# SECURITY & FINANCE (P) LTD. & ANR v. DATTARAYA RAGHAV AGGE & ORS

- **Citation:** [1969] 2 S.C.R. 668
- **Court:** Supreme Court of India
- **Decided:** 1968-11-08
- **Case number:** Criminal Appeal No. 49 of 1967
- **Bench:** J. C. Shah, V. Ramaswami, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/security-finance-p-ltd-anr-v-dattaraya-raghav-agge-ors-4580
- **Pages:** 7

## Headnote

Arbitration Act 10 of 1940, s. 35--Civil suit filed during pendency vf
dispute before arbitrator-Notice of suit given under s. 35 to arbitrator
and opposite party-Arbitrator nevertheless recording evidence of opposite party and giving award-Whether arbitrator and opposite party guilty
of contempt of court and s. 3 Contempt of Courts Act (32 of 1952).
A rure-purchase agreement was entered into between the appellants
and respondent No. !. Under that agreement a motor transport truck
was made available to respondent No. I for doing transport business. The
agreement contained an arbitration clause for settlement of disputes. When
disputes
arose reference was made
to
an
arbitrator.
Respondent
No. 3 a practising lawyer was named as the arbitrator. During the pendency of the arbitration proceedings respondents Nos. I and 2 filed a civil
suit in which they claimed a declaration that the hire-purchase agreement
was brought a'bout by fraud and was not binding on
them
on various
grounds.
The suit was registered and the court ordered summons to be
issued to the two appellants.
A notice was also issued by
respondent
No. I to the appellants and the arbitrator with a copy of the plaint. When
the arbitrator made an award after recording the evidence of the appellants respondents Nos. I and 2 filed an
application under s. 3 of the
Contempt of Courts Act on the allegation that the appellants and respondent No. 3 had committed contempt of court in
proceeding with the
arbitration reference in spite of the notice under s. 35 of the Arbitration
Act being given and in spite of the knowledge of the suit which was filed
by respondents I and 2. The application was contested by the appellants
as well as the arbitrator.
The appellants contended that in obeying the
orders of the a·rbitrator to produce evidence they did not commit any contempt.
Respondent No. 3 denied that he conducted the arbitration proceedings in order to defeat the object of the suit. The High Court found
the appellants and respondent No. 3 guilty of contempt of court on the
view that their conduct had- a tendency to bring into contempt the proceedings before the Civil Court.
Jn appeal to this Court by certificate,
HELD : The High Court was in error in holding that in the circumstances o'f the case the appellants and respondent
No. 3 were guilty of
contempt of court.
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Section 35 of the Arbitration Act does not expressly prohibit the artJitraG
tor from continuing the hearing of the reference.
Its only effect is that
"aU further proceedings in a pending reference shall, unless a stay of proceedings is g'ranted under s. 34, be invalid''.
For this consequence to
follow, however, two important and distinct conditions must be satisfied
namely, (1) that such legal proceedings must be upon the whole and not
merely part of the subject-matter of the re'ference, and (2) that a notice
of such legal proceeding must be given to the arbitrator.
Even on
the
assumptiop that these conditions were satisfied the only effect is that the
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further proceedings before the arbitrator after the receipt of the notice
are. rendered invalid and there is no prohibition under s. 35 requiring the
arb1trator not to carry on the atbitration proceedings after the receipt of
the notice. [672 G-673 BJ
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SECURITY & FINANCE LTD. v. D. R. AGGll (Ramaswami, J.) 669
A
It is well established that an authority holding an enquiry in good faith
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in exercise of the powers vested in it by a statute is not gwlty of contempt ot court, merely because a parallel enquiry is imminent or pending
bewre a court. To constitute the offence of contempt of court there
must be involved some 'act done or writing published calculated to bring
a court or a judge of the court into contempt or to lower his authority' or
'something calculated to obstruct or interfere with the due course of
justice or the lawful process of the court'. [673 CJ
B
Reg. v. Gray [1900] 2 Q.B. 36, Arthur Reginald Perera v. The King,
[195 IJ A.C. 482, Tukaram

## Text

SECURITY & FINANCE (P) LTD. & ANR.
