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PETITIONER: STATE OF ORISSA

       Vs.

RESPONDENT: KLOCKNER AND COMPANY & ORS

DATE OF JUDGMENT:       16/04/1996

BENCH: VENKATASWAMI K. (J) BENCH: VENKATASWAMI K. (J) VERMA, JAGDISH SARAN (J)

CITATION:  JT 1996 (4)   254        1996 SCALE  (3)527

ACT:

HEADNOTE:

JUDGMENT:                           W I T H                CIVIL APPEAL NOS. 7574-76/1996 Orissa Minining Corporation V. Klockner & Co. & Ors.                           W I T H          SPECIAL LEAVE PETITION (C) NO. 19846/1995 M/s. Klockner & Company V. Orissa Mining Corporation Ltd & Ors.                       J U D G M E N T K.VENKATASWAMI. J.      The above Civil Appeals arise out of an Order passed in Misc. Case  No. 426/93  in T.S.152/93  on the  file of Civil Judge, Bhubaneswar  dated 16.4.94  which was later upheld by the Orissa  High Court  by Order  dated 12.5.95.  Against  a single Order of the learned Civil Judge, Bhubaneswar in M.C. No.426/93, the  State  of  Orissa  filed  one  Miscellaneous Appeal No.553/94  and Civil  Revision  Petition  No.  262/94 before the  Orissa High  Court on  the plea that there was a doubt whether  an appeal  or  revision  petition  would  lie against  the   Order  of   the  Civil   Judge  in  the  said Miscellaneous Case.  The High Court rendered its decision in Civil Revision  Petition No.  262/94. However.  while moving this Court,  the State  of Orissa not only filed two Special Leave Petitions  against the common Order of the Orissa High Court in  Civil Revision  and Civil Miscellaneous Appeal but also preferred  independent Special  Leave Petition  against the Order  of Civil Judge, Bhubaneswar in Miscellaneous Case No.  426/93.   Likewise,  the   Orissa  Mining   Corporation (appellant  in  C.A.  Nos.7574-16/95  and  third  respondent before the  High Court),  has also filed three Special Leave Petitions against  the common order of the High Court and of Civil Judge.  After leave  was granted,  all  these  Special Leave Petitions  were numbered as Civil Appeals as mentioned above.

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    Brief  facts,  shorn  of  details,  necessary  for  the disposal of these Appeals are as under :-      The first respondent herein, namely, Klockner & Company entered  Company,  entered  into  an  agreement  on  20.4.82 described  as   "Marketing  Agreement"  with  Orissa  Mining Corporation (hereinafter referred to as "O.M.C." for short), a Government  of Orissa  Undertaking. We  are not giving all the clauses  in the  agreement under consideration. The said agreement inter alia stipulated that O.M.C. will establish a plant at  Bamnipal in  the district of Keonjhar, Orissa, for production of  "charge chrome"  (hereinafter called  as  the "product"). It  (OMC) agreed  to  market  the  said  product exclusively through  Klockner and  Co. upon  the  terms  and conditions contained in the said agreement to which Klockner & Co.  gave acceptance. The agreement stipulated that during the currency  of the agreement, O.M.C. shall not be entitled to market  its product  by direct  contracts with purchasers nor shall  it be  entitled to market its product through any agent or  distributor other  than the  Klockner and Co. That during the  currency of  the agreement, the Klockner and Co. shall not  be entitled  to purchase  the  product  from  any source in  India other  than O.M.C.  One important clause in the agreement  is that  the delivery  of the  product  shall commence by  April 1985  and shall continue over a period of five years  but it  will not  come to  an end  until a total quantum of 250,000 MT of the product was delivered. There is also a  clause in  the agreement  enabling  the  parties  to extend the  period by  mutual consent.  According to another clause in  the agreement,  if the agreement is terminated by mutual  consent   or  cancelled,  then  notwithstanding  the termination/cancellation of the agreement, the parties shall remain responsible  for the  fulfillment of  any obligations which     are     outstanding     at     the     time     of termination/cancellation of  the agreement.  It  was  agreed that OMC will pay to Klockner & Co. a commission on the sale of the product effected in the territory in consideration of the services  rendered by  it in  terms of the agreement and the commission  shall be  4% of  the final  FOB value of the product sold.  The  said  commission  shall  be  payable  to Klockner &  Co. by  way  of  reduction  from  each  invoice. Another important  clause for  the purpose  of  disposal  of these Appeals is clause 15 in the agreement which relates to arbitration. It reads as follows:      "15.1. In  the remote  and unlikely      event of  there being  any  dispute      or  difference  whatsoever  arising      between  the   parties  out   of/or      relating   to   the   construction,      meaning and  operation or effect of      this contract or the breach thereof      shall be settled in the first place      by amicable  agreement, failing  an      agreement  all   disputes   arising      between OMC and Klockner within the      framework of  this contract  are to      be referred  to  the  International      Chamber of  Commerce. The  place of      arbitration shall be London or such      other place  as is  mutually agreed      upon. The  law applicable  shall be      substantial Swiss  Law or any other      law mutually agreed upon.."      Subsequent  to  the  original  agreement  as  mentioned above, another agreement was entered into on 16.2.87 between OMC and  Orissa Mining  Corporation (Alloys) Ltd. which is a

