Skip to content


Mohanlal Chhaganlal Shah Vs. Bissesarlal Chirawalla and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtMumbai
Decided On
Reported inAIR1947Bom268
AppellantMohanlal Chhaganlal Shah
RespondentBissesarlal Chirawalla and ors.
Excerpt:
.....to the secretary of the association, there came into existence an agreement to be bound by the rules as to arbitration contained in the rules and regulations of the association. having regard to this reasoning, it is clear that when the plaintiff as well as the defendants though at different dates applied to be enrolled as members of the bombay bullion exchange, ltd. this position has been further extended by decisions like (1915) 1 ch. it is only necessary in law that the agreement which is held by the court to have been arrived at between the parties should be in writing, and i am satisfied that under the circumstances as they obtain before me, the agreement between the parties was a written agreement by reason of their having appended their signatures to the application forms,..........to act and follow the current rules and regulations and those made in the future also, including rules about arbitration, and that under rule 50, clause (1), of the rules and regulations of the constitution of the association and also under rule 50 of the trading rules of the association, whatever differences arose between the parties in connection with transactions inter alia in gold were to be referred for decision to arbitrators mentioned in the panel of arbitrators nominated by the association; the defendants therefore say that the disputes which have arisen between the plaintiff and the defendants and which are the subject-matter of the suit having thus been agreed to be referred to arbitration, the proceedings in this suit should be stayed.6. the plaintiff opposes this.....
Judgment:

Bhagwati, J.

1. The plaintiff and the defendants two merchants and members of the Bombay Bullion Exchange, Ltd.

2. There were transactions between the plaintiff and the defendants for purchase and sale of gold in the month or September 1944, which transactions were subject to the rules and regulations of the Bombay Bullion Exchange, Ltd. According to the plaintiff there were sales of 1000 tolas of gold effected on the respective dates, September 13, 1944, September 14, 1944, and September 16, 1944. These transactions are admitted by the defendants. There were also transactions for the purchase of 500 tolas of gold on September 16,1944, which again are admitted by the defendants. The defendants, however, contend that there were two transactions for purchase of 500 tolas of gold by the plaintiff from the defendants effected on September 15, 1944, which transactions are disputed by the plaintiff. On this state of affairs the plaintiff contends that as against the transactions for the sale of 1000 tolas of gold, there were only transactions for the purchase of the 500 tolas of gold by him, with the result that on the due date for these transactions of sale there were outstanding transactions of 500 tolas of gold in respect of which, the defendants on a delivery order in that behalf being tendered by the plaintiff to them were bound to take delivery of the same. The plaintiff accordingly on the due date tendered to the defendants the delivery order in respect of 500 tolas of gold, and on the defendants committing a breach of their part of the said contracts, the plaintiff sold the delivery order in respect of these 500 tolas of gold in the market and claimed the deficit arising on such sale. The suit has been filed to recover this sum from the defendants.

3. The defendants, on the other hand, contend that as a result of the two transactions of the purchase by the plaintiff from them of 250 tolas each of gold effected on 15-9-1944, all the said sale transactions of 1000 tolas of gold were squared and on the due date there was no transaction outstanding which could be the subject-matter of the issue of any delivery order by the plaintiff.

4. As I have already stated, all the transactions between the plaintiff and the defendants were subject to the rules and regulations of the Bombay Bullion Exchange, Ltd. The defendants have taken out this notice of motion for a stay of the suit and all proceedings herein on the ground that under the rules and regulations of the Bombay Bullion Exchange, Ltd., there is a term for submission of all disputes arising between the parties to arbitration, that they the defendants were ready and willing at all material times to submit the disputes between the plaintiff and the defendants to arbitration, and that therefore this suit should be stayed.