V.
DATTARAYA RAGHAV AGGE & ORS.
November 8, 1968
[J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.]
Arbitration Act 10 of 1940, s. 35--Civil suit filed during pendency vf
dispute before arbitrator-Notice of suit given under s. 35 to arbitrator
and opposite party-Arbitrator nevertheless recording evidence of opposite party and giving award-Whether arbitrator and opposite party guilty
of contempt of court and s. 3 Contempt of Courts Act (32 of 1952).
A rure-purchase agreement was entered into between the appellants
and respondent No. !. Under that agreement a motor transport truck
was made available to respondent No. I for doing transport business. The
agreement contained an arbitration clause for settlement of disputes. When
disputes
arose reference was made
to
an
arbitrator.
Respondent
No. 3 a practising lawyer was named as the arbitrator. During the pendency of the arbitration proceedings respondents Nos. I and 2 filed a civil
suit in which they claimed a declaration that the hire-purchase agreement
was brought a'bout by fraud and was not binding on
them
on various
grounds.
The suit was registered and the court ordered summons to be
issued to the two appellants.
A notice was also issued by
respondent
No. I to the appellants and the arbitrator with a copy of the plaint. When
the arbitrator made an award after recording the evidence of the appellants respondents Nos. I and 2 filed an
application under s. 3 of the
Contempt of Courts Act on the allegation that the appellants and respondent No. 3 had committed contempt of court in
proceeding with the
arbitration reference in spite of the notice under s. 35 of the Arbitration
Act being given and in spite of the knowledge of the suit which was filed
by respondents I and 2. The application was contested by the appellants
as well as the arbitrator.
The appellants contended that in obeying the
orders of the a·rbitrator to produce evidence they did not commit any contempt.
Respondent No. 3 denied that he conducted the arbitration proceedings in order to defeat the object of the suit. The High Court found
the appellants and respondent No. 3 guilty of contempt of court on the
view that their conduct had- a tendency to bring into contempt the proceedings before the Civil Court.
Jn appeal to this Court by certificate,
HELD : The High Court was in error in holding that in the circumstances o'f the case the appellants and respondent
No. 3 were guilty of
contempt of court.
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Section 35 of the Arbitration Act does not expressly prohibit the artJitraG
tor from continuing the hearing of the reference.
Its only effect is that
"aU further proceedings in a pending reference shall, unless a stay of proceedings is g'ranted under s. 34, be invalid''.
For this consequence to
follow, however, two important and distinct conditions must be satisfied
namely, (1) that such legal proceedings must be upon the whole and not
merely part of the subject-matter of the re'ference, and (2) that a notice
of such legal proceeding must be given to the arbitrator.
Even on
the
assumptiop that these conditions were satisfied the only effect is that the
H
further proceedings before the arbitrator after the receipt of the notice
are. rendered invalid and there is no prohibition under s. 35 requiring the
arb1trator not to carry on the atbitration proceedings after the receipt of
the notice. [672 G-673 BJ
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SECURITY & FINANCE LTD. v. D. R. AGGll (Ramaswami, J.) 669
A
It is well established that an authority holding an enquiry in good faith
-·
in exercise of the powers vested in it by a statute is not gwlty of contempt ot court, merely because a parallel enquiry is imminent or pending
bewre a court. To constitute the offence of contempt of court there
must be involved some 'act done or writing published calculated to bring
a court or a judge of the court into contempt or to lower his authority' or
'something calculated to obstruct or interfere with the due course of
justice or the lawful process of the court'. [673 CJ
B
Reg. v. Gray [1900] 2 Q.B. 36, Arthur Reginald Perera v. The King,
[195 IJ A.C. 482, Tukaram Gaokar v. S. N. Shukla, [1968] 3 S.C.R. 422
.,,
and Rizwan-ul-Hasan v. State of Uttar Pradesh, [1953] S.C.R. 581, 588,
applied.
;;;I
It followed therefore that even if the action of the appellants and respondent No. 1 in the present case was assumed to be improper it would
Ill)
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not justify the finding that they were guilty of contempt df court when
their action was in no way calculated to obstruct the course of justice or
to prejudice the trial of the civil suit.
j
CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No.