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wholly-owned subsidiary  company of  OMC  to  implement  and establish  100%   export  oriented   unit  at  Bamnipal  for manufacturing inter  alia charge  chrome  in  which  it  was stipulated that  OMC has  already entered  into a  marketing arrangement with  Klockner &  Co. of the Federal Republic of Germany under  which OMC is to market the products of Alloys exclusively through  Klockner & Co. and that Alloys products would be  handled through  the agency and instrumentality of the OMC  on the basis of OMC’s agreement with Klockner & Co. and the  terms and  conditions of  the  marketing  agreement between OMC  and Klockner  & Co. dated 20th April, 1982 will be treated  as if  OMC (Alloys)  replaced OMC.  It is not in dispute that the agreement was acted upon by the parties and pursuant to  that 108,429 MT of charge chrome were delivered leaving a balance of 141,571 MT of Charge Chrome undelivered as per the agreement.      In the  meanwhile the  Department of Company Affairs of the  Govt.   of  India   ordered  merger  of  Orissa  Mining Corporation (Alloys)  with the  Orissa Mining Corporation on 30.8.91.      Shortly  after  the  merger  as  mentioned  above,  the Government of  Orissa (Law Department) promulgated Ordinance 8 of  1991 dated  24.8.91 and the Charge Chrome Division was taken over under the said Ordinance. The relevant clauses in the Ordinance  will be  referred to  at the  relevant  place hereinafter. After  the taking  over as mentioned above, the Charge Chrome  Division was  transferred by  way of  sale to Tata Iron & Steel Company.      At this  stage, the  first respondent  (Klockner & Co.) after  unsuccessful  attempts  to  negotiate  with  OMC  for fulfillment of  the terms  of the  agreement, took  steps to refer the  dispute  for  arbitration  to  the  International Chamber of Commerce, invoking clause 15 in the Agreement.      The appellant,  State of Orissa, received notice of the arbitration proceedings  on 3.5.93. Thereafter the appellant filed  T.S.   No.  152/93   on  the  file  of  Civil  Judge, Bhubaneswar, seeking the following reliefs :      "(a) Declaration declaring that the      plaintiff is  not the  successor of      Defendant   No.    3    and    more      particularly is  not the  successor      of Defendant  No. 3  in the context      of  the  claim  of  Defendant  No.1      against  Defendant   No.  3  before      Defendant no.2 and;      (b)  Declaration   declaring   that      plaintiff is  not  liable  to  pay-      jointly with  Defendant  No.  3  or      otherwise to Defendant No. 1 U.S. $      2.949.938.42   with   ten   percent      interest or  any part  there of  as      claimed by  Defendant No.  1 in its      request    dated     21.4.93    for      arbitration to  Defendant No.2  and      in its  statement of claim appended      thereto    which     Request    tor      arbitration and    claim  Defendant      No.1  has   got   served   on   the      plaintiff through Defendant No.2.      (c)  Declaration   declaring   that      plaintiff  has  got  no  obligation      whatsoever  under   document  dated      20.4.1982.     nomenclatured     as      Marketing    Agreement    and    no      obligation    whatsoever    towards

