1. The appeal is by the defendants in a suit for return of price of cotton paid under a contract and also for reimbursement of moneys spent bv the respondent (a public limited company as warehouse charges, etc. The respondent entered into a contract with the appellants to purchase 356 bales of cotton of the Hubli Jaya-dhar variety to conform to sample T 3729 at a particular price F. O. R Cannanore. Eighty per cent of the invoice price was to be paid before taking delivery and the balance subsequently. Of the goods despatched, 106 bales were found to be Hubli Jayadhar of an inferior quality: and the rest (250 bales) were found to be of the Laxmi variety from Annagiri and Adoni. The respondent accepted the 106 bales, the Hubli Jayadhar, submitting the dispute regarding their quality for arbitration by the East India Cotton Association, Ltd., Bombay, since the contract contained an arbitration clause. The Association reduced the price slightly, since the quality of the said 106 bales did not come up to the sample. Regarding the rest, viz., 250 bales, the respondent did not agree [or arbitration, though the appellants claimed that that matter also should be submitted for arbitration. The suit giving rise to the appeal was for return of the price paid by the respondent with interest thereon and also for incidental expenses like warehouse charges, etc The respondent claimed that the company was entitled to repudiate th' contract regardina the 250 bales and demand the monev back
2. The appellants contended that the contract was for the supply of Indian cotton; that even if the contract was to supply Hubli Jayadhar cotton, the said name was not a description, but showed only the quality of the cotton; that the dispute relating to ths 250 bales should also have been referred to arbitration; and that the suit should be dismissed, since the question was not referred to arbitration at the first instance. The appellants also filed a counter claim (or the 20 per cent of the price to be paid on all that 56 bales.
3. The lower court decreed the suit and dismissed the counter claim.
4. The first question to be decided is whether the contract was for the supply of Hubli Jayadhar cotton or merely of Indian cotton. The ultimate agreement that concluded the negotiations between the parties is Ex. A-8 of 4th June 1956 (Contract No. CCT/124). The document in triplicate was sent to the respondent by a Sippy of Coimbatore. and the document mentioned only Indian cotton conforming to sample T. 3729. The respondent added the term 'Hubli Jayadhar'. made some other corrections as weH and sent back the duplicate and triplicate to Sippy. Ex. A-9 is the photostat copy of the duplicate kept by Sippy and Ex. A-10 is the photostat copy of the triplicate obtained from the appellants. The expression 'Hubli Jayadhar' is seen scored out In Ex. A-10, while the expression is intact in both Exs. A-8 and A-9.
The case of the appellants is that the respondent had no authority to add 'Hubli Jayadhar' and that in the triplicate sent to them the term was scored out, probably by Sippv Their further contention is that thus the contrad was only to supply Indian cotton and not Hubli Jayadhar cotton.
5. The invoices relating to the 250 bales are dated 6th July 1956 (Exs. A-18. A-19 and A-20); and Ex. A-8. as already stated, was of 4th June 1956 On receipt of the duplicate and triplicate. Sippv sent Ex. A-13 on 14th June 1956 to the respondent protesting that the respondent should not have added 'Hubli Jayadhar' in Ex. A-8. The respondent immediately replied by Ex, A-14 on 18th June insisting that the contract was only for Hubli Jayadhar cotton and not for mere Indian cotton. In this connection, the previous correspondence like Exs. A-l to A-S and A-fi throws considerable light on what the parties were negotiating for. Those documents clearly show that the negotiations related only to Hubli Jayadhar cotton; and it was only in Ex. A-8 that the expression was left out. It may also be noted that there was no letter either from Sippyor from the appellants asserting that the contract was only for Indian cotton. The invoices themselves show the number of the contract (CCT/124): and from the dates of the invoices it is clear that the despatch of the goods must have been after the appellants received back Ex. A-10 from Sippy. Again, on arrival of the wagons at Cannariore, the respondent contacted Sippy for confirmation whether the cotton sent was of the Hubli Javadhai variety (vide telegram Ex. A-2J and letter Ex. A-22); and Sippy confirmed that it was Hubli Javadhar by telegram (Ex A-241
6. One suggestion of the counsel of the appellant? is that the scoring off of 'Hubli Javadhar' might have been done by Sippy before Ex. A-10 was sent to them This is not supported by any evidence, because, if that was the case, the correspondence that must necessarily have passed between Sippyand the appellants should give an indication thereof. No such correspondence has been produced by the appellants, in spite of an application by the respondent calline upon them to produce the correspondence. It is Impossible to agree with the suggestion of the appellants' counsel that there might not have been any correspondence pxistiny on record, because the correspondence might all have been on the telephone Moreover, the appellants have not even sworn to an affidavit to that effect in reply to the petition of the respondent. Still further. Ex A-13, the letter sent by Sippy to the respondent, shows that a copy thereof was sent to the appellants Therefore, the agreement must have been lor the supplv of Hubli Javadhar cotton and the scoring off of the term 'Hubli Javadhar' in Ex. A-10 must have been done by the appellants.
7. The next contention is that Sippywas not the agent of the appellants and that his acts would not bind them This if also not justified by the evidence in the case. Ex. A-l, which initiated the negotiations, is a letter from a Krishna Chettv to the appellants on 24th May 1956; and from the correspondence that followed. what appears is that Krishna Chettv and Sippywere both agents of the appellants. Ex. A-6 written by Sippysays that he was acting on behalf of his principals, the appellants. The subsequent conduct also at the time of giving delivery of the goods at Cannanore after weighing shows that both Krishna Chettv and Sippywere agents of the appellant.'!.
8. The further contention is that the txpression 'Hubli Jayadhar' showed only the quality of the cotton and not a description of the same. This contention has also no fores, because the oral evidence (even of the witness of the appellants) shows otherwise. Moreover, as pointed out by the Subordinate Judge, there is other evidence as well to show that 'Hubli Jayadhar' was a description and not the quality of the cotton. To mention two such pieces of evidence, the schedule to the Notification at page 252 of the Bombay Cotton Manual 1944-45 published by the East India Cotton Association and the Notifications issued under the Cotton Control Order, 1952 may be perused. It follows that the breach of the description is not a inert breach of warranty, but is a breach of condition as contemplated by Section 15 of the Sale of Goods Act.
9. The counsel of the appellants relies on the evidence given by the Managing Director of the respondent-Company in an earlier criminal case. Therein he is said to have admitted that 'Hubli Jayadhar' meant only the quality of the cotton and not a description or a variety thereof. The said deposition the counsel claims, was produced before the lower court, but. due to some accident, not marked. The certified copy of the deposition is produced by the counsel from among his papers: in other words, the said copy is not even found among the court papers. The counsel has filed C, M. P. 9210 of 1967 (a verified petition without even an affidavit in support) to admit the said certified copy. He has also pleaded that we should look into it. We do not think we can accept the said certified copy in evidence at this stage. The Managing Director himself was examined in the case; and his evidence in the previous criminal case was not out to him in short, the certified copy was not even proved formally through any witness. It is also beyond our comprehension how it happened to be among the papers of the counsel of the appellants, if it was intended to be marked overruling the objection of the respondent. It is true that the Subordinate Judge mentions about this document in his Judgment. The document seems to have been produced on the last day of trial of the case; and it is now found among the papers of the appellants' counsel, which evidently shows that at the time the Subordinate Judge prepared and pronounced his judgment it could not have been with him. Therefore, we dismiss C. M. P. No. 9210 of 1967 Even 11 the said deposition contained some admission (which we are not sure), in our opinion, that could not alter the legal position, because the effect of the expression 'Hubli Jayadhar' has to be gathered from the contract and the other evidence in the case and not from the so-called admission of the Managing Director of the respondent company.
10. In short, evidence is legion to show that the contract was for the supply of Hubli Javadhar cotton; that Sippy and Krishna Chettv were the agents of the appellants; that the contract was for the supply of cotton by description and sample and no1 merely by sample; and that the breach thereof was a breach of condition, which entitled the respondent to repudiate the contract.
11. The next and the more important question is whether the suit should be dismissed on the ((round that the arbitration clause in the agreement was a condition precedent to the filing of the suit, without which the suit is not maintainable In Ex. A-8 there is a provision that the contract is subject to the bye-laws of the East India Cotton Association. The bye-laws are framed under the Forward Contracts (Regulation) Ad of 1952. which took the place of the earlier Act of the same name of 1947. Reliance is placed by the appellants' counsel on bye-law 38 (A), which is extracted in the written statement of the appellants and which reads.
'All unpaid claims whether admitted or not and all disputes (other than those relating to quality) arising out of, or in relation to (a) contracts (whether forward or ready and whether between members or between a member and a non-member) made subject to these bye-laws or (b) the rights and/or responsibilities of commission agents, muccadums and brokers not parties to such contracts, shall be referred to tht arbitration of two disinterested persons one to be chosen by each party. The arbitrators shall have power to appoint an umpire and shall do so if and when they differ as to their award.'
The power to make bye-laws by associations like the East India Cotton Association is conferred by the Act under Section 11: and it is admitted by both parties that the bye-laws are thus statutory.
12. The Act applies to forward contracts; and the term 'forward contract' is defined under Section 2(c) to mean a contract for the delivery of goods at a future date and which is not a ready delivery contract. The term 'ready delivery contract' is defined in Sub-section (1) of the lame Section to mean a contract which provides for the delivery of goods and the payment of the price therefor, either immediately or within such period not exceeding 11 days after the date of the contract, etc. In Ex. A-8 delivery is ready; and despatch is subject to rail/sea transport available. On the basis of the aforesaid definitions and the clause relating to delivery in Ex. A-8. the counsel of the appellants argues that the contract is a forward contract. His argument is that a ready delivery contract is one which provides for the delivery of the Roods either Immediately or within a period which does not exceed 11 days since the despatch in the present case is subiect to availability of transport, the argument proceeds, delivery is not within 11 days as contemplated by Section 2(1). We are afraid this argument has no substance, because delivery in the present case is ready; and merely because despatch of the goods is subject to availability of transport, the contract does not become any the less a ready delivery contract. We have no doubt that the contract is not a forward contract and is only a ready delivery contract.
13. But, this may not make the bye-laws altogether inapplicable. because tht parties have made the contract subject to the bye-laws. The effect of such a contract is that though the bye-laws have no statutory force, they will have force as a provision in the particular contract--a provision adopted by the parties, to the contract from the bye-laws. With this in view, we shall now see whether bye-law 38 (A) applies.
14. Bye-law 38 (A) says that it applies both to forward and ready contracts. We may straightway point out that this bye-law, in so far as it relates to ready contracts, is outside the bye-law-making power conferred by the Act under Section 11, because the Act regulates only forward contracts and the conferment of power under Section 11 can also relate only to forward contracts. Thus, bye-law 38 (A), in so far as it regulates ready contracts, has no statutory force. Still, it will apply to the present case, since the parties adopted it as a provision in their contracts
15. The most important aspect of this question now arises for consideration; and that is whether the suit has to be dismissed on the ground that the arbitration contemplated by bye-law 38 (A) had not been resorted to before the suit was filed. Th' counsel of the appellants draws our attention mainly to the decision of this Court by our learned brother, Mathew J. in Vanguard Fire & General Insurance Co. Ltd. v. Sreenivasa lyer. 1963 Ker LT 415 :(AIR 1963 Ker 270) where the learned Judge, after considering the English and American authorities on the question, has made a distinction between an arbitration agreement which is a condition precedent to a right of action and an arbitration agreement which is collateral, in other words, between a Scott v. Avery (1856-5 H. L. C. 811) clause in an arbitration agreement and another falling outside that category. The counsel argues that in the present case bye-law 38(A) comes within the Scott v Avery (1856-5 H. L. C. 8111 group.
16. The counsel of the respondents has even doubted the correctness of the decision of Mathew J. in its application to cases coming within the Indian Arbitration Act of 1940. The counsel has also claimed that even if the decision is correct, the same has no application to the present case. In the case before our learned brother, there was a clause in the arbitration agreement that the due observance and fulfilment of the terms, conditions, etc of the insurance policy, in so far as they related to anything to be done or complied with by the insured, etc.. shall be condition precedent to any liability of the Insurance Company to make any payment under the policy. It was in interpreting this clause that Mathew J. held that this was a Scott v. Avery (1856-5 H. L. C 811) clause; and that without complying with the provision for arbitration as a condition precedent, no suit lay. In the case before us, such a provision is absent in bye-law 38 (A). Therefore, the decision of Mathew J. as such may not apply to the present case; and it is not necessary for us to consider further whether that decision is correct in so far as cases falling under the Indian Arbitration Act are concerned.
The appellants' counsel relies on another decision of the Bombay High Court by Gajendragadkai J. (as he then was) in M/s Prataprai Manmohandas v. M/s Sheo Narayan Balal & Co. AIR 1956 Bom 97. Gajendragadkar J. was considering a bye-law (bye-law 38) in the bye-laws framed by the Bombay Bullion Association similar to the one before us There also there was a provision (the latter part of the bye-law) that only after' obtaining an award from the arbitrators, a party could go to a court of law to obtain relief in respect of the transaction But, Gajendragadkar J. says that if there is an arbitration agreement in writing reciting in the earlier part of the bye-law (which, it may be noted, is exactly similar in terms to the one before us), the jurisdiction of the civil court to entertain the suit is barred and the domestic tribunal can alone deal with the dispute. The learned Judge says that the subsequent clause (the condition-precedent clause) need not stand in the way
Thus, the reasoning oi Gaiendragadkar J. appears to be (though it is specifically put so) that if the arbitration clause has the effect of a condition-precedent clause, whether there is in terms such a clause or not, it will have the same effect as pointed out by Mathew J. The counsel of the appellants, relying on the reasoning of Gajendragadkai J., argues that the conclusion of the learned Judge was not based on the latter part of the bye-law, but only on the earlier part, which is similar in terms to the bye-law before us. We reiterate that Gajendragadkar J. has treated the earlier part of the bye-law itself as a condition precedent, though the condition-precedent clause was in the latter part of the bye-law before him. What appears further from the reasoning of the learned Judge is that he was inclined to accept the objection that such a condition-precedent clause was bad in the case before him. Nevertheless, the learned Judge has held that the arbitration agreement in that case came within the definition of the term 'arbitration agreement' under Section 2 of the Indian Arbitration Act.
In this connection, it is interesting to note another decision of the Madras High Court by Viswanatha Sastri J. in J. Belli Gowder v. Joghi Gowder, AIR 1951 Mad 683. The learned Judge has said that the Arbitration Act is exhaustive of the law of arbitration. We are also of opinion that the Act. in so far as it relates to arbitration agreements coming within the definition in Section 2 thereof, is exhaustive, because, as pointed out by Viswanatha Sastri J., the preamble of the Act shows that the object of the Act was to consolidate and amend the law relating to arbitration. It cannot be disputed that the arbitration agreement in the present case is one coming within the definition under Section 2 of the Act. It must then follow that the remedy of parties to such an arbitration agreement lie within the Act itself. Our attention has not been drawn to any provision in the Arbitration Act under which a suit can be dismissed for not; resorting to the arbitration agreement. The remedy of the appellants lies under Section 34 of the Act; and the appellants should have applied for stay of the suit before filing their written statement or taking any other step in the proceedings. Since they have, not done so, the prayer for the dismissal of the suit does not appear to be sound. With due respect to Gajendragadkar J., we find it difficult to agree with his decision; and we hold that the suit was maintainable.
17. Lastly, we come to the counter claim. Since we have already held that regarding the 250 bales of Indian cotton the appellants have committed breach of the contract, no question of counter claim can arise regarding the said 250 bales. Regarding the 106 bales of Hubly Jayadhar cotton, the respondent submitted the dispute for arbitration to the East India Cotton Association and the Association made some reduction regarding the price and also allowed some incidental charges. For the balance the appellants issued a final invoice (Ex. A-46) on 12th November 1956 for Rupees 5,579-5-6. The suit was filed early in 1957; and the appellants filed their written statement an 25th March 1957. Nothing was mentioned in this written statement about the counter claim; but they filed I. A. No. 1946 of 1959 on 2nd November 1959 praying for amendment of the written statement. That was allowed on 4th November 1960; and the counter claim was filed on 7th January 1961. The counter claim has been rejected by the lower court as barred by limitation, because the claim was filed more than 3 years after Ex A-46
18. The counsel of the appellants questions the correctness of this decision. The counsel argues that the claim is not really a counter claim but only a set-off, and no question of limitation can arise regarding such a claim. It is fairly settled that when the defendant in a suit claims an amount from the plaintiff therein below and upto the plaint claim, it is a claim for set-off stricto sensu: but, when the claim is for an amount larger than the plaint claim, the claim for the excess over the plaint claim is a counter claim, which is really in the nature of another suit by the defendant against the plaintiff. In the words of the Calcutta High Court in Rai Narendra Nath Choudhury v. Rai Sourindra Nath Choudhury, AIR 1942 Cal 559, a set-off is plea in defence, a defence and a counter claim combined, defence to the extent of wiping out the plaintiff's claim and a claim by the defendant in the suit itself for the balance. The Calcutta High Court has also pointed out that the word 'set-off' used in Order VIII, Rule 6 of the Code of Civil Procedure may not only be what is strictly a set-off, but what is also a counter claim. If the claim set up is merely defensive, i.e., if it is in resgect of an amount which is less than or equal to the plaintiff's claim in the suit, it is a claim for set-off pure and simple; but if it exceeds the plaintiff's claim, it is to the extent of the excess a counter claim. The Calcutta High Court has considered the decisions on the question and has observed that the relevant enquiry would be whether it was a dead claim at the date of plaintiff's suit, if the claim is a defensive one or a pure set-off: where the claim is for a sum of money which is in excess of the plaint claim, to the extent of the excess it is a cross suit; and in such a case, for the excess amount time is to be reckoned not from the date of the plaintiff's suit, but from the date when the defendant files his written statement.
There are other decisions alone to the same effect like Sheobachan Pandey v. Madho Saran Choubey, AIR 1952 Pat. 73. We do noi propose to add to authorities on the question, since we ourselves feel that the principles laid down in the aforesaid decisions are only wholesome and just and since the aforesaid decisions themselves have considered other decisions of other High Courts as well.
19. It is urged by the counsel of the respondent that the claim regarding the 106 bales does not arise out of the same transaction as the one relating to the bales, which is the basis of the suit. We do not think this contention is correct, because the entire contract for the 356 bales of cotton was one; and that since 106 bales conformed to the description of the goods contracted for, they were accepted and since 250 bales did not conform to the description, they were rejected. Thus, the claim for the balance of price regarding the 106 bales arose out of the same transaction as was the basis of the suit. Since the amount claimed for the 106 bales is less than the plaint claim, the claim is a pure set-off and not a counter claim in the strict sense of the term. It follows that the relevant time for considering whether the claim was barred or not is the time of institution of the suit and not the time when the counter claim was made in the written statement. Since it is admitted that at the time of filing the suit the claim was not barred, the lower Court should have allowed this claim as a set-off.
20. At this stage, we may reiterate that the respondent company does not dispute the liability for the amount claimed by way of set-off, but only contenda that tht claim was barred at the time of the additional written statement of the appellants; and that the claim did not arise out of tht same transaction as was the basis of the suit. Now that we have held that the claim aros out of the same transaction, the claim may be allowed even as an equitable set-off; and in that case also, if at all, the material point of time for purposes of limitation is again the time of institution of the suit and cannot be the time of filing the written statement. In this view also the claim should have been allowed.
21. But, the amount claimed under this head is not the one mentioned in the memorandum of appeal. The respondent company has claimed only 6 per cent interest, while the appellants have claimed 9 per cent. Making a deduction on this ground and also correcting the amount as done by the lower court in paragraph 8 of its judgment, the amount of the claim comes to Rs. 5, 441-13-8 for principal and Rs. 72-8-6 for interest up to date of suit. 5th February 1957 in all Rs 5.514-6-0,
22. In the result, we allow the appeal to this extent, and dismiss the appeal in all other respects: that is, the sum of Rs.5,514-6-0 will be deducted from the principal decreed by the lower court: and the decree will be confined to the balance alone. Since we have modified the decree only to a small extent and the appeal has been dismissed regarding the major portion of the claim. we do not disturb the order passed by the lower court regarding costs. However, wt direct the parties to suffer their respective costs before this Court. We also direct that the security bond executed by the respondent when the company withdrew money from the lower court be discharged.