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Krishan Chander Ramesh Chander and Brothers Vs. Sohan Lal - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberSuit No. 123A of 1980
Judge
Reported inAIR1982Delhi122; 20(1981)DLT454b; 1982RLR82
ActsArbitration Act, 1940 - Sections 2
AppellantKrishan Chander Ramesh Chander and Brothers
RespondentSohan Lal
Advocates: O.N. Vohra,; R.K. Tandon,; Bakshish Singh and;
Cases Referred(See Arthur & Co. v. Sk
Excerpt:
.....and matter referred to dhma for arbitration and award. - - the dispute alleged by the petitioner seller is that the respondent buyer has failed to pay rs. they are pure and simple lay arbitrators well conversant with the usage and custom' of trade and thus best fitted to decide disputes arising between traders in an inexpensive..........mercantile association.' (5) relying on this clause the petitioner seller says that as the rules and regulations of the delhi hindustani mercantile association provide for arbitration this dispute arising between the parties should be referred to arbitration. the dispute alleged by the petitioner seller is that the respondent buyer has failed to pay rs. 1,70,195.00 on account of the balance price of goods sold and delivered including interest. the buyer denies the existence of the arbitration agreement. on the pleadings of the parties the following issues were framed : 1. is there any agreement between the parties for referring the dispute to arbitration as alleged by the petitioner 2. relief. (6) the real question for decision in this case is whether there is an arbitration.....
Judgment:

Avadh Behari Rohatgi, J.

(1) This is an application under section 20 of the Arbitration Act, 19-40.

(2) The petitioner, M/s. Krishan Chander Ramesh Chander & Bros., is a partnership firm carrying on cloth business at Delhi. The respondent Sohan Lal is the sole proprietor of business known as M/s. Amir Chand Sohan Lal. He carries on cloth business at Meerut. The petitioner sold cloth to the respondent. The dealings started on 18th April, 1978 and ended on 29th September, 1979. Over this period of a year and 5 months, the respondent purchased cloth which is evidenced by 84 bills issued by the petitioner.

(3) All the 84 bills have been produced on the record. Three of these bills are admittedly signed by the respondent. These are Exhibits P1, P2 and P3. The remaining 81 bills are also admitted by the respondent a& he does not deny that these bills were issued by the petitioner firm from Delhi in regard to the cloth purchased by him. In fact, 77 of these bills were produced by the respondent himself on a notice served by the petitioner requiring him to produce the documents.

(4) Admittedly there is on these bills a team in Hindi. Translated into English this term says : 'the goods are purchased from Krishan Chander Ramesh Chander and Brothers. subject to the terms and conditions of the Delhi Hindustani Mercantile Association.'

(5) Relying on this clause the petitioner seller says that as the rules and regulations of the Delhi Hindustani Mercantile Association provide for arbitration this dispute arising between the parties should be referred to arbitration. The dispute alleged by the petitioner seller is that the respondent buyer has failed to pay Rs. 1,70,195.00 on account of the balance price of goods sold and delivered including interest. The buyer denies the existence of the arbitration agreement. On the pleadings of the parties the following issues were framed : 1. Is there any agreement between the parties for referring the dispute to arbitration as alleged by the petitioner 2. Relief.

(6) The real question for decision In this case is whether there is an arbitration agreement between the parties as defined by section 2(a) of the Arbitration Act. It is true that there is no explicit clause in this case which provides in so many words that in the event of a dispute arising between the parties the same shall be referred to the Delhi Hindustani Mercantile Association, as was the case in the reported decision : C. M. Grover vs. M/s. Kartar Singh Phool Singh, 1980 Dlt 240. The term in that case printed on the bill was that 'the dispute will be settled through a person to be appointed by the Hindustani Mercantile Association.' In this case, the term of the contract of sale says that the goods are sold subject to the rules and regulations of the Delhi Hindustani Mercantile Association.

(7) The Delhi Hindustani Mercantile Association has published a booklet containing its constitution and rules and regulations. The rules and regulations provide for arbitration For example, Rule 36(5) provides that the Association shall hear and determine disputes arising between a member and member or non-member or any other person. The dispute, thereforee, may be between a member and a non-member. The seller is a member of the Association. The buyer is not. So the Association can decide the dispute arising between these two parties. A dispute between member and non-member Will be decided by the Association provided the parties to the transaction have agreed to be bound by the rules and regulations of the Association. Rule 47 provides that disputes will be settled by an arbitrator or a tribunal to be appointed 'by the Association and their decision shall be binding on the parties. The dispute cannot be taken straightaway to courts. It must first be referred to the Association to arbitrate. Such is the binding force of the rules and regulations of the Association.

(8) Once the parties to the bargain have agreed to be bound by the rules and regulations of the Mercantile Association, there is an incorporation of the arbitration clause by reference in the bills of sales. The provisions regarding arbitration are all incorporated in these bills because the contract made by the parties is itself subject to the rules arid regulations of the Delhi Hindustani Mercantile Association. The rules and regulations, thereforee, became incorporated in the said contract. Two rules to which I have specifically referred amount to an arbitration agreement.