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    Defendant  No.1   under  the   said      document.      (d) Declaration  declaring that the      Aforementioned claim  of  Defendant      no. 1.  against the  plaintiff  and      Defendant No.  3 jointly  is not  a      matter   agreed    either   between      Defendant No. 1 and Defendant No. 3      or  between   the   plaintiff   and      Defendant   No.    1   or   amongst      plaintiff,  Defendant  No..  1  and      Defendant No.3  to be  referred  to      arbitration      under   the   said      document      dated       20.4.1982      nomenclatured     as      marketing      Agreement or otherwise.      (e) Permanent injunction injunction      Defendant No.  1  from  prosecuting      the arbitration proceeding (bearing      reference No.  7878/HV of Defendant      No.2)  initiated  before  Defendant      No. 2  by Defendant  No.1.  in  its      said request  fol arbitration dated      21.4.93  and   said  statement   of      claim   dated    21.4.93   appended      thereto.      (f) Such  other  relief/reliefs  as      this Hon’ble court may deem fit and      proper    in    the    facts    and      circumstances of the case."      The respondent  herein on  coming to  know of  the suit filed by  the appellant  moved the  Miscellaneous  Case  No. 426/93 invoking  Section 3 of Foreign  Awards (Recognition & Enforcement) Act. 1961 for stay of the suit.      The appellant stoutly resisted the application for stay of the  suit. However,  the learned Civil Judge on the basis of the  materials placed before him and also on the basis of the arguments  advanced came to the conclusion that the suit should be stayed under Section 3 of the Foreign Awards Act.      Aggrieved by  the order of the learned Civil Judge, the appellant, State of Orissa preferred Miscellaneous Appeal as well as Revision Preferred before the Orissa High Court. The learned Single  judge for  the reason  stated in  the  Order under Appeal observed as follows :      "9. Testing the case at hand on the      touch  stone   of  the   principles      enunciated  in  the  decided  cases      discussed above.  the  position  is      manifest that  the parties  to  the      arbitration agreement  have decided      that the place of arbitration shall      be London   and  the law applicable      shall be  substantive Swiss Law. My      attention has not been drawn to any      stipulation in  the  agreement  nor      any other  material which  directly      or         impliedly shows that the      intention of  the parties  was that      Indian Law  will be  applicable  to      the Arbitration Agreement. As noted      earlier,  Klockner   &  Co.   is  a      company registered  in the  Federal      Republic   of   Germany   and   the      agreement of  20.4.1982 was entered      in Germany.  It is  not the case of

