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Arthur and Co. Vs. Shamji Kalidas and Co. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtMumbai High Court
Decided On
Case NumberAppeal No. 15 of 1968
Judge
Reported inAIR1972Bom345; (1972)74BOMLR280
ActsArbitration Act, 1940 - Sections 2
AppellantArthur and Co.
RespondentShamji Kalidas and Co.
Appellant AdvocateJ.C. Bhatt, Adv. and ;R.J. Bhatt, Adv., i/b., Mulla & Mulla and Craigie Blunt and Caroe, Attorneys
Respondent AdvocateAshok H. Desai, Adv., i/b., Amarchand & Mangaldas and Malvi Ranchhoddas and Co., Attorneys
Excerpt:
east india cotton association ltd. bye-law 38(a) -- arbitration act (x of 1940), section 2 (a) -- cotton contract between parties not members of association -- contract subject to bye-laws of association -- whether any clause of bye-law 38(a) applicable to contract.;whenever a contract or an agreement states that it is subject to the bye-laws of the east india cotton association ltd. or that it is subject to the east india cotton association arbitration or contains words or abbreviations to the similar effect, all the bye-laws of the association relating to arbitration would get incorporated in the contract or agreement as if they had been bodily or verbatim copied out therein. if that contract or agreement is a written contract, a written agreement of arbitration as defined in clause (a)..........firstly, that the said contract was a valid contract; secondly, that the said contract was a 'cotton contract'; thirdly, that the said disputes between the parties arose out of and were in relation to the said cotton contract; fourthly, that the bye-laws of the e. i. c. a. ltd. got incorporated into the said contract; and fifthly, that both the appellants and the respondents were not members of the e. i. c. a. ltd. therefore the only dispute which remained for determination was the appellants' contention that there was no arbitration agreement between the parties contained in the said contract dated 9th december 1964. the learned judge, therefore, raised only one issue, namely:'whether there is any arbitration agreement between the petitioners and the respondents contained in the.....
Judgment:

Mody, J.

1. This is an appeal against the Judgment and Order of Madon, J. dated 26th February 1968 granting the respondents' application and directing that the Contract dated 9th December 1964 between the appellants and the respondents be filed in Court under Section 20 of the Arbitration Act, 1940 and that all disputes arising between the parties, including the claim of the respondents against the appellants under and in respect of the said contract be referred to arbitration according to the bye-laws of the East India Cotton Association Ltd. so that the necessary steps under the said bye-laws may be taken to have the said disputes settled by arbitration as provided by the said bye-laws, the East India Cotton Association Ltd. is hereinafter referred to as 'E. I. C.A. Ltd.'.

2.By that Contract the respondents agreed to sell to the appellants and the appellant agreed to buy from the respondents 200 bales if Egyptian cotton to be shipped during January / February 1965 on certain terms and conditions contained in that Contract. One of the terms of the Contract provides :-

'This contract is subject to the bye-laws of the East India Cotton Association Ltd., Bombay .......'

3.The respondents thereafter contended that the appellants committed certain defaults and a breach of the Contract and claimed on that basis a certain amount from the appellants. Thereafter the respondents claimed that the disputes between the parties be referred to arbitration in accordance with the bye-laws of the E.I.C.A. Ltd. The appellants contended that there was no agreement between the parties providing any express term for a reference of those disputes to arbitration. They further contended that although the said term in the Contract made it subject to the bye-laws of the E.I.C.A. Ltd. there was no provision in the bye-laws providing for arbitration which was applicable to the said disputes between the parties as both the appellants and the respondents were not members of the E.I.C.A. Ltd. The respondents thereupon filed an application by way of a Petition, which was numbered as a suit, being Arbitration Suit No. 224 of 1966. In defence, the appellant raised various contentions. At the hearing before Madon. J., however, the appellants gave up all their contentions except one. The appellants conceded, firstly, that the said Contract was a valid contract; secondly, that the said Contract was a 'cotton contract'; thirdly, that the said disputes between the parties arose out of and were in relation to the said Cotton Contract; fourthly, that the bye-laws of the E. I. C. A. Ltd. got incorporated into the said Contract; and fifthly, that both the appellants and the respondents were not members of the E. I. C. A. Ltd. Therefore the only dispute which remained for determination was the appellants' contention that there was no Arbitration Agreement between the parties contained in the said Contract dated 9th December 1964. The learned Judge, therefore, raised only one issue, namely:

'Whether there is any arbitration agreement between the Petitioners and the Respondents contained in the contract between them dated 9th December 1964 as alleged by the Petitioners in para 7 of the Petition'.

The learned Judge negatived the appellants' contention and answered the said issue in the affirmative. The appellants have therefore filed this appeal.

4.There is no dispute that the bye-laws of the E. I. C. A. Ltd. have become incorporated into the said Contract. The appellants' contention, however, is that only such bye-laws as are capable of applying to the said Contract and the disputes between the parties can apply. There is no dispute that there are several provisions in the bye-laws which provide for arbitration. The only dispute is whether any of such provisions about arbitration is applicable to the present case.

5.Bye-law 36 provides for Arbitration's and Appeals in disputes as to quality. Its provisions are not relevant in this case except for understanding and interpreting the provisions of bye-law 38, the provisions of which related to Arbitration and are in dispute between the parties. Bye-law 38 contains Cls. (A) to (G). Only the provisions of clause (A) are relevant, the other Clauses being only to provide the machinery for Arbitration. Clause (A) provides:

'38. (A) All unpaid claims whether admitted or not, and all disputes, and difference (other than those relating to quality) arising out of or in relation to -

(a) cotton transactions between members including any dispute as to the existence of such transaction; or

(b) cotton contracts (whether forward or ready and whether between members or between a member and a non-member) made subject to these bye-laws or subject to E. I. C.A. arbitration or containing words or abbreviations to a similar effect including any dispute as to the existence of such transaction provided in writing before entering into business relation that any dispute arising between them out of that agreement or any such transactions that may be entered into including any dispute as to existence of such transaction shall be referred to arbitration under the bye-laws of the Association; or

(c) the rights and / or responsibilities or commission agents, muccadums and brokers not parties to such transaction or contracts; or

(d) commission agency agreement entered into subject to these by-laws or subject to E. I. C. A. arbitration or containing words or abbreviations to a similar effect; or

(e) cotton contracts covered by any such arbitration agreement,

shall be referred to the arbitration of two disinterested persons, one to be chosen by each party from amongst the members, or their authorised or nominated representatives for the purpose of determination, settlement and adjustment of disputes or differences in respect of cotton transactions refereed to above. The arbitrators shall have power to appoint an umpire and shall do so if and when they differ as to their award'.

The portion appearing in clause (A) after what is reproduced above not being relevant to this case has not been reproduced above.

6. According to the appellants, none of the five sub-clauses (a) to (e) apply to the present case. According to the respondents, the present case falls under sub-clause (e). The composition of bye-law 38-A, to the extent reproduced above, is that in the beginning there appear certain words, hereinafter referred to as 'the opening portion', then follow the five sub-clauses (a) to (e) and then follow certain other words reproduced above which are hereinafter referred to as 'the concluding portion'. In the opening portion occur the words '(other than those relating to quality)'. These words appearing within brackets have obviously been used to make the field of operation of bye-laws 36 and 38-(A) mutually exclusive. These words make Bye-law 38-(A) not applicable to claims, disputes and differences relating quality. These words which appear within brackets will, therefore be ignored when we proceed to consider the other provisions of Bye-law 38(A) as they are not relevant to that purpose. Each pair of sub-clauses (a) and (b), (b) and (c), (c) and (d) and (d) and (e) have between them the word 'or'. The result is that the opening portion and the concluding portion must be read, as it were, with each of the five sub-clauses (a) to (e) between them, or, in other words, as if bye-law 38-A, consists of five sub-clauses. A mere reading of sub-clauses (a) to (e), however, shows that their wording makes them inter-connected or inter-dependent for the purposes of their construction and that aspect cannot be lost sight of. The concluding portion contains the operative provisions of clause (A), the provision requiring a reference to arbitration. Therefore, the opening portion read with any of the five sub-clauses whenever any of the five sub-clauses applies and then read with the concluding portion amounts to an arbitration agreement. It is, therefore, clear that whenever a Contract or an Agreement states that it is subject to the bye-laws of the E.I.C.A. Ltd. or that it is subject to the E. I.C.A. arbitration or contains words or abbreviations to the similar effect, all the bye-laws of the E. I. C. A. Ltd. relating to arbitration would get incorporated in the Contract or Agreement as if they had been bodily or verbatim copied out therein. If that contract or agreement is a written contract, a written agreement of arbitration as defined in clause (a) of Section 2 of the Arbitration Act, 1940, would result, provided any of the five sub-clauses is applicable.

7. The said Contract dated 9th December 1964 contains the said clause : 'This contract is subject to the bye-laws of the East India Cotton Association Ltd., Bombay'. These words incorporate the bye-laws of E. I. C. A. Ltd. within it by reference. but, of course to the extent that they are applicable to the said contract. If, therefore, any of the said five sub-clauses applies, there would be a written arbitration agreement between the parties. The only point of inquiry in this case therefore, is whether any of the said five sub-clauses applies in the present case. That, in turn, involves construing the said five sub-clauses. The real dispute between the parties centres round the construction of the said five sub-clauses in general and sub-clause (e) in particular.

