ORDER
R. Banumathi, J.
1. A. No. 5296/2002 : This application is to direct the respondents/defendants to furnish security for the suit claim of Rs. 13,41,165.75 with interest and subsequent costs and in the event of failure, to pass an order of Attachment before Judgment of the movables shown in the Judges, summons.
A. No. 918 of 2003 : This Application is filed to set aside the order passed in A. No. 5296 of 2002 directing the respondents/ defendants to furnish the security.
A. No. 927 of 2003 : This application is filed under Section 8 of the Arbitration and conciliation Act to refer the claim to Arbitration.
All these applications are heard together and disposed of by this common order. For Convenience, parties are referred to as in their rank in the suit.
2. Plaintiffs claim of money for recovery of Rs. 13,41,165.75 is based on the Goods/Gaskets sold and supplied at Delhi Defendants' principal office and at their various branches of Jodhpur, Ludhiana etc. On the said transaction, after giving credit to various payments made by the defendants, a total sum of Rs. 9,10,739.53 was found due towards the balance principal as per the plaintiffs statement of account. In spite of repeated demands and issuance of notice on 7-8-2001, defendants have not paid the amount. By their letter dated 29-5-2001, the defendants disputed the amount but admitted their liability to the extent of Rs. 6,07,064.01. Thereafter, the plaintiff sent letters demanding the payment of admitted sum of Rs. 6,07,064.01 and settle the balance disputed amount on verification of accounts. The defendants have no inclination to pay the amount; but only insisted upon returning back the goods. Hence, the suit for recovery of Rs. 13,41,165.75.
3. At the time of filing of the suit, plaintiff has filed an application in A. No. 5296 of 2002 to direct the respondents/defendants to furnish sufficient security for the suit claim. On 19-12-2002, Justice Ramamoorthy, order notice and also directed the defendants to furnish security. Application in A. No. 918 of 2003 is now filed by the respondents/defendants to set aside the order dated 19-12-2002. According to them, such an order to direct them to furnish security causes serious prejudice and irreparable loss. Further according to the respondents/defendants, as per Clause 23-A in the Contract, all the disputes arising between the parties could be referred only to Arbitration for settlement and hence, respondents/defendants seek to set aside the order directing them to furnish security.
4. A. No. 927 of 2003 is filed by the respondents/defendants to refer the dispute to Arbitration. According to the defendants, as per Clause 23-A, all disputes arising in relation to this Agreement, could be settled by the Arbitration of neutral person agreed by both. Further case of the defendants is that the plaintiff cannot give a go by to Clause 23-A of the Agreement invoking the original jurisdiction of this Court. Thus invoking Clause 23-A of the contract, defendants seek to refer the claim to Arbitration.
5. Resisting the application, the plaintiff has filed a counter affidavit contending that Clause 23-A is the mandatory Clause to refer the dispute to Arbitration. Since Clause 23-A speaks about Arbitration of a neutral person, it is not workable because it is vague, not certain and unintelligible and void. It is not capable of being given effect to and it cannot be enforced because of the indefiniteness. Further, Clause 23-B, which coexists, provides for exclusive jurisdiction to the Courts in Chennai. Accordingly, the present suit is rightly filed before this Court. In any event, having not made the payment, as per the Terms of the Contract, it 'is not open to the defendants to insist for referring the dispute to Arbitration.
6. Contending that absolutely there is no vagueness in Clause 23 of the Contract, learned counsel for the applicants/defendants submitted that when there is a clear Clause to refer any dispute to Arbitration, the same cannot be allowed to be sidestepped on the ground of vagueness or that it is unworkable. It is further contended that the plaint averments are absolutely silent as to why the plaintiffs have not resorted to Arbitral claim. Drawing the attention of the Court to Section 11 of the Arbitration and Conciliation Act, which contemplates the procedure for appointment of an Arbitrator, the learned counsel submitted that the plaintiff ought to have approached the High Court only for appointment of Arbitrator and must have invited the consensus of the defendants on the neutrality of the Arbitrator. The suit filed invoking the jurisdiction of the Court, giving a go-by to Clause 23-A of the Contract, is not maintainable. ,
7. Taking serious exception to the arguments of the defendants, learned counsel appearing for the plaintiff submitted that Clause 23-A is very vague and unclear, in view of the difficulties in identifying a neutral person as the Arbitrator. It is further contended that Clause 23-A being only optional and would not be an Arbitration Agreement under Section 7 of the Act. Placing reliance upon : AIR2000SC1379 , it is contended that Clause 23-A would not fall between the meaning of Section 7 of the Act. It is the further contention of the plaintiff that the existence of Clause 23-A, does not exclude the jurisdiction of the Court and preclude the plaintiff from instituting the suit before the Court. Placing very much reliance upon 2001 (4) Raj 523 and 1986 (2) ARB L.R. (Delhi), it is submitted that Clause 23-A is unworkable for its vagueness. Learned counsel appearing for the plaintiff inter alia relied upon other decisions. The relevant ones would be referred at the appropriate places.
