FOOD CORPORATION OF INDIA & ANR. v. YADAV ENGINEER & CONTRACTOR (2)

Citation: [1983] 1 S.C.R. 95

Court: Supreme Court of India

Bench: D.A. DESAI, A.P. SEN, BAHARUL ISLAM

Case summary

the court is invited to adjudicate upon the dispute there is no question of then enforcing an arbitration agree·. granting stay of further proceedings in the suit and dismissed the appeal.

Judgment text

FOOD CORPORATION OF INDIA & ANR. v. YADAV ENGINEER & CONTRACTOR (l~gust 6, 1982 [D. A. DESAI, A. P. SEN AND BAHARUL ISLAM, JJ. ] ' 1 Arbitration Act 1940-Sectlon 34-scope o/- "f(lking any pther steps ~n the proceedings" meaniiJg of-notice of motion taken o~_t by plaintifffor interim ··~ injunction-Defendant appeared and prayed for time to reply-Defendant's actio~ j• whether "step taken in the proceedings''. ' Practice : atlention ofsingle Judge drawn to a binding decision ofDivision Bench of the same High Court-Decision not adverted to--Decision contrary to that ofDivision'Bench-Propriety of. Section 34 of the Arbitration Act 1940 provides that where_ one oft he parties to an arbitration agreement commences any legal proceedings against the other party in respect of any matter agreed to be referred to arbitration, any party to such legal proceedings may at any t. ime befor~ tbe filing of a.

Written statement or taking any other step~ in the pro f handlin~ and transport of goods of the ! st defendant Corpora- FOOD CORPORATION v. YADAV E~OINEER (Desai, J. ) 99 tion by the plaintiff during the pendency of the suit. On the notice . of motion being taken out the Court directed notice of the same to be served and the· same was made returnable on the . next day, June 2, 1981. On the returnable date the 2nd defendant, District Manager of the ! st defendant Corporation who had . office in the City of Gwalior was served and.. he appeared through one Shri N. K. Modi, Advocate, filed the letter of authority (Vakalat) in favour of the learned advocate on behalf of 2nd. defendant and the l~arned advocate prayed for time for 'reply and arguments to the plaintiff's application for temporary injunction'. The court acced~d to the request and posted the matter on June 3, 1981.

An endorsement appears in the record that the Ist defendant Food Corporation of India was not served though the , endorsement reads 'absent'. However, the last line in the proceeding makes it clear that the case was posted on June 3, 1981' 'for reply argumennts and awaiting service on June 3, 1981'. When- the matter came up on the ·next day, i. e. June 3, 1981, an application was moved on· behalf· of . ' ! st defendant inviting the attention of the Court to ·the subsisting 11rbitration· agreement between the ·plaintiff and the ! st defendant and which agreement authorised the Managing Director of the ! st defendant to appoint an arbritrator in respect of any dispute arising out of the contract between the plaintiff and the lst defendant. It was-also stated that the ! st defendant desires to have the dispute, if any, resolved by arbitration under the subsisting arbitration agr,eement and that the defendant is fully ready and willing (ichhuk) to go to arbitration.

· The application concluded with a pra- _y_er th. at under the circumstances the suit may be stayed as provided in s. 34 of the Arbitration Act, 1940 ('Act' for short); The learned trial Judge was of the view that the dispute between the parties is covered by the arbitration agreement set out in Article 19 of the contract between the plaintiff and the ! st defendant. The learned Judge negativeq the contention that. an application·made by the 2nd defendant for filing reply to the notice of motion taken out by the plaintiff for interim injunction is a step take11 in the proceedings in view of the binding decision of a Division Bench of ~.. -·•. the Madhya Pradesh High Court in Sansar Chand Deshra}v. State of Madhya ,Pradesh. (') The learned judge accordingly ~ranteq stay (1) A. I. R. 1961 MP 322. I ' of further proceedings in the suit as prayed for on behalf . of the ! st defendant. Plaintiff preferred an. app~al in the Court of the '· "' District Judge, Gwalior.