(9) It is not necessary that there should be a formal agreement or that the terms should all be contained in one document. No particular form is obligatory. All that is necessary is that the parties should agree in writing to submit present or future differences to arbitration. Such an agreement may be found in correspondence consisting of a number of letters. Or, as here, in the rules and regulations of a body of mercants. (See Russell on Arbitration 19th ed. p. 49). To constitute an arbitration agreement all that is required is that there must be an agreement that is to say, the parties must be ad idem and that agreement must be in writing. It is not necessary that the written agreement must be signed. This is what the difination in section 2(a) of the Arbitration Act says. Here we find there is a written agreement. On three bills there are signatures also though they are not an essential requirement. But the agreement to be bound by the rules and regulations of the Delhi Hindustani Mercantile Association is in writing. thereforee, the agreement arises by the incorporation of the rules and regulations which contain an arbitration clause and under which the dispute has to be referred to arbitration. In other words, the rules and regulations are annexed to the contract of sale by reason of the agreement of the parties. Russell says :

'The agreement may arise by the incorporation of one document containing an arbitration clause in another under which the dispute arises.' (Russell on Arbitration 19th ed. p 50)

(10) The doctrine of 'incorporation by reference' means that there are two documents between the relevant parties. It is inherent in cases of incorporation by reference that the parties are concerned not with one document alone but with atleast two, one of which contains an arbitration clause and the other which does not. By reference or implication the arbitration clause is imported in the relevant contract. Because it is contained in a closely linked pre-existing document. 'The question whether the arbitration clause is incorporated in the relevant contract between the relevant parties is always a question of construction. (Halsbury Laws of England 4th ed. para 522). In the present case the agreement between the parties incorporates the arbitration provisions which are set out in another document, namely, the rules and regulations published by the Mercantile Association.

(11) The doctrine of 'incorporation by reference' means merging of one thing in another so that the two form a single whole. Now what is the position here The rules and regulations of the Association are, as it were, bodily lifted from outside and written in ink in the contract of sale. The rules and regulations must be read verbatim into the bargain as though printed there in extenso.

(12) As both the sale contract and the rules of the Association are in writing, there exists a valid arbitration agreement in terms of Sec. 2(a). The parties, notwithstanding the fact that the buyer is a non-member, have by their voluntary act of making their contract subject to the rules and regulations of the Association incorporated the arbitration clause into their contract and thereby entered into an arbitration agreement. It is by reason of such voluntary act of the parties and not by independent force of the rules and regulations that the agreement has come into being and is thereforee binding on the parties. (See Arthur & Co. v. Sk & CO., : AIR1972Bom345 per Mody and Kamat JJ).

(13) It is riot necessary that both the parties must be members of the Delhi Hindustani Mercantile Association before the matter can be referred to arbitration. A contrary contention was raised in C. M. Grover (supra). The judge dismissed it. The only distinction between that case and the present one is this. In that case there was an explicit submission to arbitration. Here there is an incorporation by reference of the rules and regulations of the Association which contain an arbitration clause and provide for arbitration in the event of adispute arising between member and non-member.

(14) Counsel for the purchaser raised three objections. In the first place he said that the rules and regulations of the Association apply to members only, I have rejected this argument. Yogeshwar Dayal J. rejected it in C. M. Grover (supra). Mody and Kamat Jj rejected it in Arthur & Co. (supra).

(15) In the second place counsel submitted in the alternative that in any event the rules arid regulations of the Association are restricted in their application to rules regarding sales made by the Association. He says that the rules which provide for arbitration will not apply to this case. The short answer to this argument is that the parties have agreed to be bound by the rules and regulations of the Association as a. whole and all such rules and regulations as apply to a transaction of sale ought to apply to this case. It will not be reasonable to hold that arbitration provisions do not apply though everything else in the regulations will apply. 'Where parties by an agreement import the terms' of some other document as part of their agreement those terms must be imported in their entirety...... ............. ..... .but Subject to this : that if any of the imported terms in any way conflicts with the expressly agreed terms, the latter must prevail over what would otherwise be. imported.' (Modem Buildings v.Limmer (1975) 1 W.L.R. 1281 per Buckley L.J.).

(16) Thirdly, counsel said that rules providing for settlement of disputes do not amount to arbitration. They amount,' he said, to setting up a hierarchy of courts. His further submission is that no one can privately set up courts of his own parallel to the courts of justice established by the State and, thereforee, the provisions in the rules are vocative of section 28 of the Contract Act and section 9 of the Code of Civil Procedure. This argument is based on a confusion of thought. The rules and regulations are framed to settle the disputes between merchants. The. rules provide for a domestic forum. These rules envisage that in the event of a dispute arising between members or members and non-members, the matter shall be referred to an arbitrator or a tribunal of arbitration for decision. The matter goes first to a single arbitrator under the rules. It can be taken in appeal to a tribunal of arbitration by the aggrieved party. There is a clear provision in the rules for the settlement of disputes by the method of arbitration.

(17) It is a misnomer to call the arbitrator or the tribunal of arbitration courts. They are nothing of the type. They are pure and simple lay arbitrators well conversant with the usage and custom' of trade and thus best fitted to decide disputes arising between traders in an inexpensive way. Arbitration has great attraction for commercial men and others. One of its major attractions is that the arbitrator Is usually chosen from gentlemen in the trade who may be assume to know very much about its technicalities than any judge could hope to know. Various chambers of commerce and professional and trade associations have instituted arbitration tribunals for dealing with disputes in connection with their trade and business. They are not law courts. They do not compete with us. No one can. The courts represent the sovereign power of the State. In fact these trade associations depend on us for the enforcement of their awards. We lend them assistance.

(18) The parties prefer to refer the dispute for settlement to a tribunal of their own choosing, instead of to a court. With this end they enter into a contract. In the instant case the terms of the contract are wide enough to make the arbitration rules of the Association applicable.

(19) For these reasons the objections are dismissed. I hold that there is an arbitration agreement. There is no reason why the matter should not berefore to the Delhi Hindustani Mercantile Association for settlement by arbitration. The issue is decided in favor of the seller and against the buyer. The application is accordingly allowed with costs. The arbitration agreement is filed. The matter is referred to the Delhi Hindustani Mercantile Association for arbitration and award.

(20) The order of injunction dated 15th July, 1980 will continue till further orders.


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