5. In support of this application the defendants have placed reliance on the fact that the plaintiff and the defendants are members of the Bombay Bullion Exchange, Ltd., that at the time when the plaintiff as well as the defendants applied to the Bombay Bullion Exchange, Ltd., for being enrolled as members of the association, they signed applications by which they agreed to bind themselves to act and follow the current rules and regulations and those made in the future also, including rules about arbitration, and that under Rule 50, Clause (1), of the Rules and Regulations of the constitution of the association and also under Rule 50 of the trading rules of the association, whatever differences arose between the parties in connection with transactions inter alia in gold were to be referred for decision to arbitrators mentioned in the panel of arbitrators nominated by the association; the defendants therefore say that the disputes which have arisen between the plaintiff and the defendants and which are the subject-matter of the suit having thus been agreed to be referred to arbitration, the proceedings in this suit should be stayed.

6. The plaintiff opposes this application on two grounds: (1) that the defendants deny that there was an outstanding transaction in respect of 500 tolas of gold and they set up in support of that contention of theirs two transactions of the sale of 250 tolas of gold each alleged to have been effected on 15-9-1944, which had the effect of wiping out the outstanding transaction of 500 tolas of gold in respect of which the plaintiff sent a delivery order to the defendants, this dispute relates therefore to the factum of those two transactions alleged to have been effected between the plaintiff and the defendants on 15-9-1944, and therefore cannot be the subject-matter of any reference to arbitration; and (2) that there was no written agreement between the parties to submit present or future differences to arbitration within the definition of an 'arbitration agreement' contained in Section 2, Arbitration Act, 1940.

7. As regards the first contention, I have only got to observe that the transactions of the sale by the plaintiff to the defendants of 1000 tolas of gold having been admitted by the defendants, the mere fact that they set up these two transactions of the purchase by the plaintiff from them of 250 tolas each on 15-9-1944, is not such as to exclude the disputes which have arisen between the parties in connection therewith from the purview of the arbitration clause. The Court has got to consider how the transactions of sale by the plaintiff to the defendants of the 1000 tolas of gold which have been admitted by the defendants and which were subject to the rules and regulations of the Bombay Bullion Exchange, Ltd., were dealt with by the parties, whether they were squared or adjusted by reason of any arrangement or any subsequent transaction entered into between the parties, and the transactions of the purchase by the plaintiff from the defendants put forward by the defendants as having been effected on 15-9-1944, are merely a mode in which they say that these transactions of sale by the plaintiff to the defendants of 1000 tolas of gold were squared or adjusted between the parties. I need not dilate at any considerable length on the position in respect of these transactions beyond referring to my judgment in notice of motion in 48 Bom. L.R. 6781 where I have dealt with this subject. I hold that merely because these transactions of purchase by the plaintiff from the defendants of 250 tolas each of gold on 15-9-1944, have been put forward by the defendants as having the effect of squaring or adjusting the admitted transactions of the sale to the defendants of 1000 tolas of gold does not make any difference to the position, and that contention of the defendants has not the effect of ousting the jurisdiction of the arbitrators if I come to the conclusion that there was an 'arbitration agreement' between the parties within the meaning of Section 2, Arbitration Act.

8. As regards the question whether there was an arbitration agreement between the parties, the main argument of Mr. Tendolkar has been that even though the plaintiff and the defendants are members of the Bombay Bullion Exchange, Ltd., and have signed the application forms in the manner stated above, there is no arbitration agreement between the parties as such which would enable the Court to come to the conclusion that the two parties to this suit agreed to submit present or future differences between them to arbitration or that such an agreement was a written agreement within the terms of the definition of an 'arbitration agreement.' This argument of Mr. Tendolkar really requires consideration, because since I have had anything to do with law, I personally have never heard of such an argument. Throughout my experience at the Bar I took it for granted,-it may be without any consideration devoted to that point,-that if both the members of a particular association signed application forms in which they agreed to be bound by the rules and regulations with regard to arbitration, there would arise no question whatever of the parties not having entered into a written agreement to submit present or future differences to arbitration within the definition of 'arbitration agreement.' However, as this point was seriously urged and pressed by Mr. Tendolkar, I have, in spite of my first impressions, thought it necessary to consider this particular point. I have heard the arguments of both Mr. Tendlokar and Mr. Maneksha on this point and the authorities cited by the respective counsel and have come to the conclusion that under the circumstances of this case there is a written agreement to submit present or future differences to arbitration within the definition of 'arbitration agreement' contained in Section 2, Arbitration Act. The terms of the definition of 'arbitration agreement' in the Indian Arbitration Act are word for word the same as those of the definition of 'submission' in the English Arbitration Act. In Eussell on Arbitration and Award it is stated (at p. 299) that there must be an agreement, that is to say, the parties must be ad idem, and such agreement must be in writing, but that it is not necessary that it should be a formal agreement, or that the terms should all be contained in one document. All that is necessary is that the parties should agree in writing to submit present or future differences to arbitration, and such an agreement may be found in correspondence consisting of a number of letters. Again at p. 301:

The written agreement may also be made by the endorsement by counsel of their briefs in an action, the whole question being whether there is in fact an agreement between the parties recorded in writing.

9. The two essential ingredients, therefore, for constituting an 'arbitration agreement' are |(1) that there must be an agreement, i.e., the parties must be ad idem, and (2) that such an agreement must be in writing. I therefore address myself first to the question whether there is an agreement between the parties to this unit to refer present or future disputes between them to arbitration. The manner in which it has been done is, in my opinion, sufficient to constitute an agreement between themselves. Both of them, though at different times, applied for enrollment as members of the Bombay Bullion Exchange, Ltd., which was a company incorporated under the Indian Companies Act, 1913. Under the very terms of the application for enrollment which they signed and addressed to the secretary they stated that they had read the current rules and regulations of the Exchange which include rules about arbitration and they agreed to bind themselves to act and follow the current rules and regulations and those made in the future also. The rules and regulations of the Exchange consisted of Rule 50, el. (1), of the rules and regulations of the constitution, which provided as under:

The differences which may arise in connection with the transactions in gold, silver or guinea whether ready and/or forward between the members of the Exchange or between a member and non-member shall be referred for decision to the arbitrators mentioned in the panel of arbitrators nominated by the Exchange.

There was also Rule 50 of the Trading Rules of the said association which provided as under:

All transactions between members and members and between a member and non-member in gold, silver or guinea whether ready or in forward shall be considered to have been done according to these rules and regulations. All disputes and differences arising out of the transactions in ready or forward and also the disputes whether a certain transaction has been done or not shall also be decided by arbitration and the arbitration shall be governed by (Rr. 50 to 58) of the constitution and subject to the amendments made from time to time and one can only go to Court only after adjudication of the said transactions and disputes.

10. These rules and regulations, which I have set out above, were agreed to by both the plaintiff and the defendants when they made these applications of theirs to the secretary of the Bombay Bullion Exchange, Ltd., for enrollment as members of the association. Could it be, under these circumstances, urged that the plaintiff, when he made the application for enrollment as member of the association, did not agree to be bound by these rules and regulations which do provide that whatever disputes might arise between members of the association should be referred to arbitration. It may be that a particular member who wants a dispute which has arisen between the applicant and himself to be referred to arbitration in accordance with these provisions may not have been a member of the association at the time when the applicant made his application to the secretary of the Bombay Bullion Exchange, Ltd. It does not, however, follow that when that person, who had not been a member of the association at the time when the first application was made, became a member also under a similar application made by him to the secretary of the Bombay Bullion Exchange, Ltd., agreeing similarly to be bound by the rules and regulations of the association, he did not agree to be bound by the rules and regulations qua all those persons who had been members of the association at the time when such application was made by him. If this later applicant had not submitted his application to the secretary of the association for enrollment as a member thereof and did not become a member, he would not acquire the status of a member and would not be within the description of a member between whom and the earlier applicant by reason of such application having been signed by the earlier applicant there was an agreement which would thus come into existence to be bound by the rules and regulations of the association with regard to arbitration. The moment, however, the later applicant became a member in pursuance of such an application presented by him to the secretary of the association, he came within the description of a member. He enjoyed the same status as member as the earlier applicant did and those two applicants even though their applications may have been made at different points of time became members between whom by reason of such applications having been signed by them and presented to the secretary of the association, there came into existence an agreement to be bound by the rules as to arbitration contained in the rules and regulations of the association. I am supported in this conclusion of mine by the remarks of Sir John Beaumont in 55 Bom. 382The learned Chief Justice there had to consider the effect of the memorandum and articles of association of the East India Cotton Association, Limited, in relation to the members of the association. At p. 391 he remarked:

The articles are for the most part in the common form of articles used by companies registered under the Indian Companies Act, and of course in reading articles one, has to remember the provisions of Section 21, Companies Act, which provides: '(1) The memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by each member and contained a covenant on the part of each member, his heirs, and legal representatives, to observe all the provisions of the memorandum and of the articles, subject to the provisions of this Act.'

