General Electric Company v. Renusagar Power Company
CHINNAPPA REDDY, J, The appellant, General Electric Com- D
pany, a multi-national, entered into a contract with the respondent,
Renusagar Power Company Limited, an Indian Company, agreeing to
sell equipment for a Thermal Electric generating plant to be erected at
Renukoot on the terms and conditions set forth in the contract. For the
purposes of this case, it is unnecessary to set out the terms of the
contract and the details of what was envisaged to be done by the E
parties. It is also unnecessary to set out the various events that took
place subsequently. It is sufficient to state that on March 2, 1982, the
GEC submitted certain disputes between the GEC and Renusagar for
arbitration to the International Chambers of Commerce. On June 11,
1982, Renusagar filed a suit in the Bombay High Court for a declara
tion that the claims purported to be referred to arbitration by GEC to F
ICC were beyond the scope and purview of the arbitration agreement
contained in the contract and sought an injunction to restrain the GEC
from taking any further steps pursuant to their request for arbitration
addressed to ICC on March 2, 1982. In Renusagar's suit, GEC, on
August 11, 1982 filed a petition under s. 3 of the Foreign Awards
(Recognition and Enforcement) Act, 1961 seeking a ~tay of the suit. G
On August 19, 1982 GEC also filed a suit in the Cakutta High Court
against the United Commercial Bank to enforce a bank guarantee
given by the bank at the instance of Renusagar. On November 25,
1981, Renusagar filed a suit No. 127 of 1982 in the Court of Civil
Judge, Mirzapur praying for a declaration that the guarantee given by
the United Commercial Bank for and on behalf of the plaintiff stood H
discharged and had become ineffective and unforceable and for a man
datory injunction against the GEC directing and ordering them to
settle the plaintiff's claim regarding 75 MV A Transformers and to
satisfy validly the settlement arrived at of the plaintiff's claim as
mentioned in para 12 of the plaint.
It is useful to refer at this juncture to some of the happenings in
the proceedings in the Bombay High Court. On April 20, 1983, a
learned single Judge of the Bombay High Court dismissed the notice of
motion taken out by Renusagar for stay of the arbitration proceedings
and allowed the application of GEC for stay of further proceedings in
the Bombay High Court. Appeal filed by Renusagar to the Division
Bench of the High Court were dismissed on October 21, 1983. Further
appeals filed by Renusagar to the Supreme Court were also dismissed
on August 16, 1984. The Supreme Court held that the claims of GEC
were arbitrable and that the decision of the court was conclusive on
that issue and would not arise before the court of arbitration ofICC.
D On January 17, 1983, GEC filed an application (7-C) purporting ~
to put on record their complaint that annexures to the plaint had not
been received by them. On the same day, the Civil Judge made-an
order: "Copy of the plaint has been given to the defendant (GEC) so
that the defendant may file a written statement." On the same day, the
defendant GEC also filed another application (8-C) purporting to be
E 'under s. 20 and Order VII r. 11 read with s. 15 J of the Code of Civil
-
Procedure' praying that the court may be pleased to reject the plaint -~
and the suit. In this application, it was stated that the suit was in abuse
of the process of the court and an attempt to harass the defendants.
The court was requested to dismiss the plaintiff's suit on that ground as
also on other grounds which were thereafter mentioned. It was stated
F that the defendant did not reside and no cause of action arose within
the local limits of the jurisdiction of the court. There was a violation of
the stipulation laid down ins. 20 of the Code of Civil Procedure result
ing in an abuse of the process of the court. It should entail a dismissal
of the suit. The suit had been fradulently instituted on insufficient
court-fee and for that reason also the suit deserved to be dismissed.
G The defendant then proceeded to state that they reserved the right to -I
take further objections as preliminary objections to the maintainability
of the suit and craved leave to add to or alter or amend the application
whenever necessary. What is important to be noticed here is that there
was no prayer at this juncture for a stay of the suit. On January 19,
1983, GEC filed an application ( 10-C) requesting the Court to call
H upon Renusagar to furnish a complete record of the suit and annex-
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GENERAL ELECTRIC v. RENUSAGAR [REDDY. J.] 865
ures. The Civil Judge passed an order: "The case is called out. Shri .·\
J.P. Singh, present for the plaintiff. Shri R.S.' Dhawan, Advocate for
the defendant. 10-C by the defendant to direct the plaintiff to give
copies of complete record so that the defendant may plead preliminary
objections. The copies of papers have been given. Now the defendant
may file-W.S. by March 4, 1983. Put up on March 7, 1983 for issues.
Preliminary objections like 7-C and 8-C can be heard and disposed of B
after filing of written statement when the issues may be framed." On
March 4, 1983 which was the date fixed by the Civil Judge for the filing
of a written statement by GEC, GEC filed three applications before the
Mirzapur Court: 11-C, 12-C and 13-C. 13-C was styled as "objections
by the defendant to the jurisdiction of the court to entertain this suit for
declaration and injunction." The document began with the state- C
ment: "The Hon'ble court has no jurisdiction to entertain this suit
because of the following reasons." Seven reasons were set forth. The
first and the fourth grounds related to the territorial jurisdiction of the
court. The second ground stated that the plaint did not disclose any
cause of action and, therefore, was liable to be rejected under Order
VII CPC. The third ground stated that from the statements in the D
plaint, the suit was barred by limitation. The plaint was, therefore,
liable to be rejcted under Order VII r. 11 D. The fifth ground was to
the effect that the reliefs claimed were untenable on their face and the
suit was liable to be straightaway dismissed on that account. The sixth
ground was that the suit was liable to be stayed under s. 10 ors. IS I of
the CPC. The seventh ground was: "Similarly the suit is liable to be E
stayed as regards the second relief claimed by the plaintiff under s. 3 of
the Arbitration (Protocol and Convention) Act, 1937 and Foreign
Awards (Recognition & Enforcement) Act, 1961 and/ors. 34 of the
Indian Arbitration Act, 1940 or under all of them.,. Thereafter the
document proceeded to amplify the seven grounds by detailed refere-
nce to the allegations in the plaint and by further traversing those F
allegations. In regard to the seventh ground that the suit was liable to
be stayed under s. 3 of the Foreign Awards (Recognition and Enforce
ment) Act, 1961, it was stated:
"The present-claim arises out of the only contract between
the parties entered into in 1964. Disputes arising out of or G
related to this contract have to be settled, after being
unable to resolve such disputes by sincere negotiation by
arbitration under the rules of the International Chamber of
Commerce Court of Arbitration because of the provisions
of Art. XVIII of the said contract. The defendant is ready
and willing to have the present dispute raised by the H
866 SUPREME COURT REPORTS [ 1987] 3 S.C.R.
plaintiff in this plaint to be settled by arbitration without
prejudice to the defence of want of cause of action, the bar
of limitation and all other defenses. This Hon. Court is
therefore "bound to stay the present suit under s. 3 of the
Foreign Awards (Recognition and Enforcement) Act,
1961."
The final pr.ayer made in the application ( 13-C) was:
"For the above reasons it is prayed that the plaint be either
rejected for failure to disclose th~ cause of action or as
being barrred for limitation on the face of it, or it be re
turned to be plaintiff for presentation to a proper forum.
Further, the suit is also liable to be dismissed because
reliefs claimed by the plaintiff are untenable on their face.
Again, alternatively the suit is liable to be stayed under
s. 10 and/or s. 151 CPC in respect of first relief and under
s. 3 of the Foreign Awards (Recognition and Enforcement)
Act, 1961 in respect of the second relief claimed by the
plaintiff in the plaint."
11-C was an application under Order VIII Rule 9 and s. 151 CPC
seeking postponement of the striking of issues from March 7, 1983 to
4th or 5th of April, 1983. In the course of the application it was
recited: "That in keeping with the time schedule fixed by this Hon 'ble
E Court in effect, that a written statement be filed on March 4, 1983, the
defendant' is filing objections to the jurisdiction of the court to enter
tain this suit for declaration and injunction to file a subsequent plead
ing as written statement on merits in the event of the objections taken
in the preliminary written statement dated 21st February, 1983 being
rejected". The reference to the_objections to the jurisdiction of the
F court and the preliminary written statement dated 2 Lst February, 1983
was obviously to 13-C which was verified at Singapore on Feburary 21,
1983.
12-C was an application to grimt leave to the defendant to file a
.· subsequent pleading as written statement on merits if the court re
G jected the objections taken in the preliminary written statement. This
application was filed under Order VIII Rule 9.
On March 7, 1983, the court adjourned the case to April 5, 1983
and from time to time thereafter. On May 31, 1983, GEC filed their
H written statement raising their pleas in defence to Renusagar's suit.
However, in the first paragraph it was stated:
-
'}
-
GENERAL ELECTRIC v. RENUSAGAR (REDDY, J.) 867
"The defendant has filed in this Hon 'ble Court an appli- A
cation under s. 20 and Order VIII Rule 9 read withs. 151
CPC for rejection of the plaint with special costs to the
defendant on January 15, 1983. The defendant has also
placed on record on January 17, 1983 that a copy of the
plaint was supplied without annexures and documents and
without the injunction application said to have been filed. B
The defendant has filed its preliminary written statement
contesting the jurisdiction of this Hon'ble Court to try and
entertain the suit as no cause of action has arisen to the
plaintiff to sue this defendant on March 4, 1983. An
appropriate application under Order VIII Rule 9 read with
s. 151 CPC was also filed for leave to file subsequent plead- C
ings as written statement on merits in the event of the
preliminary written statement and the pleas being rejected
was also filed on the same date."
In the second paragraph, it was added,
"This defendant craves leave of this Hon'ble Court to in
corporate the preliminary objections taken hithertofore by
this defendant in its applications and pleadings and prelimi
nary written statement as if the same are set out herein
extenso."
Later in paragraph 6 and 7 of the written statement, it was stated as
follows:
"6. The plaintiff states and submits that the preliminary
objections are sufficient to dispose of the entire claim in
suit on issues of law alone which go to the root of the F
Jurisdiction aspect of the suit and its apparent non
maintainability and these sought to be decided as prelimi
nary questions of law."
"7. Without prejudice of the preliminary objections refer-
red to hereinabove and deemed to be incorporated herein G
as stated this defendant shall now deal with the plaint
. d 't ,, paraw1se an on men s .......... ..
The plaintiff objected to the presentation of the written state
ment on the ground that it was filed outside court hours. The plaintiff
also filed an application for postponement of the date of settlement of H
868 SUPREME COURT REPORTS [ 1987] 3 S.C.R.
issues. On August 4, 1983, the defendant filed an application ( 19-C),
requesting the court to settle the issues on August 18, 1983 itself with
out further postponement. Thereafter the case was adjourned from
time to time. On October 19, 1983, the plaintiff filed an application
(21-C) requesting the court to set the defendant ex parte as not having
filed any written statement and to decree the suit. On August l, 1984,
the Plaintiff, Renusagar filed an application, 25-A, for amendment of
the Plaint. The amendment sought included a prayer for a decree in a
sum of Rs.62,72,272. After contest, the application for amendment
was allowed on October 15, 1984 and GEC was given time to file an
additional written statement. A few days earlier, the defendant had
filed application (30-C) requesting the court to decide the issues re
garding maintainability and jurisdiction and stating that the suit may
proceed after decisions on these issues. On this application, the court
made an order on October 15, 1°~4 to the effect that a similar request
had earlier been rejected by the Court on January 19, 1983 and it was
not therefore, open to the Court to reopen the matter.
