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Calcutta Insurance Ltd. Vs. Food Corporation of India and ors. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtOrissa High Court
Decided On
Case NumberMisc. Appeal No. 62 of 1975
Judge
Reported inAIR1977Ori37; 42(1976)CLT902
ActsArbitration Act, 1940 - Sections 34 and 36
AppellantCalcutta Insurance Ltd.
RespondentFood Corporation of India and ors.
Appellant AdvocateG.B. Mohanty, Adv.
Respondent AdvocateB.S. Das, ;G. Bhoidar, ;S.K. Mund, ;J.K. Mohanty and ;D.P. Sahoo, Advs.
Excerpt:
.....not good law]. - it is now well settled that if the making of an award on certain matters is a condition precedent for the accrual of the cause of action for a suit on these matters, then that condition precedent has to be satisfied before the plaintiff can have a cause of action for a suit on those matters, and if a suit on the said matters is instituted before that the defendant can justly challenge the maintainability of the said action. in para 5 of the decision reported in air 1963 ker 270. it is now settled by authorities that if the making of an award is a condition precedent for the accrual of a cause of action to the plaintiff, then that condition has to be satisfied before the plaintiff can acquire a cause of action; and if a suit is instituted before that, it is a good..........in favour of the plaintiff there was a clause to refer all matters coming within the scope of the suit to arbitration. the court on its own reasonings, which are not very appealing, rejected the said prayer of the appellants; hence this appeal.2. mr. mohanty, the learned counsel for the appellant drew my attention to the arbitration clause no. 9 in the said fidelity guarantee. that clause is as follows:--'if any dispute shall arise as to whether the insurer is liable under this or as to the amount of its liability the matters shall be referred to the decision of the arbitrator appointed by the managing director of the food corporation of india. and it is hereby expressly stipulated and declared and it shall be a condition precedent to any right or action or suit upon this policy that.....
Judgment:

S. Acharya, J.

1. Respondent No. 1 filed Money Suit No. 418 of 1972 in the court below against the appellant and respondents 2 and 3 for the realisation of certain amounts from the defendants. The plaintiff, respondent No. 1 herein, has laid his claim in the suit on the basis of certain defaults made by defendant No. 1, respondent No. 2 herein. The appellant and respondent No. 3 have been impleaded as defendants Nos. 2 and 3 respectively in the suit on the allegation that they as insurers and sureties are to indemnify the plaintiff for the loss or losses sustained by him on account of the defaults committed by defendant No. 1. Defendant No. 1 and defendant No. 3 both filed written statements without taking recourse to the provisions of Section 34 of the Arbitration Act. The appellant only filed a petition under Section 34 of the Arbitration Act requesting the court to stay the suit under the provisions of the said section, alleging therein that in the fidelity guarantee executed by it in favour of the plaintiff there was a clause to refer all matters coming within the scope of the suit to arbitration. The court on its own reasonings, which are not very appealing, rejected the said prayer of the appellants; hence this appeal.

2. Mr. Mohanty, the learned counsel for the appellant drew my attention to the arbitration Clause No. 9 in the said Fidelity Guarantee. That clause is as follows:--

'If any dispute shall arise as to whether the Insurer is liable under this or as to the amount of its liability the matters shall be referred to the decision of the Arbitrator appointed by the Managing Director of the Food Corporation of India. And it is hereby expressly stipulated and declared and it shall be a condition precedent to any right or action or suit upon this Policy that the award by such Arbitrator shall be first obtained.'

The existence of the said clause in the fidelity guarantee is not challenged by Mr. Bohidar, the learned counsel for the plaintiff. From the above quoted clause it is abundantly clear that the plaintiff and the defendant No. 2 have expressly stipulated that before any suit is instituted against this defendant upon this policy, it is condition precedent to refer all disputes relating to the liability of this defendant under this policy to arbitration and to obtain the award of the Arbitrator on the said matters. It is now well settled that if the making of an award on certain matters is a condition precedent for the accrual of the cause of action for a suit on these matters, then that condition precedent has to be satisfied before the plaintiff can have a cause of action for a suit on those matters, and if a suit on the said matters is instituted before that the defendant can justly challenge the maintainability of the said action. I quote below the law on this point, as has been very succinctly stated by Mathew J. in para 5 of the decision reported in AIR 1963 Ker 270.

'It is now settled by authorities that if the making of an award is a condition precedent for the accrual of a cause of action to the plaintiff, then that condition has to be satisfied before the plaintiff can acquire a cause of action; and if a suit is instituted before that, it is a good defence to the maintainability of the action itself. A distinction has always been made between cases where the arbitration and the award are made condition precedent to the right of action itself and where they are merely collateral to the main agreement, In the latter case if a suit is instituted in violation of the collateral agreement the only consequence is that the suit will be liable to be stayed at the instance of the defendant under Section 34 of the Arbitration Act But where a suit is instituted when the making of an award is a condition precedent to the accrual of a cause of action in favour of the plaintiff before the making of the award, such a suit is also liable to be dismissed if a defence is taken to the effect the reason being that the plaintiff has no cause of action, until the award is made.'

On the above point the decisions reported in (1942) 1 All ER 337 and (1919) 1 KB593 are worth, mentioning. But Section 36 of the Indian Arbitration Act, 1940 (hereinafter referred to as the 'Act') enables a court in an appropriate case to set aside any such condition precedent which operates as a bar to the institution of such a suit. If the court sets aside the said condition under Section 36, or where the condition is waived by the party entitled to insist upon it, then the suit can verily be proceeded with. This section gives the court a discretion in a suitable case to dispense with the condition precedent clause and treat the same as a mere collateral arbitration clause, in which case the court always has the discretion to grant or not to grant the stay of a suit under Section 34 of the Act. (See AIR 1969 Cal 374, AIR 1963 Ker 270 and AIR 1960 SC 1156).

3. In course of the hearing of this appeal Mr. Bohidar, the learned counsel for respondent No. 1, filed a petition asking this Court to invoke the power under Section 36 of the Act to set aside the said condition precedent clause thus allowing the entire suit to be adjudicated in all its aspects in the Civil Court itself.

4. In this case the plaintiff, respondent No. 1 herein, has instituted the suit for the realisation of certain dues on account of the defaults committed by defendant No. 1. Defendants Nos. 2 and 3 have been impleaded as guarantors to indemnify the plaintiff for the loss sustained by it due to the defaults of defendant No. 1, as per the fidelity guarantee executed by defendants 2 and 3. Admittedly there is no agreement with an arbitration clause, not to speak of an arbitration clause with a condition precedent, between the plaintiff and defendant No. 1 requiring the suit disputes to be referred to arbitration. Defendant No. 3 has already filed its written statements and so it cannot further seek any shelter under Section 34 of the Act. So the court has to adjudicate all matters arising between the plaintiff and defendants Nos. 1 and 3 in the suit itself. If the suit is stayed only so far as it relates to defendant No. 2 in view of the above mentioned condition precedent clause, then after the adjudication of the plaintiff's claims against defendants Nos. 1 and 3, the matter has to be referred to arbitration for ascertainment of the liability of defendant No. 2, if any, in the said matter. So if the said clause is given effect to all matters involved in the suit cannot be dealt with and decided in one forum and thematters concerning defendant No. 2 will hang over for a long time. If the said arbitration clause is dispensed with under Section 36 of the Act the entire matter in all its aspects can be properly adjudicated and decided finally in the suit itself.

5. Mr. Mohanty, for the appellant, contends that if powers under Section 36 of the Act is exercised then the plaintiff must be asked to particularise the disputes or differences between the plaintiff and the defendant No. 2 which only shall be gone into and adjudicated in the suit. As the aforesaid arbitration clause is being dispensed with in its entirety all issues arising out of the pleadings of all the parties shall have to be dealt with and decided by the Civil Court and the case in its entirety has to be disposed of by that court. So, in effect, the arbitration clause shall cease to have effect in respect of all disputes and differences between the plaintiff and defendant No. 2 which may arise for consideration and decision in this suit. Moreover it may not be possible for the plaintiff to accurately and exactly particularise all its disputes and differences in this matter at this stage without knowing the stand and the defences yet to be taken by defendant No. 2 in this suit. There is therefore no merit in the above contention of Mr. Mohanty.

6. On the above considerations I deem it proper to allow the petition filed by Mr. Bohidar asking me to exercise my power under Section 36 of the Act. Accordingly I order that the above-mentioned arbitration clause shall cease to have effect in respect of all matters arising in the suit between the plaintiff and the defendant No. 2 and the court shall adjudicate in accordance with law the claims, counterclaims, rights, obligations, and liabilities of all the parties in this suit including that of defendant No. 2, and shall dispose of the suit in all its aspects within as short a time as possible.

7. The appeal is disposed of in the terms aforesaid. The parties shall bear their own costs in this court.


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