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Union of India (Uoi) Vs. Birla Cotton Spinning and Weaving Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtSupreme Court of India
Decided On
Judge
Reported inAIR1967SC688; (1964)66PLR247; [1964]2SCR599
ActsArbitration Act, 1940 - Sections 34
AppellantUnion of India (Uoi)
RespondentBirla Cotton Spinning and Weaving Mills Ltd.
Cases ReferredHeyman v. DarwinsLtd. L.R.
Excerpt:
.....timesbefore the proceedings were commenced ready and willing to do all thingsnecessary for the proper conduct of the arbitration and there is no sufficientreason for not referring the matter in accordance with the arbitrationagreement. , observed in that case :an arbitration clause is a written submission,agreed to by the parties to the contract, and, like other written submissionsto arbitration, must be construed according to its language and in the light ofthe circumstances in which it is made......np. as interest from october 12, 1956 tilldate of suit and interest pendente lite and costs of the suit. the companyalleged that the union had withheld payment of the balance of rs. 12,943.89 np.on the plea that an amount of rs. 10,625/- was due to the union under anothercontract between the parties for a bulk purchase order no. pbi/7028-705 dateddecember 16, 1949. the company submitted that there was no such contract andthe dispute raised in that behalf by the union had been referred to thearbitration of the officer on special duty, directorate general of supplies anddisposals and shri ramniwas agrawala but had since been adjourned sine die bythe arbitrators. 2. the union by petition dated may 19, 1959 applied under s. 34 of theindian arbitration act for stay of the suit alleging that a.....
Judgment:

Shah, J.

1. The Birla Cotton Spinning and Weaving Mills Ltd. - hereinafter called'the Company' - supplied to the Union of India goods of the value of Rs.1,06,670.89 nP. under a contract dated January 30, 1956 and received Rs.93,727/- as part payment of the price. The Union declined to pay the balance ofRs. 12,943.89 nP. The Company then commenced Suit No. 386 of 1958 in the Courtof the Senior Subordinate Judge, Delhi, against the Union of India for a decreefor Rs. 10,625/- and Rs. 2,762.50 nP. as interest from October 12, 1956 tilldate of suit and interest pendente lite and costs of the suit. The Companyalleged that the Union had withheld payment of the balance of Rs. 12,943.89 nP.on the plea that an amount of Rs. 10,625/- was due to the Union under anothercontract between the parties for a bulk purchase order No. PBI/7028-705 datedDecember 16, 1949. The Company submitted that there was no such contract andthe dispute raised in that behalf by the Union had been referred to thearbitration of the Officer on Special Duty, Directorate General of Supplies andDisposals and Shri Ramniwas Agrawala but had since been adjourned sine die bythe arbitrators.

2. The Union by petition dated May 19, 1959 applied under s. 34 of theIndian Arbitration Act for stay of the suit alleging that a dispute had arisenbetween the parties and there being an arbitration agreement which could beinvoked under the circumstances and the Union being ready and willing to do allthings necessary for the proper conduct of the arbitration under clause 21contained in form No. WSB-133. The Company resisted the petition contendingthat there was no dispute concerning the contract which was covered by anyvalid submission or arbitration clause, and which attracted the application ofs. 34 of the Arbitration Act. The Subordinate Judge held that before s. 34could be invoked the suit must raise a dispute in respect of the matter agreedto be referred to arbitration and not independent of it and as no dispute wasraised by the Union about its liability to pay the amount claimed by theCompany arising under the contract and the only dispute which was sought to beraised was in respect of the liability of the Company under another contract,the suit could not be stayed. An appeal against the order refusing to stay thesuit was dismissed in limine by the High Court of Punjab. With special leave,the Union has appealed to this Court.

3. The only contention raised in the appeal is that the terms of thearbitration agreement include a dispute relating to a refusal to meet theobligations arising under the contract even though the refusal was not foundedon any right arising under the terms of the contract. The arbitration agreementis contained in clause 21, which is so far as it is material provides :

'In the event of any question or dispute arisingunder these conditions or any special conditions of contract or in connectionwith this contract (except as to any matters the decision of which is speciallyprovided for by these conditions) the same shall be referred to the award of anarbitrator to be nominated by the purchaser and an arbitrator to be nominatedby the Contractor, or in case of the said arbitrators not agreeing then to theaward of an Umpire to be appointed by the arbitrators in writing beforeproceeding on the reference and the decision of the arbitrators, or in theevent of their not agreeing of the Umpire appointed by them shall be final andconclusive and the provisions of the Indian Arbitration Act, 1940, and of theRules thereunder and any Statutory modification thereof shall be deemed toapply to and be incorporated in this contract.'

4. The arbitration clause is wide and includes not only disputes arisingunder the covenants of the contract but also to disputes under conditionsgeneral or special or in connection with the contract. But before an order forstay of a proceeding may be made under s. 34 of the Arbitration Act, thefollowing conditions must co-exist :

(i) there must be a subsistingand binding arbitration agreement capable of being enforced between theparties;

(ii) the subject-matter indispute in the proceeding sought to be stayed must be within the scope of thearbitration agreement;

and

(iii) the petition must be madeto the judicial authority by a party to the arbitration agreement or someperson claiming under him at the earliest stage of the proceeding i.e. beforethe filing of the written statement or taking any other step in the proceeding.

5. The Judicial authority may, if these conditions exist, grant stay, if itis satisfied that the party applying is and has also been at all material timesbefore the proceedings were commenced ready and willing to do all thingsnecessary for the proper conduct of the arbitration and there is no sufficientreason for not referring the matter in accordance with the arbitrationagreement.

6. The evidence recorded by the Trial Court discloses that there was nodispute between the Company and the Union arising under the contract on whichthe suit was filed. The Union accepted liability to pay the amount claimed bythe Company in the suit. The Union still declined to pay the amount assertingthat an amount was due from the Company to the Union under a distinct contract.This amount was not sought to be set-off under any term of the contract underwhich the Company made the claim. The dispute raised by the Union was thereforenot in respect of the liability under the terms of the contract which includedthe arbitration clause, but in respect of an alleged liability of the Companyunder another contract which it may be noted had already been referred toarbitration. The Union had no defence to the action filed by the Company : itwas not contended that the amount of Rs. 10,625/- was not due to the Companyunder the contract relied upon by the Company. For enforcement of thearbitration clause there must exist a dispute : in the absence of a disputebetween the parties to the arbitration agreement, there can be no reference.

7. It was urged that mere refused by the Union to pay the amount due issufficient to raise a dispute 'in connection with the contract'within the meaning of clause 21 of the Arbitration agreement. We are unable toagree with that contention. A dispute that the Union is not liable to pay theprice under the terms of the contract is undoubtedly a dispute under thecontract, and in any event in connection with the contract. But a plea that theUnion though liable to pay the amount under the terms of the contract will notpay it because it desires to appropriate it towards another claim under anotherindependent contract cannot reasonably be regarded as a dispute 'under orin connection' with that contract under which the liability sought to beenforced has arisen.

8. The decision of the Calcutta High Court in Uttam Chand Saligram v. JewaMamooji I.L.R. 46 Cal, on which reliance was placed by the Union does not,in our judgment, support any such proposition. In that case an award of thearbitrator was challenged on the ground that it was without jurisdiction, therebeing no dispute between the parties, the party applying having admitted hisliability under the contract. Rankin J. held that though the existence of adispute was an essential condition for the arbitrator's jurisdiction, thedispute may be either in the acknowledgement of the debt or as regards the modeand time of satisfying it. In that case the Court held that the defence of theapplicant applying for vacating the award was that he was not under anyobligation to pay the amount due. This is clear from the observation made on p.540 where the learned Judge observed :

'x x x but in truth the petitioner's later lettersto the Chamber, his petition itself in paragraphs 5, 6 and 12, paragraph 6 ofthe affidavit filed in this behalf in reply all show conclusively that he waswithholding payment under a claim of right so to do. That the claim has littlesubstance makes his case so much the worse.'

9. The Union is however not seeking to withhold payment under a claim ofright so to do. What the Union contends is that under the contract they areliable to pay the amounts due but they will not pay because they have anotherclaim unrelated to the claim in suit against the Company.

10. The decision of the Calcutta High Court in Chundanmull Jhaleria v. CliveMills Co. Ltd. I.L.R. (1948) Cal. 297, on which also reliance was placeddoes not assist the Union. In that case the Court decided that an arbitrationclause in a contract, by which the parties thereto agree to refer theirdisputes to arbitration; may be wide enough to include a dispute whether thecontract itself has or has not been frustrated; but in the present case we arenot concerned about any dispute relating to frustration of the contract.

11. The principle of the decision of the House of Lords in Heyman v. DarwinsLtd. L.R. [1942] A.C. 356, on which reliance was placed on behalf of theUnion has also no application. It was held in that case that when anarbitration clause in a contract provides without any qualification that anydifference or dispute which may arise 'in respect of' or 'withregard to' or 'under the contract' shall be referred toarbitration, and the parties are at one in asserting that they entered into abinding contract, the clause will apply even if the dispute involves anassertion by one party that circumstances have arisen, whether before or afterthe contract has been partly performed, which have the effect of dischargingone or both parties from all subsequent liability under the contract, such asrepudiation of the contract by one party accepted by the other, or frustrationof the contract, Viscount Simon, L.C., observed in that case :

'An arbitration clause is a written submission,agreed to by the parties to the contract, and, like other written submissionsto arbitration, must be construed according to its language and in the light ofthe circumstances in which it is made. If the dispute is whether the contractwhich contains the clause has ever been entered into at all, that issue cannotgo to arbitration under the clause, for the party who denies that he has everentered into the contract is thereby denying that he has ever joined in thesubmission. Similarly, if one party to the alleged contract is contending thatit is void ab initio (because, for example, the making of such a contract isillegal), the arbitration clause cannot operate, for on this view the clauseitself also is void. But in a situation where the parties are at one in assertingthat they entered into a binding contract, but a difference has arisen betweenthem whether there has been a breach by one side or the other, or whethercircumstances have arisen which have discharged one or both parties fromfurther performance, such differences should be regarded as differences whichhave arisen 'in respect of,' or 'with regard to' or'under the contract', and an arbitration clause which uses these, orsimilar, expressions should be construed accordingly.'

12. But the Union is not seeking to go to arbitration on a dispute betweenthe parties about a breach committed by one side or the other or whethercircumstances have arisen which have discharged one or both parties fromfurther performance. It is a case in which in substance there is no disputebetween the parties 'under', 'in connection with', or even'with regard to' the contract. The plea raised by the Union for stayof the suit was frivolous. It is somewhat surprising that the plea should havebeen raised and persisted in, and even after going to arbitration in the othercase have been brought up to this Court involving large costs to the publicexchequer.

13. The appeal therefore fails and is dismissed with costs.

14. Appeal dismissed.


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