caselaws
Supreme Court of India
Mrs. Hema Khattar & Anr vs Mr. Shiv Khera on 10 April, 2017Author: ……………….………………………J.
Bench: Madan B. Lokur, R.K. Agrawal
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 8837 OF 2016
Mrs. Hema Khattar & Anr. …. Appellant(s)
Versus
Shiv Khera …. Respondent(s)
J U D G M E N T
R.K. Agrawal, J.
1) Challenge in this appeal is to the legality of the judgment and order
dated 28.09.2012 rendered by a Division Bench of the High Court of Delhi at
New Delhi in FAO (OS) No. 470 of 2012 whereby the High Court dismissed the
appeal filed by the appellants herein.
2) Factual position in a nutshell is as follows:-
a) An agreement to reconstruct a building situated at C-6/4, Vasant
Vihar, New Delhi was executed between Hema Khattar-the appellant No. 1
herein, wife of Ashwani Khattar – the appellant No. 2 herein, carrying
on business in construction under the name and style of M/s Dessignz
and Shiv Khera-the respondent herein on 06.06.2009.
b) Pursuant to the said agreement, the building site was handed over to
the appellant No. 1 herein on 09.11.2010 and thereafter the execution
of the work had started. In March 2011, as per Clause 16 of the
Agreement dated 06.06.2009, a spot inspection was conducted by
renowned structural engineers which pointed out several structural
lacunae. On coming to know about the same, the respondent further
arranged inspection by various specialized agencies which confirmed
the same in their reports.
c) Being aggrieved by the quality of construction, the respondent served
a legal notice dated 19.09.2011 to the appellant No. 1 seeking
damages. The respondent, vide Clause 33 of the said agreement,
appointed a sole arbitrator claiming that the appellant No. 1 has not
complied with the terms of the agreement whereby disputes, requiring
adjudication, have arisen between the parties. In statement of
claims, the respondent, besides other claims, also sought for a sum of
Rs. 39.85 lakhs paid to the appellant No. 1 along with a sum of Rs.
35,000/- for the TDS deposited to her credit.
d) The appellants filed a suit for declarations, permanent injunction and
recovery before the High Court being CS(OS) No. 1532 of 2012 seeking a
decree that the agreement dated 06.06.2009 entered into between the
appellant No. 1 and the respondent was vitiated and had been
terminated by mutual consent by both the parties and any proceeding
initiated pursuant to the agreement is null, non-est and void and also
for recovery of an amount of Rs. 45,50,000/-.
e) It is also pertinent to mention here that it was alleged in the plaint
that a formal meeting was held between the parties in which it was
decided that appellant No.1 will no longer be the contractor and the
agreement dated 06.06.2009 would stand terminated by mutual consent
and the construction would be carried out by the sub-contractors to be
appointed as per the advice of appellant No. 2 who would supervise the
same without remuneration/profit.
f) The respondent filed I.A. No. 12124 of 2012 in CS(OS) No. 1532 of 2012
under Section 8 of the Arbitration and Conciliation Act, 1996 (in
short ‘the Act’) claiming that the subject-matter of dispute in the
present suit is already pending adjudication before the Arbitral
Tribunal, hence, the suit cannot be proceeded with which was denied by
the appellants in their reply to the above said application.
g) Vide order dated 17.09.2012, learned single Judge of the High Court,
found that the suit is bad for misjoinder of parties as well as for
causes of action and gave an option to the appellants therein to elect
whether they want the suit to be treated as a suit for recovery of
money by appellant No. 2 herein against the respondent or a suit for
declarations and injunction by appellant No. 1.
h) Being aggrieved by the order dated 17.09.2012, the appellants went in
appeal and filed FAO (OS) being No. 470 of 2012 before the High Court.
A division bench of the High Court, vide order dated 28.09.2012,
dismissed the appeal.
i) Aggrieved by the order dated 28.09.2012, the appellants have filed
this appeal by way of special leave before this Court.
3) Heard Mr. Jayant Bhushan, learned senior counsel for the appellants
and Mr. Sakal Bhushan, learned counsel for the respondent and perused the
records.
Point for consideration:-
4) The only point for consideration before this Court is whether in the
present facts and circumstances of the case the suit is bad for misjoinder
of parties as well as for causes of action?
Rival submissions:-
5) Learned senior counsel for the appellants contended before this Court
that the agreement dated 06.06.2009 was executed with dishonest intention
containing the arbitration clause and in any event the same has been
superseded by a subsequent oral agreement between appellant No. 2 herein
and the respondent.
6) Learned senior counsel further contended that the High Court erred in
upholding that the cause of action with respect to relief of money is an
independent cause of action from that of the relief of declarations and
injunction. The High Court failed to appreciate that common trial of joint
causes of action is necessary, if at all, as they raise common questions
of law and facts and the course adopted by the High Court would lead to
multiplicity of proceedings causing delay. Learned senior counsel finally
contended that in view of the patent illegality in the orders passed by the
High Court, the same are liable to be set aside.
7) Without prejudice to the aforesaid, learned senior counsel for the
appellants, in the alternative submitted that the entire matter be referred
to another sole arbitrator which may be appointed by this Court as
according to him, in the written contract, there was a clause for
arbitration and, subsequently, in the oral contract also, the terms of the
earlier contract continued to remain in operation except those which were
modified in the oral contract.
8) In support of the above submission, learned senior counsel for the
appellants placed reliance upon a judgment of this Court in P.R. Shah,
Shares and Stock Brokers Private Limited vs. B.H.H. Securities Private
Limited and Others (2012) 1 SCC 594. He has referred to paragraph 19 of
the judgment which reads as under:-
“19. If A had a claim against B and C, and there was an arbitration
agreement between A and B but there was no arbitration agreement
between A and C, it might not be possible to have a joint arbitration
against B and C. A cannot make a claim against C in an arbitration
against B, on the ground that the claim was being made jointly against
B and C, as C was not a party to the arbitration agreement. But if A
had a claim against B and C and if A had an arbitration agreement with
B and A also had a separate arbitration agreement with C, there is no
reason why A cannot have a joint arbitration against B and C.
Obviously, having an arbitration between A and B and another
arbitration between A and C in regard to the same claim would lead to
conflicting decisions. In such a case, to deny the benefit of a single
arbitration against B and C on the ground that the arbitration
agreements against B and C are different, would lead to multiplicity
of proceedings, conflicting decisions and cause injustice. It would be
proper and just to say that when A has a claim jointly against B and
C, and when there are provisions for arbitration in respect of both B
and C, there can be a single arbitration.”
9) Per contra, learned counsel for the respondent submitted that the
suit has been filed by the two appellants jointly with respect to the two
separate alleged causes of action. He further submitted that the alleged
cause of action of the appellant No. 1 is based upon the agreement dated
06.06.2009 between the appellant No. 1 and the respondent in which
appellant No. 2 cannot be said to have any joint interest and the alleged
cause of action of appellant No. 2 is based upon an oral understanding
arrived at between appellant No.2 and the respondent in which appellant No.
1 cannot be said to have any joint interest. Learned counsel for the
respondent further submitted that in such circumstances, the instant suit
in the present form is not maintainable in terms of Order II Rule 3 of the
Code of Civil Procedure, 1908 (in short ‘the Code’) and the suit of the
appellant No. 1 is required to be separated under Order II Rule 6 of the
Code.
10) Learned counsel further submitted that in view of the existence of
the arbitration clause in the agreement dated 06.06.2009 and the subject
matter of dispute between the parties in the present suit is already
pending adjudication before the Arbitral Tribunal, the instant suit filed
by the appellant No. 1 cannot be proceeded with and the matter is required
to be referred to arbitration. Learned counsel finally submitted that the
judgment rendered by the division bench of the High Court upholding the
decision of the learned single Judge is correct and no interference is
called for in the appeal.
11) Learned counsel further submitted that the oral contract did not
contain any clause for arbitration and the dispute raised by the appellant
No. 2 cannot be referred to arbitration. In support whereof, he relied
upon a decision of this Court in Kvaerner Cementation India Limited vs.
Bajranglal Agarwal and Another (2012) 5 SCC 214 wherein this Court has held
that there cannot be any dispute that in the absence of arbitration clause
in the agreement, no dispute could be referred for arbitration to an
Arbitral Tribunal.
12) Learned counsel, however, submitted that if this Court comes to the
conclusion that the matter should be resolved by way of arbitration, the
entire matter be referred to the sole arbitrator already appointed by the
respondent.
Discussion:
13) From the materials on record, it is evident that an agreement dated
06.06.2009 was executed between the parties wherein appellant No. 1 was the
contractor and the respondent as a client. The agreement impugned clearly
states that there is an arbitration clause therein. Owing to the dispute
among parties, the respondent, in exercise of his right under the said
clause, appointed a sole arbitrator. Subsequently, notices were issued to
the appellant No. 1 and the matter remained pending despite appearance
before the Arbitral Tribunal. In the meantime, the appellants jointly
filed a suit before the High Court for declarations, permanent injunction
and recovery claiming a formal meeting was held between the parties in
which it was decided that appellant No.1 will no longer be the contractor
and the agreement dated 06.06.2009 would stand terminated by mutual consent
and the construction would be carried out by the sub-contractors to be
appointed as per the advice of appellant No. 2 who would supervise the same
without remuneration/profit. The respondent filed I.A. No. 12124 of 2012
in CS(OS) No. 1532 of 2012 under Section 8 of the Act claiming that the
subject-matter of dispute in the present suit is already pending
adjudication before the Arbitral Tribunal, hence, the suit cannot be
proceeded with. Vide order dated 17.09.2012, learned single Judge of the
High Court, found that the suit is bad for mis-joinder of parties as well
as for causes of action and gave an option to the appellants to elect
whether they want the suit to be treated as a suit for recovery of money by
appellant No. 2 herein against the respondent or a suit for declarations
and injunction by appellant No. 1. The appellants went in appeal before
the division bench of the High Court. Vide order dated 28.09.2012, the
division bench also dismissed the same.
14) From the facts of this case, we find that a suit was filed for
declarations, permanent injunction and recovery of money by the appellants
stating that a meeting was held in between the parties in which it was
decided that appellant No. 1 would no longer be the contractor and the
agreement dated 06.06.2009 would stand terminated by mutual consent and the
construction would be carried out by the sub-contractors to be appointed as
per the suggestions of appellant No.2, who would supervise the same but
without any profit/remuneration as per the oral agreement. The respondent
agreed to make all payments towards purchase of material, construction, fee
of architect etc. Appellant No. 2 incurred an amount of Rs. 45 lakhs for
and on behalf of the respondent which is sought to be recovered under this
suit. The appellants also claimed a declaration to the effect that the
agreement dated 06.06.2009 between appellant No. 1 and the respondent was
obtained by fraud and mis-representation, hence, it is null and void.
Another declaration sought for in the suit was that the agreement dated
06.06.2009 stood terminated by mutual consent. A decree for injunction is
also sought for restraining the respondent from initiating and carrying on
any proceeding arising out of and on the basis of agreement dated
06.06.2009 between appellant No. 1 and the respondent. On the other hand,
the respondent took the preliminary objection that the suit is bad for
misjoinder of parties and causes of action and further that the arbitration
proceedings initiated by the respondent, in terms of the arbitration
clause, is pending adjudication before the Arbitral Tribunal.
15) Admittedly, the cause of action for recovery of Rs. 45 lakhs claimed
in the present suit is the expenditure alleged to have been incurred by
appellant No. 2 pursuant to the oral agreement he claims he had with the
respondent sometime in April, 2011. On the other hand, the cause of action
with respect to reliefs of declarations and injunction is the agreement
dated 06.06.2009. The alleged agreement dated 06.06.2009 was, admittedly,
between the appellant No. 1 and the respondent to which appellant No. 2 was
only a witness, which as per the terms of the plaint terminated later on by
mutual agreement between the appellant No. 1 and the respondent. At this
stage, it was agreed orally that appellant No. 2, who is the husband of
appellant No. 1, would take over the execution of the pending works.
Admittedly, Appellant No. 1 is not a party to the alleged oral agreement
between Appellant No. 2 and the respondent for supervision of the
construction by him.
16) From the materials available on record, particularly, the transcript
of conversation between the appellant No. 2 and the respondent on 6th and
7th April, 2011, we find that the oral agreement was substituted in place
of the alleged written agreement dated 06.06.2009. There is a complete
accord and discharge of the responsibilities and liabilities of appellant
No. 1 vis-à-vis the defendant and vice-versa. The plaint also avers that
after the accord between appellant No. 1 and the respondent and
simultaneous discharge of the obligations, a distinct oral agreement was
entered into between appellant No. 2 and the respondent. It is quite clear
from what has been stated above that the cause of action: the right to get
declarations with regard to the said contract as null and void or a right
to seek an injunction restraining the respondent from taking any action on
the basis of the said contract, if any, with regard to the prior written
agreement arises in favour of appellant No. 1 against respondent and not in
favour of appellant No. 2 as he was not a party to the agreement dated
06.06.2009. On the similar lines, the right to seek money decree, as is
claimed by the appellants, would be a distinct cause of action founded on
subsequent oral agreement between the appellant No. 2 and the respondent.
17) Learned single Judge of the High Court, vide order dated 17.09.2012,
directed the parties to elect as to whether they want the suit to be
treated as a suit for recovery of money by appellant No. 2 against the
respondent or a suit for declarations and injunction by appellant No. 1
against the respondent and to amend the plaint accordingly. Learned single
Judge, after taking a considered view that the suit is bad for misjoinder
of parties and/or misjoinder of causes of action, held that the application
filed by the defendant under Section 8 of the Act would be disposed of only
after the appellants make an election in terms of this order. The
appellants herein, instead of amending the plaint, went in appeal before
the division bench, which got dismissed vide order dated 28.09.2012.
18) Since the suit was dismissed for misjoinder of parties and/or causes
of action, it is pertinent to mention here the law on the point which is as
under:-
Order II Rule 3
“Joinder of causes of action – (1) Save as otherwise provided, a
plaintiff may unite in the same suit several causes of action against
the same defendant, or the same defendants jointly; and any plaintiffs
having causes of action in which they are jointly interested against
the same defendant or the same defendants jointly may unite such
causes of action in the same suit.
(2) Where causes of action are united, the jurisdiction of the Court
as regards the suit shall depend on the amount or value of the
aggregate subject matters at the date of instituting the suit.”
Order II Rule 6
“Power of Court to order separate trials – Where it appears to the
court that the joinder of causes of action in one suit may embarrass
or delay the trial or is otherwise inconvenient, the Court may order
separate trials or make such other order as may be expedient in the
interests of justice.”
In Black’s Law Dictionary it has been stated that the expression ‘cause of
action’ is the fact or facts which give a person a right to judicial
relief. A cause of action, thus, means every fact, which, if traversed, it
would be necessary for the plaintiff to prove in order to support his right
to a judgment of the court. In other words, it is a bundle of facts which
taken with the law applicable to them gives the plaintiff a right to relief
against the defendant. It must include some act done by the defendant since
in the absence of such an act no cause of action can possibly accrue. It is
not limited to the actual infringement of the right sued on but includes
all the material facts on which it is founded.
19) Order II, Rule 3, provides for the joinder of several causes of
action and states that a plaintiff may unite in the same suit several
causes of action against the same defendant, or the same defendants jointly
or several plaintiffs having causes of action in which they are jointly
interested against the same defendant or defendants jointly may unite them
in one suit. The remedy for any possible inconvenience with regard to said
rule is supplied by the provisions of Order II, Rule 6, which authorizes
the Court to order separate trials of causes of action which though joined
in one suit cannot be conveniently tried or disposed of together.
20) Similarly, Order I Rule 1 of the Code permits joinder of more than
one persons any right to relief in respect of, or arising out of, the same
act or transaction or series of acts or transactions is alleged to exist in
such persons, whether jointly, severally or in the alternative; and if such
persons brought separate suits, any common question of law or fact would
arise. Order I Rule 2 provides that where it appears to the court that any
joinder of plaintiffs may embarrass or delay the trial of the suit, the
court may put the plaintiffs to their election or order separate trials or
make such other order as may be expedient.
21) In this connection, it is pertinent to refer to a judgment of this
Court in Ramesh Hirachand Kundanmal vs. Municipal Corporation of Greater
Bombay and Others 1992 (2) SCC 524 wherein it was held as under:-
“14. It cannot be said that the main object of the rule is to prevent
multiplicity of actions though it may incidentally have that effect.
But that appears to be a desirable consequence of the rule rather than
its main objectives. The person to be joined must be one whose
presence is necessary as a party. What makes a person a necessary
party is not merely that he has relevant evidence to give on some of
the questions involved; that would only make him a necessary witness .
It is not merely that he has an interest in the correct solution of
some questions involved and has thought or relevant arguments to
advance. The only reason which makes it necessary to make a person a
party to an action is that he should be bound by the result of the
action and the question to be settled, therefore, must be a question
in the action which cannot be effectually and completely settled
unless he is a party.”
22) In view of the foregoing discussion, we are of the opinion that the
appellants even though had different causes of action against the
respondent but it was a continuity of the agreement dated 06.06.2009 and
oral agreement is evidenced by the transcript of conversation between the
appellant No. 2 and the respondent on 6/07.04.2011, therefore, both the
appellants could have joined as plaintiffs in a suit and the suit is not
bad for misjoinder of parties or causes of action. Hence, learned single
Judge as also the division bench, was not right in giving an option to the
appellants to pursue reliefs qua appellant No. 1 or qua appellant No. 2
only.
23) In the present facts and circumstances of the case, it is also
imperative to find out whether the High Court was justified in deciding the
maintainability of the suit when an application under Section 8 of the Act
is pending adjudication before the Arbitral Tribunal. Before proceeding
further, it is appropriate to quote here Section 8 of the Act which reads
as under:-
“8. Power to refer parties to arbitration where there is an
arbitration agreement. – [(1) A judicial authority, before which an
action is brought in a matter which is the subject of an arbitration
agreement shall, if a party to the arbitration agreement or any person
claiming through or under him, so applies not later than the date of
submitting his first statement on the substance of the dispute, then,
notwithstanding any judgment, decree or order of the Supreme Court or
any Court, refer the parties to arbitration unless it finds that prima
facie no valid arbitration agreement exists.]
(2) The application referred to in sub-section (1) shall not be
entertained unless it is accompanied by the original arbitration
agreement or a duly certified copy thereof:
[Provided that where the original arbitration agreement or a
certified copy thereof is not available with the party applying
for reference to arbitration under sub-section (1), and the said
agreement or certified copy is retained by the other party to
that agreement, then, the party so applying shall file such
application along with a copy of the arbitration agreement and a
petition praying the Court to call upon the other party to
produce the original arbitration agreement or its duly certified
copy before the Court.]
(3) Notwithstanding that an application has been made under sub-
section (1) and that the issue is pending before the judicial
authority, an arbitration may be commenced or continued and an
arbitral award made.”
24) It is also worthwhile to note Clause 33(d) of the agreement dated
06.06.2009 which refers the parties to Arbitration:-
“Governing Law & Dispute Resolution: All or any disputes and
differences whatsoever between the parties arising out of this
Agreement or relating to or touching the mutual rights and obligations
of the parties shall be subject to the jurisdiction of the
Courts/Forums in Delhi only and shall be referred for adjudication to
the sole arbitrator, to be appointed solely and exclusively by the
FIRST PARTY, whose decision shall be final and binding upon the
parties. The arbitration proceedings shall be held at New Delhi,
India and only the Courts at New Delhi, India alone shall have
jurisdiction over the subject matter of this AGREEMENT.”
25) In Sundaram Finance Limited and Another vs. T. Thankam (2015) 14 SCC
444, this Court has held as under:-
“8. Once there is an agreement between the parties to refer the
disputes or differences arising out of the agreement to arbitration,
and in case either party, ignoring the terms of the agreement,
approaches the civil court and the other party, in terms of Section 8
of the Arbitration Act, moves the court for referring the parties to
arbitration before the first statement on the substance of the dispute
is filed, in view of the peremptory language of Section 8 of the
Arbitration Act, it is obligatory for the court to refer the parties
to arbitration in terms of the agreement, as held by this Court in P.
Anand Gajapathi Raju v. P.V.G. Raju.”
26) In P. Anand Gajapathi Raju & Others vs. P.V.G. Raju (Dead) and Others
(2000) 4 SCC 539, it was held as under:-
“5. The conditions which are required to be satisfied under sub-
sections (1) and (2) of Section 8 before the court can exercise its
powers are:
(1) there is an arbitration agreement;
(2) a party to the agreement brings an action in the court against
the other party;
(3) subject-matter of the action is the same as the subject-matter
of the arbitration agreement;
(4) the other party moves the court for referring the parties to
arbitration before it submits his first statement on the substance of
the dispute.”
In view of the above, where an agreement is terminated by one party on
account of the breach committed by the other, particularly, in a case where
the clause is framed in wide and general terms, merely because agreement
has come to an end by its termination by mutual consent, the arbitration
clause does not get perished nor is rendered inoperative. This Court, in
the case of P. Anand Gajapathi Raju (supra), has held that the language of
Section 8 is peremptory in nature. Therefore, in cases where there is an
arbitration clause in the agreement, it is obligatory for the court to
refer the parties to arbitration in terms of their arbitration agreement
and nothing remains to be decided in the original action after such an
application is made except to refer the dispute to an arbitrator.
Therefore, it is clear that in an agreement between the parties before the
civil court, if there is a clause for arbitration, it is mandatory for the
civil court to refer the dispute to an arbitrator.
27) In view of the above, we are of the considered opinion that in the
present case, the prerequisites for an application under Section 8 are
fulfilled, viz., there is an arbitration agreement; the party to the
agreement brings an action in the court against the other party; the
subject matter of the action is the same as the subject-matter of the
arbitration agreement; and the other party moves the court for referring
the parties to arbitration before it submits his first statement on the
substance of the dispute. We have come to the conclusion that the civil
court had no jurisdiction to entertain a suit after an application under
Section 8 of the Act is made for arbitration. In such a situation, refusal
to refer the dispute to arbitration would amount to failure of justice as
also causing irreparable injury to the defendant.
28) As we have already held that the oral agreement as evidenced by the
transcript of conversation between the appellant No. 2 and the respondent
on 06/07.04.2011 substituting the alleged written agreement dated
06.06.2009 and which contained a clause for arbitration, the same clause
for arbitration would also be applicable to the oral agreement. The
Division Bench has also erred in law in affirming the order passed by
learned single Judge. Both the orders, therefore, cannot be sustained and
are set aside and, therefore, in view of the decision in P.R. Shah (supra),
there can only be one arbitrator and there can only be a single
arbitration.
29) In view of the foregoing discussion, the appeal succeeds and is
allowed. However, instead of remitting the matter back to the learned
single Judge for deciding the suit itself on merits, we refer the disputes
raised by the appellants in CS(OS) 1532 of 2012 to the sole arbitrator
already appointed, viz., Hon’ble Mr. Justice V.K. Gupta (Retd.) and request
the arbitrator to decide the disputes expeditiously in accordance with law.
……………….………………………J.
(MADAN B. LOKUR)
.…….…………………………………J.
(R.K. AGRAWAL)
NEW DELHI;
APRIL 10, 2017.
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