The learned ITI Additional District Judge, before whom the appeal came up for hearing, agreed with the view taken by the learned trial judge and confirmed the order. granting stay of further proceedings in the suit and dismissed the appeal.. · Undaunted even by this second rejection plaintiff approached the High Court in revision under s·. 115 of the Code of Civil Procedure. The learned judge, though his attention was drawn to the binding decision of the Division Bench of the same High Court, did not refer to it in the judgment and relied upon a decision of ihe Adhara Pradesh / High Court in Bajaj International v. Indian Tobacco Suppliers(') • 11nd held that an application for filing reply to a notice of motion for interim injunction is a step taken in the proceeding,which would disentitle the party from invoking the arbitration agreement. In support of this conclusion the learned judge also . relied upon Abdul 2 Qudoos v.

Abdul Gani,( ) which decision clearly does not support any such proposition. The learned judge further observed that even if the view that the application filed by the 2nd defendant praying for time to reply to the notice of motion for interim injunctioμ may not be treated as a step in the proceeding, yet the 1st . defendant would not be entitled to a discretionary order under s. 34 of the Act on the·gro1md that one of the conditions necessary for invoking the jurisdiction of the court under s. 34 is not satisfied inasmuch as nowhere in the application the ! st defendant bas stated that the • • ! st defendant at the time when the proceedings were commenced and still ·remains ready and willing to do all things ne. cessary for the proper conduct-0f·the arbitration.

For this additional reason which was never urged on behalf of the plaintiff either in the trial court or in the 1st appellate court and as would be presently pointed out which is contrary to the record the High Court interfered • \· in revision, rSet aside the order of the trial court granting stay and confirmed by the appellate 1>ourt and rejected the application for stay of proceedings in tbe suit. Hence this appeal by special leave. Section 34 of the Act reads as under : "34. Where any party to an arbitration agree- . l- •' ment or any person claiming under him commences (I) 'AIR 197. 8 AP 8. (2)JA. Ul.. 1954 Na~. 33Z, .. ! i9ob . CORPORATiON v. YADAV ENGi~EER (besal, J. ) 101 any legal proceedings against any other party to the agreement or any person claiming nnder 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 pending to stay the proceedings; , and if satisfied that there is no snfficient reason why the matter should. not be referred in f1Ccordance with the arbitration agreement and that the. apP,licant was, at the time when the proceedings. were commenced, and still remains, ready and willing to do all things , necessary to the prop. er conduct of the arbitration, · such authority may make an order staying the proceedings. " The contours of the controversy are confined to one of the negative requirements of s. 34 to be fulfilled by a party seeking the discretionary relief of stay of proceedings to qualify for the same. It is not necessary . to reproduce all the relevant conditions for attracting the application of s. 34. One of the conditions to be ·satisfied before an order under s.

34 can be obtained is that the party to the legal proceeding has at any time before filing a written statement or ta) CORPORATION v. YADAV ENGINE~R (Desai, J. J JM aQd covered by the contract shall be referred to arbitration. It may be that one or the other party may not have entered into the contract in the absence of an arbitration agreement. Therefore when in breach of an arbitration agreement a party to. the agreement rushes to the . . ·court, unless a clear case to the contrary is made out the· approach of the court sl,iould be to hold partie~ to their bargain provided necessary condition§ for invoking s. " 34 are satisfied. Arbitration Act prescribes various methods by which an arbit· ration agreement can. be enforced. Section 20 enables parties to an arbitration agreement to approach the Court in the ci.

rcumstances therein mentioned for a direction that the agreement be filed in the court and on suth agreement being filed the Court is empowered to make an order of reference to the arbitrator. Provisions of Chapter IV provide for arbitration in. suits. Section 34 prescribes one other method of enforcing arbitration agreement if a party' to an arbitra- } tion agreement in breach' of it approaches the court and files suit in respect of a dispute covered by the arbitratfon agreement. . Section 34 prescribes a method by which the other party to the. arbitration agreement bY. satisfying the conditions·prescribed in s. 34 can enforce the arbitration agreement by obtaining an order ·of stay of the suit. It is crystal clear that once the suit is stayed the .

party who in breach _of the arbitration agreement approaches the court for relief will be forced to go to arbitration and thus the court by this negative attitude of declining to proceed further with the proceedings brought before ·it would enforce the arbitration agreement. In order, therefore, to satisfy the court that the other party to the arbitration agreement who would be defendant in the suit is \) ready and willing to abide by the arbitration agreeme. nt and ready to take all steps necessary for the proper conduct of the arbitration, · it must show that it is not waiving or abandoning its right under the arbitration agreement or submitting to the jurisdiction of the court thereby accepting the forum selected by the plaintiff for resolution of dispute and acquie. scing in it. In order to steer clear of this charge the provision is made in s. 34 for a:n application by the party who is brought to the.

