Union of India (Uoi) Vs. P.C. Ray and Co. (India) (P.) Ltd. - Court Judgment

Excerpt:
- pratibha bonnerjea, j.1. the parties to these proceedings had entered into a contract on august 31, 1951, containing an arbitration clause for adjudication of disputes arising out of the contract or relating thereto by two arbitrators. disputes and differences having arisen between the parties from time to time, five separate references were started between the parties. all the five references were private references and were as follows:1. in 1961, the respondent company as the claimant made the first reference against the union of india for recovery of rs. 2,08,12,135 and the union of india made certain counter-claims therein. 2. in march, 1964, the union of india as the claimant made the second reference for recovery of rs. 1,00,90,041.39 and the respondent company made certain counter-claims in that reference. 3. in july, 1964, the respondent started the third reference claiming rs. 39,00,000 and the union of india made certain counter-claims therein. 4. in october, 1969, the fourth reference was started by the respondent claiming rs: 1,73,63,850 and the union of india made certain counterclaims therein. 5. in january, 1972, the fifth reference was started by the respondent company claiming rs. 1,01,25,000 and the union of india also made certain counter-claims therein. 2. the award in the first reference was made on august 18, 1967, in favour of the union of india and the same was filed in this court. the respondent company had filed an application for setting aside the said award but by order dated august 9, 1968, the said application was dismissed and a judgment upon the said award was passed. the union of india thus became a decree-holder and/or a creditor of the respondent company.3. during the pendency of the second, third, fourth and fifth references, one bibhuti bhushan dutta p. ltd., a creditor of the respondent company, took out company petition no. 203 of 1975 on june 4, 1973, for winding up of the respondent company. in that application, the present petitioner, the union of india, as the decree-holder creditor, was substituted in place and stead of the original petitioning creditor, bibhuti bhushan dutta p. ltd., on april 1, 1974. one saurashtra agency p. ltd., another creditor of the company, applied for stay' of winding-up proceeding no. 203 of 1975. by an order dated june 25, 1974, passed by the winding up court, the stay application was rejected and the respondent company was directed to be wound up. both saurashtra agency and the respondent company filed two appeals from the orders dated june 25, 1975, passed in their respective applications. they also prayed for stay of the order of winding up. the appeal court rejected the prayer for stay and confirmed the order of winding up by its order dated september 2, 1975, but at the same time the appeal court directed the official liquidator to continue all the pending arbitration proceedings on behalf of the company in liquidation. this order of the appeal court dated september 2, 1975, was further clarified and/or modified by another order dated february 9, 1976. pursuant to the orders of the appeal court, the arbitration proceedings continued and one of the joint arbitrators made awards in all the five references in favour of the union of india but the other arbitrator refused to sign the said awards. hence, there were disagreements between the two arbitrators in all the five pending arbitration proceedings. as a result, it became necessary for the umpire to enter upon the references. under clause 33 of the agreement, the chief justice of india was to appoint the umpire and he appointed mr. justice g. k. mitter, a retired judge of the supreme court as the umpire. on september 3, 1976, the umpire entered upon the references.4. it should be noted that the arbitration proceedings were directed to be continued by the appeal court in appeals arising out of the winding-up order and the liquidator was conducting the arbitration proceedings pursuant to that order subject to the control and supervision of the winding up court. in short, the appeal court, while exercising its jurisdiction in winding-up matters, directed the official liquidator to continue the references.5. on march 6, 1978, the union of india, the petitioning creditor, took out application no... of 1978 in company petition no. 203 of 1975 before the winding up court under section 5 of the arbitration act for revocation of the authority of the umpire. on that application, by an order dated march 7, 1978, the winding up court revoked the authority of the umpire and superseded all the four pending references by directing that the arbitration agreement would cease to have effect with respect to the differences referred. the saurashtra agency (p.) ltd. again preferred an appeal from the order dated march 7, 1978, being appeal no. 81 of 1978. it was contended in the appeal that saurashtra agency (p.) ltd., being a total stranger to the arbitration agreement between the union of indiaand the respondent company, had no locus standi to appeal from the order dated march 7, 1978, disposing of the application under section 5 of the arbitration act. it was further contended that an order under section 5 of the act was not appealable. negativing both these contentions, the appeal court held that saurashtra agency (p.) ltd., being a. creditor of the company in liquidation in the winding-up proceeding, has sufficient interest in these matters. the order of revocation of