8.The words 'cotton transactions' and 'cotton contracts' occur in some of the said five sub-clauses. The word 'cotton' is common. But why 'transaction' in one and 'contract' in the other Normally, it must be presumed that they vary in their connotation, or, in other words, their meaning is not identical. As we will presently show, it appears that 'cotton transaction' has been used in the sense of a business transaction in relation to cotton as, for example, sale or purchase, whereas 'cotton contract' means such a cotton transaction with an additional term therein containing a 'contract' that is, an agreement for arbitration. The expression used in sub-clause (a) is 'between members'. Sub-clause(a) will, therefore, apply only when both the parties to the 'cotton transaction' are members, that is, members of the E.I.C.A. Ltd. It will not apply when one party or both the parties are non-members. Sub-clause (a) has to be read in the background of the fact, firstly that E. I.C. A. Ltd. is a company incorporated under the Indian Companies Act 1913; secondly that it has Articles of Association; thirdly, that such Articles of Association constitute a contract between its members inter se fourthly, that by the process by which every person become a member of the E. I. C. A. Ltd. the Articles of Association would constitute a written agreement between the members of the E. I. C. A. Ltd. and fifthly, that there would be such a written agreement between the members in view of and to the extent mentioned in Art. 103 of the Articles of Association which provides:

'Whenever any dispute or difference arises between members inter se out of or in relation to any contract or transactions in cotton (including unpaid claims, whether admitted or not and including any dispute or difference as to the existence, validity or otherwise of such contract or transaction) the same shall be referred to arbitration in such manner as shall be prescribed by the by-laws. And it is hereby expressly declared that this shall be deemed to be an agreement of arbitration, and the holding of such an arbitration and the obtaining of an award thereunder shall be a condition precedent to the right of any member in respect of such dispute or difference as aforesaid, and no member shall have any right of action against any other member except to enforce the award in any such arbitration.

As sub-clause (a) applies only to members and as there would be an arbitration agreement as contained in Art. 103, there would be no necessity to provide for a further agreement of arbitration and it is because of this reason that sub-clause (a) uses the words 'cotton transaction' and not 'cotton contract'. The language of Art. 103 is wide enough to include even disputes relating to the very existence of such a transaction.