court by the opposite party in breach of the •arbitration agreement io apply for stay before filing the written statement or before taking any other steps in ~he proceeding. This 104 slli>RBMB COURT REPOll. ts [198j) I s. C. Il. explains the purpose and object underlying the provision contained in s. 34. / The contention and the resultant issue in. dispute must now be neatly framed. The primary-issue is: what action on the part of the· defendan_t who is- sued in a court of law and-Who has a subsisting valid arbitration agreement with the plaintiff, would_ constitute step in the proceeding so as to disentitle him to stay of the suit which, if granted, would enable ·him to enforce the arbitration agreement ? Would entering an appearance and contesting petition or notice of motion for interlocutory order constitute ·such step in the s~it or proceedings as would disentitle the party to an order ·under s. 34 ?

The subsidiary point is, whether where in a suit filed in a court, a prayer for an ex parte ad interim injunction is made either by an application or by . a notice of motion or an application is made for appointment of a receiver and either . ex parte ad interim injunction is granted or. ex parre receiver is. appointed and the copies of the pleadings and the order are served upon the defendant, if the defendant appears and requests the-court either to ·vacate the injunction or discharge the receiver or modify the orders"witbout filing a · written· statement or making an. application for filing a written statement to the plaint, could be be said to have tak_en a step in the proceedings so as to disentitle him from obtaining stay of the ,suit ? , ·' Let the precedents rest for the time being and let an attenipt be. made to ascertain the underlying intendment in enacting the conditibμ in s.

34 which prescribes a mode of enforcing the arbitration agreemenf to the effect that if a party to an arbitration agreement commences an action. the other party to the agreement, if)t desires to enforce the agreement, may seek stay of the suit before either filing written state~ent or taking "other steps in the proceeding. Ordinarily the court would respect the sanctity of contracts: A valid arbitration agreement between the parties obliges bot~ the parties to the . agreement t9 ' act according to the terms of the agreement. A valid arbitration agreement envisages resolution of· dispute by a forum of the choice· of the parties and displaces the state courts. Ordinarily, a party to a valid arbitration agreement is not entitled unilaterally to commit a breach of the agreement or tt· ignore the agreement. Now, if a party to an arbitration agreement bas a· dispute to be resolved arisia·g out of the contract i.

n which the arbitration ~greement is incorporated and instead of invoking the Moo CORPORATION v. YADAV ENGINEER (Desai, J. ) 105 · arbitratfon agreement- by inviting the parties to. appoint the arbit. rator. it rushes to the court. in breach of the _agreement and files a suit, the other party is undoubtedly entitled to enforce the agreement. True, the other party is equally entitled to waive the benefit of the arbit· ration agreement. If the other party desires to waive' the benefit of the agreement it can appear in the suit and contact the suit. Such · conduct would. demonstrably, show that both the parties have waived the b~nefit flowing from the arbitration . agreement of getting the • dispute between them resolv. ed by a forum of their choice. But if . the first party in breaph of the agreement files a suit the other party to the agreement . must have an option and opportunity to enforce the arbitration agreement. Section 34 prescribes a mode.

and method of enforcing the arbitration agreement. When a party to the agree· ment has filed a suit in breach of the -agreement and' the other party to the agreement is dr~gged to the court, by staying . the suit at the ' l ·instance -of the other party so dragged to the court the first party consequently would be forced to honour the arbitration agreement.. But before the other party to the arbitration egreement is entitled to enforce the arbitration agreement·by stay of the silit it must disclose ·its unequivocal ihtention to abide by the agreement and, therefore, s. 34 obliges such a party to ask for stay of the proceedings before - such a party takes any steps which may unequivocally. indicate the intention to waive the benefit of the arbitration agreement. Abandon-· ment of a right. to seek resolution of dispute as' provided in the arbitration agreement must be clearly-manifested by the-step taken by, such party.

Once such unequivocal intention is declared or abandonment of the right to - claim the benefit of the agreement becomes manifest from the conduct, such party would then' noi'be entitled ,, to enforce the arbitration agreement because. there is thu_s a breach of ! he agreement by both the par)ies disentitling both to claim any benefit of the arbitration agreement. ·section 3:4 provides that a party dragged to the court as defendant ·by another P. arty who is party tci the arbitration agreement must ask for stay of the proceedings· before filling the written statement· or before takfog,any pther step in the proceedings. That party must simultaneously show its readiness and ,willingness to do- all things necessary to the proper conduct of the arbitration.