That is a section taken from the English Act, and it is quite clear under that section that the articles are a contract between the company and the members, and between the members inter se.

11. According to this judgment the articles are not only a contract between the company and the members but between the members inter se, and this is the position not only as regards those members who have signed the memorandum of association but also as regards all persons who become members of the company at any stage whatever of the existence of the company. Having regard to this reasoning, it is clear that when the plaintiff as well as the defendants though at different dates applied to be enrolled as members of the Bombay Bullion Exchange, Ltd., agreeing by the very terms of the applications which they signed to be bound by the current rules and regulations which included rules about arbitration, there was an agreement between the plaintiff and all other members and the defendants and all other members and thus between the plaintiff and the defendants, the members of the Bombay Bullion Exchange, Ltd., in any event by the date of the later application, that as between both of them, members of the Bombay Bullion Exchange, Ltd., all present or future differences would be submitted to arbitration. I, therefore, hold that there was an agreement to submit present or, future differences to arbitration arrived at between both the parties to this suit.

12. The next question is, whether this, agreement which I have already held was arrived at between the plaintiff and the defendants was in writing. The two applications which the plaintiff and the defendants signed were in writing. There! is no provision of law which requires that the: agreement in order to be a written agreement within the definition of the 'arbitration agreement' should be on a formal document of submission to arbitration or should be contained in one document. As a matter of fact it has been held, as I have already observed, that such a written agreement can be contained in correspondence. An illustration of this position is to be further found in the authorities which lay down that even endorsements by respective counsel for the members on their briefs would be quite enough to satisfy the requirements of this definition. This position has been further extended by decisions like (1915) 1 ch. 8813 where it was held that there was a written agreement within the meaning of this definition obtaining between a member of a company and the company, even though it was only the member of the company who had signed the application for being admitted as such member-which application contained an agreement to be bound by the articles of association of the company which contained the provision for reference to arbitration of disputes between the company and any of its members. It is only necessary in law that the agreement which is held by the Court to have been arrived at between the parties should be in writing, and I am satisfied that under the circumstances as they obtain before me, the agreement between the parties was a written agreement by reason of their having appended their signatures to the application forms, which they submitted to the secretary of the Bombay Bullion Exchange, Ltd. I may as well in this connection refer to a decision of Weston, Additional Judicial Commissioner in Sind (now Weston J. of our High Court), reported in A.I.E. 1939 Sind 357 which is on all fours with the present case,, and which says:

The printed rules of [the] Merchants' Association, requiring all members in all cases of disputes or differences inter se arising from certain transactions to submit the said disputes or differences to arbitration together with the written undertakings to abide by the rules, signed by members at the time of their admission as members are sufficient to constitute the written agreement to submit required by Section 4, Arbitration Act, 1899.

13. I fully endorse the view taken by the learned Judge. I accordingly hold that there was a written agreement to submit present or future differences to arbitration between the plaintiff and the defendants within the definition of the 'arbitration agreement' contained in Section 2, Arbitration Act.

14. In view of the above findings of mine, I do not think it necessary to express any opinion; on the further question which has been raised in the affidavit filed on behalf of the defendants, that even though the dispute between the plaintiff and the defendants might relate to the factum oil the transactions, it is covered within the arbitration clause, nor do I wish to express any opinion on the further question whether by reason of the trading Rule 50 of the association an award of the arbitrators is a condition precedent to a party filing a suit in, a Court of law in respect of the subject-matter of such dispute.

15. I accordingly order that the notice of motion be made absolute and that the plaint and proceedings in this suit be stayed. The plaintiff will pay the costs of this notice of motion to the defendants. Costs fixed at Ks. 225.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //