STATE OF ORISSA ETC.versusKLOCKNER AND COMPANY AND ORS. ETC.

A                            STATE OF ORISSA ETC.
                                           v.
                KLOCK.,'\IER AND COMPANY AND ORS. ETC.

                                   APRIL 16, 1996

B
                 [J.S. VERMA AND K. VENK.ATASWAMI, JJ.j


         Foreign Awards (Recognition and Enforcement) Act 1961-S.3 r/w Ar-
  bitration Act 1940, s.34 and Takeover Ordinance 8 of 1991, Clauses 4(5), 5,
C 6 and 7-Agrecment between foreign company and 01issa Mining Co1poration
  for exclusive 111arketing of charge chronie--State Govenunent taking over
  charge chrome division and selling it to Tata Iron and Steel Com-
  pany--Forcign conipany refening dispute to inte1national arbitration-State of
  01issa filing suit claiming not to be mccessor in intemst of OMC and hence
  not bound by agreement--{)n application by foreign company, T1ial Court
D staying suit-High ('oiat affinning stay--fleld, under takeover Ordinance,
  State 1vus successor in interest to OMC and bound by agreenient; suit 1ightly
    stayed.

           Forei&"' Awards (Recognition and Enforcement) Act 1961-S.3 r/w
    Arbitration Act 1940, s. 34-Step in proceeding-Agreement between foreign
E   company and 01issa Mining C01poration for exclusive marketing of charge
    chronie-State Gove111n1ent taking over charge chronie division and selling it
    to Tata Iron and Steel Company-Foreign company refening dispute to
    illlemational arbitration-State of 01issa filing suit claiming not to be succes-
    sor in interest of OMC and hence not bound by agreement--{) MC filing suit
F   questioning validity of entire agreement-Applications by foreign company
    under Foreign Awards Act for stay of State of 01issa's suit and under Order
    7 Rule 11 CPC for rejection of OMC's plaint-Whether application for
    rejection of plaint a step in proceeding by foreign co111pany baning it fron1
    seeking stay of State's suit-Held, No.

G         Code of Civil Procedure 1908--0rder VII Rule ll(a) and (d) r/w
    Arbitration Act 1940, s.32-Rejection of plaint-Agreement between foreign
    company and 01issa Mining C01poration for exclusive marketing of charge
    chrome--OMC filing suit questioning validity of entire agreement-Foreign
    company filing application for rejection of plaint on ground of absence of
I-I cause of action for the suit-Iiial Court accepting application-High Cowt

                                                                                       -
                                          368
                     STATE v. KLOCKNER AND CO.                           3o9

reversing pointing out plaint alone had to be considered for deciding whether A
it disclosed cause of action-Fwthe1; suit challenged validity of the entire
agreement and not 1nerely the arbitration agreenient, hence not ban·ed under
 s.3Jc-Held, High Cowt's order dismissing application did not call for inte1c
ference.

      Under a marketing agreemeut between Klockner and Company                  B
(Klockner) and the Orissa Mining Corporation (OMC), the charge
chrome prodnced by OMC was to be marketed exclusively through Klock-
ner. Clause 15 provided for reference of disputes between the parties to
the International Chamber of Commerce. The place of arbitration was to
be London and the law applicable the Swiss Law or any other law mutually        c
agreed upon.

      Under another agreement entered into between OMC and Orissa
Mining Corporation (Alloys) Ltd., the latter replaced OMC in the earlier
agreement with Klockner. After the Government of India ordered the
merger of OMC (Alloys) with OMC, the State of Orissa promulgated                D
Ordinance No. 8 of 1991 under which the charge chrome division was taken
over and transferred by way of sale to Tata Iron & Steel Company
(TISCO). The agreement between the State of Orissa of TISCO stipulated
that any claim in respect of OMC's agreement with Klockner wonld be
discharged by the State of Orissa.                                              E

       Failing to resolve its disputes with OMC, Klockner made an arbitra-
tion reference to the International Chamber of Commerce. On receiving
notice, the State of Orissa filed a suit before the Civil Judge, Bhubaneswar
for a declaration that it was not a successor of OMC and therefore, not
liable to pay jointly with OMC to Klockner. OMC filed a suit questioning        F
the entire agreement. Thereupon; Klockner filed an application for stay of
the suit invoking s.3 of the Foreign Awards (Re.cognition and Enforcement)
Act, 1961. Klockner also filed an application under Order Vil Rule 11 CPC
for rejection of the plaint in the suit filed by OMC.
                                                                                G
      The Civil Judge stayed the suit and also rejected the plaint in OMC's
suit The High Court of Orissa atlirmed the order of the civil judge staying
the suit but reversed the order r~jecting the plaint.

      The High Court held that for the 1mrposes of deciding the applica-
tion under Order VII Rule 11 the plaint alone had to be looked into to find     H
    370                  SUPREME COURT REPORTS [1996] SUPP. 1 S.C.R.

A   if it disclosed a cause of action. Klockner's contention, however, was that
    there was no cause of action for the suit and this could be decided at an
    appropriate stage of the suit. Moreover, the bar under S.32 of the Arbitra-
    tion Act would operate only where the suit questioned the validity or
    existence of an arbitration agreement and not where, as in the instant case,
    the validity of the entire agreement was being challenged.
B
           In its appeals in this Court, the State of Orissa contended that not
    being a party to the agreement in question and not being bound there-
    under, its suit could not have been stayed. Klockner, in its Special leave
    Petition, challenged the High Court's dismissal of its application for
c   rejection of the plaint in OMC's suit.

          Dismissing the appeals and the Special Leave Petition, this Court.

        HELD: 1.1. The High Court was justified in confirming the stay
  granted by the trial court. The test for invoking Section 3 of the Foreign
D Awards Act was satisfied. [381-F)
          Renusagar Power Co. Ltd. v. General Electric Company, [1984] 4 SCC
    679, followed.

          1.2. The contention of the appellant that the State of Orissa has
E   nothing to do with the contract entered into between Klockner and OMC
    could not be accepted. A conjoint reading of the clauses of the takeover
    Ordinance and the agreement between the State of Orissa and TISCO
    would show that the State of Orissa was the successor in interest of OMC
    Charge Chrome Division. Also, the appellant could not contend that the
    legal proceedings initiated was not in respect of any matter agreed to be
F   referred to arbitration in the agreement. [379-C; B; Fl

        Renusagar Power Co. Ltd. v. General Electric Compa11y, [1984) 4 SCC
  679; Svenska Handelsbanken & Ors. v. M/s. Indian Charge Chrome Ltd. &
  Ors., [1994) 2 SCC 155; Anakapalte Co-operative Agricultural & I11dustrial
G Society Limited v. Workme11, [1963] Supp. 1 SCR 730; National Thennal
  Power Corporation v. Singer Company and Ors., [1922) 3 SCC 551, referred
  to.

          2. Except filing an application under Order 7 Rule 11 CPC for
    rejection of the plaint in the suit filed by OMC, Klockner had not taken
H   any step in the legal proceedings. The application for rejection of the plaint


                                                                                     -
       STATE v. KLOCKNERANDCO. [K. VENKATASWAMI,J.J                     371

could not be construed as any step in the legal proceedings to bar the        A
invocation of Section 3 of the Foreign Awards Act by Klockner. [379-F-G]

      General Electric ·Company v. Renusagar Power Company, [1987) 4
sec 137, relied on.
     3. The High Court had not committed any error in rejecting               B
Klockner's application under Order 7 Rnle 11. [384-C]

      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7386-88
of 1995. Etc. Etc.

      From the Judgment and Order dated 12.5.95 of the Orissa High
                                                                              c
Court in C.R. No. 262/94 and Misc. A. No. 553/94 and Order Dated 16.4.94
of Civil Judge, Bhuhaneswar in Misc. Case No. 426/93.

     B.M. Patnaik, C.S. Vadiyanathan, R.K. Mehta, S. Mohanty, K. V.
Vishwanathan and Shivram, for the appearing parties.                          D
      The Judgment of the Court was delivered by

         K. VENKATASWAMI, J. The above Civil Appeals arise out of an
  Order passed in Misc. Case No. 426/93 in T.S. 152/93 on the file of Civil
  Judge, Bhubaneswar dated 16.4.94 which was later upheld by the Orissa E
. High Court by order dated 12.5.95. Against a single Order of the learned
  Civil Judge. Bhubaneswar in M.C. No. 426/93, the State of Orissa filed one
  Miscellaneous Appeal No. 553/94 and Civil Revision Petition No. 262/94
  before the Orissa High Court on the plea that there was a doubt whether
  an appeal or revision petition would lie against the Order of the Civil Judge F
 in the said Miscellaneous Case. The High Court rendered its decision in
 Civil Revision Petition No. 262/94. However, while moving this Court, the
 State of Orissa not only filed two Special Leave Petitions against the
  common order of the Orissa High Court in Civil Revision and Civil
  Miscellaneous Appeal but also preferred independent Special Leave Peti- G
  lion against the Order of Civil Judge, Bhubaneswar in Miscellaneous Case
  No. 426/93. Likewise, the Orissa Mining Corporation (appellant· in C.A.
  Nos. 7574-76/95 and third respondent before the High Court), has also filed
  three Special Leave Petitions against the common order of the High Court
  and of Civil Judge. After leave was granted, all these Special Leave
  Petitions were numbered as Civil Appeals as mentioned above.                  H
    372                  SUPREME COURT REPORTS (1996] SUPP. 1 S.C.R.

A        Brief facts, shorn of details, necessary for the disposal of these
    Appeals are as under :

           The first respondent herein, namely, Klockner & Company, entered
    into an agreement on 20.4.82 described as "Marketing Agreement" with
    Orissa Mining Corporation (hereinafter referred to as "O.M.C." for short),
B
    a Government of Orissa Undertaking. We are not giving all the clauses in
    the agreement under consideration. The said agreement inter alia stipu-
    lated that O.M.C. will establish a plaint at Bamnipal in the district of
    Keonjhar, Orissa, for production of "charged chrome" (hereinafter called
    as the "product"). It (OMC) agreed to market the said product exclusively
c   through Klockner and Co. upon the terms and conditions contained in the
    said agreement to which Kl.ockner & Co. gave acceptance. The agreement
    stipulated that during the currency of the agreement, O.M.C. shall not be
    entitled to market its product by direct contracts with purchasers nor shall
    it be entitled to market its product through any agent or distributor other
D   than the Kleckner and Co. That during the currency of the agreement, the
    Klockner and Co. shall not be entitled to purchase the product from any
    source in India other than O.M.C. One important clause in the agreement
    is that the delivery of the product shall commence by April 1985 and shall
    continue over a period of five years but it will not come to an end until a
    total quantum of 250,000 MT of the product was delivered. There is also
E   a clause in the agreement enabling the parties to extend the period by
    mutual consent. According to another clause in the agreement, if the
    agreement is terminated by mutual consent or cancelled, then not-
    withstanding the termination/cancellation of the agreement, the parties
    shall remain responsible for the fulfilment of any obligations which are
F   outstanding at the time of termination/cancellation of the agreement. It was
    agreed that OMC will pay to Klockner & Co. A commission on the sale of
    the product effected in the territory in consideration of the services
    rendered by it in terms of the agreement and the commission shall be 4%
    of the final FOB value of the product sold. The said commission shall be
    payable to Klockner & Co. by way of reduction from each invoice. Another
G   important clause for the purpose of disposal of these Appeals is clause 15
    in the agreement which relates to arbitration. It reads as follows :

            "15.1. In the remote and unlikely event of there being any dispute
            or difference whatsoever arising between the parties out of/or
H           relating to the construction, meaning and operation or effect of
      STATE v. KLOCKNERAND CO. [K. VENKATASWAMI,J.j                     373

        this contract or the breach thereof shall be settled in the first place A
        by amicable agreement, failing an agreement all disputes arising
        between OMC and Klockner within the framework of this contract
        are to be referred to the International Chamber of Commerce. The
        place of arbitration shall be London or such other place as is
        mutually agreed upon. The law applicable shall be substantial Swiss B
        Law or any other law mutually agreed upon."

      Subsequent to the original agreement as mentioned above, another
agreement was entered into on 16.2.87 between OMC and Orissa Mining
Corporation (Alloys) Ltd. which is a wholly-owned subsidiary company of
OMC to implement and establish 100% oriented unit al Bamnipal for              C
manufacturing inter alia charge chrome in which it was stipulated that
OMC has already entered into a marketing arrangement with Klockner &
Co. of the Federal Republic of Germany under which OMC is to market
the products of Alloys exclusively through Klockner & Co. and that Alloys
products would be handled through the agency and instrumentality of the       D
OMC on the basis of OM C's agreement with Klockner & Co. and the terms
and conditions of the marketing agreement between OMC and Klockner
& Co. dated 20th April, 1982 will be treated as if OMC (Alloys) replaced
OMC. It is not in dispute that the agreement was acted upon by the parties
and pursuant to that 108.429 MT of charge chrome were delivered leaving
a balance of 141,571 MT of Charge Chrome undelivered as per the                E
agreement.

      In the meanwhile, the Department of Company Affairs of the Govt.
of India ordered merger of Orissa Mining Corporation (Alloys) with the
Orissa Mining Corporation on 30.8.91.
                                                                               F
      Shortly after the merger as mentioned above, the Government of
Orissa (Law Department) promulgated Ordinance 8 of 1991 dated 24.8.91
and the Charge Chrome Division was taken over under the said Ordinance.
The relevant clauses in the Ordinance will be referred to at the relevant
place hereinafter. After the taking over as mentioned above, the Charge       G
Chrome Division was transferred by way of sale to Tata Iron & Steel
Company.

      At this stage, the first respondent (Klockner & Co.) after unsuccess-
ful attempts to negotiate with OMC for fulfilment of the terms of the
agreement, took steps to refer the dispute for arbitration to the Interna- H
     374                  SUPREME COURT REPORTS [1996] SUPP. 1 S.C.R.

 A tional Chamber of Commerce. Invoking clause 15 in the Agreement
            The appellant, State of Orissa, received notice of the arbitration
     proceedings on 3.5.93. Thereafter the appellant filed T.S. No. 152/93 on
     the file of Civil Judge, Bhuhaneswar, seeking the following reliefs :

 B           "(a) Declaration declaring that the plaintiff is not the successor of
             Defendant No. 3 and more particularly is not the successor of
             Defendant No. 3 in the context of the claim of Defendant No. 1
             against Defendant No. 3 before Defendant no. 2 and;

             (b) Declaration declaring that plaintiff is not liable to pay jointly
·c           with Defendant No. 3 or otherwise to Defendant No. 1 U.S. $
             2.949.938.42 with ten percent interest or any part thereof as
             claimed by Defendant No. 1 in its request dated 21.4.93 for
             arbitration to Defendant No. 2 and in its statement of claim
             appended thereto which request for arbitration and claim Defen-
 D           dant No. 1 has got served on the plaintiff through Defendant No.
             2.

             (c) Declaration declaring that plaintiff has got no obligation what-
             soeve~ under document dated 20.4.1982, nomenclatured as
             Marketing Agreement and no obligation whatsoever towards
 E           Defendant No. 1 under the said document

             ( d) Declaration declaring that the aforementioned claim of Defen-
             dant no. 1 against the plaintiff and Defendant No. 3 jointly is not
             a matter agreed either between Defendant No. 1 and Defendant
             No. 3 or between the plaintiff and Defendant No. 1 or amongst
 F           plaintiff, Defendant No. 1 and Defendant No. 3 to be referred to
             arbitration under the said document dated 20.4.1982 nomencla-
             tured as Marketing Agreement or otherwise.

             (e) Permanent injunction injuncting Defendant No. 1 from
             prosecuting the arbitration proceeding, (bearing reference No.
 G
             7878/HV of Defendant No. 2) initiated before Defendant No. 2 by
             Defendant No. 1 in its said request for arbitration dated 21.4.93
             and said statement of claim dated 21.4.93 appended thereto.

             (!) Such other relief/reliefs as this Hon'ble Court may deem fit
 H           and proper in the facts and circumstances of the case."
      STATE v. KLOCKNERAND CO. [K. VENKATASWAMI, J.]                   375

      The respondent herein on coming to know of the suit filed by the        A
appellant moved the Miscellaneous Case No. 426/93 invoking Section 3 of
Foreign Awards (Recognition & Enforcement) Act, 1961 for stay of the
suit.

      The appellant stoutly resisted the application for stay of the ·suit.
                                                                              B
However, the learned Civil Judge on the basis of the-materiai~ placed
before him and also on the basis of the arguments advanced came to the
conclusion that the suit should be stayed under Section 3 of the Foreign
Awards Act.

      Aggrieved by the Order of the learned Civil Judge, the appellant,       c
State of Orissa preferred Miscellaneous Appeal as well as Revision Petition
before the Orissa High Court. The learned Single Judge for the reason
stated in the Order under Appeal observed as follows :

        "9. Testing the case at hand on the touch stone of the principles D
        enunciated in the decided cases discussed above, the position is
        manifest that the parties to the arbitration agreement have decided
        that the place of arbitration shall be London and the law applicable
        shall be substantive Swiss Law. My attention has not been drawn
        to any stipulation in the agreement nor any other material which
        directly or impliedly shows that the intention of the parties was E
        that Indian Law will be applicable to the Arbitration Agreement.
        As noted earlier, Klockner & Co. is a company registered in the
        Federal Republic of Germany and the agreen{ent of 20.4.1982 was
        entered in Germany. It is not the case of the petitioner that the
        award which may be passed in this case is nf>t a foreign award 3S F
        defined in Section 2 of the Foreign Awards Act, but it is a domestic
        award. In that view of the matter there is little scope for doubt
        that the provisions of the Foreign Awards Act, particularly Section
        3 are applicable to the case. As held by the Apex Court in the case
        of Renusagar Power Co. (supra) stay of the suit is mandatory if the G
        conditions specified in Section 3 are fulfilled. The averments in the
        plaint and the objections filed to Section 3 do not make out the
        case that the agreement is null and void, inoperative 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. The
        trial court has specifically held that the circumstances to 'prove H
    376                         SUPREME COURT REPORTS [1996] SUPP. 1 S.C.R.

A            exception under the statutory provision have not been established.
             At the cost of repetition, l may state that it is clear from the
             materials on record that the agreement was acted upon by the
             parties, in pursuance of it contracts were entered between OMC
             Ltd. and OMC Alloys Ltd. with foreign buyers and Klnckner &
             Co. was paid its dues relating to the transactions. In the cir-
B
             cumstances, the learned Trial Judge was right in holding that a
             case for stay of the suit u/s. 3 of the Foreign Awards Act has been
             made out by the opposite party No. l - Defendant. The order is
             therefore unassailable. Thus the cases being devoid of merit are
             disrnissed.   11



c
          Still aggrieved, the appellant, State of Orissa as well the Orissa
    Mining Corporation preferred these Appeals challenging the Order of stay
    of suit under Section 3 of the Foreign Award Act.


           Mr. B.M. Patnaik, Senior Counsel appearing both for the State of
D
    Orissa as well as for Orissa Mining Corporation, though the contentions of
    both parties are not identical and to a certain extent conflicting, strenuously
    contended that the Orders of the trial court and of the High Court,
    granting stay of the suit cannot be sustained in as much as the State which
    has filed the suit was neither a party to the agreement in question nor the
E   State claimed the right through or under the Orissa Mining Corporation
    Ltd. Further, the State being not a party to the agreement is not bound by
    the terms and, therefore, the suit cannot be a stayed. He also put forward
    arguments relating to the merits of tli.e claim put forward by the first
    respondent Klockner & Co. in the arbitration proceedings. In support of
F   his argument, learned senior counsel placed reliance on two decisions of
    this Court reported in Renusagar Power Co. Ltd. v. General Electric Com-
    pany & Anotlw; [1984] 4 SCC 679 and Svenska Handelsbanken & Ors. v.
    Mis. Indian Chaige Chrome Ltd. & Ors., [1994] 2 SCC 155.

          Mr. C.S. Vaidyanatban, learned senior counsel appearing for the first
G   respondent, Klockner & Co. answering the contentions of the learned
    senior counsel for the appellant submitted that it is untenable to contend
    that the State of Orissa has nothing to do with the agreement in question
    having regard to the clauses in the Ordinance under which the Government
    took over Charge Chrome Division from Orissa Mining Corporation and
H   also having regard to the terms under which the charge chrome Division
       STATE v. KLOCKNERAND CO. [K. VENKATASWAMI, J.)                   377

was handed over to Tata Iron & Steel Company. He placed reliance in A
particular on clauses 4,5,7, and 12 in the take over Ordinance. He also
placed reliance on clause 9 of the agreement between State of Orissa and
Tarn Iron & Steel Company to support his contention that State of Orissa
for the purposes stepped into the shoes of Orissa Mining Corporation and,
therefore, the appellant cannot contend that it is not claiming through or
                                                                           B
under Orissa Mining Corporation any rights regarding Charge Chrome
Division. The learned senior counsel also placed reliance on the following
judgments of this Court to sustain the Order of stay granted by the Civil
.Judge and confirmed by the High Court.

Anakapalla Co-operative Agricultural & Industrial Society Limited v.           C
Workmen, [1963] Sup!. 1 SCR 730; National 1hemial Power Corporation v.
Singer Company & Ors., [1992] 3 SCC 551.

       We have considered the rival submissions. From the above narration,
it is obvious that the main thrust of Mr. B.M. Patnaik, Sr. Counsel for the
appellant is that the State of Orissa is not a successor in interest of OMC,   D
in particular, the Charge Chrome Division of OMC, taken over by the
Govt. to appreciate this argument on behalf of the appellant and the
counter-argument advanced on behalf of the first respondent, it is neces-
sary to set out certain relevant clauses in the take over Ordinance, namely,
Ordinance 8 of 1991 dated 24.9.91. Clauses 4(5), 5, 6 and 7 read as follows:   E
        "4(5). If, on the appointed day, any suit, appeal or other proceeding
        of whatever nature in relation to· any property: which has vested
        in the State Government under section 3 or instituted or preferred
        by or against the Charge Chrome Division is pending, the same
        shall~ not abate, be discontinued or be, in any way prejudicially F
        affected by reason of the vesting and transfer of the Charge
        Chrome Division of the Company but the suit appeal or other
        proceeding may be continued or enforced by or against the State
        Government or, where the Charge Chrome Division of the Com-
        pany is vested under section 6 in any other company, by or against G
        the other company.

        5. Every liability of the Charge Chrome Division of the Compan}
        including dues to foreign and Indian Banks shall be the liability of
        the State Government on which the properties of the Charge
        Chrome Division has vested and shall be enforceable against the        H
    378                  SUPREME COURT REPORTS [1996] SUPP. 1 S.C.R.

A           State Government or, where the Charge Chrome Division of the
            Company is directed to vest in any other company, against the
            other company.

            6(1). The Stale Government may, if it is satisfied that any other
            company is willing to comply with such terms and conditions as
B           the Government may think fit to impose direct by notification that
            the Charge Chrome Division of the Company and the right, title
            and interest of the Charge Chrome Division of the Company which
            have vested with the State Government under section 3 shall,
            instead of continuing to vest in the State Government, from the
c           date of publication of the notification of such vesting, vest in the
            other company.

            6(2). Where the right, title and interest of the Charge Chrome
            Division of the Company is vested under sub-section (1) in any
            other company, the other company shall, on and from the date of
D           such vesting, be deemed to have become the owner in relation to
            the Charge Chrome Division and all rights and liabilities of the
            State Government in relation to such Division shall, on and from
            the date of such vesting, be deemed to have become the rights and
            liabilities of the other company.
E
            7. The State Government hereby takes over all the assets of the
            Charge Chrome Division at the depreciated written down value or
            book value as the case may be as on the date of transfer. The State
            Government also hereby takeo over the liabilities of the Charge
            Chrome Division including loans of foreign and Indian Banks on
F           the said date of transfer. The net difference between the value of
            the assets and the liabilities referred to above shall be settled by
            actual payment."

          In this context, Clause 9 of the agreement between the State Govern-
G   ment and Tata Iron & Steel Company, with whom the Charge Chrome
    Division of OMC, taken over by the Government subsequently, came to be
    vested is also relevant to be noted and that reads as follows :

            "9. It is specifically, agreed between the parties that Tata steel shall
            not be bound or governed by any agreement whatsoever entered
H           into or executed by OMC Alloys Ltd., OMC Ltd., or Government,
           STATE v. KLOCKNERAND CO. [K. VENKATASWAMI,J.]                     379

            including marketing agreement in respect of the sold plant which A
            is not agreed to be ratified by Tata Steel. Any claim, action, liability
            in respect of such agreement shall be discharged by Government
            and it shall keep Tata Steel indemnified at all time against such
            claims, actions, loss and liability. 11

          A conjoint reading of the Clauses extracted from the take over            B
    Ordinance and the agreement between the State of Orissa and Tata Iron
    & Steel Co. will clearly show that the State of Orissa is the successor in
    interest of OMC Charge Chrome Division, taken over by the Government
    under Ordinance 8 of 1991. In view of this clear position, it is not possible
    to accept the contention of the learned senior counsel for the appellant        c
    that the State of Orissa has nothing to do with the contract entered into
    between the Kleckner and Co. and OMC in respect of which the former
    has initiated arbitration proceedings invoking Section 3 of Foreign Awards
    Act.

          The other aspect to be considered is whether the requirements of D
    Section 3 of the Foreign Awards Act are satisfied to justify the invocation
    of that provision on the facts of this case.

            In this case, the existence of agreement dated 20.4.82 cannot be
    disputed by OMC or by the appellant. The first respondent (Klockner &
                                                                                  E
     Co.) one of the parties to the agreement has commenced arbitration
    proceedings against the other party is also an undisputed fact. In the light
    to the wide scope of Clause 15 of the agreement between the first respon-
1
    dent and OMC dated 20.4.82 (already extracted) relating to arbitration and
    in view of our finding that the State of Orissa is the successor to OMC, it
;
    is not open to the appellant to contend that the legal proceedings initiated F
    was not in respect of any matter agreed to be referred to arbitration in the
    agreement. Except filing an application under Order 7 Rule 11 CPC for
    rejection of the plaint in the suit filed by OMC, the first respondent has
    not taken any step in the legal proceedings and that application for
    rejection of the plaint cannot be construed as any step in the legal proceed- G
    ings to bar the invocation of Section 3 of the Foreign Awards Act by the
    first respondent Vide General Elec~ic Company v. Renusagar Power Com-
    pany, [1987] 4 sec 137.

          In the absence of any serious challenge to the commercial contract
    or to the arbitration agreement, it has to be found that the agreement was H
    380                  SUPREME COURT REPORTS (1996] SUPJ>. l S.C.R.

A valid, operaiive and can be of being performed and that there are disputes
    between the parties with regard to the matters agreed to be referred to.

         In General Electiic Company's case (supra) this Court had occasion
    to consider the scope of Section 3 of the Foreign Awards Act and it
    observed as follows :
B
            "It may be straightaway noticed that while Section 34 of the Indian
            Arbitration Act vests in the court the discretion to stay or not to
            stay the proceedings, Section 3 of the Foreign Awards (Recogni-
            tion and Enforcement) Act vests no such discretion in the Court.
c           Under the Foreign Awards (Recognition and Enforcement) Act it
            is mandatory that the proceedings should be stayed if the condi-
            tions prescribed are fulfilled. But the application of the defendant
            to the Court, be it under Section 34 of the Indian Arbitration Act
            or Section 3 of the Foreign Awards (Recognition and Enforce-
            ment) Act, may be filed before filing a written statement or talcing
D           any other step in the proceedings. It is competent then only and
            not thereafter."

          In Renusagar Power Co. Ltd. v. General Electiic Co., (1984] 4 SCC
    679 the Court held as follows :
E
            "On a plain reading of the section as it now stands two things
            become very clear. In the first place the section opens with a non
            obstante clause giving overriding effect to the provision contained
            therein and making it prevail over anything to the contrary con-
            tained in the Arbitration Act, 1940 or the Code of Civil Procedure,
F           1908. Secondly, unlike Section 34 of the Arbitration Act which
            confers a discretion upon ihe court; the section uses the mandatory
            expression "shall" and makes it obligatory upon the court to pass
            the order staying the legal proceedings commenced by a party to
            the agreement if the conditions specified therein are fulfilled. The
            conditions requirr.d to be fulfilled for invoking Section 3 are :
G
            (i) there must be an agreement to which Article II of the Conven-
            tion set forth in the Schedule applies. (It is not disputed that this
            is so in the instant case);

H           (ii) a party to that agreement must commence legal proceedings
      ·STATE v. KLOCKNERAND CO. [K. VENKATASWAMI,J.]                     ~81


        against another party thereto. (It is again not disputed that           A
        Renusagar and G.E.C. are the two parties to the arbitration agree-
        ment and that Renusagar has commenced legal proceedings
        against G.E.C. by filing Suit 832 of 1982);

        (iii) the legal proceedings must be "in respect of any matter agreed
        to be referred to""arbitration" in such agreement. (The question        B
        whether this condition is fulfilled here needs to be decided);

        (iv) the application for stay must be made before filing the written
        statement or taking any other step in the legal proceedings. (Ad-
        mittedly this condition is fulfilled);                                  c
        (v) the Court has to be oatisfied that the agreement is valid,
        operative and capable of being performed; this relates to the
        satisfaction about the "existence and validity" of the arbitration
        agreement. (In the instant case these questions do not arise);
                                                                                D
        (vi) the Court has to be satisfied that there are disputes between
        the parties with regard to the matters agreed to be referred; this
        relates to effect (scope) of the arbitration agreement touching the
        issue of arbitrability of the claims."

       We have already found that on a conjoint reading of relevant clauses
                                                                                E
in the takeover Ordinance, the agreement between the State Of Orissa and
Tata Iron & Steel. Company and the marketing agreement dated 20.4.82,
the requirements of Section 3 of Foreign. Awards Act have been satisfied.
We, therefore, find that the test laid down by this Court in Renusagar's case
(supra) for invoking Section 3 of the Foreign Awards Act is satisfied and       F
the High Court was, therefore, justified in confirming the stay granted by
                                                               1
the trial court.

       As observed earlier, the main thrust of the learned counsel for the
appellant was to challenge the finding of the High Court that State of G
Orissa was the successor in interest to OMC Charge Chrome Division. The
connected arguments relate to dispute~ of differences that would arise
between the parties in the arbitration proceedings concerning the construc-
tions, meaning etc. of the contract. These connected arguments need not
he gone into in these proceedings and those arguments are to be ac\dressed
before the appropriate forum. Once it is found that the 'first respondent H
    382                   SUPREME COURT REPORTS (1996] SUPP. 1 S.C.R.

A has established a case for invoking Section 3 of Foreign Awards Act, all
    other disputes will have to be addressed and settled in appropriate forum.
    The limited issue before us is with reference to the legality and validity of
    invoking Section 3 of the-Foreign Awards Act which we have found in
    favour of the first respondent.

B          Now coming to Special Leave Petition (C) No. 19846/95, this petition
    is filed against the judgment and order of the High Court of Orissa at
    Cuttack in F;rst Appeal No. 14/95 dated 12.5.95. By the Order under
    appeal, the High Court has reversed the Order of the learned Subordinate
    Judge, Bhubaneswar dated 26.3.94, by which the learned Subordinate
C   Judge accepting an application filed under Order 7 Rule 11 C.P.C.,
    rejected the plaint in title suit No. 231/92 filed by the first respondent in
    Special Leave Petition. The learned Single Judge of the High Court while
    reversing the Order of the learned Subordinate Judge observed as follows:


D              ."In the present case on a fair reading of the petition filed by
            defendant No. 1 under Order 7, Rule 11 of C.P.C. it is clear that
            the case of the applicant is that the plaintiff has no cause of action
            to file the suit. It is not specifically pleaded by the applicant that
            the plaint does not disclose any cause of action. The learned trial
            Judge has also not recorded any specific finding to this effect. From
E           the discussions in the Order it appears that the learned trial Judge
            has not maintained the distinction between the plea that there was
            no cause of action for the suit and the plea that plaint does not
            disclose a cause of action. No specific reason or ground is stated
            in the order in support of the finding that the plaint is to be rejected
F           under Order 7, Rule ll(a). From the averments in the plaint, it is
            clear that the plaintiff has pleaded a cause of action for filing the
            suit seeking the reliefs stated in it. That is not to say that the
            plaintiff has cause of action to file the suit for the reliefs sought
            that question is to be determined on the basis of materials (other
            than the plaint) which may be produced by the parties at ap-
G           propriate stage in the suit. For the limited purpose of determining
            the question whether the suit is to be wiped out under Order 7,
            Rule 11(1) or not the averments in the plaint are only to be looked
            into. The position noted above is also clear from the petition filed
            by defendant No. 1 under Order 7, Rule 11 in which the thrust of
H           the case pleaded is that on the stipulations in the agreement of
STATE v. KLOCKNER AND CO. [K. VENKATASWAMI, J.]                     383

 20.4.82 the plaintiff is not entitled to file a suit seeking any of the   A
 reliefs stated in the plaint.

 10. Coming to the question whether the plaint is to be rejected
 under clause (d) of rule 11 of order 7, the Supreme Court in the
 case of Orient Transport Co. (supra) has clearly laid down that
                                                                       B
 there is a distinction between a case in which the validity, effect
 and existence of the arbitration agreement is challenged and suit
 in which the validity of the contract which contains an arbitration
 clause is challenged. The bar to suit under section 32 of the
 Arbitration Act extends to a case where the existence, effect or
 validity of an arbitration agreement is challenged and not to the         c
 latter type of the suit. On this question too the learned trial Judge
 has failed to maintain the distinction between the two types of
 cases. He had failed to notice that the case pleaded by the plaintiff
 is that the entire agreement including the arbitration clause is null
 and void and unenforceable and not that the arbitration agreement D
 is null and void.

 11. From the lower court record in the case and also the records
 in a similar suit filed by the State of Orissa, Title Suit No. 152 of
 1993 in which OMC Ltd. is a defendant, it appears that in both
 the cases the defendant No. 1 - Klockner & Co. filed applications E
 under Section 3 of the Foreign Awards (Recognition and Enfor-
 cement) Act, 1961. Such application presupposes that the ap-
 plicant accepts the position that the said Act applies to the case
 and the Arbitration Act, 1940 has no application to the case. Under
 the Foreign Awards Act, there is no specific provision for bar of F
 suit. Further, from the avennents in the application filed under
 Order 7, Ruic 11 of C.P.C. it is clear that the main case pleaded
 by the applicant was that the parties had agreed that the Swiss
 Law will be applicable to the contract as well as the arbitration
 agreement and the venue of arbitration will be at London and, G
 therefore, the Indian Law in general and the Arbitration Act in
 particular have no application to the case. Alternatively the ap-
 plicant has pleaded that even assuming that the Indian Law of
 Arbitration applies to the case then the suit is barred under section
 32 of the Act. The learned trial Judge does not appear to have
 considered the main case pleaded by the applicant but disposed H
    384                  SUPREME COURT REPORTS [1996] SUPP. l S.C.R.

A           of the petition on consideration of the alternative case pleaded by
            it. Therefore this finding against bar of the suit under Order 7,
            Rule ll( d) is also vitiated.

            12. On the analysis and discussion in the foregoing paragraphs, it
            is my considered view that the order passed by the learned trial
B

                                                                                  -
            Judge rejecting the plaint under Order 7, Rule ll(a) and (d) of
            C.P.C. is unsustainable and has to be set aside. Accordingly the
            appeal is allowed and the order dated 26.3.1994 of the Civil Judge
            (Senior Division) Bhubaneswar in Misc. Case No. 75 of 1993 is set
            aside. There \vill be no order for costs of this Court."
c         After hearing the learned counsel on both sides and after carefully
    perusing the relevant pleadings, we do not think that the High Court has
    committed any error in rejecting the application of the appellant under
    Order 7 Rule 11. We accept the view taken by the High Court and
    consequently find no case for interference.
D
          In the result all the Civil Appeals are dismissed with costs and
    Special Leave petition is dismissed without costs.

    S.M.                                                   Appeals dismissed.