8. Upon consideration of the submissions by both sides, the averments in the affidavit and counter affidavit and other materials on record, In my considered View, the following points arise for determination in these applications:
1. Whether Clause 23-A of the Contract is only an enabling provision for Arbitral reference and not a mandatory Clause as contended by the plaintiff ?
2. Whether Clause 23-A is unworkable and unimplementable suffering for its vagueness and uncertainty?
3. Is the plaintiff right in contending that when most part of the suit claim is admitted, no further serious dispute survives within the meaning of Arbitration Clause?
9. Admittedly, the entire transaction between the plaintiff and defendants is pursuant to the Contract dated 11-2-1998. The suit and the applications proceed on these common grounds : Chennai based plaintiff is the manufacturer of Gaskets under the name 'Sankar Gaskets' which is the 'Agreement Products' in those transaction. The first defendant /M/s. Jain Motor Trading Com., already dealing with (i) Bimetal Bearings Ltd., (ii) Unbrako and (iii) Simpson & IPL etc. The first defendant was appointed as the Distributor for the plaintiffs Gaskets in North Zone of India: The goods were supplied by the plaintiff. Parties entered into Contract Agreement (16-6-1998) which contains the Terms and Conditions of Agreement of Dealership. On the goods supplied the present suit is for recovery of Rs. 13,41,165.75.
10. Before we consider the action of the plaintiff in filing the suit, let us refer to certain factual aspects. The first defendant was appointed as the Stockists. In the Stockists Appointment form, defendants have shown their approximate total turnover as 50 Lakhs to 3 Crores. Only on the basis of their turn over and the experience of the defendant company in dealing with other products, they were appointed as Dealer for the plaintiff's Company in North India.
11. In response to the several letters from the plaintiff, on 29-5-2001, defendants have sent a letter admitting their liability to the tune of Rs. 6,07,064.01 as seen from the below:
'We had informed you that the net amount payable by us as on date is Rs. 6,07,064.01 as per our records and we have stocks of much more than this amount.'
While admitting the above amount payable by them, defendants have referred to slump/ non activity in the market. In the above said letter, defendants unilaterally imposed some modified Terms and conditions of the Contract. Viz.... (i) Fresh rates and discount, (ii) right to return unsold material (ii) other conditions of normalisation of fresh business. Thus in the above said letter, defendants have made clear about their liability to pay the amount. They have also made clear about their intention to send four cheques of Rs. 25,000/- one for each month end. Thus as against the principal claim of Rs. 9,10,739.53, most part of the claim, namely, Rs. 6,07,064.01 is admitted,
12. To the above said letter, the plaintiff Company, (as seen from letter dated 8-6-2001) has taken exception for such unilateral imposition of modification of the Conditions. Further in their letter, the plaintiff has stated that the materials ought to have been returned back within the stipulated statutory period, to enable them to avail the credit of Excise Duty and Sales Tax..... etc. . The plaintiff has, thus, expressed the difficulties in taking back the goods. The plaintiff insisted only for payment of the amount payable by the defendants.
13. Letter dated 7-8-2001 from the defendant : In this letter defendants has complained about the quality in the materials sent by the plaintiff and again insisted totake back the entire stock lying with them.In this letter, defendants have made clearthat an amount of Rs. 6,07,064.01 is payable by them, pointing out that the plaintiffis discontinuing the entire DistributorsAgreement, the defendants again insisted toreturn back the goods.
14. Thereafter, insisting upon the defendant to pay at least the admitted amount, the plaintiff corresponded with the defendants. In those letter correspondences, the plaintiff requested the defendants to send them the extract of the Statement of Accounts, as to how they arrived at Rs. 6,07,064.01 alone, with the details of the debit notes in their information. Instead of sending the accounts, the defendants in their letter dated 12-10-2001 stated that in lieu of the amount payable by them, i.e. Rs. 6,07,064.01, they would return the goods. Here again, the defendants only insisted to return the unsold materials. According to the defendants only if the materials are actually returned, thereafter, the accounts could be settled and the defendants invite further Instructions for discharge of unsold goods. Thus, it is clear that in spite of several repeated demands and letters, defendants have neither paid the amount nor sent their own account. They were only interested upon in returning the unsold materials.
15. Prior to the institution of the suit, plaintiff issued pre-suit notice on 2-3-2002. In their reply dated 9-3-2002 also defendants while admitting their liability to an extent of Rs. 6,07,064.01, insisted that in lieu of the same that they would toe returning the materials and only the balance would be paid by them.
16. In the above factual backdrop, and admission of the most of the liability and the unwillingness of the defendant to pay even the admitted claim of Rs. 6,07,064.01, the contentious points urged by the parties is to be considered.
17. It is pertirient to note that neither in the earlier correspondences or in their reply notice dated 9-3-2002, defendants insisted the matter to be referred to the Arbitration as per Clause 23-A of the Contract, nor called upon the plaintiff to mention the name of any neutral person to bb the Arbitrator. In my view, the applicants /defendants do not seem to be ready and willing to do the things to refer the dispute to Arbitration,
'There are three procedural requirementsof application for referring the parties toArbitration, all of which must be cumulatively complied with before the applicationis entertained by the judicial authority.These conditions are ;
(i) The applicant shows that the action brought before the judicial authority is the subject matter of an arbitration agreement;
(ii) the application is filed not later than when submitting his first statement on the substance of the dispute; and
(iii) the application is accompanied by the original arbitration agreement or a duly certified copy thereof.' It is to be seen whether the above requirements are satisfied in the case in hand.
18. As discussed earlier, prima facie liability of the defendants to the tune of Rs. 6.07 lakhs is admitted; but the defendants only insist upon the return of unsold materials in lieu of the above admitted claim. The defendants also complain about the quality; by imposing unilateral modifications of the Terms and conditions of the Contract and unwillingness to pay the amount, thedefendants have only repudiated the contract. (i) Quality of goods (ii) unilateralmodification of conditions (iii) insistence toreturn the unsold materials in the lieu ofthe admitted liability, are all questions whichcannot be said to be the subject matter ofthe Arbitration Agreement. Those questionscould be resolved only by judicial intervention. In my view, prima facie, all the disputes that are arising between the plaintiffand the defendants cannot be said to beforming, part of the subject matter of theAgreement within the meaning of Section 8of the Apt.
19. This is all the more so, when most part of the liability /amount payable is admitted. The learned counsel for the plaintiff is right in submitting. 'Where the purchasers have admitted the liability, the seller would be justified in resorting to a Court for recovery of the amounts due. In a case which arose under old Arbitration Act 1940, in : AIR1972AP302 , the Andhra Pradesh High Court held the suit to be maintainable and that the purchasers cannot ask for the stay of the suit, in view of the admission of the liability throughout. Though it is a case arising under old Act, we may usefully refer to the principles thereon which read thus :
'This is a simple case, where the correspondence between the parties referred to above bears out that the defendant admitted its liability throughout and only asked for postponement of the encashment of the cheques by the plaintiff and we are, therefore, of the view that, in such a case, the plaintiff will be perfectly justified in resorting to a Court for recovery of the amounts due from the defendant. It is essential that there must be a dispute with regard to the claim made by the plaintiff and when there was no dispute at all except to admit the liability throughout, we are unable to say that from the mere fact that the defendant later moved the Delhi High Court under Section 20, that a dispute was in existence so as to entitled it to ask for stay of the proceedings in the suit by invoking the aid of Section 34, we are therefore, not prepared to hold that it is a case for staying the trial of the suit.'
Thus, when there is no serious dispute on the amount payable and when the defendant has admitted most part of the liability, the present suit could only be the suit for claiming the amount due. The defendants cannot insist for reference to Arbitration.
20. Whether the Clause 23-A is a mandatory arbitration Clause incumbent to refer disputes to arbitratlon :
Defendants urge to refer the matter to Arbitration pursuant to Clause 23-A which reads thus :
'23-A Any disputes arising in relation to this Agreement will be settled by the arbitration of a neutral person agreed to by both.'
