Skip to content


Uniclel Ltd. and anr. Vs. the State Trading Corporation - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberFirst Appeal No. 38 of 1977
Judge
Reported inILR1978Delhi203
ActsArbitration Act, 1940 - Sections 20(1); Indian Contract Act, 1872 - Sections 17
AppellantUniclel Ltd. and anr.
RespondentThe State Trading Corporation
Advocates: L.R.Gupta,; D.N.Mishra,; S.L.Watel,;
Cases ReferredA. M. Nair & Co. v. Gordhandass Sagarmull
Excerpt:
arbitration act (1940) - sections 20(1) & (4), 33 and 35--reference under--jurisdiction of court--validity or arbitration agreement--agreement induced by fraud and misrepresentation--findings of court in application under section 20--whether rest judicata before the arbitrator--contract act (1872), sections 17 & 19.; in the instant case, the appellant entered into an agreement, for the supply of staple fibre to the respondent with a 'fall clause' as to the reduction of the agreed price on an eventuality. the agreement contained an arbitration clause. disputes arose between the parties whether on the eventuality envisaged by the 'fall clause' has been attracted or not. the respondent filed an application for reference of disputes to arbitration. it was urged on behalf of the.....v.s. deshpande, j.(1) what is the scope of the jurisdiction of the civil court under sub-sections (1) and (4) of section 20 of the aribtration act and the effect of its finding on the case referred to arbitrator this is virtually the only surviving question in this appeal. (2) messrs. unicel limited (appellant) offered to sell to the state trading corporation (respondent) by a letter of 26th may, 1970 staple fibre standard bright bleached at 46.5d per kg. containing he following called the 'fall clause' :- 'unicel agrees that in case business is concluded by the buyers by the end of july 1970 with any reputable manufacturer at a lower price, they will be bound by that lower price.'the offer was accepted along with the 'fall clause' by the state trading corporation by letter dated 29th.....
Judgment:

V.S. Deshpande, J.

(1) What is the scope of the jurisdiction of the civil court under sub-sections (1) and (4) of section 20 of the Aribtration Act and the effect of its finding on the case referred to arbitrator This is virtually the only surviving question in this appeal.

(2) MESSRS. Unicel Limited (appellant) offered to sell to the State Trading Corporation (respondent) by a letter of 26th May, 1970 staple fibre standard Bright Bleached at 46.5d per Kg. containing he following called the 'fall clause' :-

'Unicel agrees that in case business is concluded by the buyers by the end of July 1970 with any reputable manufacturer at a lower price, they will be bound by that lower price.'

The offer was accepted along with the 'fall clause' by the State Trading Corporation by letter dated 29th May, 1970. A formal contract was also signed by the parties on 29th May, 1970 inadvertently omitting the 'fall clause' which was, thereforee, added to the formal contract on 30th May, 1970.

(3) The State Trading Corporation had also received an offer from an Italian firm for the supply of the same quality of staple fibre on 25th May, 1970 at the rate of 44.65 cents per Kg and had accepted the same day, but the contract with the Italian firm was entered to on 29th June, 1970. The goods against the said contract were actually received on 3rd July, 1970.

(4) The State Trading Corporation thereupon claimed the difference of 57094.23 from the Unicel being the difference in the price charged by the Unicel and the price at which business was concluded by the State Trading Corporation with the Italian firm. As the Unicel failed to pay the said amount, the State Trading Corporation made an application under section 20 of the Arbitration Act for reference of the dispute to arbitration since the agreement between the State Trading Corporation and the Unicel contained the usual arbitration clause. The Unicel resisted the application, inter alia, on the ground mentioned in paragraph 5 of the reply filed before the learned single Judge in the following words :-

