from continuing the hearing of  the reference but the only effect of s. 35 is that "all  further proceedings in a pending reference shall, unless  a stay  of proceedings is granted under s. 34, be invalid".  For   this consequence  to follow, however, two important and  distinct conditions  must be satisfied, namely, (1) that  such  legal proceedings must be upon 673 the  whole and not merely part of the subject-matter of  the reference,  and   (2)  that  a notice  of   such   a   legal proceeding must be given to the arbitrator.  We do not  wish to  express any opinion as to whether these conditions  were satisfied  in  this case. But even on  the  assumption  that these conditions were satisfied the only effect is that  the further proceedings before the arbitrator after the  receipt of  the  notice  are  rendered  invalid  and  there  is   no prohibition  under  s. 35 requiring the  arbitrator  not  to carry  on the arbitration proceedings after the  receipt  of the notice.

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   It  is  well-established that an ’authority  holding  an inquiry in good faith in exercise of the powers vested in it by  a  statute is not guilty of contempt  of  court,  merely because  a parallel inquiry is imminent or pending before  a court To constitute the offence of contempt of court,  there must  be  involved  some  ’act  done  or  writing  published calculated  to  bring a court or a judge of the  court  into contempt or to lower his authority’ or ’something calculated to  obstruct or interfere with the due course of justice  or the  lawful process of the court--(See Reg. v.  Gray(1)  and Arthur Reginald Perera v. The King(2).  In Tukaram Gaokar v. S.N.  Shukla(3),  it  was  held  by  this  Court  that   the initiation and continuance of proceedings for imposition  of penalty on the appellant  for  his alleged complicity in the smuggling  of gold under s. 112(b) of the Sea  Customs  Act, 1962 did not amount to contempt  of  court though his  trial in a criminal court for offences under s. 135(b) of that Act and  other  similar  offences was  imminent  ’and  identical issues  would  arise in the proceedings before  the  customs authorities and in the trial before the criminal court.     In  Rizwan-ul-Hasan  v. The State  of  Uttar  Pradesh(4) this Court stated:                     "As   observed   by  Rankin,   C.J.   in               Anantalal Singha v. Abred Henry Watson [(1931)               58  Cal.  884  at 895],  the  jurisdiction  in               contempt is not to be invoked unless there  is               real  prejudice  which can be  regarded  as  a               substantial  interference with the due  course               of justice and that the purpose of the court’s               action  is  a  practical  purpose  and  it  is               reasonably  dear on the authorities  that  the               court will not exercise its jurisdiction  upon               a mere question of propriety." It     follows  therefore  that even if the  action  of  the appellants  and respondent no. 1 in this case is assumed  to be  improper it will not justify the finding that they  were guilty of contempt of court when their action was in no  way calculated to obstruct the course of justice or to prejudice the trial of the Civil suit. (1) [1900] 20.B. 36. (2) [1951] A.C. 482. (3) [1968] 3 S.C.R. 422. (4) [1953] S.C.R. 581,588, 674     For  these reasons we hold that this ,appeal  should  be allowed  and  the  judgment of’ the High  Court  of  Bombay, Nagpur  Bench dated August 14, 1964 should be set aside  and the  conviction  and sentences imposed  on  the   appellants should be quashed.  The arbitrator, respondent no. 3 has not flied  an appeal but in view     of our finding with  regard to  the  appellants it is necessary that the  conviction  of respondent  no. 3 and the sentence imposed upon  him  should also be quashed.  The fines, if already paid by  respontdent no. 3 and the ,appellants should be refunded. G.C.                                      Appeal allowed; 675