the authority of the umpire and the supersession of the arbitration proceedings had affected its said rights. the company in liquidation was the claimant in most of the references and the applicant, saurashtra agency (p.) ltd., was looking after the financing of those arbitration proceedings as it would be benefited if awards were made in favour of the company. it has, therefore, locus standi. moreover, by order dated march 7, 1978, the winding up court, in excess of its jurisdiction, had itself revoked the authority of the umpire instead of granting leave to the parties to revoke the same. the order dated march 7, 1978, was, therefore, without jurisdiction. over and above that, the said order dated march 7, 1968, was clearly appealable under section 39 of the arbitration act as well: it was further held that saurashtra agency (p.) ltd. preferred appeal no. 81 of 1978 with the leave of the winding up court under section 446(1) of the companies act. on these grounds, the appeal court set aside the order dated march 7, 1978, and directed the umpire to proceed with all the references and to make his award within six months. the umpire was further directed not to take any fresh evidence and to hold 20 sittings in each reference allowing 10 sittings to each of the counsel for the parties for completing their arguments. the date of this order of the appeal court in appeal no. 81 of 1978 is september, 1979. in spite of all these directions by the appeal court, the umpire held 51 sittings in the second reference, 33 sittings in the third reference and 120 sittings in the fourth reference and it is not known how many sittings were held in the fifth reference. the appeal court also went on extending time repeatedly to enable the umpire to make his awards and the last extension expired on june 30, 1984. the umpire, however, made his awards on all matters on june 22, 1984. without publishing the contents of the awards to the parties. the petitioner, union of india, applied for certified copies of the awards on july 10, 1984, and obtained them on june 13, 1985. the present applications were taken out on june 14, 1985, within time.6. when this award case no. 140 of 1985 was moved before me, i enquired of counsel for both the parties as to whether in view of the fact that the company was in liquidation, the winding up court should be the proper court under section 446 of the companies act to hear this application. assuming that the application could be moved in this court.7. whether leave of the winding up court would be necessary under section 446(1) of the companies act for making this application in this court. the parties took time to consider the same.8. counsel for the petitioner, union of india, submits that under section 446 of the companies act, the jurisdiction conferred on the . winding up court is not an 'exclusive' jurisdiction. he submits that our courts have repeatedly held that section 446(2) of the companies act contemplated concurrent jurisdiction of courts. reliance is placed on osier electric lamp mfg. co. ltd.(in liquidation), in re [1967] 37 comp cas 306 ; air 1967 cal 61 and narendra nath saha v. official receiver, calcutta high court, : air1968cal394 . in osler electric lamp . (in liquidation), in re [1967] 37 comp cas 306; air 1967 cal 61 the court in paragraph 26 construed section 446(2) of the companies act and held (at page 311 of 37 comp cas):' hence, sub-clause (d) of clause 2 proceeding as it does, that suits, claims, questions and applications may be filed or raised in a court other than the winding up court even after the commencement of the companies (amendment) act, 1960, pre-supposes concurrent jurisdiction of the winding up court and any other competent court....therefore, in my opinion, the winding up court has concurrent jurisdiction and not exclusive jurisdiction.'9. in narendra nath saha v. official receiver, calcutta high court, : air1968cal394 , the division bench of our court held in paragraph 8 of the report (at page 260 of 39 comp cas):' ...in our view, ...the jurisdiction of this court under the above section 446(2), read by itself, would not be exclusive but concurrent, ... '10. it is further submitted by counsel for the union of india that on account of the fact that the application under section 5 of the arbitration act was made before and heard by the winding up court, that court be not vested with the exclusive jurisdiction under section 31(4) of the arbitration act because that application was not the first application in the reference as contemplated under section 31(4) of the act but was a subsequent application. only the first application made before a competent court will vest that court with the exclusive jurisdiction in respect of that reference. learned counsel points out that on february 11, 1969, prior to the winding-up order, the respondent company had made an application before the court taking arbitration matters under section 20 of the arbitration act, being sp. suit no. 2 of 1969, which was ultimately withdrawn. but withdrawal of the application is immaterial. what is important is the 'making' of the firstapplication. he relies on an unreported decision of mr. justice mullick, as he then was, in manturam jaipuria in support of his contention. he further submits that in 1968 an application was made before this arbitration court for setting aside the award made in the first reference which was dismissed in august 9, 1968. hence, this court was fixed with the exclusive jurisdiction since 1968. the application under section 5 of the arbitration act before the winding up court being a subsequent application, it could not attract section 31(4) of the arbitration act to vest the winding up court with exclusive jurisdiction. on the facts of this case, section 31(4) of the arbitration act will not apply so far as the winding up court is concerned. according to him, both the winding up court and this court have concurrent jurisdiction to entertain the present application and this court is also vested with the exclusive jurisdiction and as such the present application can only be made and be entertained by this court. on the question of ' leave', counsel for the union of india submits that by order dated september 2, 1975, the appeal court in the winding-up proceeding, granted leave to the official liquidator to proceed with all the pending references. this order was further modified by the appeal court by its order dated february 9, 1976. moreover, the appeal court in appeal no. 81 of 1978 preferred from the order of the winding up court revoking the authority of the umpire, passed an order on september 19, 1979, directing continuation of the references. the present application is for setting aside one of the awards made in those references. this application is the continuation of the same arbitration proceedings. hence, no fresh leave of the winding up court is necessary for making this application. further, by the present application, the union of india is trying to get rid of the award passed against it. it wants to get itself absolved from the liabilities fastened on it by this award and as such it is a defensive action. no liability is intended to be fastened on the company in liquidation by the present application and as such no leave of the winding up court is necessary for taking out this defensive action. a number of authorities have been cited by counsel for the petitioner on this point, viz., palmer's company law, twenty-third edition, pages 1181 to 1183, and cases on section 231 of the english companies act, which is equivalent to section 446 of the indian companies act. he also relies on humber's case [1901] 85 lt 141, langley constructions (brixham) ltd. v. wells [1969] 1 wlr 503 (ca), at page 503, peat v. jones and co. [1881] 8 qbd 147. (ca) and halsbury, fourth edition, volume 7, at page 1365. it is strongly urged that no leave under section 446(1) is necessary if a party wants to escape its liability fastened on it in favour of the company in liquidation. reliance was also placed by the petitioner's counsel on v. k. padmanabhan v. kunjan narayanan, : air1964ker97 , and andhra paper mills co. ltd. v. anand brothers : air1951mad783 . according to him, the application for setting aside an award is a defensive action and for prosecuting the same, no leave is necessary.11. the respondent's counsel, on the other hand, submits that even if the court taking arbitration matters was vested with the exclusive jurisdiction under section 31(4) of the arbitration act on account of the respondent's moving this court for setting aside the award in the first reference in 1968 or for taking out sp. suit no. 2 of 1969, this 'exclusive jurisdiction', lost its force by the subsequent winding-up order dated june 25, 1975. on account of the winding-up order, the provisions of section 446 of the companies act came into operation. this is a special provision vesting the winding up court with jurisdiction to entertain all applications, suits or proceedings regarding any claim for or against the company in liquidation, even in respect of legal proceedings in which apart from section 446 of the companies act, the winding up court did not have any jurisdiction to entertain the said proceeding at all. although the word ' exclusive ' cannot be found in section 446, still that court, if it so likes, can get any matter transferred to it and try the same. once transferred, the winding up court will have exclusive jurisdiction to entertain that matter. counsel for the respondent submits that the non obstante clause contained in section 31(4) of the arbitration act was enacted in 1940, whereas the non obstante clause contained in section 446(2) of the companies act, 1956, came into force in 1960 when the act was amended. hence, the later non obstante clause in section 446(2) of the companies act will prevail over the earlier non obstante clause in section 31(4) of the arbitration act. in support of his contention, he relies on sarwan singh v. kasturi lal : [1977]2scr421 and shri ram narain v. simla banking and industrial co. ltd. : [1956]1scr603 . he submits that the winding up court alone thus has the jurisdiction to entertain this application. he further submits that the principle of the proposition of concurrent jurisdiction as laid down in osier electric lamp mfg. co. ltd. (in liquidation), in re [1967] 37 comp cas 306 ; air 1967 cal 61 or narendra nath saha v. official receiver : air1968cal394 , strongly relied on by the petitioner's counsel, cannot be accepted because in these two cases the courts did not deal with section 446(2) of the companies act which came into force in 1960. i do not think that the respondent's counsel is right in his contention on this point. in osier electric lamp mfg. co..ltd. (in liquidation), in re [1967] 37 comp cas 306; air 1967 cal 61, the amendmentof 1960 in the companies act, 1956, was expressly considered as will be clear from paragraphs 22 and 26 thereof as well as the headnote ' a ' of the case. so far as narendra nath saha v. official receiver : air1968cal394 is concerned, this case was decided on february 15, 1968. the amendment of section 446 in 1960 by introduction of section 446(2) became 7 or 8 years old by then. it would be absurd to suggest that the court did not know about this amendment. from the trend of the judgment and paragraph 8 of the report, it becomes clear that the division bench was considering section 446(2) as it stood in 1968. these two courts, after careful consideration of section 446(2) of the companies act, came to the conclusion that it was a special jurisdiction whereby the winding up court had been made competent to entertain matters concurrently with other competent courts in respect of which the winding up court already had jurisdiction and also in respect of matters where it had no jurisdiction at all apart from the provisions of section 446(2) of the companies act. the winding up court has jurisdiction to get any matter transferred to it from any court under section 446(3) of the act for dealing with and disposing of the same. i humbly agree with the two decisions of our court mentioned above and hold that the jurisdiction conferrred on the winding up court under section 446 is not ' exclusive ' but concurrent.12. on the question of 'leave' under section 446(1) of the act, the respondent's counsel submits that an application under sections 30 and 33 of the arbitration act is an independent fresh proceeding and is not a continuation of the reference. therefore, if such an application is taken out against a company in liquidation, then leave of winding up court to proceed with the same under section 446(1) of the act is necessary. the petitioner is not entitled to proceed with this matter as it has not obtained any leave. he concedes that this leave can also be obtained during the pendency of the matter but in that case the proceeding will be deemed to have been instituted on and from the date of the leave, if granted. therefore, if leave is now obtained, the application will be barred by limitation. the respondent's counsel relies on bansidhar sankarlal v. md. ibrahim : [1971]2scr476 in support of his contention. he further submits that the present application cannot be treated as a defensive action as submitted by the petitioner's counsel. the award in favour of the company would enure to the benefit of the entire body of the creditors of the company. therefore, an attack on the award virtually amounts to challenging the company's claims allowed by the umpire and crystallised by the award. it is really an offensive action disputing the company's right to recover the money which could not have been and/or should not have been instituted without the leave under section 446(1) of the act. this application is, therefore, bound to be rejected even if it is held that this court has concurrent jurisdiction to entertain this application under section 31 of the arbitration act,13. under section 33 of the arbitration act, the parties have the right to challenge the existence and validity of the award or to have its effect determined by the court. under section 30, the award may be challenged on the grounds mentioned therein. when the existence or validity of the award is challenged on the grounds mentioned in section 30 of the arbitration act, the party challenging virtually censures the conduct of the arbitrator or the umpire. the award will be set aside or upheld after the court examines the allegations and comes to the finding either against or in favour of the arbitrator or the umpire. hence, from that point of view, a proceeding is neither defensive nor offensive. the petitioner in the application for setting aside the award hardly makes any allegation against the other party to the arbitration excepting in cases of fraud, collusion or wrongfully procuring the award. such an application is not meant to be instituted against the party but its target is the arbitrator and/or the umpire. the parties' rights under the award are affected incidentally on account of the conduct of the arbitrator or the umpire. it is, therefore, difficult to treat an application for setting aside the award as a completely new and fresh application or an offensive action against the respondent as submitted by the respondents' counsel. however, the question of obtaining leave of the winding up court to continue the present application in this court under section 446(1) of the act, will depend on my finding whether this court has retained the jurisdiction to entertain this application or not. if not, then the question of leave will not arise. to come to a finding on this point, we have to consider the facts and circumstances of this particular case and the conduct of the parties relating to the same as well as the jurisdiction exercised by the winding up court over the pending arbitration proceedings. in my opinion, this matter has to be considered first from the point of view of section 31 of the arbitration act because both the courts were competent courts. it should be noted that although the award in the first reference was filed and challenged in this court in 1968 and that award was upheld, no application was ever made in this court in connection with the second, third, fourth and fifth references. as a matter of fact, sp. suit no, 20 of 1969 had nothing to do with these cases as it is not clear from the records whether any of the second, third, fourth or fifth reference included the subject-matter of sp. suit no. 20 of 1969 which was withdrawn by the respondent. now, on a proper construction of the provisions