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    the  petitioner    that  the  award      which may be passed in this case is      not a  foreign award  as defined in      Section 2 of the Foreign Awards Act      but it is a domestic award. In that      view of  the matter there is little      scope for doubt that the provisions      of   the    Foreign   Awards   Act,      particularly    Section    3    are      applicable to  the case. As held by      the  Apex  Court  in  the  case  of      Renusagar Power Co. (supra) stay of      the  suit   is  mandatory   if  the      conditions specified  in Section  3      are fulfilled. The averments in the      plaint   and the  objections  filed      to section  3 do  not make out  the      case that the agreement is null and      void, inoperative  or incapable  of      being performed  or that  there  is      not in fact any dispute between the      parties with  regard to  the matter      agreed to  be referred.  The  trial      court has  specifically  held  that      the    circumstances    to    prove      exception under  the statutory pro-      vision have  not been  established.      At the  cost of  repetition. I  may      state that  it is  clear  from  the      materials  on   record   that   the      agreement was  acted  upon  by  the      parties,   in   pursuance   of   it      contracts were  entered between OMC      Ltd  and   OMC    Alloys  Ltd  with      foreign buyers  and Klockner  & Co.      was paid  its dues  relating to the      transactions. In the circumstances,      the learned  Trial Judge  was right      in holding  that a case for stay of      the suit  u/s.  3  of  the  Foreign      Awards Act  has been  made   out by      the  opposite   party-  No.   I   -      defendant. The  order is  therefore      unassailable. Thus  the cases being      devoid of merit are dismissed."      Still aggrieved, the appellant, State of Orissa as well the  Orissa   Mining  Corporation  preferred  these  Appeals challenging the Order of stay of suit under Section 3 of the foreign  Awards Act.      Mr. B.M. Patnaik, Senior counsel appearing both for the State of  Orissa as  well as  for Orissa Mining Corporation, though the contentions of both parties are not identical and to a  certain extent conflicting, strenuously contended that the Orders  of the  trial  court  and  of  the  High  Court, granting stay  of the suit cannot be sustained in as much as the State  which has  filed the  suit was neither a party to the agreement  in question  nor, he  State claimed the right through    or  under  the  Orissa  Mining  Corporation  Ltd. Further, the  State being  not a  party to the agreement  is not bound  by the  terms and,  therefore, the suit cannot be stayed. He also put forward arguments relating to the merits of the  claim put forward by the first respondent Klockner & Co. in  the  arbitration  proceedings.  In  support  of  his argument, learned  senior counsel  placed  reliance  on  two decisions of  this Court  reported in  Renusagr Power Co Ltd

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vs. general  Electric Company & Another.  (1984) 4 SCC 679 ) and Svenska  Handelsbanken &  Ors. vs.  M/S.  Indian  Charge Chrome Ltd & Ors. ( (1994) 2 SCC 155 ).      Mr. C.S.  Vaidyanathan learned senior counsel appearing for the  first respondent.  Klockner  &  Co.  answering  the contentions of  the learned senior counsel for the appellant submitted that  it is untenable to contend that the State of Orissa has  nothing to  do with  the agreement  in  question having regard  to the  clauses in  the Ordinance under which the Government  took over Charge Chrome Division from Orissa Mining   Corporation and  also having  regard to  the  terms under which  the charge  chrome Division  was handed over to Tata Iron  & Steel Company. He placed reliance in particular on clauses  4,5,7 and 12 in the take over Ordinance. He also placed reliance  on clause  9 of the agreement between State of Orissa  and Tata  Iron &  Steel Company  to  support  his contention that  State of  Orissa for  the purposes  stepped into the  shoes of Orissa Mining Corporation and, therefore, the appellant cannot contend that it is not claiming through or under  Orissa Mining  Corporation  any  rights  regarding Charge Chrome  Division. The  learned  senior  counsel  also placed reliance  on the following judgments of this Court to sustain the  Order of  stay granted  by the  Civil Judge and confirmed by the High Court. Anakapalla Co-operative  Agricultural &  Industrial  Society Limited vs.  Workmen (  (1963) (Supl)  1  SCR  730  National Thermal Power  Corporation vs. Singer Company & Ors. ((1992) (3) SCC 551 ).      We have  considered the  rival  submissions.  From  the above narration,  it is  obvious that the main thrust of Mr. B.M. Patnaik,  Sr. counsel  for the  appellant is  that  the State of  Orissa is  not a  successor in interest of OMC, in particular, the Charge Chrome Division of OMC, taken over by the Govt.  To appreciate  this argument  on  behalf  of  the appellant and the counter-argument advanced on behalf of the first  respondent,  it  is  necessary  to  set  out  certain relevant  clauses   in  the  take  over  Ordinance,  namely, Ordinance 8  of 1991 dated 24.9.91. Clauses 4(5), 5, 6 and 7 read as follows :-      4(5). If, on the appointed day, any      suit, appeal or other proceeding of      whatever nature  in relation to any      property: which  has vested  in the      State Government under section 3 or      instituted  or   preferred  by   or      against the  Charge Chrome Division      is  pending,  the  same  shall  not      abate, be  discontinued or  be,  in      any way  prejudicially affected  by      reason of  the vesting and transfer      of the  Charge Chrome  Division  of      the Company  but the suit appeal or      other proceeding  may be  continued      or enforced by or against the State      Government  or,  where  the  Charge      Chrome  Division   of  the  Company      vested under section 6 in any other      company, by   or  against the other      company.      5. Every  liability of  the  Charge      Chrome  Division   of  the  Company      including  dues   to  foreign   and      Indian Banks shall be the liability      of the  State Government  on  which      the properties of the Charge Chrome

