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The Chartered Bank Vs. the Commissioner for the Port of Calcutta - Court Judgment

LegalCrystal Citation
SubjectArbitration;Contract
CourtKolkata High Court
Decided On
Case NumberA.F.O.O. No. 99 of 1969, Award Case No. 14 of 1968
Judge
Reported inAIR1972Cal198
ActsArbitration Act, 1940 - Sections 34 and 40
AppellantThe Chartered Bank
RespondentThe Commissioner for the Port of Calcutta
Appellant AdvocateSubrata Roy Choudhury, Adv.
Respondent AdvocateBiswarup Gupta, Adv.
DispositionAppeal dismissed
Cases ReferredThe King v. The General Commrs.
Excerpt:
- b.c. mitra, j.1. the respondent instituted suit no. 2556 of 1967. (the commissioners for the port of calcutta v. the chartered bank) for recovery of rs. 7,35,000/- and for other reliefs. the basis of the respondent's claim is that on or about may 5, 1965. it was agreed between the respondent and a british company known as blyth dry docks shipping building co. ltd. (hereinafter referred to as the company) that the company would build and deliver to the respondent 2 hopper barges at a price of 3,50,000/-each aggregating 7,00,000/-. in consideration of the contract the appellant by two several deeds of guarantee dated 7-6-1966 guaranteed the due performance and observance by the company of all the covenants and conditions of the said contract for supply of barges and promised to pay on.....
Judgment:

B.C. Mitra, J.

1. The respondent instituted Suit No. 2556 of 1967. (The Commissioners for the Port of Calcutta v. The Chartered Bank) for recovery of Rs. 7,35,000/- and for other reliefs. The basis of the respondent's claim is that on or about May 5, 1965. it was agreed between the respondent and a British Company known as Blyth Dry Docks Shipping Building Co. Ltd. (hereinafter referred to as the Company) that the Company would build and deliver to the respondent 2 Hopper Barges at a price of 3,50,000/-each aggregating 7,00,000/-. In consideration of the contract the appellant by two several Deeds of Guarantee dated 7-6-1966 guaranteed the due performance and observance by the company of all the covenants and conditions of the said contract for supply of Barges and promised to pay on demand 17,500/- in respect of each of the said two Barges in the event of a breach or non-performance of the contract or in the event of any neglect or omission by the company. Pursuant to the said contract for the supply of the 2 Barges the respondent from time to time paid divers sums to the company aggregating 1,75,000/-.

2. On or about September 13, 1966. the company went into voluntary liquidation without completing, constructing or delivering the said 2 Barges or any of them. The respondent contends that the appellant failed to pay 35,000/-under the said 2 guarantees or any portion thereof.

3. On or about November 29, 1967, the appellant was served with the writ of Summons in the said Suit No. 2556 of 1967. The appellant entered appearance in the Suit and on January 5, 1968. took out a notice of motion for stay of the Suit and all proceedings thereunder. This application was disposed of by the trial Court by a judgment and order of May 12, 1969, by which the application for stay of the suit was dismissed. This appeal is directed against the judgment and order dated May 12, 1969.

4. Before proceeding to deal with the contentions of the parties I should refer to the correspondence that passed between the parties in the matter of their rival contentions under the contract. On December 20, 1966, the respondent wrote to the appellant to say that the company had failed to carry out the contract, and that the Guarantee furnished by the appellant had become enforceable. The appellant was therefore called upon to pay Rs. 3,50,000/- under the two Deeds of Guarantee within 15 days. On January 28, 1967. the appellant wrote to the respondent that no formal contract was signed by the respondent and the company, and as no such contract had in fact been signed, the terms of the Guarantees were not operative, and therefore there could be no effective claim under the Guarantees. On March 2, 1967, the appellant wrote to the respondent that a contract existed between the respondent and the company when the tender was accepted. on the understanding that when a formal contract was signed, it would govern what was being done meanwhile, and that the final contract which was to be signed by the parties was concluded at the latest on July 27, 1966. In paragraph 3 of this letter the appellant alleged that as the Guarantee was given in respect of a contract which arose out of the tender and acceptance and not the concluded contract between the parties the contract of guarantee had been superseded and no longer applied. There were several other contentions raised in this letter to which it is not necessary to refer. On April 26, 1967. the appellant forwarded to the respondent a memorandum raising various contentions namely:--

(a) A tender was accepted by the company which was to be embodied in a formal contract a pro forma of which was included in the tender documents.