On November 31, 1984, GEC filed an application (34-D) seeking
time to file a written statement "if so advised" and postponement of
settlement of issues. Time was granted. On January 5, 1985, GEC filed
an application ( 65-C) stating that they had consistently pleaded that
the issues relating to the jurisdiction of the court and maintainability of
the suit should be heard first and reiterating that request prayed that
two issues may be struck and decided before the case was proceeded
upon on merits. The two issues suggested were:
"(1) whether the Hon'ble Court had jurisdiction to try and
-
entertain the suit and y·
F (2) Whether the present suit is maintainable against the defendant
applicant who neither resides nor carries on business in India."
On February 2, 1985, the Mirzaptir Court rejected the application,
commenting that such a request was being repeatedly made. Against
the order of the Mirzapur Court rejecting the application 65-C, GEC
filed a petition under Art. 227 before the Allahabad High Court for
quashing the proceedings in the suit. In ground eight of the petition, it
was stated that GEC had already raised the plea that the suit was liable
to be stayed under s. 3 of the Foreign Awards (Recognition &
Enforcement) Act, 1961. It was also stated in ground no. twelve that
the question of arbitrarbility of the disputes had already been decided
by the Supreme Court. On April 4, 1985, the Allahabad High Court
'
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GENERAL ELECTRIC v. RENUSAGAR (REDDY, J.) 869
dismissed the petition in limine observing as follows:-
"We have considered the matter carefully and we are of the
view that so far as the court below has not been called upon
to apply its mind to the provisions contained in s. 3 of the
Act. Shri R.S. Dhawan who appears alongwith Shri V.N.
Deshpande has stated at the bar that amongst other conten- B
lions advanced before the learned Civil Judge, he had
pointedly pressed that in view of the aforesaid provisions
further proceedings in the suit should be stayed. We have
no doubt that such an argument must have advanced by
him. Nonetheless, the learned Civil Judge had not given
any decision on this point. We, therefore, consider it C
appropriate that the petitioner should make a fresh appli
cation setting out the relevant facts in the spirit of s. 3 of
the Act. This application should be made within a fortnight
from today. If such an application is made within the time
specified by us, the learned Civil Judge will dispose of the
same on merits and in accordance with the law. Till the D
learned Civil Judge disposes of this application he shall not
proceed further with the hearing of the suit. No other order
is necessary at this stage. With these observations the writ
petition is dismissed summarily."
Consequent on the order of the High Court in the application E
-. < under Art. 227, GEC filed another application (83-C) before the I .
Mirzapur Court on April 15, 1985 expressly setting forth their objec-
tion under s. 3 of the Foreign Awards (Recognition & Enforcement)
"'( Act and praying for a stay of the suit under that provision. Reference
was also made to their earlier applications made on March 4, 1983.
The contentions raised in 13-C were reiterated. This application (83- F
C) was rejected by the learned Civil Judge, Mirzapur by an order
dated July 9, 1985. The learned Civil Judge took the view that the
objection raised on the basis of s. 3 of the Foreign Awards Act must, in
the circumstances of the case, be considered to have been abandoned
and the defendant considered to have elected lo proceed with the suit.
"""r'The revision application referred by GEC to the High Court of Al- G
lahabad against the order dated July 9, 1985 was dismissed by the High
Court on March 7, 1986.
The High Court referred to the contents of 13-C in great detail
and concluded, "The plaint as initially presented appears to have been
completely answered by the General Electric Company in its applica- H
tion 13-C which it may be remembered was also verified as a pleading,
because in the written statement 16-Ka which was undoubtedly filed
on May 31, 1983, no further facts are referred to ............ 13-C is
clearly in nature a written statement in the case, raising such pleas
which constitute the defence of the General Electric Company to the
~ .
case set-up in plaint as it stood then". The High Court also observed-I
that it was apparent to them that the emphasis in 13-C was on the other \
objections and not on the objections under sec. 3 of the Foreign
Aw.ards Act. The High Court also rejected the further contentions ~-·
advanced on behalf of the General Electric Company that a fresh right
to make an application under sec. 3 of the Foreign Awards (Recogni-
tion & Enforcement) Act accrued on the plaint being amended by -
Renusagar. Stay of the Suit was, therefore, refused. General Electric
Company has preferred the present appeal against the judgment of the Y
High Court of Allahabad under Art. 136 of the Constitution.
Shri Shanti Bhushan, on behalf of the appellant General Electric
Company and Dr. L.M. Singhvi, on behalf of Renusagar addressed
elaborate arguments covering indeed a wide range of facts and law.
They also cited before us a host of cases Indian, English and Canadian.
We do not propose to examine the several side issues and non-issues
which have argued before us. We propose to confine ourselves to the
E basic questions which were argued before us namely, (a) whether
either 8-C or 13-C could be considered to be a step in the suit so as to
disentitle the defendant from seeking a stay of the suit under sec. 3 of
the Foreign Awards (Recognition & Enforcement) Act, (b) whether
13-C was in the nature of a written statement, the filing of which
precluded the defendant from seeking a stay and ( c) whether the
F defendant could be said to have abandoned the right to seek a stay in
the circumstances of the case.
The Foreign Awards (Recognition & Enforcement) Act was
enacted 'to enable effect to be given to the Convention on the
Recognition & Enforcement of Foreign Arbitral Awards done at New
G York, on the 10th day of June, 1958, to which India is a party and for
purposes connected therewith'. The Convention is set-forth in they'
Schedule to the Act and s. 4(i) of the Act provides that a foreign
award shall, subject to the provisions of the Act, be enforceable in
India as if it were an award made on a matter referred to arbitration in
India. Excepts. 3, we are not concerned with the remaining provisions
H of the Act. Section 3 is as follows:
"Stay of proceedings in respect of matters to be refer-
;
"}
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GENERAL ELECTRIC v. RENUSAGAR (REDDY. J.) 871
red to arbitration:-Notwithstanding anything contained in A
the Arbitration Act, 1940, or in the Code of Civil Proce
dure, 1908, if any party to an agreement to which Article II
of the Convention set forth in the Schedule applies, or any
person claiming through or under him commences any legal
proceedings in any Court against any other party to the
agreement or any person claiming through or under him in B
respect of any matter agreed to be referred to arbitration in
such agreement, any party to such legal proceedings may,
at any time after appearance and before filing a written
statement or taking any other step in the proceedings,
apply to the Court to stay the proceedings and the Court,
unless satisfied that the agreement is null and void, in- c
operative 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, shall make an order stay-
ing the proceedings."
Section 3 of the Foreign Awards (Recognition & Enforcement)
Act is analogous to s. 34 of the Indian Arbitration Act which is as
follows:-
"Agreement or any person claiming under him in
respect of any matter agreed to be referred, any party to
such legal proceedings may, at any time before filing a
written statement or taking any other steps in the proceed
ings, apply to the judicial authority before which the pro
ceedings are pending to stay the proceedings; and if satis
fied that there is no sufficient reason why the matter should
not be referred in accordance with the arbitration agree
ment and that the applicant was, at the time when the
proceedings were commenced, and still remains, ready and
willing to do all things necessary to the proper conduct of
the arbitration, such authority may make an order stay
ing the proceedings."
-Y It may be straightaway noticed that while s. 34 of the Indian G
1 Arbitration Act vests in the Court the discretion to stay or not to stay
the proceedings, s. 3 of the Foreign Awards (Recognition & Enforce
ment) Act vests no such discretion in the Court. Under the Foreign
Awards (Recognition & Enforcement) Act it is mandatory that the
proceedings could be stayed if the conditions prescribed are fulfilled.
But, whether it is a defendant who invokes the discretion of the Court H
under s. 34 of the Indian Arbitration Act or whether it is a defendant
who seeks to enforce the right under s. 3 of the Foreign Awards
(Recognition & Enforcement) Act, it is necessary that he should nqt
have disentitled himself, from doing so either by filing a written state
ment or by taking any other step in the proceedings. His application to
'{ .
the Court, be it under s. 34 of the Indian Arbitration Act.ors. 3 of the_,
Foreign Awards (Recognition & Enforcement) Act may be filed r
"before filing a written statement or taking any other step in the pro
ceedings." It is competent then only and not thereafter. The question ..,._..
is when may a written statement said to have been filed or when may
any other step said to have been taken in the proceedings?
On the question of the meaning of the expression 'step in the
proceedings', on the question of the proper approach to the solution of
the problem and on allied questions, we were referred by the learned
counsel for GEC and Renusagar to decisions of the *English Courts,
decisions of the **Canadian Courts and ••*passages from textbooks.
We do not propose to refer to them in our judgment-not because we
do not find them instructive; indeed we read them carefully and found
them helpful, but because we think that reference to such persuasive
authority is justified only if there is no guidance from binding autho-
rity. The time has perhaps arrived to discourage uninhibited reference
to and extravagant use of foreign precedents, though indeed we
welcome such precedents when they explore virgin territory and
expand the horizons of legal thought. The setting of a foreign judg-
-
y
ment is the foreign country's past and present history, its economic ....,.,
relations, its social relations, its trade and commerce, its traditions, its
values, its needs, the stages of the development of its people, its legal
' I. Ford's Hotel Company Ltd. v. Bartlett (1896(1) AC I)
2. Ochs v. Ochs Brothers (1909 (II) Ch. Dvn. 121)
3. Parker, Gaines & Co. v. Turpin (1918 (I) KB 358)
4. Henry v. Geopresco International Ltd. ( 1975 (2) All Eng. LR 702)
5. Tracomin SA v. Sudan Oil Seeds ( 1983 (I) All Eng. LR 404)
6. In re. The Tuyuti (I984 (2) All Eng. LR 545)
.. I. Raymond v. Adrema Ltd. (37 DLR (2d) 9)
i. Fa1hers of Confederation Bldgs. Trust v. Pigott Construction Company Limited
44 DLR (3d) 265)
••• l. Russell on Arbitration (20th Edition)
2. Commercial Arbitration by Mustil & Boyd.
'
GENERAL ELECTRIC v. RENUSAGAR !REDDY, J.! 873
ideology, its constitutional direction and strategies and its statutes and A
precedents. Foreign precedents are to be read and remembered in
their setting, but never to be elevated to the level of binding prece
dents and, therefore, to be avoided from frequent and needless
question.
)- Section 34 of the Indian Arbitration Act has received the consi- B
deration of the Supreme Court in State of U.P. v. Janki Saran Kai/ash
"-+- Chander, [1974 (I) SCR 31] and Food Corporation of India v. Yadav
Engineer, [ 1983 (I) SCR 95].
-
In State of Uttar Pradesh v. Janki Saran Kai/ash Chandra (supra),
the facts were that the summons in a suit instituted against the State of C
Uttar Pradesh were served on the District Government Counsel. On
September 2, 1966, the District Government Counsel entered his
appearance in the suit and also filed a formal application praying for a
month's time for filing a written statement. Time was granted as
prayed for. On October 1, 1966, the District Government Counsel
filed an application under s. 34 of the Arbitration Act pleading that D
there was an arbitration clause in the agreement between the parties,
that the State was willing to have the matter referred to arbitration and
that the suit should therefore, be stayed. The Trial Court stayed the
suit. But, on appeal, the High Court took the view that the application
for time for filing the written statement was a step in the proceedings
within the meaning of that expression in s. 34 of the Arbitration Act E
and the defendant was therefore, disentitled to claim that the suit
should be stayed. The Supreme Court affirmed the decisions of the
High Court observing, "In our view there is no serious infirmity in the
impugned judgment of the High Court and we are unable to find any
cogent ground for interfering under Art. 136 of the Constitution." The
Court then proceeded to discuss the scope and meaning of s. 34 of the F
Arbitration Act and went on to observe:
"To enable a defendant to obtain an order staying the suit,
apart from other conditions mentioned in s. 34 of the
Arbitration Act, he is required to present his application
praying for stay before filing his written statement or taking G
any other step in the proceedings. In the present case the
written statement was indisputably not filed before the
application for stay was presented. The question is whether
any other step was taken in the proceeding as contemplated
by s. 34 and it is this point with which we are directly
concerned in the present case. Taking other steps in the suit H
874 SUPREME COURT REPORTS [ 1987] 3 S.C.R.
proceedings connotes the idea of doing something in aid of
the progress of the suit or submitting to the jurisdiction of the
Court for the purpose of adjudication of the merits of the
controversy in the suit."
Thereafter, the Court also noticed that the State had taken
benefit of the appearance of the District Standing Counsel and his
successful prayer for adjournment of the case by one month for the
purpose of filing the written statement. Dealing with the question
whether the High Court had interfered with the discretion of the Trial
Court, it was observed,
"If the appellants' application was for adjournment for the
purpose of filing a written statement, then there is no ques
tion of any exercise of the discretion by the Trial Court.
Discretion with regard to stay under s. 34 of the Arbitra
tion Act is to be exercised only when an application under
that Section is otherwise competent. Incidentlly it is worth
noting that even the order of the trial Court is not included
by the appellant in the paper book and we do not know the
reasoning of that Court for granting stay. But on the view
that we have taken that omission is of little consequence."
The Court then added,
"Keeping in view the long delay after the institution of the
suit and the fact that the suit is for a very heavy amount by
way of damages for breach of contract, it will, in our opi
nion, be more satisfactory on the whole to h'!ve the suit
tried in a competent court of law in the normal course
rather than by a lay arbitrator who is not bound either by
the law of evidence or by the law of procedure."
In Food Corporation of India •r. Yadav Engineer (supra) the
question arose whether the appearance of the defendant and his prayer
for time to reply to the notice of motion taken out by the plaintiff for
an interim injunction could be said to amount to a step in the proceed
ing so as to disentitle the defendant from seeking a stay of the proceed
ing under sec. 34 of the Arbitration Act. First interpreting sec. 34
without the aid of authority, Desai, J. speaking for the court, observed
that if a party to an arbitration agreement sought to enforce the agree-
H ment by seeking a stay of the suit, he was obliged to disclose his
unequivocal intention to abide by the agreement by asking for stay
-
y
y
GENERAL ELECTRIC v. RENUSAGAR [REDDY, J.] 875
\. !
before taking any step which may unequivocally indicate otherwise, A
that is, a step which may unequivocally indicate the intention to waive
the benefit of the arbitration agreement.
"Abandonment of a right to seek resolution of dis-
~
pute as provided in the arbitration agreement must be B clearly manifested by the step taken by such party. Once
such vnequivocal intention is declared or abandonment of
t- the right to claim the benefit of the agreement becomes
manifest from the conduct, such party would then not be
entitled to enforce the arbitration agreement because there
is thus a breach of the agreement by both the parties disen-
titling both to claim any benefit of the arbitration agree- c
ment. Section 34 provides that a party dragged to the court
as defendant by another party who is a party to the arbitra-
tion agreement must ask for stay of the proceedings before
filing the written statement or before taking any other step
in the proceedings. That party must simultaneously show D . ...,,_ its readiness and willingness to do all things necessary to the
proper conduct of the arbitration. The legislature by mak-
ing it mandatory on the party seeking benefit of the arbitra-
tion agreement to apply for stay of the proceedings before
filing the written statement or before taking any other steps
in the proceedillgs unmistakably pointed out that filing of E the written statement discloses such conduct on the part of
the party as would unquestionably show that the party has
abandoned its rights under the arbitration agreement and
has 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 F arbitration agreement. When the party files written state-
ment 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 agreement by
~
forcing the parties to resort to the forum of their choice as G set out in the arbitration agreement. This flows from the
well settled principle that the court would normally hold
the parties to the bargain (see Ramaji Dayawala & Sons (P)
Ltd. v. Invest import, [1981) (I) SCR399."
Posing next the question what other steps the legislature contemplated Ii as disentitling a party from obtaining stay of the proceedings, the
A learned Judges applied the principle of ejusdem generis and held:
"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 have the
matter disposed of by arbitration. Each and every step ta
ken in the proceedings cannot come in the way of the party 1-
seeking to enforce the arbitration agreement by obtaining
stay of proceedings but the step taken by the party must be
such step as would clearly and unmistakably indicate an
intention on the part 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 resol
ved by the court. A step taken in the suit which 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 resol
ved by arbitration."
The learned judges then proceeded to consider the question whether
an appearance in the suit to contest an interlocutory application,
such as, an application for appointment of receiver or ex parte ad
interim injunction, disclosed an unequivocal intention to proceed with
E the suit and give up in the benefit of the arbitrtion agreement. The
question was answered as follows: --.i. .
"Incidental proceedings for appointment of receiver
or for interim injunction are for the protection either of the
property or the interests of the parties. Now, when ex parte
orders are obtained on ex parte averments the other party
cannot be precluded from coming and pointing out that no
case is made out for granting interim relief. It would be _too
cumbersome to expect the party first to apply for stay and
then invite the court under s. 41(2) of the Act to vacate the
in junction or to discharge the receiver. Giving the expre;
sion 'taking any other steps in the proceedings' such wide
connotation as making an application for any purpose in
the suit such as vacating stay, discharge of the receiver or
even modifying the interim orders would work hardship
and would be inequitous to the party who is willing to abide
by the arbitration agreement and yet be forced to suffer the
inequity of ex parte orders. Therefore, the expression 'tak-
GENERAL ELECTRIC v. RENUSAGAR [REDDY, J.J 877
' ~ ing any other steps in the proceedings' must be given a 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 intention to waive
the benefit of the arbitration agreement and to acquiesce in
y the proceedings. Interlocutory proceedings are incidental
B to the main proceedings. They have a life till the disposal of
.....___ the main proceeding. As the suit or the proceedings is
likely to take some time before the dispute in the suit is
finally adjudicated, more often interim orders have to be
made 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. c
. .....,. They are steps taken for facilitating the just and fair
disposal of the main dispute. When these interlocutory pro-
ceedings 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 submitted to the jurisdiction of the court. D
When ex parte orders are made at the back of the party the
other party is forced to come to the court to vindicate its
right. Such compulsion cannot disclose an unambiguous
intention to give up the benefit of the arbitration agree-
ment. Therefore, taking any other steps in the proceedings
must be confined to taking steps in the proceedings for E
-< resolution of the substantial dispute in the suit. Appearing
and contesting the interlocutory applications by seeking
either vacation thereof or modification thereof cannot be
'i said to be displaying an unambiguous intention to acqui-
esce in the suit and to waive the benefit of the arbitration
agreement. Any other view would both be harsh and ine- F
quitous 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 contesting be imputed the G
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 con-
struction of the expression 'taking any other steps in the
H proceedings' as hereinabove set out appears to advance the
object and purpose underlying s. 34 and the purpose for
which the Act was enacted."
The court then referred to vluious decisions on the question. Thereaf
ter the case of State of U.P v. Jankisaran Kailashchandra, (supra) was
discussed in detail. After quoting from the judgment of Justice Dua,
the court observed:
"The view herein taken not only does not run counter
to the view we have taken but in fact clearly supports the
view because the pertinent observation is that taking step
in the proceeding which would disentitle a party to obtain a
stay of the suit must be doing something in aid of the prog
ress of the suit or submitting to the jurisdiction of the court
for the purpose of adjudication of the merits of the con
troversy in the suit. In other words, the step must neces
sarily manifest the intention of the party to abandon or
waive its right to go to arbitration or acquiesce in the dis
pute being decided by court. In fact, the view taken in this
case should have quelled the controversy but it continued
to figure in one form or the other and that is why we have
dealt with the matter in detail."
The Court finally concluded the discussion as follows:
"Having thus critically examined both on principle
and precedent the meaning to be given to the expression
'taking steps in the proceedings', we are clearly of the view
that unless the step alleged to have been taken by the party
seeking to enforce arbitration agreement is such as would
display in unequivocal intention to proceed with the suit
and acquiesce in the method of resolution of dispute
adopted by the other party, namely, filing of the suit and
thereby indicate that it has abandoned its right under the
arbitration agreement to get the dispute resolved by arbi
tration, any other step would not disentitle the party from
seeking relief under s. 34. It may be clearly emphasised
that contesting the application for interim injunction or for
appointment of a receiver or for interim relief by itself
without anything more would not constitute such step as
would disentitle the party to an order under s. 34 of the
Act."
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GENERAL ELECTRIC v. RENUSAGAR [REDDY, J.] 879
Thus we see that it is the view of this court that a step in the.jlroceeding A
which would disentitle the defendant from invoking sec. 34 of the
Arbitration Act should be a step in aid of the progress of the suit or
submission to the jurisdiction of the court for the purpose of adjudica
tion'of the merits of the controversy in the suit. The step must be such
as to manifest the intention of the party unequivocally to abandon the 8 right under the arbitration agreement and instead to opt to have the
dispute resolved on merits in the suit. The step must be such as to
indicate an election or affirmation in favour of the suit in the place of
the arbitration. The election or affirmation may be by express choice
or by necessary implication by acquiescence. The broad and general
right of a person to seek redressal of his grievances in a court of law is
subject to the right of the parties to have the disputes settled by a C
forum of mutual choice. Neither right is insubstantial and neither right
can be allowed to be defeated by any manner of technicality. The right
to have the dispute adjudicated by a civil court cannot be allowed to be
defeated by vague or amorphous mis-called agreements to refer to
'arbitration'. On the other hand, if the agreement to refer to arbitra
tion is established, the right to have the dispute settled by arbitration D
cannot be allowed to be defeated on technical grounds.
What do we have in the present case? We mentioned at the
outset that GEC filed two applications on January 17, !983, 7-C and
8-C. In 7-C, GEC purported to put on record their complaint that they
had not received the annexures to the plaint. By no stretch of imagina- E
tion could it possibly be paid that 7-C indicated either an abandonment
of arbitration or an affirmation of the suit. 8-C was an application
requesting the court to reject the plaint and the suit for the reasons set
forth in the application. One of the grounds urged was that the
Mirzapur Court had no territorial jurisdiction. Another ground was
that the plaint was insufficiently stamped. Yet another ground was that F
the plaint disclosed no cause of action. Every one of the objections was
in the nature of a preliminary objection to the trial of the suit on the
merits of the dispute between the parties. Every one of the objections
was what may be called a threshold objection pleaded as a bar to any
further hearing of the suit. None of the objections invited an adjudica
tion on the merits of the controversy. It was said that the return of a G
plaint under Order VII r. 10 and the rejection of a plaint under Order
VII r. 11 put an end to the controversy so far as the court where the
proceedings had been instituted and that the rejection of a plaint
under Order VII r. 11 was a decree within the definition of that expres
sion in Order II r. 2 of the Civil Procedure Code. It was argued that the H
rejection of a plaint for non-disclosure of a cause of action was also an
880 SUPREME COURT REPORTS (1987] 3 S.C.R.
adjudication of the merits of the controversy in the suit and reliance
was placed on decisions under the Representation of People Act. We
do not think that we can accept the argument nor are we able to derive
any assistance from the cases cited. In the first place, the expression
'merits of the controversy in the suit' does not occur either under sec.
34 of the Arbitration Act or sec. 3 of the Foreign Awards (Recognition
and Enforcement) Act. The words occur in the decision of this court in
State of U.P. v. Janki Saran Kai/ash Chandra (supra) where the court
said, "Taking other steps in the suit proceedings connotes the idea of
doing something in aid of the progress of the suit or submitting to the
jurisdiction of the Court for the purpose of adjudication of the merits
of the controversy in the suit." As often enough pointed out by us,
words and expressions used in a judgment are not to be construed in
the same manner as statutes or as words and expressions defined in
statutes. We do not have any doubt that when the words "adjudication
of the merits of the controversy in the suit" were used by this court in
State of U.P. v. Janki Saran Kai/ash Chandra (supra), the words were
not used to take in every adjudication which brought to an end the
proceeding before the court in whatever manner but were meant to
cover only such adjudication touched upon the real dispute between
the parties which gave rise to the action. Objections to adjudication of
the disputes between the parties, on whatever ground, are in truth not
aids to the progress of the suit but hurdles to such progress. Adjudica
tion of such objections cannot be termed as adjudication of the merits
of the controversy in the suit. As we said earlier, a broad view has to
be taken of the principles involved and narrow and technical interpre
tation which tends to defeat the object of the legislation must be
avoided. We are of the view that an invitation to the court to reject a
plaint or dismiss a suit on a ground not touching the merits of the
controversy between the parties, but a ground such as insufficiency of
the court fee paid, maintainability of suit, territorial jurisdiction etc. is
really to enable the proceeding before the arbitrator to go on and far
from an election to abandon arbitration and continue the suit. Every
threshold bar to a suit set up by a defendant is a step to allow the
arbitration to go on. It is a step in aid of arbitration and not in aid of
the progress of the suit. In that view, we think that 8-C can hardly be
G called an invitation to the court to adjudicate upon the merits of the
controversy, when in fact it is designed to prevent the court from
touching upon the merits of the controversy.
The next set of events relied upon by the plaintiff to deny the
defendant's right to obtain stay in the filing by GEC of the applications
H 11-C, 12-C and 13-C in the Mirzapur Court on March 4, 1983. 4th
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GENERAL ELECTRIC v. RENUSAGAR (REDDY, J.] 881
March and 7th March were the dates which had been fixed by the
Court for filing the written statement and for the striking of the issues.
The defendant, on March 4, instead of filing the written statement, filed
11-C, 12-C and 13-C. 13-C, as already mentioned, was styled "objec
tions by the defendant to the jurisdiction of the Court to entertain a
~ suit for declaration and injunction". It began with the statement, "the
Hon 'ble Court has no jurisdiction to entertain the suit for the follow
ing reasons" and ended with the prayer:
. .,J,
"for the above reasons it is prayed that the plaint may be
either rejected for failure to disclose a cause of action or as
being barred by limitation on the face of it, or it be re
turned to the plaintiff for presentation to a proper forum. C
Further the suit is also liable to be dismissed because reliefs
claimed by the plaintiff are untenable on their face, Again,
alternatively the suit is liable to be stayed under s. 10 and/
or s. 151 CPC in respect of first relief and s. 3 of the
Foreign Awards (Recognition & Enforcement) Act 196 1 in
respect of second relief claimed by the plaintiff in the suit." D
i i-C was an application seeking postponement of the striking of the
issues from March 7 to a later date in the event of the preliminary
objections being rejected. 12-C was an application to grant leave to file
a subsequent pleading as written statement in the event of the prelimi
nary objections being rejected. Obviously 11-C, 12-C and 13-C have to E
be read together and reading them together, it appears to us to be clear
that the defendant raised objections to the trial of the suit on merits,
which were loosely described as 'objections to the jurisdiction of the
Court and objections to the maintainability of the suit' and which were
requested to be disposed of first, with a further request that if the
objections. were rejected the defendant may then be allowed to file a F
proper written statement on merits and issues struck thereafter. The
invitation to the Court was not to proceed with the suit but to refrain
from proceeding with the suit until the preliminary objections were
first decided. The preliminary objections were set out by the
defendant in 8-C and 13-C and we have set them out earlier while
narrating the facts. We notice that the preliminary objections raised G
were not of such a nature as to make adjudication on merits of any part
of the real dispute between the parties necessary for deciding the
preliminary objections. While elaborating the preliminary objections,
particularly in order to explain the contention that the plaint did not
disclose a cause of action, the defendant did choose to controvert
several factual averments made in the plaint. We do not think that the H
882 SUPREME COURT REPORTS [ 1987] 3 S.C.R.
circumstances that the defendant chose to deny in his application invit
ing decision on his preliminary objections, the allegations of material
facts made by the plaintiff in the plaint changes the character of the
applications into a written statement any more than a reply to a notke
of motion seeking an ad interim injunction acquires the character of a
written statement merely because factual allegations made in the
plaint are also dealt with in the reply. A defendant may consider it -1-.
necessary to deny the averments of the fact in the plaint with a view to
explain the preliminary objections raised by him or he may deny the
averments of fact by way of abundant caution so as not to be under
stood as having admitted (by not denying) the plaint averments.
In such a situation, the question to be considered is did the
defendant intend it to be a written statement or was the document
capable of being construed as setting out unreservedly the case which
the defendant wished to put forward? Was it meant to answer the
plaint? We do not think either 8-C or 13-C is capable of being so
construed.Neither the title of the documents nor the prayer in the
documents would justify their being dubbed as written statements. We
have referred to their contents and we do not think it possible to view
8-C or 13-C as meant to answer the plaint. They were objections and
not answer to the Plaint. We are unable to hold that either of them can
be treated as a written statement. It is of interest to note here that the
plaintiff himself filed an application 21-C requesting the court to set
the defendant ex parte on the ground that he did not file any written
statement. Obviously the plaintiff never considered 13-C to be a writ
ten statement. We are also unable to hold that either of them can be
said to be a step in the proceeding. We have already explained why 8-C
cannot be treated as a step in the proceeding. The same reasons apply
to i3-C also. 13-C invited the court to consider the preliminary objec
tions amongst which was a prayer to stay the suit under s. 3 of the
Foreign Awards (Recognition & Enforcement) Act. An invitation to
the court to decide the preliminary objections was in fact a request to
the court not to proceed with the trial of the suit on merits. We are
unable to hold that 13-C was an invitation to the court to adjudicate
upon the merits of the controversy, when in fact as we said in the case
of 8-C, it was designed to prevent the court from touching upon the
merits of the controversy. It was argued that the defendant himself
sought permission for filing additional pleadings if preliminary objec
tions were rejected and, therefore, the defendant himself thought that
13-C was a pleading, namely, a written statement. Our attention was
also invited to the written statement filed on May 31, 1983 in which the
preliminary objections filed earlier were referred to as preliminary
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GENERAL ELECTRIC v. RENUSAGAR (REDDY, J.] 883
• ~ written statement. We do not think we will be justified in harping upon
a word here or a word there. As we said earlier, we propose to look at
the substance of the matter and ignore the chaff. Looking to the subst
ance of the matter, we find that before May 31, 1983, that is, the date
on which the written statement was filed, the defendant did not take
any step in the suit. The applications filed by him were not in aid of the
'>- progress of the suit, but to request the court to refrain from proceeding
with the suit. 13-C contained a prayer for the stay of the suit under s. 3
v~.· . of the Foreign Awards (Recognition & Enforcement) Act and we hold
that, in terms of that provision, it was made before the written state
ment was filed and before any step in the proceeding was taken.
- An argument which was presssed before us was that the conduct C
of the defendant was such that he must be considered to hav.e
abandoned his right to have the suit stayed under s. 3 of the Foreign
Awards (Recognition & Enforcement) Act. We do not think there is
any substance in .the submission. On the one hand, we have the out
standing circumstances that the defendant was proceeding with the
arbitration. On the other hand, we have also the circumstance that the D
defendant filed 13-C one of the prayers of which was a stay of the suit
under s. 3 of the Act. The argument was that the defendant did not
press his application and did not seek the orders of the court on 13-C.
This would not be a correct picture of the events since we find that
even on January 19, 1983, the court made an order that preliminary
objections like 7-C and 8-C could be heard and disposed of after 'filing E
of written statement when the issues may be framed. We also find that
at every stage the defendant kept referring to his preliminary objec
tions and never for a moment abandoned them. 30-C was another
application filed by him requesting the court to decide the preliminary
objections regarding jurisdiction and maintainability of the suit. On
this the order was that it was not competent for the. court to reopen the F
order dated January 19, 1983. It was therefore, not the defendant's
fault that the preliminary objections were not decided. Later again the
defendant filed 34-C requesting the court to frame preliminary issues
and try them on the question of the jurisdiction of the court and the
maintainability of the suit. This application was also rejected by the
court with the comment that the request was being repeatedly made. It G
was against this order that the defendant went to the High Court with
the application 65-C. The High Court directed the defendant to file an
appli~ation for the _trial court specially requesting that court to apply
its mmd to the provmons of s. 3 of the Foreign Awards (Recognition &
Enforcem_ent) Act and pointedly pressing the contention relating to
that prov1s10ns. Pursuant to this direction, the defendant filed 83-C H
884 SUPREME COUR'f REPORTS [ 1987] 3 S.C.R.
A before the trial court and it is on the orders made on this application
that the present appeal has come before us. The submission of the
learned counsel for the plaintiff was that the appeal before us arose
directly from the order made on the application 83-C not on the appli
cation 13-C. According to the learned counsel, 13-C must be consi-
dered to have been given up and since 83-C was filed long after the
filing of the written statement, it was incompetent. We are unable to -1-
agree. 13-C was never abandoned by the defendant. On the other hand
83-C also expressly refers to 13-C. 83-C is a reiteration and revival of
13-C with emphasis on the objection relating to s. 3 of the Foreign
Awards (Recognition & Enforcement) Act.
Looking to the substance of the matter and ignoring technicali
ties, we are firmly of the view that the defendant sought a stay of the
suit before filing a written statement or taking any other step in the suit
and that he never abandoned his right to have the suit stayed. The
appeals, therefore allowed with costs and the suit No. 127 of 1982 in
the court of Mirzapur stayed under s. 3 o-r the Foreign Awards
(Recognition & Enforcement) Act. In the view that we have taken we
do not think it necessary to consider the further question raised by the
learned counsel for the appellant that the amendment of the plaint
introducing a substantially new cause of action gave the defendant a
fresh right under s. 3 of the Foreign Awards Act.
H.L.C. Appeal allowed.
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