The legislature by making it mandatory on the party seeking benefit of the arbitration agreement to apply for stay of the proceedings before filing the written statement or before taking any other steps in the proceedings unmistakably poln· ted out that filing of the written statement discloses such conduct on, ' 106 Si:JPREM~ coi:JRt REPORTS [1983) i s. c. k. the part of the party as would. unquestionably show that the party has abandoned its rights under the arbitration agreement and bas disclosed an unequivocal intention· to accept the forum of the court for resolution of the dispute by waiving its right to get the dispute resolved by a forum contemplated by the· arbitration agreement. When the party files written statement to the suit it discloses its defence, enters into a contest and invites the court to adjudicate upon the dispute. ,Once . the court is invited to adjudicate upon the dispute there is no question of then enforcing an arbitration agree·.

· ment by forcing the parties to resort to the forum of their choice as set out in the a. rbiJration agreement. . This flows from the well settled principle that the court would normally bold the parties to the bargain (see Ramaji Dayawala & Sons (P) Ltd. v. Invest Import). (') . ·~ Apart from filing . written statement, what other step did the legislature contemplate as being t. aken in the proceedings which· 1 would disentitle the party to the suit from obtaining stay of the ·pr~~eedings which would have the effect of enforcing the arbitration agreement ? General words 'taking any other steps in the proceed- . ings' just follow the specific expression 'filing a written statement' and both are used for achieving the same purpose. Therefore, the latter general expression must be construed' ejusdem generis' with the specific expression just preceding to bring out the ambit of the latter Expression 'written statement' is a term of speCific co~notation .

J ordinarily signifying a reply to the plaint filed by the plaintiff. Therefore, the expression· 'written statement' in . s. 34 signifies a Lpecific thing, namely, filing an answer on merits to the plaint filed by the plaintiff. This specific word is followed [by general words 'taking any other steps in the proceedings'. The principle of ·ejusdem generls. must help. -in"finding·out the import· of the general words because· it is a well established rule in the construction of statutes that general terms following particula(ones apply to . such persons or things as are ejusdem genefis with these comprehended in the language of the legislature. In Ashbury Railway · Carriage & Iran Co. v. Riche,(') the question of construction of the object of a Company : 'to cllrry on business of mechanical engineers and general contractors', came in for consideration and o> [19811 1 s. c. R: 89! f. (2) (1875) L. R. 7 H. L. 653. • 4' FOOD. CORPORATION v. YADAV ENGINEER (Desai, J.

) 101 · ~· it was said that the generality of the expression 'general contractors' was limited to the previous words 'mechanical engineers' on the principle ~f ejusdem generis. Filing of the written statement would disentitle the party from seeking enforcement of arbitration agreement by obtaining stay of proceedings because it is such an ~ct/on behalf of the party entitled to enforce the. arbitration agreement . which would disclose unequivocal intention of the party to give· up the benefit of the arbitration . agreement and accept the method in preference to the one set out in the arbitration agreement to the one · adopted by the other party by filing the suit and get the dispute adjudicated upon· by the machinery of the court.

If this is the underlying intendment in providing that application for stay of the proceedings must be filed before the filing of the written statement, · the same conclusion must follow when instead of filing the written statement the party has taken some other step in the proceedings. · That some other step must indisputably be such step as would manifestly display an unequivocal intention to proceed with the } • suit and to give up the right to h,ave the. matter dtsposed of by arbitration. Each an. d every step taken in the proceedings cannot come in the way of the party seeking to enforce the arbitration agreement by obtaining stay of proceedings but th~ step. taken by the party must be such, step as would clearly and unmistakebly indicate an intention on the P. art of such party to give up -the benefit of arbitration agreement and to acquiesce in the proceedings commenced against the party and to get the dispute resolved by the court.