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    Division has  vested and  shall  be      enforceable   against   the   State      Government  or,  where  the  Charge      Chrome Division  of the  Company is      directed  to   vest  in  any  other      company, against the other company.      6(1) The  State Government  may, it      is satisfied that any other company      is  willing  to  comply  with  such      terms   and   conditions   as   the      Government may think fit to impose,      direct  by  notification  that  the      Charge  Chrome   Division  of   the      Company and  the right,  title  and      interest  of   the  Charge   Chrome      Division of  the Company which have      vested with  the  State  Government      under section  3 shall,  instead of      continuing to  vest  in  the  State      Government,  from   the   date   of      publication of  the notification of      such vesting,  vest  in  the  other      company.      6(2). Where  the right,  title  and      interest  of   the  Charge   Chrome      Division of  the Company  is vested      under sub-section  (1) in any other      company the other company shall, on      and from  the date of such vesting,      be deemed  to have become the owner      in relation  to the  Charge  Chrome      Division   and   all   rights   and      liabilities of the State Government      in relation to such Division shall,      on  and   from  the  date  of  such      vesting, be  deemed to  have become      the rights  and liabilities  of the      other company.      7.  The   State  Government  hereby      takes over  all the  assets of  the      Charge  Chrome   Division  at   the      depreciated written  down value  or      book value as the case may be as on      the date  of  transfer.  The  State      Government also  hereby takes  over      the  liabilities   of  the   Charge      Chrome Division  including loans of      foreign and  Indian  Banks  on  the      said  date  of  transfer.  The  net      difference between the value of the      assets and the liabilities referred      to above shall be settled by actual      payment."      In this  context, Clause 9 of the agreement between the State Government  and Tata  Iron &  Steel Company, with whom the Charge  Chrome  Division  of  OMC,  taken  over  by  the Government subsequently,  came to be vested is also relevant to be noted and that reads as follows :      "9.  It   is  specifically,  agreed      between the parties that Tata Steel      shall not  be bound  or governed by      any  agreement  whatsoever  entered      into  or  executed  by  OMC  Alloys      Ltd.,  OMC   Ltd.  or   Government,      including  marketing  agreement  in