'The petitioner (S. T. C.) had received an offer on 25th May, 1970 from one Messrs Cotonificio Triestino of Italy for supply of staple fibre of like quality as was contracted with respondent No. 1 at the rate 44.65 cents and that the said offer culminated in a contract between the petitioners and Cotonificio and that formal contract was executed by and between the parties on the 29th June, 1970. The respondents suppressed the fact that such an offer had already been received on 25th May 1970 by the petitioner that is before the new provision contained in the letter dated 30th May, 1970 was agreed upon. This constitutes a material circumstance within the exclusive knowledge of the petitioner being suppressed from the respondents while inducing the respondents to enter into an additional clause relating to reduction in price in writing dated 30th May, 1970. The respondents say that the fact of such an offer had been actively concealed by the petitioners with an intent to deceive the respondents and/or to induce the respondents to enter into the said modification. It is, thereforee, .one of the contentions of the respondents that, in the premises aforesaid, the respondents are entitled to avoid the subsequent agreement dated 30th May 1970. It is submitted that such a dispute is not liable to be and cannot be decided by arbitration under the arbitration clause.'

(5) The learned Single Judge held that in the offer of 26th May 1970 itself the Unicel had agreed that the contract between the parties will be subject to the 'fall clause'. Inadvettantly, the 'fall caluse' was omitted in the formal contract of 29th May 1970 and, thereforee, the said contract was amended on 30th May 1970 to include the said clause. The learned Judge further held that the contract with the Italian firm was not concluded till 29th June 1970. The State Trading Corporation was not bound to disclose its negotiations with the Italian firm till the contract with it was concluded. As the contract between the State Trading Corporation with the Italian firm. As the Unicel failed to pay the said amount, the State Trading Corporation made an application under section 20 of the Arbitration Act for reference of the dispute to arbitration since the agreement between the State Trading Corporation and the Unicel contained the usual arbitration clause. The Unicel resisted the application, inter alia, on the ground mentioned in paragraph 5 of the reply filed before the learned single Judge in the following words :-

'The petitioner (S. T. C.) had received an offer on 25th May, 1970 from one Messrs Cotonificio Triestino of Italy for supply of staple fibre of like quality as was contracted with respondent No. 1 at the rate 44.65 cents and that the said offer culminated in a contract between the petitioners and Cotonificio and that formal contract was executed by and between the parties on the 29th June, 1970. The respondents suppressed the fact that such an offer had already been received on 25th May 1970 by the petitioner that is before the new provision contained in the letter dated 30th May, 1970 was agreed upon. This constitutes a material circumstance within the exclusive knowledge of the petitioner being suppressed from the respondents while inducing the respondents to enter into an additional clause relating to reduction in price in writing dated 30th May, 1970. The respondents say that the fact of such an offer had been actively concealed by the petitioners with an intent to deceive the respondents and/or to induce the respondents to enter into the said modification. It is, thereforee, .one of the contentions of the respondents that, in the premises aforesaid, the respondents are entitled to avoid the subsequent agreement dated 30th May 1970. It is submitted that such a dispute is not liable to be and cannot be decided by arbitration under the arbitration clause.'

The learned Single Judge held that in the offer of 26th May 1970 itself the Unicel had agreed that the contract between the parties will be subject to the 'fall clause'. Inadvettantly, the 'fall clause' was omitted in the formal contract of 29th May 1970 and, thereforee, the said contract was amended on 30th May 1970 to include the said clause. The learned Judge further held that the contract with the Italian firm was not concluded till 29th June 1970. The State Trading Corporation was not bound to disclose its negotiations with the Italian firm till the contract with it was concluded. As the contract between the parties was not vitiated by fraud, the agreement was valid. The learned Judge, thereforee, referred the case to arbitration.

(6) In this appeal against the order of the learned Single Judge, the Unicel repeated its contention that a fraud was committed upon it by the State Trading Corporation by concealing from the Unicel the fact that on the 25th May 1970 the State Trading Corporation had already accepted an offer by an Italian firm to supply the same goods at a lower rate and that the finding of the learned Single Judge that there was no concluded contract between the State Trading Corporation and the Italian firm till the 29th June 1970 was not correct.