· A step taken in the suit wh~ch would disentitle the ·. party from obtaining stay of proceeding must be such step as would . display an unequivocal intention to proceed with the suit and to abandon the benefit of the arbitration agreement or the right to get the dispute resolved by arbitration;. ' J If the step in the proceedings contemplated by s. 34 must be such step as would clearly, unambiguously and unequivocally disclose the intention of the party taking the step to give up the benefit of the arbitration agreement or its right of getting the dispute resolved by arbitration and to acquiesce in the methodoiogy of resoluution of dispute by court, would an· appearence' in the suit for contesting interlocutory applications such as application for appointment of ... 1. ~' receiver or ex parte ad interim injunction, mandatory or· prohibitory, and contesting the same be a step which would disclose an unequivocal intention to proceed with the suit and to give up the benefit !

OS sui>REME COURT REPOilts (1983) i s. C. R. of ihe arbitration agreement? That is the controversy in the appeal before us. Arbitration agreement generally provides for resolution of disputes either present or future by a forum of the choice- of the parties. Ordinarily, arbitration agreement· finds its place in contracts, Apprehending that while preforming contract some disputes may arise, care is taken to incorporate an arbitration agreement in the contract itself prescribing the forum for resolution of such disputes. To illustrate, partnership contracts incorporate arbitration agreement for resolution of disputes arising out of the contract of partnership. Building contracts these days incorporate arbitration agreements. International ·commercial transactions also incorporate arbitration agreements. The purpose underlying _entering into arbitration agreement is to provide for resolution of. disputes arising from the contract between the parties.

Now, if a party to an arbitration agreement files a suit seeking relief in respect of disputes arising from 'the contract-the other party to the agreement can either waive tb-e benefit of the arbitration agreement and acquiesce in the suit or enforce the arbitration agreement. Such conduci has specifically to be ·in relation to disputes covered by arbitration agreement. But if a party to an arbitration agreement files a suit ~nd simultaneously moves an inteilocu\ory application such as an application for appointment of receiver, usually to be , found in- suits for dissolution of partnership and rendering accounts, ' or for an interim injui1ction to ward off a threatened or continuing breach of contract, irreparable harm would be suffered by the other party-to the arbitration agreement if it cannot contest "the interlocu- . tory application on the pain of abandoning the benefit of aJbitration agreement. A concrete illustration would be both illuminating and convincing.

In a suit for dissolution of partnership an~ accounts an application for appointment of receiver as also an application for interim injunction restraining the defendant . from u_sing the partner- ship goods or assets for continuing the busfness are filed. The court passes ex parte interim order a·nd issues notice calling upon the defendant to show cause why the same should not be made . absolute. In-a running business appointment of a receiver would thoroughly dislocate the'business and an injunction would bring to standstill th~ fl~urishing business. If the defendant appears and contests th~ application for appointment of receiver as also the application for injunction, could be be said to display an unequivocal FOOD CORPORATION v. YADAV ENGINEER'(Desal; J. ) 109 intention to give up the . ben~fit of the arbitration ·agreement and to ~· v' acquiesce iii the suit? The dispute between the parties is whether the partnership should be dissolved as per the contract of partner- ' ship.

Interim injunction applicatio~ or application for appointment , of receiver have nothing to do ·directly of substantially with the terms of the partnership. The main or substantial dispute will be . / covered by the plaint filed in lhe suit. Incidental proceedings for: appointment of receiver o'r for interim injunction ar~ for the protection either of the property or, the interests of the parties. Now, when. ex parte orders are obtained on ex parte avermerits the other party cannot be precluded from coming and pointing: out that no case is made out for granting interim reiief. It would be too cum, ·~, bersome to expect the ·party first to apply for stay and then inviie . ·• the court under s. 41 {2) of the Act to vacate the injunction or to. discharge the receiver, Giving the expression 'taking any 0th. er steps . . in the proceedings' such wide connotation as making an application · j for any purpose in the suit .

such as vacating stay, dischar£e of the receiver or eyen modifying the interim orders would work hardship 0 and would be inequitousJo the party who is willing to abide by the arbitration agreement and yet be forced t-0. suffer the inequ\ty of ex parte orders. Therefore,· the expression 'taking any other steps in the proceedings' must be given a narrow meaning in that the step· must be taken in the main proceeding of the. suit and it must be such ,step as would clearly and unambiguously manifest the ·fotention to waive the benefit of tlle· arbitration agreement and to acquiesce in . the proceedings. Interiocutory proceedings are · incidental to the main proceedings. They liave a life till the disposal of the main proceeding. As the suit or the proceeding is likely to take some time before the dis'pute in the suit is finally adjudicated, more often interim orders have to be macie for the protection of the rights of the parties.