(b) The contract came into existence when the tender was accepted and such acceptance was on the understanding that if a formal contract was signed it would govern what was being done meanwhile.

(c) The tender and acceptance constituted a tentative contract.

(d) The concluded contract was the result of correspondence which was finally concluded by the company's letter of July 27, 1966. The contract then had retrospective effect and brought into effect Clause 38 of the Pro-forma Contract so that all previous contracts between the parties were thereby cancelled.

(e) The Guarantee does not purport to and does not guarantee the concluded contract.

(f) The arbitration clause was altered in material respect by the concluded contract unknown to the appellant.

5. It is clear from the contents of the letters written on behalf of the appellant, that it was contending that the terms of the Guarantee Agreement did not become operative and that the contract of Guarantee had been superseded. It is in the face of these contentions that it has to be decided if the appellant is entitled to an order for stay of the suit under Section 34 of the Arbitration Act. 1940. The trial Court, upon analysis of the correspondence, came to the conclusion that the appellant was contending that the contract containing the Arbitration clause never came into being, and there was no binding contract between the parties. It was therefore held that this was a controversy on which the Arbitrator could not adjudicate. It was further held that the appellant was denying the existence as well as the validity of the agreement which contained the arbitration clause, and that the existence and validity of the arbitration agreement could not be the subject-matter of arbitration. On these findings the trial Court came to the conclusion that the appellant was not entitled to an order for stay of the suit.

6. Mr. Subrata Roy Chowdhury appearing for the appellant contended that the existence and validity of the contract of Guarantee was never challenged by his client. He argued that what was contended was that the arbitration agreement was superseded and that the terms of the Guarantee did not become operative so as to sustain a claim by the respondent against the appellant. It was further argued that the appellant never disputed or denied that it had signed the 2 Deeds of Guarantee. He submitted that it was not his case that the contract was void ab initio. nor was it a case where a party denied having entered into a contract, nor a case where the existence of the contract itself was questioned.

7. Counsel for the appellant further argued that his client was ready and willing to go to arbitration. He argued that the material time for the purpose of ascertaining readiness and willingness to go to arbitration, in an application under Section 34 of the Arbitration Act. was the time when the proceedings were commenced. It was contended that whatever might have been the contentions of the appellant before the writ of Summons was served, there could be no doubt, that at the relevant time the appellant was ready and willing to refer to dispute to Arbitration. In support of these contentions he relied on Russell on Arbitration, 18th Ed. p. 153 for the proposition that where there was an arbitration agreement, and one of the parties to the agreement commenced an action for determination of the dispute in a suit, the prima facie leaning of the Court was to stay the action, and leave the plaintiff to the Tribunal to which he had agreed. Reliance was also placed on a decision of this Court in (1951) 88 Cal LJ 34, Pannalal Sagoremull v. Fateh Chand Muralidhar for the proposition that by mere denial of a contract a party could not defeat the arbitration agreement nor could he take away the jurisdiction of the arbitrator to decide the dispute on the merits. That was, however, an application for setting aside an award. The arbitrators took evidence on the question whether the contract had been entered into. In that case the contract contained the usual arbitration clause for reference of the dispute to the Bengal Chamber of Commerce. We do not think that this decision is of any assistance to the appellant in this case. Reliance was also placed on another decision of this Court in ILR (1949) 1 Cal 199, Hanutmal Boyd v. Khusiram Benarsilal. In that case it was held that in an application for stay under Section 34 of the Act, it was for the defendant in the suit, who applied for stay, to satisfy the Court that conditions for an order for stay were satisfied, end once that was done, the onus shifted to the plaintiff to show that although the conditions were fulfilled, there was sufficient reason why the matter should not be referred to arbitration. This decision again is not of much assistance to the appellant in this case because the basic question in this case is whether, having regard to the disputes agreed to be referred, it is open to the arbitrator to go Into the question if he had jurisdiction to adjudicate upon the dispute. Reliance was next placed on an English decision in (1954) 1 QB 8. Christopher Brown Ltd. v. G.W.H.S. Halftone for the proposition that where the jurisdiction of the arbitrator was challenged, he was not bound immediately to refuse to act, until the question of jurisdiction had been determined by a Court of competent jurisdiction. The arbitrator, it was held, was entitled to inquire into the question of jurisdiction, not for the purpose of a decision, which would be binding upon the parties, but for the purpose of satisfying himself whether he ought to go on with the arbitration or not, and that if it became clear to. him that he had no jurisdiction, then he might decide not to go on with the arbitration. I do not think that this decision again is of much assistance in this case, because as I shall notice later on, not only the appellant contended firstly that the contract of Guarantee which embodied the arbitration agreement, did not become operative and secondly that the arbitration agreement was superseded, the scope of adjudication by arbitration of the dispute in this case was very limited in nature.