49 of 1967.
Appeal from the judgment and order dated August 14, 1964
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of the Bombay High Court, Nagpur Bench in Misc. Civil ApplicaD
tion No. 13 of 1963.
~
Mohan Behari Lal, for the appellants.
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V. K. Sanghi and Ganpat Rai, for respondents Nos. 1 and 2 .
•
The Judgment of the Court was delivered by
•
:s
Ramaswami, J.
This appeal is brought by certificate from
the judgment of the Bombay High Court Nagpur Bench dated
August 14, 1964 by which the appellants were convicted for con-
. I
tempt of Court of Civil Judge, Junior Division, Nagpur and sen-
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tenced to pay a fine of Rs. 200 / - each.
By the same judgment
respondent no. 3, Sri Ram Nath Vig was also convicted for contempt and sentenced to pay a fine of Rs. 100/-.
F
It appears that a hire-purchase agreement was entered into
between the appellants and respondent no. 1.
on or about
August 12, 1959.
Under that agreement a motor truck was
made ~vaHable to respondent no. 1 for doing transport business.
The h!re-purchase agreement contained an arbitration clause for
.,
settlement of disputes arising between the parties. It appears that
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subsequently disputes did arise between the parties and a reference was made to an arbitrator to settle the disputes.
Respon-
?ent no:
3, Sri Ram Nath Vig who is a practising lawyer
m Delhi was the person named as arbitrator iJn the arbitration agreement itself and the dispute was submitted to hinl on or
about June 25, 1962 at the instance of the appellants. Thereafter
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the arbitrator gave notice of the re.ference and invited statements
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of the parties.
He fixed the hearing of the arbitration matter
before him on July 17, 1962. The case of respondent no. 1 is
that he did not receive notice of this date from the arbitrator and
4Sup.C.I./69-10
670
SUPREME COURT REPORTS
[1969] 2 s.c.tl.
th~refore he did not appear on the date fixed.
The arbitrator
adjourned the hearing· of the r~ference to another date, namely,
August 29, 1962. The contentlon of respondent no. 1 is that he
was not given intimation of this date also but this point is controverted by the respondents. Respondents nos. 1 and 2 filed a Civil
Suit in the Court of Civil Judge, Senior Division, Nagpur on
August 30, 1962. In this suit they claimed a declaration that the
hire-purchase agreement was brought about by fraud and was not
binding on them on various grounds.
The suit was registered
and the court ordered summons to be issued to the two appellants.
Meanwhile, the arbitrator postponed the hearing o.f the reference
to September 15, 1962 and it is alleged that he issued fresh
notices to the parties on September l, 1962. The hearing was
again adjourned to October 23, 1962 and it is said that respondent no. 3 made an award on October 24, 1962. It has been
found by the High Court that on October 18, 1962 a notice was
issued by respondent no. 1 to the appellants and the arbitrator
·with a copy of the plaint. This notice was received by the appellants on October 22, 1962. In spite of this notice, evidence was
recorded by the arbitrator on October 23, 1962 and he made the
award on the next day directing respondent no.
1 to pay
Rs. 20,400/-.
The allegation of the arbitrator is that he received
the notice sent on October 18, 1962 on the next day of the award
i.e., on October 25, 1962. It appears that in the civil suit filed
by respondents 1 and 2 which was registered as Civil Suit no. 657
of 1962 on the file of the Civil Judge, Junior Division, the first
date of hearing was fixed on October 15, 1962. On that date the
appellants filed an application under s. 34 of the Arbitration Act
for staying the proceedings before the court.
No progress was
made in the 'suit which was adjourned to November 6, 1962 and
again to November 28, 1962 at the instance of the appellants.
Finally on November 28, 1962 the arbitrator informed respondent no. 1 that he had made the award.
On these facts respondents 1 and 2 filed an application under s. 3 of the Contempt of
.Court's Act for action being taken against the two appellants,
respondent no. 3 and one more person.
According to respondents 1 and 2 the appellants and respondent no. 3 had committed
contempt of court in proceeding with the arbitration reference in
spite of notice under s. 35 of the Arbitration Act being given and
in spite of the knowledge of the suit which was filed by respondents
1 and 2. The application was contested by the appellants as well
as the arbitrator. . The case of the appellants was that the suit itself
was not sustainable and they were unaware that participation in
the arbitration proceedings after receipt of notice was precluded
by law and that they honestly and bona fide believed that they
were not expected to take any action after the receipt of the notice
without direction from the arbitrator. It was for the arbitrator to
take a decision in the matter and if the arbitrator decided to proA
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SECURITY & FINANCE LTD. v. I>. ll. AOOll (Ramaswami, J.) 671
ceed with the arbitration, they only obeyed the orders of the arbi·
trator and therefore had not committed any contempt.
The
defence of respondent no. 3 was that in completing the arbitration
and giving his award he was only performing his duty. He denied
that it was necessary for him to await the result of the stay application alleged to have been made by respondent no. 1 in the
Nagpur Court as he was of the view that the subject-matter in
the Nagpur Court was not the whole subject-matter under arbi·
tration, Respondent no. 3 denied that- he had any bias or that he
conducted the arbitration proceedings in order to defeat the ob'
ject of the suit and to place an impediment in the conduct of the
suit.
The High Court rejected the contention of the appellants
and of respondent no. 3 and held that the action of the appellants
in participating in the arbitration proceedings and the conduct
of respondent no. 3 constituted contempt of court as the conduct
of respondent no. 3 and of the appellants had a tendency to bring
into contempt the proceedings before the Civil Court.
It is necessary at this stage to set out the relevant provisions
of the Arbitration Act (X of 1940). Sections 32, 33, 34 and 35
are to the following effect :
"32. Notwithstanding any law for the time being in
force, no suit shall lie on any ground whatsoever for a
decision upon the existence, effect or validity of an
arbitration agreement or award, nor shall any arbitration agreement or award be set aside, amended, modified or in any way affected otherwise than as provided
in this Act."
"33. Any party to an arbitration agreement or any
person claiming
under him desiring to challenge the
existence or validity of an arbitration agreement or an
award or to have the effect of either determined shall
apply to the Court and the Court shall decide the question on affidavits :
Provided that where the Court deems it just and
expedient, it may set down the application for hearing
on other evidence, also, and i~ may pass such orders for
discovery and particulars as it may do in a suit."
"34. Where any party to an arbitration agreement
or any person claiming under him commences any legal
proceedmgs against any other party to the 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 t~ki~~ any othe_r steps in th~ proceedings, apply to
the 1ud1cial authonty before which the proceedings are
672
SUPREME COURT RE!>OR'i'S
[1969] 2 S.C.R.
· pending to stay the proceedings, and if satisfied that
there is no sufficient reason why the matter should not
be referred in accordance with the arbitration agreement and that the applicant was, at the time when the
procee.dings were commenced, and still remains, ready
and w1llmg to do all things necessary to the proper conduct of the arbitration, such authority may make an
order staying the proceeding."
"35. ( 1) No reference nor award shall be rendered
Invalid by reason only of commencement of legal proceedings upon the subject-matter of the reference, but
when legal proceedings upon the whole of the subjectmatter of the reference have been commenced between
all the parties to the reference and a notice thereof has
been given to the arbitrators or umpire all further proceedings, in a pending reference shall, unless a stay of
proceedings is granted under section 34, be invalid.
( 2) In this section the expression 'parties to the
reference' includes any persons claiming under any of
the parties and litigating under the same title."
In our opinion, the High Court was in error in holding that
in the circumstances of this case the appellants and respondent
no. 3 were guilty of contempt of court. It is not disputed that
there was an arbitration clause in the agreement between the
appellants and respondent no. 1 and in terms of the arbitration
clause respondents I and 2 had a right to refer the dispute to the
arbitrator. It is also not disputed that a reference to the arbitrator was made by respondents I and 2 long be.fore the institution
of the civil suit. It is also apparent that in view of the admitted
existence of the hire purchase agreement containing an arbitration
clause the remedy of respondent no. I was to move the Civil
Court under s. 33 of the Arbitration Act challenging the existence
or validity of the arbitration agreement and to have its effect
determined. It was contended on behalf of the appellants that a
separate suit was barred under s. 32 of the Arbitration Act. We
do not wish to express any opinion on this point in the present
case.
