D.P. Sood, J.@mdashOne of the vital questions involved in these petitions is:
Whether, in the event of inconsistency, the Original Side Rules prevail on the original side of this Court and not the Code of Civil Procedure; and, the amending Act of 1976 has made no difference in this respect?
2. O.M.P. 40 of 1993 pertains to the grant of leave to defend the summary suit, whereas in O.M.P. 41 of 1993, Defendant seeks the stay of the proceedings in the suit and the dispute to be referred to the sole arbitration of the Chairman, H.P.S.E.B, or its nominee in accordance with Clause 18 of the agreement dated 27-11-1991 entered into in between the parties to the instant lis. Both applications have been filed by the Defendants.
3. For highlighting and then resolving that controversy arising in these two petitions, the material facts in dispute are necessitated to be mentioned.
4. The Plaintiff has instituted a suit for the recovery of Rs. 35,77,599 under Order 37 of the CPC read with Chapter XV of the Delhi High Court Original Side Rules, 1967 (hereinafter shortly referred to as Original Side Rules) as applicable to this Court on account of the supply of various types of A.A.C. and A.C.S.R. Conductors and G.S.S. Wires to the Defendants, on the basis of an agreement dated 27-11-1991 entered into between the parties inter se. After summons had been served, an application for leave to defend in case the dispute is held not liable to be referred to the sole arbitration as per the terms of the agreement (O.M.P. 40 of 1993) and an application for leave to defend have simultaneously been filed within the prescribed period. The break-up of the aforesaid recoverable amount has been given as under:
(i) on account of 100% costs of the material Rs. 23,01,260.00
supplied
(ii) on account of excess duty and freight Rs. 8,20,048.00
element.
(iii) on account of interest calculated on the Rs. 4,56,290.00
outstanding amount up to the date of institution
of the suit�30-10-1992.
5. The Defendants resisted the suit by raising preliminary objections to the effect, firstly, that the dispute is referable to the sole arbitration of the Chairman, H.P.S.E.B. or its nominee as per Clause 18 of the agreement dated 27-11-1991; secondly, that the suit filed by the Plaintiff is not one of the suits which can be tried as a summary suit under Chapter XV of Original Side Rules as it is not a suit based on negotiable Instrument as contemplated by Rule 3 thereof, which over-rides Order 37 of the CPC and even otherwise the suit is not triable as a summary suit under Order 37, Rule 1 CPC On merits, it is contended that 18 purchase orders were placed by the Defendant Board for supply of various sizes of A.A.C. and A.C.S.R, Conductors on the Companies of this business Group during 1989. The firms while submitting their bills did not pass on ''MODVAT'' benefit to the Board as required under the terms and conditions of these purchase orders. A Committee was constituted by the Board to work out the amount recoverable from these firms which pointed out a recovery of Rs. 61.47 lacs. Subsequently another sum of Rs. 5.60 lacs was found recoverable from the firm on account of excess excise duty bringing the total recoverable amount of Rs. 67.07 lacs which includes Rs. 9.40 lacs recoverable from M/s. Salecha Cable Company alone. Since the firms desired their payments to be released on the basis of their bills, as such, the dispute arose and the matter was referred to arbitration as per Clause No. 18 of the contract and the matter is still under arbitration. As the total amount of Rs. 67.07 lacs was recoverable from the Plaintiff company and its business associates, the payments of these companies including Rs. 31.31 lacs of M/s Salecha Cables were withheld by the Defendant Board since it was left with no other alternative to make these recoveries in case the award of the arbitrator goes in favour of the Board. As for Government of India introduced MODVAT (Modified Value Added Tax) Scheme in the Union budget of 1986 through which excise is imposed at one place and in the particular case the firms claimed excise duty on ex-finished product (conductors) from H.P. State Electricity Board and got reimbursement of excise duty paid on raw material. The amount of reimbursement was to be passed on to the board both under the provisions of the contract as also under the law.