The question arises whether the aboveClause is a firm Mandatory Arbitration,Clause. In the Contract Agreement Clause23-A is not found in isolation but co-existswith 23-B which reads thus :
'Courts in Chennai will have exclusive Jurisdiction in the event of any legal/judicial proceedings.'
21. Contending that Clause 23-A does not amount to arbitration Clause but only an enabling permission giving option to the parties, learned counsel for the plaintiff laid emphasis upon the co-existence of Clause 23-A and 23-B. In view of simultaneous occurring of Clause 23-A and 23-B, I am of the view that it is not the intention of the parties that Arbitration is to be the sole remedy. It only suggests that they can also resort to arbitration if they wish.
22. While interpreting the expression in the Arbitration Act 'may be referred', in : AIR2000SC1379 , Supreme Court held thus : 'Thus; Clause 5 is merit an enabling provision as contended by the respondents. I may also state that in cases where there is a sole arbitration clause couched in mandatory language, it is not preced by a clause like Clause 4 which discloses a general Intention of the parties to go before a Civil Court by way of suit. Thus, reading Clause 4 and Clause 5 together, I am of the view that it is not the intention of the parties that arbitration is to be the sole remedy. It appears that the parties agreed that they can 'also' go to arbitration also in case the aggrieved party does not wish to go to a Civil Court by way of a suit. But in that event, obviously, fresh consent to go to arbitration is necessary.'
23. In the above decision, Supreme Court has further held that the words 'may be referred' is not a firm or Mandatory Arbitration clause but it only postulates that the parties may go in for arbitration. In my view, the above principle laid down by the Supreme Court squarely applies to the case in hand. Thus I find, Clause 23-A in the Contract Agreement is not a firm or Mandatory Arbitration clause compelling the parties to the only recourse of Arbitration.
24. What is an Arbitration Agreement dealt with in Section 7 of the Act? The relevant provision, with which we are concerned is Section 7(5) which is as under :
'The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part, of the contract'
The Arbitration Clause must be an Arbitration Agreement within the meaning or Section 7. In this ease, within the meaning of Section 7(5). Any general reference stating that all the disputes will be referred to arbitration, cannot be said to be an Arbitration Agreement within the meaning of the Act. Clause 23 is neither a mandatory arbitration clause; nor it is incumbent upon the plaintiff to refer the dispute to arbitration.
25. Whether Clause 23A suffers from vagueness :
In this counter statement, the plaintiff has alleged that Clause 23A is not workable because of its vagueness, uncertainty and unintelligible. Further according to the plaintiff, Clause 23-A is incapable of being given effect to and it cannot be enforced because of indefiniteness. I find much force in the contention of the learned counsel appearing for the plaintiff that Clause 23-A...... 'settled by the arbitration of a neutral person agreed to by both' appears to be vague and uncertain. Having regard to the language used therein, 1 find that the expression 'neutral person agreed to by both', is uncertain. Who is to be the neutral person and how the consensus to be arrived at between the parties is also not clear. At this juncture, we may usefully refer to the decision reported in : AIR1967Cal168 wherein it is held that if the agreement is vague and uncertain and is nqt capable of being made certain, there is really no agreement in law and question of filing it is Court under Section 20 or enforcing such agreement, cannot arise.'
26. Likewise, it is appropriate to refer to the decision reported in 1986 (2) Arb L R 54 wherein Delhi High Court has held that discretion under Section 34 of the old Act should not be exercised to stay the suit if there is vagueness about the scope of the Arbitration agreement. Though it is the case arising under the old Act, in the said case, Delhi High Court, has clearly elaborated upon :the vagueness in appointment of the Arbitrator and held thus : 'There is vagueness about the scope of the alleged arbitration agreement. There is a vagueness as to how and who is to be the Arbitrator, and how he is to be appointed. The reference in the bills, is to a Tribunal or other authority to be appointed by the Association. Which Authority? And which Tribunal? Who in the Association has to appoint It is the Executive Committee or the entire Association Has the Association to hold a general meeting for appointing the authority, and how many persons are to be appointed These and other questions create a great uncertainty as to the practical applicability of the arbitration clause even if it exists. We are of the view that these doubts make it an unsuitable case for staying the suit.'
On the above view and in view of the vagueness and uncertainty in identifying a neutral person, I find learned counsel appearing for the plaintiff is right in contending that it is impossible to give effect to Clause 23-A.