Even on the assumption that the suit filed by respondents
nos. 1 and 2 in the Nagpur Court is competent, the question arises
whether the arbitrator was bound to stay the proceedings before
him after he got notice from respondents 1 and 2 of 'the institution
of the civil suit. Section 35 ot the Arbitration Act does not expressly prohibit the arbitrator from continuing the hearing of the
reference but the only effect of s. 35 is that "all further proceedings in a pending reference. shal.J,,,unless a s.tay of proceedings
is granted under s. 34, be mvahd . F?r. this
c~n.sequence to
follow however, two important and d1stmct cond1tions must be
satisfi~d, namely, (1) that such legal proceedings must be upon
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SECURITY & FINANCE LTD. v. D. R. AGGE (Ramaswami, J.) 673
the whole and not merely part of the subject-matter of the reference, and
(2) that a notice of such a legal proceeding
must be given to the arbitrator. We do not wish to express any
opinion as to whether these conditions were satisfied in this case.
But even on the assumption that these conditions were satisfied
the only effect is that the further proceedings before the arbitrator
after the receipt of the notice are rendered invalid and there is no
prohibition under s. 35 requiring the arbitrator not to carry on the
arbitration proceedings after the receipt of the notice.
It is well-established that an authority holding an inquiry in
good faith in exercise of the powers vested in it by a statute is not
guilty of contempt of court, merely because a parallel inquiry is
imminent or pending before a court. To constitute the offence of
contempt of court, there must be involved some 'act done or writing published calculated to bring a court or a judge of the court
into contempt or to lower his authority' or 'something calculated
to obstruct or interfere with the due course of justice or the lawfu 1
process of the court'.-(See Reg. v. Gray(') and Arthur Re1:inald
-Perera v. The Kin1:( 2 ). In Tukaram Gaokar v. S. N. Shukla('),
it was held by this Court that the initiation and continuance of
proceedings for imposition of penalty on the appellant for his
alleged complicity in the smuggling of gold under s. l 12(b) of the
Sea Customs Act, 1962 did not amount to contempt of court
though his trial in a criminal court for offences under s. 135 (b)
of that Act and other similar offences was imminent and identical
issues would arise in the proceedings before the customs authorities
and in the trial before the criminal court.
In Rizwan-ul-Hasan v. The State of Uttar Pradesh(')
this
Court stated :
"As observed bv Rankin. C.J. in Anantalal Sinl!ha
v. Allred Henry Watson [(1931) 58 Cal. 884 at 895],
the jurisdiction in contemn! is not to be invoked unless
there is real nrejudice which can be regarded as a substantial interference with the due course of justice and
that the nurpose of the court's action is a practical purpose and it is reasonably clear on the authorities that
the court will no• exercise its jurisdiction upon a mere
question of propriety."
It follows therefore that even if the action of the appellants and
respondent no_ 1 in this case is assumed to be improper it will not
justify the finding that thev were guiltv of contempt of court when
their action was in no wav calculated to obstruct the course of
justice or to prejudice the trial of the Civil suit.
------
(!) [1900] 2 Q.R 36.
(2) [1951} A.C. 482.
(3) [1968]'3"S.C.R. 422
(4) [1953] S.C.R. 581, 588,
674
SUPREME COURT REPORTS
[1969] 2 S.C.R.
For these reasons we hold that this appeal should be allowed
A
and the judgment of the High Court of Bombay, Nagpur Bench
dated August 14, 1964 should be set aside and the conviction and
sentences imposed on -the appellants should be quashed. The
arbitrator, respondent no. 3 has not fiJed an appeal but in view
of our finding with regard to the appellants it is necessary that
the conviction of respondent no. 3 and the sentence imposed upon
B
him should also be quashed.
The fines, if already paid by respondent no. 3 and the ·appellants should be refunded.
G.C.
Appeal allowed.
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