G.K. Misra, J.
1. Plaintiffs suit is for refund of Rs. 17,200/- towards security deposit. Before filing of the written statement, defendant filed an application for stay of the suit under Section 34 of the Arbitration Act, 1940 (hereinafter referred to as the Act) alleging that under the agreement, all disputes and differences between the parties are to be decided by arbitration. The application was dismissed on 10-4-1963. The miscellaneous appeal has been filed against this order.
2. The learned Subordinate Judge dismissed the application on two grounds:
(i) Rule 63 of the Schedule of rates made by the South Eastern Railway, the defendant cannot insist on any arbitration, and it is only a choice of the plaintiff to go arbitration on certain contingencies; and
(ii) There is no independent agreement between the parties to go to arbitration in case of dispute or difference.
3. At the outset Mr. Misra conceded that the judgment of the Subordinate Judge cannot be supported on the grounds given by him. The concession is well founded. Rule 63 constitutes a part of the General Conditions of Contract for use in connection with Civil Engineering Works of the Railways. This rule so far as relevant, is quoted hereunder.
Demand for Arbitration:
63./1 If the contractor be dissatisfied withthe decision of the Railway, on any matter inquestion, dispute or difference, on any accountor as to the withholding by the Railway of anycertificate to which the contractormay claim to be entitled to orif the Railway fails to make a decisionwithin a reasonable time, then and in any suchcase but except in any of the excepted mattersreferred to in Clause 63 of those conditions thecontractor may within 10 days of the receiptof the communication of such decision or afterthe expiry of the reasonable time as the casemay be, demand in writing that such matterin question, dispute or difference be referredto arbitration. Such demand for arbitrationshall be delivered to the Railway by the contractor and shall specify the matters which arein question, dispute or difference and only suchdispute or difference of which the demand hasbeen made and no other shall be referred toarbitration.
Mr. Misra conceded that if the Court comes to a conclusion in the facts and circumstances of this case that there was a completed agreement between the parties, then Rule 63 is the arbitration clause, which is a component part of the agreement, would govern the parties, and if any dispute or difference arises within the scope of that rule, then any of the parties can ask for a reference to arbitration. It is difficult to understand as to what the learned Subordinate Judge meant by saying that there was no independent agreement between the parties to go to arbitration in case of any dispute or difference.
4. Mr. Misra, however, seriously contended that the plaint makes out a case that there was no completed agreement between the parties, and, as such. Rule 63 does not govern their contractual relationship. According to him, negotiations were going on and there was no acceptance of the offer given by the plaintiff inasmuch he had stipulated that unless the offers were accepted within a specified time, they were to be treated as revoked. In essence, plaintiff's case is that only if there had been a completed agreement between the parties, then alone Rule 63 would govern their contractual relationship, and the matter in dispute regarding refund would come within the jurisdiction of arbitration.
5. Section 34 of the Act reads thus :
'Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written-statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings'.
In order that a slay may be granted under this section it is essential that the proceedings must have been commenced by a party to an arbitration agreement against any other party to it. Mr. Pal, however, contended on the authority of AIR 1961 SC 1285 that even if a dispute relates to the very existence of the contract, the arbitration clause has full application and the matter must be decided by arbitration and not by the Court. The proposition, contended for. is too broadly stated. There are a series of Supreme Court decisions pertinent on this question (see (S) AIR 1955 SC 53; AIR 1959 SC 1362 ; AIR 1961 SC 1225 and AIR 1962 SC 1810). The last decision reviewed the entire case law, both Indian and English. The dictum, laid down in Heyman v. Darwin Ltd., 1942 AC 356 and in Halsbury's Laws of England, was accepted as laying down the correct law. For clarity the summary given in Halsbury, as reproduced in paragraph 11 of the Supreme Court decision may be quoted.
'The matter in question in the legal proceedings which it is sought to stay must be within the scope of the arbitration agreement ... If, however, the point in dispute is whether the contract containing the clause was ever entered into at all, or was void ab initio, illegal or obtained (for example) by fraud, duress or undue influence, the clause does not apply and a stay will be refused.'
This is the correct legal position and the learned Subordinate Judge completely missed the point. I am not inclined to read paragraph 27 of AIR 1961 SC 1225 as laying down a proposition contrary to what has been said in AIR 1962 SC 1810.
6. The reasonings of the learned Subordinate Judge that at the instance of the defendant no reference can be made to arbitration, or that there is no independent arbitration agreement, are unsupportable. The case is to go back to him, for consideration whether the offers were accepted and there was a completed agreement between the parties. If he comes to a conclusion, after taking evidence and having heard the parties fully on the point, that there was no completed agreement, the suit cannot be stayed for the simple reason that there being no agreement, Rule 63 cannot constitute a component part of that agreement and as such does not bind the parties. If, however, he comes to a contrary conclusion that there was a completed agreement, the dispute and the difference amongst the parties regarding refund of the security deposit would come within the scope of the arbitration clause and the suit is to be stayed.
7. In the result, the judgment of the learned Subordinate Judge is set aside, the appeal is allowed and the case is remanded for disposal in accordance with law and the observations made above. Costs would abide the result.