of sections 31 and 31(4) of the arbitration act, can it be said that on account of the fact that the first award in the first reference was challenged in this court, this court was vested with exclusive jurisdiction over the entire arbitration agreement and/or the contract between the parties so as to have exclusive jurisdiction in respect of all other future disputes and references which would arise out of that contract in future? to find out what is the correct position, the provisions of section 31(4) of the arbitration act have to be analysed carefully :'31. (4) notwithstanding anything contained elsewhere in this act or in any other law for the time being in force, where in any reference, any application under this act has been made in a court competent to entertain it, that court alone shall have jurisdiction over the arbitration proceedings and all subsequent applications arising out of that reference and the arbitration proceedings shall be made in that court and in no other court.'14. the portions underlined will clearly indicate that the court's exclusive jurisdiction will be confined to that particular reference and arbitration proceedings only and will not extend beyond its scope or include other references which might be pending out of court or which may arise in future out of the same contract. section 31(4) does not extend the exclusive jurisdiction of the court to the arbitration agreement itself...it only brings within its fold the single reference in which the court's jurisdiction has been invoked first. it is a well-known proposition that successive references may arise out of the same arbitration agreement at different stages: if a party has moved one court first in respect of the first, reference, that party will not be compelled to move the very same court in respect of the second reference as well. this is not required under section 31(4) of the act. it is quite possible for the party to move any other competent court in connection with the second or third reference which will arise in future if he so likes. the provisions of section 31(4) of the act will not stand in the way. sub-sections (1), (2) and (3) of section 31 of the arbitration act also support my construction regarding section 31(4) of the act as the provisions of sub-sections (1), (2) and (3) of section 31 do not militate against the construction put by me to the provisions of section 31(4) of the act. if that is so, then considering the facts and circumstances of this case, it will be found that the winding up court has the exclusive jurisdiction in respect of the second, third, fourth and fifth references as the first application relating to these references under section 5 of the arbitration act for revocation of the authority of the umpire was made before the winding up court. this application was made in 1978. in 1978, the winding up court, by virtue of the amendment of section 446(2), which came into force in 1960, had the concurrent jurisdiction along with the arbitration court, was competent to entertain the application under section 5 of the arbitration act. therefore, the winding up court was a 'competent court' within the meaning of section 31(4) of the arbitration act. the application under section 5 of the arbitration act in connection with the second, third, fourth and fifth references being the first applications and having been made before the winding up court, the winding up court was vested with the exclusive jurisdiction under section 31(4) of the arbitration act and the winding up court, in exercise of its special concurrent jurisdiction, entertained this application and passed its order on 7th march, 1978. moreover, even if the matter is considered from the point of view of the provisions of the companies act, it will be found that the winding up court has the exclusive jurisdiction to entertain the present application. the second, third, fourth and fifth references were between the petitioning creditor, the union of india, and the company in liquidation. under section 446(3), the winding up court had the jurisdiction to get any matter pending anywhere by or against the company in liquidation, transferred to itself and try the same. on account of making this application under section 5 of the arbitration act before the winding up court, all the four private references, mentioned above, stood transferred to the winding up court by the conduct of parties and the winding up court entertaining the same by passing the order dated march 7, 1978. there is no provision in the companies act to retransfer that matter to any other court having concurrent jurisdiction to try the same. in this case, the winding up court had entertained the application relating to the second, third, fourth and fifth private references in exercise of its special jurisdiction under section 446 of the companies act. the present application, whether it is an independent proceeding or a continuation of the same arbitration proceedings, must be moved before the winding up court both under section 446 as well as under section 31(4) of the arbitration act. on the facts and circumstances of this case, the validity or otherwise of these awards cannot be determined by any other court excepting the winding up court in view of the provisions of section 31(4) of the arbitration act as well as the provisions of sections 446(2) and 446(3) of the companies act.15. in this view of the matter, the application is returned to the petitioner for filing before the proper court. there will be no order as to costs.