8. Counsel for the appellant next relied upon a decision of the Supreme Court Anderson Wright Ltd. v. Moran & Co.. : [1955]1SCR862 . Reliance was placed on the 4 conditions for grant of stay laid down in paragraph 7 of the Report.. It was argued that as soon as proceedings were commenced by a party to an arbitration agreement, and the legal proceeding sought to be stayed was in respect of a matter agreed to be referred, and no steps had been taken in the proceedings and there was readiness and willingness and finally there was no sufficient reason why the matter should not be referred to arbitration, an order for stay of the suit ought to be made. He argued that in this case all the conditions to the making of an order for stay were satisfied and therefore the trial Court should have stayed the suit as prayed for. It is to be noticed. however, that the arbitration clause in the case before the Supreme Court was in the widest possible terms namely: 'All matters, questions, disputes, differences and/or claims arising out of and/or concerning and/or in connection with and/or in consequence of and/or relating to this contract whether or not the obligations of either or both parties under this Contract be subsisting at the time of such dispute and whether or not this Contract has been terminated or purported to be terminated or completed, shall be referred to the arbitration of the Bengal Chambers of Commerce under the Rules of its Tribunal of Arbitration for the Rules, the arbitration shall be conducted.'

9. Reliance was next placed by Mr. Roy Chowdhury on Heyman v. Darwins Ltd., (1942) 1 All ER 337. Reliance was placed on a passage at P. 343 of the Report where Viscount Simon, L.C., and that if one party to the alleged contract was contending that it was void ab initio, the arbitration clause could not operate, for, on this view the clause itself was also void, but if the parties were at one in asserting that they entered into a binding contract, but a difference had arisen between them, as to whether there had been a breach by one side or the other or as to whether circumstances had arisen discharging one or both parties from further performance, such differences should be regarded as differences which had arisen 'in respect' or 'with regard to' or 'under' the contract, and an arbitration clause which used these or similar expressions should be construed accordingly. Reliance was also placed on the observations of Lord Mac-Millan at p. 346 of the Report, where it is stated that repudiation in the sense of a refusal by one of the parties to a contract to perform his obligation thereunder, did not itself abrogate the contract, and the contract in such a case was not rescinded, as it could not be rescinded by the action of one of the parties alone. It seems to us however, that the decision in Heyman v. Darwins Ltd. is against the contentions of Counsel for the appellant. The observations of Viscount Simon L.C., on which Mr. Roy Choudhury relied, have to be read In the context of certain other observations at p. 341 of the Report, to which our attention was drawn by Mr. Biswarup Gupta. counsel for the respondent. These observations are: 'If the respondents were denying that the contract , had ever bound them at all, such an attitude would disentitle them from relying on the arbitration clause which it contains.' Mr. Gupta contended, and I think rightly that in this case the appellant contended that in the events that have happened, the Contract of Guarantee, which included the arbitration clause, did not become operative at all. I shall turn to this question later in this Judgment.

10. Reliance was next placed by Counsel for the appellant on a Bench decision of the Madras High Court in AIR 1924 Mad 336, Anglo Persian Oil Co. Ltd. v P.S.P. Aiyer. In that case it was held that where there was a submission to arbitration, and a party chose to bring a suit, the other party could decide whether or not he should accept the verdict of the Court, which he could indicate by taking some step in aid of the action or whether he would avail himself of his contractual right to go to arbitration, and if the other party misled the plaintiff into bringing a suit, that might provide ground for punishing him in costs. This decision to my mind is of no assistance to the appellant in this case as it is nobody's case that the respondent was misled into filing the suit. The next case to which Mr. Roy Chowdhury referred was a decision of the Supreme Court, Gaya Electric Supply Co. Ltd. v. State of Bihar. : [1953]4SCR572 . Reliance was placed on this decision for the proposition that the legal proceedings which were sought to be stayed must be in respect of a matter which the parties had agreed to refer, and which came within the ambit of the arbitration agreement, and that where a suit was commenced as to a matter which lay outside the submissions, the Court was bound to refuse a stay. It was also held that where the arbitration agreement was broad and comprehensive. and one of the parties sought to avoid the contract, the dispute was referable to arbitration, if the avoidance of the contract arose out of the terms of the contract itself. The observation of the Supreme Court at p. 184 of the Report are very relevant: 'A party cannot rely on a term of the contract to repudiate it and still say that, the arbitration clause should not apply. If he relies upon a contract, he must, rely on it for all purposes. Where, however, an arbitration clause is not so comprehensive and is not drafted in the broad language which was used in the House of Lord's case, namely, 'in respect of' any agreement, or 'in respect of something arising out of it', that proposition does not hold good'. It seems to us that the decision of the Supreme Court is entirely against the contentions of Counsel for the appellant. The arbitration agreement in this case, as I shall notice later on, is by no means, comprehensive. It is a limited reference on 2 particular points, and on none other, and in this case the Guarantee agreement is sought to be avoided for reasons de hors the contract and is not sought to be avoided by reason of something done under the agreement itself or by reason of breach of the term of the agreement. Furthermore, the appellant's contention, that the agreement did not become operative, or that it stood superseded was not a contention which was made only before the dispute arose, but these are contentions which have been adhered to by the appellant even after commencement of the suit in the very application, out of which this appeal arises. I shall refer to this question later in this judgment. The next case relied on by the Counsel for the appellant was also a decision of the Supreme Court, the Union of India v. Kishorilal Gupta & Bros., : [1960]1SCR493 . In that case it was held by a majority that if an arbitration agreement was couched in the widest terms, the dispute whether there was frustration or repudiation of the contract would be covered by it. This decision again is of no assistance to the appellant in this case, but it supports the contentions of the respondent as I shall notice later on. The only other decision on which counsel for the appellant relied was a Bench decision of the Allahabad High Court in : AIR1958All522 . Ram Bahadur Thakur v. Thakur Das in which it was held that it was in the direction of the Court as to whether an order staying a suit should be made, and that the discretion is to be exercised judicially. sparingly and cautiously. It was also held that in commercial cases there should be very strong grounds for refusing a stay. We do not see how this decision at all helps the appellant in this case. It certainly is within the discretion of the Court to grant or to refuse a stay, but once the trial court has exercised such discretion, it should not be lightly or readily interfered with, even though the Appellate Court might feel that if the decision rested with it, its own conclusion might have been different. (See Russell 18th Ed. p. 150. 1942 AC 130 and : [1960]3SCR713 .

11. The existence, the binding effect and the enforceability of the Guarantee agreement has been challenged by the appellant in the correspondence that passed between the parties. In the letter dated January 28, 1967. the appellant contended that the terms of Guarantee agreement were not operative, as no contract had been signed between the appellant and the Contractor. In the letter dated March 2. 1967. the appellant contended that the final contract between the respondent and the Contractor was concluded on July 27, 1966 and as the Guarantee was given by the appellant in respect of the contract which arose out of tender and acceptance, and not the concluded contract between the parties, by virtue of Clause 32 of the concluded contract, the Contract of Guarantee was superseded and no longer applied. In the last paragraph of this letter it was reaffirmed that the contract between the respondent and the Contractor was a contract which was concluded on July 27, 1966, and this contract superseded all other contracts including the Contract of Guarantee. The letter concluded by saying that the guarantee given must be considered cancelled and no claim can be retained on the basis of the same. In the Memorandum annexed to the respondent's letter of April 26. 1967, it was contended that the contract between the respondent and the Contractor, arrived at on the basis of tender and acceptance, was a tentative contract. It was also contended that the Guarantee did not, in fact, guarantee the concluded contract and that the arbitration clause was altered in material respect by the concluded contract unknown to the appellant. It is clear from the correspondence that the appellant was contending that the Contract of Guarantee was not operative, that it was superseded, and it did not guarantee the contract between principles namely, the respondent and the company. Counsel for the appellant contended that although this might have been the attitude of his client before the institution of the suit, his client's views in the matter had changed since the service of the writ of Summons on November 29, 1967, and that as will appear from The petition, the appellant was. at any rate, since the service of the Writ of Summons, ready and willing to do all things necessary for the proper conduct of the arbitration proceedings.

12. This contention on behalf of the appellant, however, cannot be accepted, having regard to what is stated in the Affidavit-in-reply affirmed by Victor Ralph Winton on March 13. 1968. In paragraph 7(b) of this affidavit the deponent referred to the letter of January 28. 1967, and there is nothing to show that the appellant had changed its views with regard to the contention in that letter that the Guarantee agreement was not operative. On the other hand the deponent expressly craved leave to refer to that letter. In paragraph 7(d) of this affidavit the deponent refers to the letter of March 2, 1967, and again there is nothing to show or suggest that the appellant has changed its views with regard to the contention raised in that letter, that the contract of Guarantee had been superseded and no longer applied. Finally, in paragraph 7(f) of the affidavit the deponent refers to the letter of April 26. 1967 and there is no suggestion in the affidavit that the appellant had changed its views with regard to the contentions contained in the Memorandum which was annexed to the letter of April 26, 1967.

13. Before passing I should deal with a contention of Counsel for the appellant, that in an application for stay, the Court should look into only the plaint and the pleadings in the application for stay, and to nothing else. This submission is altogether untenable. The Court should look into not only the plaint and the pleadings in the application but also to the correspondence that passed between the parties before the institution of the suit in Order to determine their rival contentions regarding the contract containing the arbitration clause (See 1942-1 All ER 337 (supra) at P. 340).

14. The letters written on behalf of the appellant to which I have referred earlier raised 3 contentions, namely, that the terms of the Guarantee agreement were not operative, that the contract of Guarantee had been superseded, that the Guarantee did not purport to and did not, in fact, guarantee the concluded contract between the principals, and that the arbitration clause was altered in a material respect unknown to the appellant. The question is, is there any difference between these contentions and a repudiation of the contract by one of the parties? I see none. The contention, that the terms of the guarantee agreement never became operative so as to bind the parties and the contention that the contract had been superseded, are in my view outright repudiation of the contract. Counsel for the respondent contended, and I think rightly, that there was a repudiation of the contract which went to the very substance of the, whole contract, and therefore the appellant could not rely upon the arbitration clause, even assuming there was a valid agreement to refer the same to arbitration. In support of this contention reliance was placed by counsel for the respondent on a decision of the House of Lords Jureindini v. National British and Irish Millers Insurance Co. Ltd.. 1915 AC 499. Dealing with this question Viscount Haldane L.C., said at p. 505 of the Report: 'Now, my Lords, speaking myself, when there is a repudiation which goes to the substance of the whole contract I do not see how the person setting up the repudiation can be entitled to insist on a subordinate term of the contract still being enforced.' Reliance was also placed by Counsel for the respondent on a decision of the Supreme Court : [1960]1SCR493 (supra). Reliance was also placed on another decision of the Supreme Court : [1953]4SCR572 (supra). In this case it was held that where a party sought to avoid a contract for reasons de hors the contract, the arbitration clause could not be invoked as it went along with the other terms of the contract, and that a party could not rely on a term of the contract to repudiate it, and still say that the arbitration clause should not apply. Counsel for the respondent contended that the appellant's contention was and still is, that the contract containing the arbitration clause did not become operative, and that it had been superseded, and therefore the appellant could not be allowed, at the same time to urge that the arbitration agreement survived and should be enforced. It seems to us that there is a good deal of force in this contention. We do not see how the appellant can contend that although the contract of guarantee was superseded and although it never became operative as between the parties, yet it is in existence and should be treated to have become operative for the purpose of arbitration.