Such interlocutory proceedings stand independent and aloof of the main ,dispute between the parties involved in the suit. They are steps taken. for facilitating the just and· fair disposal of the main dispute. When these interlocutory proceedings are contested it cannot be said that the party contesting . . such proceedings has· displayed an unequivocal intention to ··waive . ' the benefit of the arbitration agreement or that it has submitte. d to the jurisdiction of the court~ WI;en ,; parte orders are made at the back of the party the other party is forced to c6me to the . . /· 9ourt to vindicate its right. Such _compulsion cannot disclose an' · unambiguous intention to give up . the benefit of the arbitration \ . 110 SUPRBMB COURT REPORTS [1983] I s. c. tt. . ' "'agreement. Therefore,. taking any other steps in the proceedings must be confined to taking steps in the proceedings for resolution of the substantial dispute in the suit.

Appearing and contesting the interlocutory applications by seeking either vacation thereof or modification thereof cannot be said to be displaying an unambiguous intention to acquiesce in the suit and to waive the benefit of the arbitration agreement. Any other view would both be harsh and inequitous and contrary to the underlying intendment of the Act. The first party which approaches the, court and seeks an ex parte interim order has obviously come to the ·court in breach of the arbitration agreement. By obtaining an ex parte order if it forces the other party to the agreement to suffer the order, or by merely con· testing be imputed the intention of waiving the benefit of arbitration agreement, it would enjoy an undeserved advantage. Such could not be the underlying purpose of s. 34. Therefore, in our opinion, to effectuate the purpose underlying s.

34 the narrow construction of the expression ·'taking any other steps in the proceedings' as herein- ·I above set out appears to advance the object and purpose underlying s. 34 and the purpose for which the Act was enacted. • • . Having · examined the contention on the language of the statute, the setting in which it is placed, the underlying intendmeni and the purpose it seeks to s~rv~, let us turn to precedents. There is a clear cut cleavage and divergence of opinion amongst various High Courts. Allahabad, Bombay and later decisions of ,Calcutta High Court, Gujarat, Madhya Pradesh and Rajasthan High ·Courts have taken the view that appearing and contesting interlocutory application is not a'step taken in the proceedings so as to disentitle the party from taking benefit of the arbitration agreement by seeking stay of the suit. On the other hand, earlier decisions of Calcutta \ ' High Court, Delhi and Madras High Courts have taken . a contrary view.

In Bornbay there bas been a reference to a practice commended to us by Mr. Sorabji, learned counsel for th. e respondent that to avoid the pitfall of s. 34 even while contesting an interlocutory application the party seeking to enforce the arbitration agreement must enter appearance under protest. This practice · not only does not commend to us, but . way back in Nuruddin FOOD CORPORATION v. YADAV ENGINEER (Desai, J. ) 111 . Abdulhussein v. Abu Ahmed Abdul Jalli,( ), Tendolkar, J. has rejected it as one of the doubtful legal import and utility. One must construe the section on its own language keeping in view the purpose and object of tfie enactment. One cannot add to the requiremen. t - by introducing a practice brought. into vogue by 1Solicitors in Bombay, whev no such practice ,exists elsewhere. in the -country. Section 34 is even invoked in rural backward areas. The highly ·skilful solicitor's draftmanship cannot provide as escape route to an unwary litigent.

We are, therefore, not disposed to accept the suggestion that in order to avoid any pitfall of being denied the benefit of arbitration agreement the party seeking to enforce the agreement must enter an appearance under protest because we. affirm what Tendolkar, J. has said. It reads as under : ~ I "It appears to me therefore that the addition of tbe words 'under protest' to an appea~ance filed in court in cases not covered by 0. 30, R. S. Civil P. C. , is meaningless when neither the jurisdiction 'or the Court nor the validity of the writ or service is challenged. H is not challenged where a defendant. files an· -appearance under protest under the prevailing practice because he desires to apply for stay under the Arbitration Act. Therefore, whatever may be ,the reason / for the practiee which has grown up; it seems to rrie clear-that there is no obligation on the defendant to follow this practice of doubtful import and utility and he is at liberty'· to file an ·unconditionaJ.

appearance. '' Before we turn to the only decision of this Court in State . J of Uttar Pradesh v. Janki Saran Kai/ash Chandra,(') which ai one stage was expected to resolve the controversy, we may briefly' refer to the decisions of the various High Courts to which our attention was drawn. . . _ We would first refer to the decisions ·which take the view that . app~arin. g to contest interlocutory application either for vacating the mtenm orders . or modification of the same does not constitute a . (l) AIR 1950 Born. 127. (Z) [1974) I S. C. R. 31. I step in the proceedings which would disentitle the party to . an order . of stay under s. 34.