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    respect of  the sold plant which is      not agreed  to be  ratified by Tata      Steel. Any claim, action, liability      in respect  of such agreement shall      be discharged  by Government and it      shall keep  Tata Steel  indemnified      at all  time against  such  claims,      actions, loss and liability."      A conjoint  reading of  the Clauses  extracted from the take over  ordinance and  the agreement between the State of Orissa and  Tata Iron & Steel Co. will clearly show that the State of  Orissa is  the successor in interest of OMC Charge Chrome Division taken over by the Government under Ordinance of 1991.  In view of this clear position, it is not possible to accept  the contention  of the learned senior counsel for the appellant  that the  State of  Orissa has  nothing to do with the  contract entered  into between  the Klockner & Co. and OMC  in  respect  of  which  the  former  has  initiated arbitration proceedings invoking Section 3 of Foreign Awards Act.      The other  aspect  to  be  considered  is  whether  the requirements of  Section 3  of the  Foreign Awards  Act  are satisfied to justify the invocation of that provision on the facts of this case.      In this  case, the existence of agreement dated 20.4.82 cannot be  disputed by  OMC or  by the  appellant. The first respondent (Klockner  & Co.)  one  of  the  parties  to  the agreement has  commenced arbitration proceedings against the other party  is also an undisputed fact. In the light of the wide scope  of Clause  15 of the agreement between the first respondent  and   OMC  dated   20.4.82  (already  extracted) relating to  arbitration and in view of our finding that the State of  Orissa is  the successor to OMC, it is not open to the  appellant   to  contend   that  the  legal  proceedings initiated was  not in  respect of  any matter  agreed to  be referred to  arbitration in  the agreement. Except filing an application under  Order 7  Rule 11 CPC for rejection of the plaint in  the suit  filed by  OMC, the first respondent has not taken  any  step  in  the  legal  proceedings  and  that application for  rejection of the plaint cannot he construed as any  step in  the legal proceedings to bar the invocation of Section  3  of  the  Foreign  Awards  Act  by  the  first respondent vide General Electric Company vs. Renusagar Power Company ( (1987) 4 SCC 137 ).      In  the   absence  of  any  serious  challenge  to  the commercial contract  or to the arbitration agreement, it has to be  found that the agreement was valid, operative and can be of  being performed  and that  there are disputes between the parties with regard to the matters agreed to be referred to.      In General  Electric Company’s  case (supra) this Court had occasion  to consider  the scope  of Section  3  of  the Foreign Awards Act and it observed as follows :      "It  may  be  straightaway  noticed      that while Section 34 of the Indian      Arbitration Act  vests in the court      the discretion  to stay  or not  to      stay the  proceedings, Section 3 of      the Foreign Awards (Recognition and      Enforcement)  Act   vests  no  such      discretion in  the court. Under the      Foreign  Awards   (Recognition  and      Enforcement) Act  it  is  mandatory      that  the   proceedings  should  be      stayed if the conditions prescribed

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    are fulfilled.  But the application      of the  defendant to  the court, be      it under  Section 34  of the Indian      Arbitration Act or Section 3 of the      Foreign  Awards   (Recognition  and      Enforcement)  Act,   may  be  filed      before filing  a written  statement      or taking  any other  step  in  the      proceedings. It  is competent  then      only and not thereafter."      In Renusagar  Power Co.  Ltd vs.  General Electric  Co. ((1984) 4 SCC 679 ) the court held as follows :      "On a  plain reading of the section      as it  now stands two things become      very clear.  In the first place the      section opens  with a  non obstante      clause giving  overriding effect to      the provision contained therein and      making it  prevail over anything to      the  contrary   contained  in   the      Arbitration Act,  1940 or  the Code      of Civil Procedure, 1908. Secondly,      unlike   Section    34    of    the      Arbitration  Act  which  confers  a      discretion  upon   the  court;  the      section    uses    the    mandatory      expression  "shall"  and  makes  it      obligatory upon  the court  to pass      the   order   staying   the   legal      proceedings commenced by a party to      the  agreement  if  the  conditions      specified  therein  are  fulfilled.      The  conditions   required  to   be      fulfilled for  invoking  Section  3      are :      (i) there  must be  an agreement to      which Article  II of the Convention      set forth  in the Schedule applies.      (It is not disputed that this is so      in the instant case);      (ii) a party to that agreement must      commence legal  proceedings against      another party thereto. (It is again      not  disputed  that  Renusagar  and      G.E.C. are  the two  parties to the      arbitration  agreement   and   that      Renusagar   has   commenced   legal      proceedings against G.E.C by filing      Suit 832 of 1982);      (iii) the legal proceedings must be      in respect  of any matter agreed to      be  referred   to  arbitration"  in      such   agreement.   (The   question      whether this condition is fulfilled      here needs to be decided);      (iv) the  application for stay must      be made  before filing  the written      statement or  taking any other step      in    the     legal    proceedings.      (Admittedly   this   condition   is      fulfilled);      (v) the  Court has  to be satisfied      that  the   agreement   is   valid,      operative  and   capable  of  being      performed;  this   relates  to  the

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    satisfaction about  the  "existence      and validity"  of  the  arbitration      agreement.  (In  the  instant  case      these questions do not arise);      (vi) the  Court has to be satisfied      that there are disputes between the      parties with  regard to the matters      agreed to be referred; this relates      to   effect    (scope)    of    the      arbitration agreement  touching the      issue  of   arbitrability  of   the      claims.      We have  already found  that on  a conjoint  reading of relevant clauses  in the  takeover Ordinance,  the agreement between the  State of  Orissa and  Tata Iron & Steel Company and the  marketing agreement dated 20.4.82, the requirements of Section  3 of Foreign Awards Act have been satisfied. We, therefore, find  that the  test laid  down by  this Court in Renusagar’s case  (Supra) for  invoking  Section  3  of  the Foreign Awards  Act is  satisfied and  the High  Court  was, therefore, justified  in confirming  the stay granted by the trial court.      As observed  earlier, the  main thrust  of the  learned counsel for  the appellant  was to  challenge the finding of the High  Court that  State of  Orissa was  the successor in interest  to  OMC  Charge  Chrome  Division.  The  connected arguments relate to disputes or differences that would arise between  the   parties  in   the   arbitration   proceedings concerning the  construction, meaning  etc. of the contract. These connected  arguments need  not be  gone into  in these proceedings and  those arguments  are to be addressed before the appropriate  forum. Once  it is  found  that  the  first respondent has  established a case for invoking Section 3 of Foreign Awards  Act, all  other  disputes  will  has  to  be addressed and  settled in  appropriate  forum.  The  limited issue before  us is  with  reference  to  the  legality  and validity of  invoking Section  3 of  the Foreign  Awards Act which we have found in favour of the first respondent.      Now coming  to Special Leave Petition (C) No. 19846/95, this petition is filed against the judgment and order of the High Court  of Orissa  at Cuttack  in First Appeal No. 14/95 dated 12.5.95. By the Order under appeal, the High Court has reversed  the   Order  of  the  learned  Subordinate  Judge, Bhubaneswar dated  26.3.94, by which the learned Subordinate Judge accepting  an application  filed under Order 7 Rule 11 C.P.C., rejected  the plaint  in title suit No. 231/92 filed by the  first respondent  in  Special  Leave  Petition.  The learned Single  Judge of  the High Court while reversing the Order of the learned Subordinate Judge observed as follows:-      "In the  present  case  on  a  fair      reading of  the petition  filed  by      defendant No. 1 under Order 7, Rule      11 of  C.P.C it  is clear  that the      case of  the applicant  is that the      plaintiff has no cause of action to      file   the    suit.   It   is   not      specifically   pleaded    by    the      applicant that  the plaint does not      disclose any  cause of  action. The      learned trial  Judge has  also  not      recorded any  specific  finding  to      this effect.  From the  discussions      in the  order it  appears that  the      learned   trial   Judge   has   not      maintained the  distinction between