(7) During the argument, however, it was pointed out to Shri L. R. Gupta, learned counsel for the appellant, that the 'fall clause' was a part of the offer made by the Unicel to the State Trading Corporation on the 26th May 1970 voluntarily and without any inducement from the State Trading Corporation. If 'the Unicel of its own accord chose to offer to be bound by the 'fall clause' in the very first contract it made with the State Trading Corporation, how can it be said that there was any duty prior to the 26th May 1970 on the part of E the State Trading Corporation to inform the Unicel that on the 25th May 1970 the State Trading Corporation had received and accepted an offer from an Italian firm for the supply of the same goods at a lower price A plain reading of the facts is that after the State Trading Corporation had got a lower price offer from an Italian firm, it was lucky to receive another offer from the Unicel for the same goods at a slightly higher price but with a promise that the said higher price would be reduced if business would be concluded by the State Trading Corporation with another reputable manufacturer for the same goods at a lower price. The State Trading Corporation could regard it just as a happy accident. The Unicel view it as unfortunate that it offered to the State Trading Corporation the benefit of the 'fall clause' which benefit could be availed of by the State Trading Corporation quickly on the strength of the offer from the Italian firm. But the Unicel could not put the blame for this on the State Trading Corporation. For, prior to the receipt of the offer from the Unicel on the 26th May 1970, the State Trading Corporation could not be expected to inform the Unicel that it had already received an offer from the Italian firm for the same goods at a lower price and that it had accepted the offer in principle.

(8) The case of fraud pleaded by the Unicel has to be decided under sections 17 and 19 of the Indian Contract Act, 1872. Under section 17 an act or omission including silence when there is a duty to speak has to be proved on the part of the State Trading Corporation the parties was not vitiated by fraud, the agreement was valid. The learned Judge, thereforee, referred the case to arbitration. with intent to deceive the Unicel or to induce the Unicel to enter into a contract with the State Trading Corporation. No such act or omission could be ascribed to the State Trading Corporation because it was under no duty to speak to the Unicel about the offer received on the 25th May 1970 because till the 26th May 1970 there was no negotiation between the parties at all. The first step in the negotiations was in the offer made by the Unicel. This offer was not 'caused by fraud or misrepresentation' on the part of the State Trading Corporation within the meaning of section 19 of the Act. Consequently, the agreement between the parties is not voidable at the option of the Unicel on the ground that its consent to the contract was 'so caused' within the meaning of section 19. The essence of section 19 is that consent of the Unicel to the contract should have been 'caused' by fraud or misrepresentation on the part of the State Trading Corporation. Surely, there was no duty on the part of the State Trading Corporation to tell the Unicel that the 'fall clause' offered by the Unicel should be withdrawn by it because the Italian firm had already offered the same goods to the State Trading Corporation at a lower price and the State Trading Corporation had decided to accept that offer. The duty to speak does not extend to tell the offerer that his offer was too good and that the offerer should revise the offer to make it not so good.

(9) Another ground for coming to the conclusion that the State Trading Corporation was not under any duty to disclose to the Unicel about the offer received from the Italian firm on the 25th May 1970 and accepted on that day given by the learned Single Judge is that the contract between the State Trading Corporation and the Italian firm was not concluded till the 29th June 1970. The 'fall clause'' uses the words ''in case business is concluded by the State Trading Corporation by the end of July 1970 with any reputable manufacturer' etc. Two things are necessary to be proved for the application of the 'fall clause'. Firstly, business is to be concluded. Secondly, it has to be with a reputable manufacturer. The expression 'business is concluded' may or may not be synonymous with the conclusion of a contract. It may include the completion of the transaction which Begins with the contract and ends with the delivery of goods. Even if it is assumed that it only means conclusion of a contract, the contract between the Italian firm and the State Trading Corporation could not be said to have been concluded on the 25th May 1970 for the following reasons:

(1)The offer of the 25th May 1970 was received from Gill and Company but only communicated to the State Trading Corporation a with intent to deceive the Unicel or to induce the Unicel to enter into a contract with the State Trading Corporation. No such act or omission could be ascribed to the State Trading Corporation because it was under no duty to speak to the Unicel about the offer received on the 25th May 1970 because till the 26th May 1970 there was no negotiation between the parties at all. The first step in the negotiations was in the offer made by the Unicel. This offer was not 'caused by fraud or misrepresentation' on the part of the State Trading Corporation within the meaning of section 19 of the Act. Consequently, the agreement between the parties is not voidable at the option of the Unicel on the ground that its consent to the contract was 'so caused' within the meaning of section 19. The essence of section 19 is that consent of the Unicel to the contract should have been 'caused' by fraud or misrepresentation on the part of the State Trading Corporation. Surely, there was no duty on the part of the State Trading Corporation to tell the Unicel that the 'fall clause' offered by the Unicel should be withdrawn by it because the Italian firm had already offered the same goods to the State Trading Corporation at a lower price and the State Trading Corporation had decided to accept that offer. The duty to speak does not extend to tell the offerer that his offer was too good and that the offerer should revise the offer to make it not so good. message received from the Italian firm. In that offer Gill and Company did not say that they were authorised to make the offer as agents of the Italian firm much less that they were authorised to enter into a contract with the State Trading Corporaion. They merely acted as a mouthpiece.

(2)This was why the State Trading Corporation by a reply on the same date accepted the offer but put forward additional terms such as (i) each lot of 50 bales to be shipped separately, (ii) pre-shipment inspection at seller's cost by an agency nominated by the buyer, and (iii) the sale to be subject to Bisfa Rules- Since none of these additional terms was a part of the offer, the acceptance was a counteroffer. In order to convert a proposal into a promise, the acceptance must be (a) absolute and unqualified, and (b) expressed in some usual and reasonable manner, according to section 7 of the Contract Act. The acceptance which puts forward terms not contained in the offer amounts to a counter-offer.

(10) Further, the counter-offer concluded as follows :-'Our contract for the above will be sent to you for your signature. In the meantime, kindly let us have the manufacturers' authority in your favor to enable you sign the contract on their behalf'. This raises two additional terms. They are (iv) State Trading Corporation's contract (perhaps implying their usual terms and conditions all of which were not expressed either in the offer or in the counter-offer) will have to be signed, and (v) the authority of the manufacturers will have to be obtained by Gill and Company to sign the contract on their behalf.

(11) The separateness of these fourth and the fifth additional terms in demonstrated by the fact that Gill and Company informed the State Trading Corporation that they did not have the authority to sign the contract and that it will have to be sent to the manufacturers for their signatures. The State Trading Corporation then said that in addition to the manufacturers. Gill and Company should also sign the contract because the offer has come through them. When the actual contract was sent to Gill and Company for signature by the Italian firm. Gill and Company wrote that clauses 5, 8, 9 and Ii were not stipulated at the time of the conclusion of the business and they would have to submit them to the Italian firm for their approval and acceptance. This letter of Gill and Company dated 25th May 1970 has a two-fold significance. On the one hand, from their point of view, they meant that the business was concluded by the acceptance of the 25th May 1970. On the other hand, they would not be averse to consider the message received from the Italian firm. In that offer Gill and Company did not say that they were authorised to make the offer as agents of the Italian firm much less that they were authorised to enter into a contract with the State Trading Corporaion. They merely acted as a mouthpiece. acceptance of these additional terms. From the point of view of State Trading Corporation, the position was different. Firstly, because a contract had to be signed by both the parties which meant that the acceptance was only an acceptance in principle but the terms had to be spelled out. Secondly, the State Trading Corporation made it clear that unless Gill and Company had the authority of the manufacturers to sign the contract, such authority would have to be obtained by them. Not only was authority to be possessed by Gill and Company but the insistence on the signing of the State Trading Corporation's contract implied that the said contract would contain State Trading Corporation's own terms. thereforee, clauses 5, 8, 9 and Ii were not put forward after the conclusion of the business but in the acceptance itself. The said acceptance, thereforee, did' not conclude the contract as all the terms of the contract were not spelled out in the said acceptance but were to be contained in the contract to be signed subsequently

(12) Further, the contract was for sale of goods. It was an agreement to sell and not sale. A contract with the Italian firm for the E sale of goods may be by the description of the goods or by sample or by a mixture of the two. In this case, the acceptance of 25th May 1970 itself stated that there will be a pre-shipment inspection of the goods at the seller's cost by the agency to be nominated by the buyer. This condition was accepted by Gill and Company who in their letter dated 26th May 1970 stated that the seller were airmailing a sample to obtain the buyers' approval particularly regarding the degree Bright Bleached to ensure that the quality suits the buyers before starting production and also to reduce to minimum the risk of unsuitable quality. This shows that the agreement for sale was by sample within the meaning of section 17(1) of the Sale of Goods Act and unless and until the sample is approved the agreement would not be said to be complete. This is another reason, showing that there was no concluded contract between the State Trading Corporation and the Italian firm before 30th May, 1970.