9. Sub-clause (b) applies to 'cotton contracts' not only between a member and a member, but also between a member and a non member. As regards a non-member, there must be not only a 'cotton transaction', but there must also be an arbitration agreement. It is because of that reason that the expression 'cotton contract' has been used in sub-clause (b). But the languages of sub-clause (b) discloses an intention that there should be a provision for arbitration even as regards 'any dispute as to the existence of such transaction', which intention is disclosed by the words 'including any dispute as to the existence of such transaction'. If, however, an arbitration agreement is contained in a Cotton Contract, but the existence of the transaction itself is disputed, the whole Contract, including even the term therein for arbitration, would be in dispute and in such a case the dispute as to the existence of such transaction would not be referable to arbitration. It is in order to get over that difficulty that sub-clause (b) further provides 'provided in the latter case the parties had agreed in writing before entering into business relation that any dispute arising between them out of that agreement or any such transactions that may be entered into including any dispute as to the existence of such transaction shall be referred to arbitration under the by-laws of the association'. This is clear because the above proviso is made applicable only 'in the latter case' that is, in the case of a dispute as to the existence of such transaction. What the Proviso requires is that there must be an agreement in writing, that such agreement in writing must be 'before' that is, prior to entering into the 'business relation and that such agreement should be' that any dispute arising between them out of that agreement or any such transactions that may be entered into including any dispute as to the existence of such arbitration shall be referred to arbitration under the by-laws of the association'. The comparatively short provision contained in sub-clause (b) presents many difficulties in its construction and in ascertaining the reasons for the actual language used. The words 'Cotton Contract' have been used in sub-clause (b) in contradistinction to 'Cotton Transaction' used in sub-clause (a). It is not difficult to ascertain the reason for this change. Under sub-clause (a) both the parties would be members and both would be governed by Art. 103. But under sub-clause (b) one party can be a non-member to whom Art. 103 would not apply and hence the words 'Cotton Contract' have been used requiring not merely a cotton transaction but also, in addition, an agreement about arbitration. But what cannot be understood is why is sub-clause (b) made again applicable 'between members' when there was no necessity to do so as all such disputes arising between members would fall within sub-clause (a). Similarly, it is difficult to comprehend why the words used in the earlier part of sub-clause (b) are 'subject to the by-laws or subject to E. I. C. A. arbitration', but in the later part the only words used are : 'under the by-laws of the association', although we feel that the context required all the said words used in the earlier part could have appropriately been repeated in the latter part. Further, the Proviso in sub-clause (b) requires the agreement in writing to be 'before entering into business relation'. Why is the scope of the agreement in writing restricted by the use of the word 'before'? Such an agreement in writing would, for the purposes contemplated by the Proviso, be equally effective if such an agreement is even simultaneous or subsequent to the 'Cotton transaction'. Now the words 'such transaction' have been used in sub-clause (b) three times. Before the words 'such transaction' occur in sub-clause (b) for the first time the word 'transaction' does not at all occur in sub-clause (b). The words used earlier are : 'Cotton Contracts'. The fact that the words 'such contracts' have not been used but the words 'such transaction' have been used indicates that a distinction has been made between 'cotton contracts' and 'cotton transaction'. The only distinction appears to be as stated earlier, that 'cotton contracts' are 'cotton transaction' with an added term containing an arbitration agreement and it is because of such distinction that sub-clause (b) later specifically provides for an arbitration agreement. If the distinction we have made is correct, 'such transaction' refers not to any 'transaction' referred to earlier in sub-clause (b) itself - because none has been so mentioned - but to a 'transaction' which has been mentioned as 'cotton transactions' in sub-clause (a). It is possible to so construe it because although sub-clauses (a) and (b) are separately numbered, the word used between them is 'or' and there is a semicolon at the end of sub-clause (a) and therefore sub-clauses (a) and (b) form part of the same sentence. The use of the word 'such' in sub-clause (e) is a matter of great controversy before us because it is sub-clause (e) which the respondents strongly canvass for. It cannot go unnoticed that at the end of each of the said sub-clauses (a), (b), (c) and (d) there is a semicolon, followed by the word 'or' and therefore all the five sub-clauses are parts of the same sentence. The above discussion about the word 'such' used in sub-clause (d) yields an important principle of construction, it being that 'such' can refer not to that which is used in the same sub-clause in which it is used, but that it can refer to that which may have been used in an earlier sub-clauses of Clause (A).

10. Sub-clause (c) also uses the word 'such' in connection with 'contracts or transactions'. Neither the word 'contracts' nor the word 'transactions' has been used in sub-clause (c) itself, but they have been used in the earlier sub-clauses (a) and (b) and on the basis of the above principle, the word 'such' in sub-clause (c) must be construed to refer to 'transaction' and 'contracts' used in sub-clauses (a) and (b) respectively.

11. Sub-Clause (d) contains the words 'subject to these by-laws or subject to E. I. C. A. arbitration or containing words or abbreviations to a similar effect'. These words are identical to those used in the earlier part of sub-clause (b).

12. Now, turn to sub-clause (e), its short provision is 'Cotton contract' covered by any such arbitration agreement. 'Cotton contracts' has been used in sub-clause (b) and 'such contracts' in sub-clause (c). As already stated, for the purposes of clause (A) there appears to be a distinction between 'cotton transactions' and 'cotton contracts', the latter being a cotton transaction with the additional element of an agreement for arbitration. Then occur the words 'any such arbitration agreement'. Here the word 'such' means of the nature mentioned earlier in sub-clause(a). The word 'such' is merely descriptive and the inquiry therefore would be whether any provision of the nature of an arbitration agreement finds a place in any of the earlier sub-cls. (a) to (d). It is not necessary that the words 'arbitration agreement' should have been specifically used and even a provision of the nature of an arbitration agreement without the use of the specific words 'arbitration agreement' would suffice. A provision in the nature of an arbitration agreement finds a place in the earlier part of sub-clause (b) and in sub-clause (d) and is contained at each of these two places in the words or abbreviations to a similar effect'. But the words in sub-clause (e) are 'covered by any such arbitration agreement'. The effect of the words 'covered' will be considered a little later. But the words are 'any such arbitration agreement' and not 'such arbitration agreement'. The use of the word 'any' tends to indicate that 'arbitration agreements' of more than one nature find mention in the earlier sub-cls. (a) to (d) that an examination of these four sub-clauses shows that it is in fact so. Sub-clause (b) refers to an 'arbitration agreement' at two places: firstly, in its earlier part and, secondly, in its later part in the Proviso. The arbitration agreement referred to in the earlier part is an arbitration agreement in the Cotton Contract itself, whereas that in the Proviso is an arbitration agreement in writing and entered into before entering into business relation of the nature mentioned in that Proviso, that is, an arbitration under the by-laws of the Association, i.e. E. I. C. A. Ltd. The contents of both are the same, the difference being only as to whether such arbitration agreement is simultaneous, that is , contemporaneous with the business transaction or whether it precedes the business transaction. As all the five sub-clauses form part of but one sentence - the sentence embracing the opening portion, the five sub-clauses and the concluding portion - even grammatically 'such arbitration' need not be read as referring only to the contents of sub-clause (d) which immediately precedes sub-clause (e) but should be read as referring to the contents of all the preceding four sub-clauses (a) to (d) to the extent they contain an arbitration agreement. In our opinion, 'cotton contracts covered by any such arbitration agreement' means the cotton contracts to which any such arbitration agreement applies. The word 'covered' has been used to achieve the object that the arbitration agreement should embrace not only claim, disputes and differences arising in the performance of the business contract, but should also embrace those relating to the very existence of the contract itself. Another feature of the wording of sub-clause (e) is that it does not use words like 'between members' or 'between a member and a non-member' or any other similar descriptive words about the parties to the 'cotton contract'. Sub-clause (e) is, therefore, in that sense wider and can apply even when both the parties to the 'cotton contract' are non-members as in the case before us.