27. Drawing the attention of the Court to Section 11 of the Act, which contemplates the procedure for appointment of the Arbitrator, learned counsel for defendants submitted that Clause 23A is clear and it is not suffering from any uncertainty or vagueness as alleged. On behalf of the defendants, it is further submitted that the plaintiff ought to have sought for the appointment of the Arbitrator under the procedure contemplated under Section 11 of the Act. As discussed earlier, nowhere in the earlier stage, defendants requested for referring the matter to Arbitration. On the other hand, defendants have only exhibited their unwillingness to pay the amount due. In the earlier stages when the defendants have not expressed their intention nor their readiness to submit to the Arbitration, it is not open to the defendants to insist upon the plaintiff to resort to Section 11 of the Act for appointment of the Arbitrator. It is relevant to note that the judicial authority has no power to compel the authorities to refer the matter to Arbitration.
28. No doubt, under the new Act wherethere is an Arbitration clause, once an application is made under Section 8 of theAct, it is mandatory for the judicial authority to refer the parties to Arbitration, Butwhen Arbitration Clause is vague and uncertain, Courts cannot refer the parties toArbitration. Clause 23-A also suffers fromuncertainty in identifying the Arbitrator. In : AIR1990Cal59 , in general terms the Arbitrator was named as Manager of the Company. Neither the name Of the Manager orparticulars about the identity of the Manager was indicated in the agreement. In thatcase, Calcutta High Court has held thatClauses is suffering from uncertainty asthere is no certainty about the expression'Manager of the Company' and observedthus :
'It appears to us that from the agreement between the parties referred to about it will appear that there is no certainty about the identity of the arbitrator. The agreement sought to be relied upon by the party in the arbitration agreement stipulates that the Manager of the Company shall be the arbitrator but it is an admitted position that the appellant has several branches throughout the country and it cannot be inferred from the arbitration agreement as to who is the arbitrator in terms of the said arbitration agreement.'
Thus in identifying the arbitrator also, Clause 23-A suffers from vagueness and uncertainty.
29. Learned counsel for the plaintiff is right in contending that when most part of the liability is admitted and when the defendants have not earlier sought for reference to Arbitration, the defendants cannot take advantage of Clause 23-A after the filing of the suit. The plaintiff definitely has the right to institute the suit. The case in hand is not a fit case to refer to Arbitration. The object of the Court is to do justice between the parties and the Court will do its best, only if satisfied that there was intention to refer the matter to Arbitration. As discussed earlier under Clause 23 A, there is no mandate to refer the dispute to Arbitration nor does judicial intervention is necessary to refer the parties to Arbitration. In that view of the matter, the application No. 927 of 2003 is bound to fail.
30. The application No. 5296/02 is filed by the plaintiffs directing the defendants to furnish security for the suit claim of Rs. 13,41,165,75. Disputing the direction from the Court, the defendants have not furnished the security. By filing application No. 918/2003, defendants only seek to set aside that order of the Court to furnish security. Part of the suit claim is admitted and there is refusal to pay the admitted amount by the defendants. In the sworn affidavit, Managing Director of the plaintiff Company has alleged that the defendants are delaying the payment and with a view to defeat the payment of the amount to the Creditors including the plaintiff, defendants are making attempts to part with their immovable and movable properties. The above, averments sufficiently satisfy the 'requirements under Order 38, Rule 5 of Civil Procedure Code. In this Application, the plaintiff seeks for issuance of Judges summons to attach movables, namely; Computes, Almirahs, Tables, Chairs, Fans, Air Conditioners, Fax Machines and others lying at 2704, Kashmere Gate, Delhi 110006. The Court is empowered to pass an order of Attachment of movables before Judgment. Section 136 of Civil Procedure Code, enables the Court to pass an order of Attachment of the movables outside the District. Considering the averments in the affidavit and other circumstances, the order of Attachment before Judgment of the movables 1's to be ordered.
A. No. 927 of 2003 : This application filed under Section 8 of the Arbitration and Conciliation Act is dismissed.
A. No. 5296 of 2002 : Since the respondents/defendants have not furnished security, Attachment before Judgment of the movable properties given in the Schedule is ordered and this application is allowed. Attach by four weeks.
A. No. 918 of 2003 : In view of the order passed in A. No. 5296/2002, this application is dismissed.