(13) Shri L. R. Gupta for the appellant argued that the contract was concluded on 25th May 1970 between the State Trading Corporation and the Italian firm by the acceptance of the offer because the subsequent written contract only formally embodied the terms already agreed upon between the parties on 25th May 1970. He relied upon Union of India v. N. K. (P) Ltd. (1971) I Delhi 355, in which the relevant case-law had been reviewed on the question. A careful perusal of that decision would show that the facts in that case are distinguishable from the facts of the present case on the following grounds :-

(1)The offer in that case itself contained all the terms of the railway contract because the offer was on the tender form supplied by the Railway. In the present case, the offer was not made on the State Trading Corporation's terms but on its own terms by the Italian firm.

(2)In that case, the acceptance was as follows :-'Your offer with terms and conditions referred to in your above letter is hereby accepted. Formal contract would be issued shortly'. In the present case, the acceptance stated that the State Trading Corporation's contract would have to be signed implying that their terms would be found in the written contract to be signed later. The word 'formal' was not used. This shows that the contract itself had to be signed and had not come into existence.

(3)At pages 360-61 of the report, three causes were listed which would show that it is not the acceptance but the subsequent formal contract which alone would conclude the contract. These conditions could be (i) that the negotiations were too general and the terms were not defined with the required degree of precision making it necessary to formulate them into a formal document; (ii) the intention of the parties would be uncertain till the execution of the contract; and (iii) Only some of the terms had been agreed while other material terms remained to be settled. All these three reasons existed in the present case. Gill and company did not have the authority to contract. The contract was to contain all the terms some of which had not been contained either in the offer or the acceptance and the State Trading Corporation could not be sure that any contract had been concluded until these conditions contained in its counter-offer were accepted by the offerer.

(14) While in Union of India v. N. K. (P) Ltd., the acceptance stated that the formal contract was to be issued by the Government unilaterally, in the present case it was to be signed by the Italian firm and till then the contract would not come into existence. In Union of India v. N. K. (P) Ltd., the unilateral issue of the formal contract by the Government was only a ministerial act after the agreement between the parties had become complete. This is to be contrasted with the necessity for a bilateral act coming into force by the signature of the Italian firm. Shri Gupta further pointed out the distinction made at page 360 of the report between the conclusion of the contract and the coming into force of the contract, the latter meaning the performance of the contract. In the present case, the very fact that so many terms were to be contained in the written contract to be signed by both the parties are distinguishable from the acts of the present case on the following grounds :-

(1)The offer in that case itself contained all the terms of the railway contract because the offer was on the tender form supplied by the Railway. In the present case, the offer was not made on the State Trading Corporation's terms but on its own terms by the Italian firm.

(2)In that case, the acceptance was as follows :-'Your offer with terms and conditions referred to in your above letter is hereby accepted. Formal contract would be issued shortly'. In the present case, the acceptance stated that the State Trading Corporation's contract would have to be signed implying that their terms would be found in the written contract to be signed later. The word 'formal' was not used. This shows that the contract itself had to be signed and had not come into existence

(3)At pages 360-61 of the report, three causes were listed which would show that it is not the acceptance but the subsequent formal contract which alone would conclude the contract. These conditions could be (i) that the negotiations were too general and the terms were not defined with the required degree of precision making it necessary to formulate them into a formal document; (ii) the intention of the parties would be uncertain till the execution of the contract; and (iii) Only some of the terms had been agreed while other material terms remained to be settled. All these three reasons existed in the present case. Gill and company did not have the authority to contract. The contract was to contain all the terms some of which had not been contained either in the offer or the acceptance and the State Trading Corporation could not be sure that any contract had been concluded until these conditions contained in its counter-offer were accepted by the offerer.

While in Union of India v. N. K. (P) Ltd., the acceptance stated that the formal contract was to be issued by the Government unilaterally, in the present case it was to be signed by the Italian firm and till then the contract would not come into existence. In Union of India v. N. K. (P) Ltd., the unilateral issue of the formal contract by the Government was only a ministerial act after the agreement between the parties had become complete. This is to be contrasted with the necessity for a bilateral act coming into force by the signature of the Italian firm. Shri Gupta further pointed out the distinction made at page 360 of the report between the conclusion of the contract and the coming into force of the contract, the latter meaning the performance of the contract. In the present case, the very fact that so many terms were to be contained in the written contract to be signed by both the parties which were not contained in the offer and acceptance shows that the acceptance was only an acceptance in principle but did not bring about a concluded contract. For these reasons, the finding of the learned single Judge that no concluded contract had come into existence between the Italian firm and the State Trading Corporation on the 25th May 1970 and that it came into existence on 29th June 1970 is upheld

(15) The reply by the Unicel to the application of the State Trading Corporation under section 20 of the Arbitration Act disputed the validity of the agreement between the parties including the arbitration clause on the ground that the contract was voidable under section 19 of the Contract Act having been caused by fraud within the meaning of section 17 of the Act. This plea had to be decided by the Court and could not be decided by the arbitrator. In fact, under section 33 of the Arbitration Act, an application could have been made by the Unicel to ask the Court to decide the existence and/or the validity of the agreement and the Court would have been required to decide the same. Instead of making an application under section 33. this question was raised by the Unicel in defense to the application under section 20. The expression 'validity of the contract' used in section 33 would include every contention which would go to the validity of the contract and which would make the contract invalid if proved. Under the scheme of the Contract Act, the invalidity is of two kinds. Either an' agreement is void ab initio or illegal or it is voidable at the option of a party. Both the pleas of voidness or voidability can go to challenge the validity of a contract and whichever of them is raised the decision has to be by the Court and not by the arbitrator. The decision of the House of Lords in Heman v. Darwins Ltd., (1942) A.C.356 has treated the pleas of voidability and voidness as being for the Court to decide and not for the consideration of the arbitrator. This decision has been approved by the Supreme Court in A. M. Nair & Co. v. Gordhandass Sagarmull : [1950]1SCR792 whenever the agreement itself was to be construed for the decision of an issue, that issue would be for the consideration of the arbitrator. But the question whether the agreement itself was induced by fraud and is, thereforee, void is not to be decided by the construction of the agreement. It is, thereforee, for the Court to decide.

(16) Shri L. R. Gupta, learned counsel for the appellant realised the difficulty of showing that the contract was induced by fraud. He was, however, worried by the fact that in deciding that plea raised by the Unicel the learned Single Judge had to consider the question of fact whether any contract was concluded between the Italian firm and the State Trading Corporation on the 25th May, 1970 so as to place a duty on the State Trading Corporation to inform the Unicel of the same which were not contained in the offer and acceptance shows that the acceptance was only an acceptance in principle but did not bring about a concluded contract. For these reasons, the finding of the learned single Judge that no concluded contract had come into existence between the Italian firm and the State Trading Corporation on the 25th May 1970 and that it came into existence on 29th June 1970 is upheld- before concluding a contract with the Unicel on the 26th of May 1970 or the 30th of May 1970. This finding of the learned Single Judge which is upheld by us in this appeal has a two-fold significance. Firstly, it rejects the plea that there was any duty in the State Trading Corporation to communicate to the Unicel the negotiations between the State Trading Corporation and the Italian firm particularly when the 'fall clause' was voluntarily offered by the Unicel to the State Trading Corporation without any inducement on the part of the latter. Secondly, the facts so found may have a bearing on the question as to whether the 'fall clause' could be rightly invoked by the State Trading Corporation against the Unicel because business was concluded by the State Trading Corporation with the Italian firm after 26th or 30th of May 1970 when the contract with the Unicel was concluded. The question whether the State Trading Corporation is entitled to the benefit of the 'fall clause' on the facts of the case and on a construction of the 'fall clause' is for the arbitrator to decide. But the finding of fact. by the learned Single Judge and by us that no concluded contract came into existence between the Italian firm and the State Trading Corporation till after the 29th or the 30th May 1970 will bind both the parties as rest judicata. Since the arbitrator has to decide the dispute according to law, the principle of rest judicata would have to be accepted by the arbitrator. The finding of fact between the parties may, thereforee, be urged by the State Trading Corporation before the arbitrator as being conclusive between the parties- Since the Unicel itself raised the question of fraud, the finding of the learned Single Judge and by us was invited by the Unicel itself. It cannot, thereforee argue that this finding was beyond the jurisdiction of the civil court in deciding an application under section 20 of the Arbitration Act.

(17) The jurisdiction of the civil court under the Arbitration Act .in dealing with an application under section 20 is to be gathered from the scheme of the Act as a whole and particularly from sections 20, 33, 34 and 35. Reading them together, it would appear that the general jurisdiction of the civil court for deciding dispute between the parties to the agreement is not ousted by the arbitration clause. For instance, if a civil court refuses to stay the proceeding before it under section 34 of the Act, the civil court will be competent to decide question which would otherwise have been decided by the arbitrator. Similarly, once the civil court takes jurisdiction to decide a question between the parties, the same question cannot be decided by the arbitrator in view of section 35 of Act. The validity of the agreement has to be decided by the civil court under section 33 of the Act. When thereforee, as a defense to an application under section 20, the question of validity is raised, the Court has to decide it and its decision would be binding on the parties even if it includes & matter which would otherwise be for the arbitrator to decide. The law is the same in England as would appear from 2, Halsbury's Laws of England, Fourth Edition, Paragraph 543, which is as follows:-

'Ouster of court's jurisdiction. An agreement which purports to oust the courts Jurisdication 'is illegal and void as being contrary to public policy, but an arbitration agreement not expressly purporting to oust the jurisdiction is not to be read as doing so; in consequence, apart from the statutory right to stay proceedings, an arbitration agreement is not a bar or defense to proceedings brought in respect of a dispute agreed to be referred. It follows that when an arbitration for any reason becomes abortive the court may take upon itself any burden placed by an arbitration agreement on the arbitrators in order to help the parties out of their impasse. Thus, where a party to an arbitration agreement takes no steps to insist upon the determination by arbitration of a matter in dispute, as by applying to have a new arbitrator appointed in lieu of one who has refused to act, he will be precluded from relying upon the agreement as a defense, and the court will regain its full jurisdiction.'

(18) The finding that no concluded contract had come into existence till after 29th May 1970 between the State Trading Corporation and the Italian firm is firstly not without jurisdiction and secondly binding on both the parties and would have to be taken note of by the arbitrator when the dispute goes to him. The ratio decidendi of the decision by the learned Single Judge on Issue No. 2 upheld by us is to be found by taking into account (1) the facts treated by both the courts as material and (2) the decisions of both the courts based on these facts. This method of finding out the ratio decidendi of the case represents the view of Dr.A.L.Goodhart advanced in his essay on 'Determining the Ratio-Decided of a case', (Essays in jurisprudence and the Common Law, page 1) and has received the approval of Rupert Cross in his book 'Precedent in English Law', Second Edition, pages 69-70. The expression 'ratio decided' is, thereforee, a misnomer in relation to its literal meaning, namely, 'reason for the decision'. It is not the reasoning but the decision and the relevant facts on which it is based which forms a binding precedent.

(19) The amendment sought by the appellant was disallowed on 14th March 1978 with the observation that the applicability of the 'fall- clause' is within the jurisdiction of the arbitrator. This does not mean that the civil court was bound to refrain from deciding the question of fact as to when the contract between the State Trading Corporation and the Italian firm was concluded merely because such a finding may prejudice the consideration of the applicability of the ' fall clause' by the arbitrator.

(20) For the above reasons, the finding of the learned Single Judge on Issue No. 2 out of the various issues considered and decided by him is upheld including the question of fact that no concluded contract had come into being between the State Trading Corporation and the Italian firm till after 29th May 1970. The findings on other issues were not canvassed in the argument before us. The appeal is, thereforee, dismissed with costs.


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