13. In the case before us the said Contract dated 9th December 1964 between the parties to this Appeal was a 'Cotton Contract'. Because of the said term incorporated therein that the contract was 'subject to the bye-laws of the East India Cotton Association Ltd. Bombay' all the bye-laws became incorporated into that contract, including bye-law 38-A. The words in the concluding portion of clause (A) of Bye-law 38 amount to an arbitration agreement. The nature of that agreement was, by reason of the words therein 'subject to the bye-laws of the East India Cotton Association Ltd. Bombay' and the words of the concluding portion incorporated therein, that of an arbitration agreement mentioned expressly in the first part of sub-clause (b) and by reference in sub-clause (c). Therefore the said contract dated 9th December 1964 was 'Covered by............... such arbitration agreement' and fell within sub-clause (e). It must therefore be concluded that there existed a valid arbitration agreement between the parties. Mr. Bhatt, the learned Counsel for the appellants, did not dispute that if any of the said five sub-clauses (a) to (e) were held to be applicable in the present case, there would result an arbitration agreement between the parties which would cover the said disputes between the parties arising under the said contract dated 9th December 1964.

14. Mr. Bhatt had contended that the authority which made the bye-laws of the E. I.C. A. Ltd. could not legislate, nor can it be presumed to have legislated by making those bye-laws in respect of non-members. In our opinion, the very approach underlying this contention is misconceived. The authority that made the bye-laws did not, by the bye-laws themselves, provide for arbitration in respect of any non-member. In the present case the parties, though they both are non-members have by their own voluntary act of making their contract subject to the bye-laws of the E. I. C. A. Ltd. incorporated Bye-law 38-A into their Contract and thereby agreed to an arbitration agreement. It is by reason of such voluntary act of the two parties, and not by any independent force of the bye-laws that the agreement has come into being and become binding on the parties.

15. Mr. Bhatt had also contended that, in order to attract the provisions of clause (A) of Bye-law 38, it is not enough that the said parties should have stated in their said Contract dated 9th December 1964 that it was 'subject to the by-laws of the East India Cotton Association Ltd. Bombay' but that, in order to attract the provisions of Clause (A) of Bye-law 38, the parties should have stated specifically and in express words that the said Contract was 'subject to the arbitration agreement as contained in Clause (A) of By-law 38 of the E.I.C.A. Ltd.'. The contention of Mr. Bhatt misses the force and effect of the operative words containing an agreement for arbitration to be found in the concluding portion of clause (A) of By-law 38. These operative words are to be read as having been incorporated by reference into the said Contract dated 9th December 1964. So read, the said Contract dated 9th December 1964 contains within it an Arbitration Agreement. The principles about the contents of a document being incorporated into another document by reference to the former are so well settled and well established as not to need even a reference being made to any authorities or text-books enunciating them. When the contents of the operative words contained in the concluding portion clause (A) of By-law 38 are read into the said Contract dated 9th December 1964, the said Contract would contain words identical to those what Mr. Bhatt contended should specifically and expressly have been used in the said Contract dated 9th December 1964.

16. The said Contract dated 9th December 1964 is in writing and so also are the provisions of clause (A) of bye-law 38 which are to be read into it. There was, therefore, in existence between the parties a written Arbitration Agreement as contemplated by clause (a) of S. 2 of the Arbitration Act, 1940, and it was a valid agreement. We, therefore, confirm the Judgment and Order of Madon, J. and dismiss the appeal with costs.

17. Appeal dismissed.


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