6. I have heard the learned Counsel for the parties.
7. The submissions of Shri K.D. Sood, learned Counsel for the Defendant, are three-fold:
(1) That the suit in question having been based on a written contract, does not fall within the ambit of summary suit as envisaged under Chapter XV Rule 3 of the Original Side Rules. Rather, in view of the inconsistency prevailing between Original Side Rules and the amending Act of 1976, the procedure laid down in the former prevails over the Court, as such, the suit is to be treated as a regular suit.
(2) That in case the suit in question is held to be a summary suit under Order 37 of the Code of Civil Procedure, even then irrespective of the filing of O.M.P. 40 of 1993 for leave to defend, the stage for filing an application for leave to defend has not yet arrived and time has not even begun to run because: (a) "summons for judgment" had not so far been served on the Defendants.
(3) That dispute has arisen regarding the payment of the claimed amount on the basis of the agreement whereunder all disputes arising in between the parties are referable to the sole arbitration of Chairman, H.P.S.E.B., or his nominee under Clause 18 there of.
8. On the contrary, learned Counsel for the Plaintiffs-non-applicants, has contended that suit is of summary nature, whether it be considered under the Original Side Rules or the Code and there being no dispute arising in between the parties and, thus, triable by this Court, a decree is liable to be passed forthwith.
9. To understand the rival contentions, it would be pertinent to examine the background. The CPC was enacted in 1908. Order 37 thereof provided a "summary procedure" applicable to suits based on "Negotiable Instruments". The Defendant could not "appear or defend the suit", unless he obtains the leave from the Court. Under Article 59 of the old Limitation Act, 1908 corresponding to Article 118 of the new Limitation Act, 1963, an application for leave to defend had to be made within 10 days from the service of summons. This state of things was disturbed by the CPC (Amendment) Act, 1976. It made many drastic changes in the Code including the re-modelling of Order 37. Now, all that the Defendant is required to do on being served with summons, is merely to,'' enter an appearance" within 10 days ; [Rules 2(3) and 3(1)]. Thereafter, the Plaintiff must serve (a) "summons for judgment" on the Defendant and it is only then that the Defendant has to apply for leave to defend within 10 days" from the service of such summons"; [Rules 4 and 5].
High Court of H.P. came into existence in the year 1971. However, the Delhi High Court (Original Side Rules) continued to be applicable to this Court. It is stated in the preamble that the above said Original Side Rules are made "in exercise of the powers conferred by Sections 122 and 129 Code of Civil Procedure, 1908 and Section 7 of the Delhi High Court Act, 1966".
10. Chapter XV of the Original Side Rules deals with ''Summary Suits''. It applies to ''all suits upon bills of exchange, hundis or promissory notes'' (Rule 1). The procedure it prescribes is substantially the same as that which was contained in Order 37 of the Code of Civil Procedure. The Defendant cannot ''appear or defend the suit'' unless he obtains leave from the Court: Rule 3. There are, of course, small differences. For example, Rule 2 permits the application for leave to be made within 20 days from service of summons, as against the 10 days allowed under the Code read with the Limitation Act. Divergencies, such as this, are resolved by Rule 12 which says:
The provisions of Order 37 of the CPC so far as they are not inconsistent with the provisions contained in this Chapter shall apply to suits to which this Chapter applies. Thus, in the event of conflict, the Rules in Chapter XV override Order 37. But since, until 1976, the procedure in both were largely akin. There was hardly ever need to invoke Rule 12.
11. The legal position regarding the Original Side Rules is not only set out in Delhi High Court Act but is also stated in Sections 122 and 129 of the Code of Civil Procedure. Indisputably, there appears to be no difficulty in considering a suit based on "negotiable instrument" to be a "summary suit" as both Order 37 of the Code as also Chapter XV of the Original Side Rules lay down the same law. However, amending Act of 1976 has provided summary procedure for 4 suit brought on a written contract or an enactment or guarantee as additional causes of action in addition to that of ''negotiable instrument''.
12. Now Rule 19 of Chapter I of the Original Side Rules lays down:
Except to the extent otherwise provided in these rules, the provisions of the CPC shall apply to all proceedings on original side.
This provision if read exclusively, means that if the rules are silent on any particular point, then the CPC will apply. Admittedly, there is no provision in the Original Side Rules for the trial of summary suits based on written contracts, guarantees or enactments However, Section 129 of the Code becomes relevant at this stage which says:
Notwithstanding anything in this Code, any High Court not being the Court of a Judicial Commissioner may make such rules not inconsistent with the Letters Patent or order or other law establishing it to regulate its own procedure in the exercise of its original civil jurisdiction as it shall think fit, and nothing herein contained shall affect the validity of any such rules in force at the commencement of this Code.
No doubt the closing words will not save the Original Side Rules of this Court, as they were not "in force at the commencement'' of the Code. But, the opening words ''Notwithstanding anything in this Code'' are self-effecting, and subordinate the Code to rules made by a High Court for its original side at any time. The cumulative effect of those two parts of the section is to leave untouched the original side rules of a High Court whether framed before or after 1908. Since Section 2(1) says that the '' "Code" includes rules'', the original side rules will prevail both over the body of the Code and the First Schedule. Therefore, the statement in Order 37 Rule 1(a) that "This order shall apply to High Courts'' must be read subject to Section 129.
13. In this respect, the High Courts of Delhi, Madras, Bombay, Calcutta and Allahabad have interpreted the effect of Section 129 of the Code by holding that "Section 129 of the Code gives the High Court the power to make Rules, regulating the procedure of the original side and nothing in the Code will affect such rules. The effect is that if the rules of the High Court on Original Side, and the Code are inconsistent, the rules prevail". [See: Behram Jung v. Sultan Ali (1913) ILR 37 Bom 572 ;
14. The learned Counsel for the Plaintiff has relied upon the contrary view taken by the Single Bench of Delhi High Court in the case of Indraprastha Finance Co. v. Diamond Pictures and Ors. (1980) 18 DLT 44. It has been held by the learned Single Judge of that Court that there is no provision in the Original Side Rules for the trial of summary suits based on written contracts, guarantees or enactments and further as the provisions in the said Rules are silent, such suits can be tried under the amended Code of Civil Procedure.
15. The case of M/s. Printpak Machinery Ltd (supra) was decided 10 days later than that of Indraprastha Finance Company''s case (supra) and this authority of the single Bench appears not to have been brought to the notice nor considered by the Full Bench of Delhi High Court.
16. At this stage, Section 4(1) of the Code also becomes relevant. It provides that:
In the absence of any specific provisions to the contrary, nothing in this Code shall be deemed to limit or otherwise affect any special or local law now in force or any special jurisdiction or power conferred, or any special form of procedure prescribed, by or under any other law for the time being in force.
In the case of
17. Thus, from whatsoever angle the above said proposition is viewed, to my mind, the Original Side Rules prevail on the original side of this Court and not the CPC With respect, I am in full agreement with the reasonings given in the case of Mis. Printpak Machinery Ltd. (supra). Resultantly, the suit in question cannot be treated as a summary suit.
18. As regards the second proposition, assuming for the sake of arguments that the suit is of summary nature under Order 37 of the Code, the stage for filing an application for leave to amend arises only when "summons for judgment" are served upon the Defendant and not prior thereto. With respect, I again adopt the reasonings given in the case of M/s. Printpak Machinery Ltd. (supra).
19. Now the question which arises for the determination of this Court is whether a dispute arising out of the agreement exists, if so, whether it is referable to the sole arbitration of the person envisaged under Clause 18 of the agreement?
20. Carefully examining the pleadings of the parties, it is obvious that amount of more than 31 lacs payable to the Plaintiff has been withheld by the Defendant on the ground that in 1989 the Plaintiff firm and also its sister concerns while submitting their bills, did not pass on "MODVAT benefit" to the Board to work out the amount recoverable from these firms. Further, that the said disputes are already pending decision before the arbitrator and the Defendants are sanguine of their ultimate success therein. Secondly, as regards the interest charges, the Defendants have assailed this part of the Plaintiff''s claim on the ground that no such charges are leviable in terms of clause No. VI "interest" of the purchase order which forms a part of the contract agreement. As per this clause, Defendants contend that no interest, whatsoever, is payable to the Plaintiff company.
21. Coming to the legal question, it is useful to mention that an arbitration clause, even though it may be worded in the widest possible language only allows differences and disputes relating to or arising out of or in connection with a contract to be referred to an arbitrator. In the instant case, arbitration Clause 18 is as under:
18. Arbitration.-In case of any dispute, question or difference whatsoever between the supplier and purchaser upon or in relation to or in connection with contract, the same shall be referred to the sole arbitration of Chairman. Himachal Pradesh State Electricity Board. Shimla, or his nominees and shall be subject to the provisions of Indian Arbitration Act, 1940 and Rules framed thereunder or any statutory modification there of.
The word ''difference'' or word ''dispute'' has peculiar meaning in the law of arbitration. It is not every kind of difference or dispute which is referable to the arbitrator. A difference may be, for instance, regarding the meaning of a particular term in the contract. It may be that one party feels that he has performed the contract but the other party says that the real meaning of the contract is something else and what has been done is not a true performance of the contract. This then would be a difference. When a party says I have supplied the goods, you pay me the price and the opposite party does not pay the price, this is not a dispute and not a difference. This is one of looking at the application now before me. Under the law of arbitration, a dispute means that one party has a claim and the other party says, for some specific reasons, that this is not a correct claim. This is a dispute. A dispute of this type requires that there should be a statement of proposition made by one side and there should be denial or refutation of that proposition by the other side on the basis of the agreement in question. Then only can there be a dispute.
22. Section 34 of Arbitration Act, 1940, merely envisages those disputes which are referable to arbitration. No particulars of those disputes have been given. In order that there should be a dispute or difference, there must be some pre-existing facts which would show that there was a dispute and there was difference and there was a move to refer the matter to arbitration. This section comes into play only when the claimant commences legal proceedings against any other party "in respect of any matter agreed to be referred". Therefore, the vital question to be seen is what is the matter which has been agreed to be referred. For this purpose, one has to look at the arbitration clause. Usually, under the arbitration clause, disputes or differences relating to or arising out of or in connection with the contract or in relation to any matter connected therewith, shall be referred to arbitration. The normal terms of an arbitration clause requires that there should be dispute or difference. Thus, the Court is bound to look as to what is the nature of the dispute or difference end whether it falls within the ambit of the arbitration clause. In other words, the pleadings of the parties as also the arbitration clause are to be read together.
23. It is well settled that whenever there is a conflict regarding the very existence of the dispute or difference, then the party moving an application u/s 34 of the Arbitration Act, has to specify what is the nature of the dispute falling within the arbitration clause. In the instant application though the basis for withholding the amount claimed by the Plaintiff, as per pleadings of the Defendant read with affidavit dated 5th of January, 1993, of Shri Ajay Bhandari, the then Secretary, H.P.S.E.B. and subsequent evidence by way of affidavit of Sh. R.L. Chauhan dated 13th of July, 1993, has been stated to be part recovery of over Rs. 67 lacs relating to '' MODVAT benefit'' as per Annexure D-2A and non-existence of interest clause in the purchase older forming past of the agreement. No other reason relating to the dispute arising out of or in connection with the contract or in relation to any matter connected therewith has been stated.
24. Learned Counsel for the Defendant states that the matter should be stayed because the recoverable MODVAT benefit to the extent of Rs. 67 lacs which is a subject-matter of arbitration proceedings on the basis of different agreements for the year 1989, not only from the Plaintiff but also its sister concerns of which he is also an associate, cannot be recovered as each of these firms have furnished a security to the extent of Rs. 30.000 only, which is insufficient in relation thereto. In other words, the difference or dispute between the parties arises out of the reasons for non-payment of the past arrears of ''MODVAT benefit''. If that difference, which has arisen for non-payment, is referable to arbitration only within the arbitration clause, then this Court will have to consider whether it is a suitable case for stay. It would be relevant to quote Clause 21 of the agreement pertaining to "MODVAT benefit" which provides that "the rates indicated in the schedule of requirement" are after taking the effect of MODVAT, Thus, before considering the above question, in order to understand as to what is MODVAT, it would be proper to refer to Taxmann''s MODVAT and Credit of Money Scheme 1990-91:
The MODVAT Scheme was introduced in March. 1986. It permitted credit on duty paid on excisable goods used as inputs, in accordance with Rules 57-A and 57-J of the Central Excise Rules, 1944. At the time of introduction of this Scheme, the proposal was moved through Finance Bill, 1986. The Long Term Fiscal Policy had stated that the best solution would be to extend the present system of proforma credit to all excisable commodities with the exception of a few sectors with special problems like petroleum, tobacco and textiles. This Scheme, which has been referred as Modified Value Added Tax (MODVAT) Scheme-I shall stress MODVAT, not MODVAT-allows the manufacturer to obtain instant and complete reimbursement of the excise duty paid on the components and raw materials The MODVAT scheme provides a transparency which discloses the full taxation on the product and its introduction is an important measure of cost reduction. Amount of excise duty payable depends upon the value of the final product and the rate of duty. Introduction of MODVAT will decrease the cost of final product considerable through the availability of the instant credit of the duties paid on the inputs and consequential reduction of interest costs. In other words, the MODVAT scheme avoids the payment of duties on earlier duties paid. The object of the scheme appears to be to benefit both the consumers and the exporters. MODVAT, infact, is basically a duty collecting procedure, which at the same time aims at long relief to a manufacturer on the duty element borne by him in respect of the raw-materials (inputs) used by him.
Central excise duty is now payable on all manufactured products. This spread has become unavoidable because of the need for revenue to finance development and defence. Because of the wide application of central excise duty, in many cases, the duty is being levied on products which are made out of duty paid goods. Under the MODVAT scheme, a wide range of items required in selected industries have been grouped together and it has been provided that so long as the inputs and the final products fell within the range of products so notified, the benefit of the scheme would be admissible. Besides, the scheme has been further enlarged by providing for set off of duty paid on those materials which are not in the nature of inputs or components but which arc essential parts of the product as it is marketed. Some illustrations of articles in this category are paints and packaging materials. Thus, the scope and content of the Proforma Credit Scheme have been substantially enlarged under the MODVAT scheme.
25. In dealing with this matter, I have the advantage of basing my view on the judgment of
26. Now turning to the other contention raised by the Defendants regarding the non-existence of interest clause in the purchase order forming part of the agreement, suffice it to state that out of the claimed amount of over Rs. 35 lacs, an amount of Rs. 4,56,290 has been claimed on account of interest calculated on the principle amount up to the date of institution of the suit i.e. October 30, 1992. This fact shows that Plaintiff has made a claim and the Defendant says that because of non-existence of any such clause in the agreement, this is not a correct claim. This amounts to a dispute, though to a small portion of the claimed amount. This part of the dispute falls within the ambit of the arbitration clause. The argument of the learned Counsel for the Plaintiff is that interest is not a part of the dispute or difference relating to or arising out of or in connection with the contract or in relation to any matter connected therewith and, therefore, the dispute is not referable to arbitration. I have already held that dispute with respect to the payment of interest exists in between the parties. Necessarily, it arises out of the agreement and this dispute or difference is in relation to the payment of the price of the goods supplied to the Defendants on the basis of the main agreement. Thus, this portion of the dispute or difference falls within the ambit of a dispute "in relation to any matter connected therewith." In that perspective, I am of the firm view that the application (OMP 41 of 1993) is liable to be accepted I order accordingly. Resultantly, the proceedings in the suit are ordered to be stayed and the dispute is referred to the arbitration of Chairman, H.P.S.E.B., Shimla or his nominees, as is envisaged under Clause 18 of the arbitration agreement, referred to above.
Both applications stand decided accordingly.