In Nuruddin Abdulhussein, (supra) learneil single judge of the Bomliay High Court held that the true test for determiniμg whether an act is a step in the proceedings is not ~o much the question as to whether it is an application-although, of course, that would be a satisfactory test in many cases-but whether the act displays an unequivocal intention to proceed with the suit and to give up the right io have the matter. disposed of by arbitration. In reaching this conclusion the Court relied upon Pord's Hotel Co. -v. Bartlett,(') where Lord Shand observed. as under; ·, _ '. '... this appears to me to have been in effect an abandonment of the ·proposal to have the subject of the - cause disposed of by arbitration". • The contention that when the defendant filed an unconditional appearance, presumably having reference to the practice that had grown up in Bombay High Court of appearance under protest. it was a step in th~ proceeding as contemplated by s.

34 was negatived and stay was granted. In Sansar Chand Deshraj, (supra) a Division Bench cif the Madhya Pradesh' High Court approved the decision in Nuruddin Abdulhussein, and held that mere filing of a reply to an application for interim relief by way·of appointment of a receiver or for issue of an injunction does not constitute a step in the proceeding which would indicate that there . ;, in effect abandonment of the . proposal to have the _subject of cause disposed of by arbitration. It may be pointed out here that the Division Bench decision of the Madhya Pradesh High Court which wa' in terms binding on the . , learned Judge of the High Court; and H was specifically submitted to us that even though the attention of the learned judge was invited he-neither referred to it nor distjnguished it.

Times without number this Court has observed that considerations of judicial propriety and decorum require that if a learned single Judge hearing a matter is in~Jined to take the view contrary to the earlier decision · of a Division Bench -of the same High Court, it would be 'judicial impropriety to ignore that ,decision but after referring to the binding decision he may direct that the papers be -... would disentitle him to a relief under s. 34. In Stata ofGujarat & Ors. v. The Ghanshyam Salt Works. ('), a learned single Jndge of the Gujarat High Court accepted the Allahabad, Punjab a. nd Madhya Pradesh decisions as laying down the correct law and dissented from the view raken. in the earlier Calcutta and Madras cases. The learned judge was of the view that appearing an CORPORATION v. YAl>Av ENGINEER (Desai, J. j 115 Saran's case and agreed w\th the decision in /Jiswanaih Rungta's · cas~. In M/s. Bhonrilal Hiralal & Ors. v. Prabhu Dayal & Anr.

,(') a learned single Judge or'the Rajasthan High 'court after a review of large number of decisions agreed with the Allahabad, Bombay and Madhya Pradesh and lat~r Calcutta decisions and held that appearing to contest an interlocutory application is· not a step in the 11rooeedings as would disentitle the . defendant t~ an order under s, 34. , • We would now refer to the set of decisions which take the 2 . ~ contrary view. In Subai Chandra Bhur v. Md. Ibrahim & Anr. ( ) S. R. f Das, J:, after referring to Ives & Barker v. Willans,(') and two earlier ' decisions of the Calcutta High Court concluded that in order to · constitute'a step in the proceedings the act· in question:must be :. (a) an application made to the Court either on summons ; or (b) such an act as would indicate , that the party is acquiescing in the method adopted by the other side of having the disputes decided by the Court.

The second test is beyond question invariably followpd because if the party entitled to tbe benefit of arbitration agreement • by taking such step in the suit indicates that it is acquiescing inio • the method adopted by the other side for resolution of dispute, such partr cannot at a later stage seek. to enforc~ the arbitration agreement by praying for stay of the suit. But with respect, merely • ·• · making some applications in the. suit without examining the pJ! rpose, object and implication of making ·the application would not always . constitute snch step as would disentitle the party making sudh application from seeking relief 'under s. 34 on the short grqurid that by ~merely making the application it has either abandoned jts right to ~""· enforce the arbitration agreement: by praying for stay of suit or has . - ac -.. .. •