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    the plea that there was no cause of      action to  the suit  and  the  plea      that the plaint does not disclose a      cause of action. No specific reason      or ground is stated in the order in      support of  the  finding  that  the      plaint  is  to  be  rejected  under      Order  7,   Rule  11(a).  From  the      averments  in  the  plaint,  it  is      clear  that   the   plaintiff   has      pleaded  a   cause  of  action  for      filing the suit seeking the reliefs      stated in  it. That  is not  to say      that the  plaintiff  has  cause  of      action to  file the  suit  for  the      reliefs sought  that question is to      be  determined   on  the  basis  of      materials (other  than the  plaint)      which  may   be  produced   by  the      parties at appropriate stage in the      suit. For  the limited  purpose  of      determining  the  question  whether      the suit  is to  be wiped out under      Order 7,  Rule  11(1)  or  not  the      averments in the plaint are only to      be looked  into. The position noted      above  is   also  clear   from  the      petition filed  by defendant  No. 1      under Order 7, Rule 11 in which the      thrust of  the case pleaded is that      on   the    stipulations   in   the      agreement of  20.4.82 the plaintiff      is not  entitled  to  file  a  suit      seeking any  of the  reliefs stated      in the plaint.      10. Coming  to the question whether      the plaint  is to be rejected under      clause (d)  of rule  11 of order 7,      the Supreme  Court in  the case  of      Orient Transport  Co.  (supra)  has      clearly laid  down that  there is a      distinction between a case in which      the validity,  effect and existence      of  the  arbitration  agreement  is      challenged and  suit in  which  the      validity  of   the  contract  which      contains an  arbitration clause  is      challenged. The  bar to  suit under      section 32  of the  Arbitration Act      extends  to   a  case   where   the      existence, effect or validity of an      arbitration agreement is challenged      and not  to the  latter type of the      suit.  On  this  question  too  the      learned trial  Judge has  failed to      maintain  the  distinction  between      the two  types  of  cases.  He  has      failed  to  notice  that  the  case      pleaded by  the plaintiff  is  that      the entire  agreement including the      arbitration clause is null and void      and unenforceable  and not that the      arbitration agreement  is null  and      void.      11. From  the lower court record in

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    the case  and also the records in a      similar suit  filed by the State of      Orissa, Title  Suit No. 152 of 1993      in which  OMC Ltd.  is a defendant,      it appears  that in  both the cases      the defendant  No. 1  - Klockner  &      Co.   filed    applications   under      section 3  of  the  Foreign  Awards      (Recognition and  Enforcement)  At,      1961. Such  application presupposes      that  the   applicant  accepts  the      position that  the said Act applies      to the  case  and  the  Arbitration      Act, 1940 has no application to the      case. Under the Foreign Awards Act,      there is  no specific provision for      bar  of  suit.  Further,  from  the      averments in  the application filed      under Order  7, Rule  11 of C.P.C.,      it is  clear  that  the  main  case      pleaded by  the applicant  was that      the parties  had  agreed  that  the      Swiss Law will be applicable to the      contract   as    the    arbitration      agreement   and    the   venue   of      arbitration will  be at London and,      therefore,  the   Indian   Law   in      general and  the arbitration Act in      particular, have  no application to      the   case.    Alternatively    the      applicant  has  pleaded  that  even      assuming that  the  Indian  Law  of      Arbitration  applies  to  the  case      then  the   suit  is  barred  under      section 32  of the Act. The learned      trial Judge does not appear to have      considered the main case pleaded by      the applicant  but disposed  of the      petition on  consideration  of  the      alternative  case  pleaded  by  it.      Therefore this  finding against bar      of the  suit under  Order  7,  Rule      11(d) is also vitiated.      12. On the analysis and discussions      in the  foregoing paragraphs, it is      my considered  view that  the order      passed by  the learned  trial Judge      rejecting the plaint under Order 7,      Rule 11(a)  and (d)  of  C.P.C.  is      unsustainable and  has  to  be  set      aside. Accordingly  the  appeal  is      allowed   and   the   order   dated      26.3.1994  of   the   Civil   Judge      (Senior  Division)  Bhubaneswar  in      Misc. Case  No. 75  of 1993  is set      aside. There  will be  no order for      costs of this Court."      After hearing  the learned  counsel on  both sides  and after carefully  perusing the  relevant pleadings, we do not think that  the  High  Court  has  committed  any  error  in rejecting the  application of  the appellant  under Order  7 Rule 11.  We accept  the view  taken by  the High  Court and consequently find no case for interference.      In the  result all the Civil Appeals are dismissed with costs and Special Leave petition is dismissed without costs.

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