15. On this question Counsel for the respondent also relied on several other decisions to which I will now refer. He relied on Toller v. Law Accident Insurance Society Ltd., (1936) 2 All ER 952. In that! case it was held that if an issue was referred to arbitration and a finding was given by the Arbitrator that there was no contract in existence, that would be a finding that the arbitration clause never existed and the arbitrator had no jurisdiction to deal with the matter and that such an issue would be a proper issue to be tried in Court. In that case, however, a Proposal Form for a car insurance was signed but no premium was paid nor a policy issued, but Cover Notes were issued from time to time. It was in these facts that it was contended that the contract of Insurance containing the arbitration clause never came into existence. The facts in this case seem to us to be different from the facts in the instant appeal, inasmuch as there is no dispute in this case that the Deed of Guarantee was signed by the parties. I therefore do not think that this decision is of any assistance to the respondent except for the principle it lays down. Counsel for the respondent also relied on the observations of Viscount Simon L.C., in 1942-1 All ER 337 (supra) at p. 341 of the Report to the effect that if a party was denying that the contract ever bound him at all, such an attitude would disentitle him from relying on the arbitration clause which it contained. Reliance was next placed by Counsel for the respondent on a decision of this Court reported in (1953) 91 Cal LJ 1. I do not think that decision is of any assistance as it was not dealing with the case of an order for stay of the suit under Section 34 of the Arbitration Act, 1940. Mr. Gupta also relied on a decision of the Punjab High Court in , Chiranjiv Lal v. Tropical Insurance Co. Ltd. In that case again it was held that where a party had repudiated the contract and such repudiation in effect raised the contention that there was no contract at all between the parties, it was not open to that party to take advantage of that portion of the contract which enjoined arbitration. Reliance was also placed by Mr. Gupta on a decision of this Court reported in (1949) 53 CWN 505 for the proposition that where the question of jurisdiction of the Arbitrator was raised in an application for stay, the Court was competent to decide the question whether the Arbitrator had jurisdiction or not. I do not think that this decision is of any assistance to the respondent in this case. Reliance was also placed on a decision of this Court in : AIR1970Cal221 . I do not think this decision throws any light on the question with which we are concerned in this appeal.

16. In the facts in this case and on the law as it is settled now, I have no hesitation in holding, that even if the arbitration agreement was wide enough to embrace within its ambit, the dispute raised in the plaint, the suit ought not to be stayed, having regard to the contentions of the appellant to which I have earlier referred.

17. The appellant ought not to be allowed to say that though there is no operative and binding arbitration agreement and though the contract between the parties had been superseded, the contract containing the arbitration clause ought to be treated as alive and binding between the parties so as to compel them| to go to arbitration.

18. Let us now proceed to have a closer look at the arbitration agreement in this case. The arbitration clause is part of the Contract of Guarantee and it is necessary that the arbitration clause should be set out in order to appreciate its scope and effect It is as follows:

'Now this Indenture Witnesseth that in consideration of the premises, the Bank hereby guarantees to the Commissioners the punctual, true and faithful performance and observance by the Contractor of the covenants and conditions on the part of the Contractor contained in the said Contract and the Bank undertakes and agrees with the Commissioners and unequivocally promises to pay to the Commissioners upon demand in writing whenever required by them from time to time to do and within a fortnight from the date of such demand sum or sums not exceeding in the whole 17,500 (Seventeen thousand five hundred pounds only) as may become payable to the Commissioners by the Contractor by virtue or arising in any way whatsoever out of or in connection with the said Contract or by reason of any breach or non-performance of the same or by the neglect, omission or breach of the said contract by the Contractor PROVIDED ALWAYS and it is hereby expressly stipulated and agreed that if any question arises as to whether any sum has become so payable by the Contractor to the Commissioners or whether the Contractor is guilty of any breach or non-performance of the said Contract or of negligence or omission to perform the same, the decision of an Arbitrator in England to be appointed by the Ministry of Transport Government of India shall be final and conclusive and this Indenture Further Witnesseth that the Guarantee herein contained shall not be revocable by notice of dissolution, bankruptcy, liquidation, closure or winding up of the business of the Contractor or any change in the constitution or composition of the Contractor's business and the liability of the Bank under these presents shall not be impaired in any way by any extension of time or variation or alteration made, given, conceded or agreed to by the Commissioners in any of the terms or conditions of the said Contract or any other indulgence given by the Commissioners or by reasons of any failure on the part of the Commissioners to enforce any of their remedies against the Contractor and or by reason of failure on the part of the Commissioners to observe or perform any of the stipulations contained in the said Contract and to be observed or performed by the Commissioners or by any other dealing between the Commissioners and the Contractor whether any of the above takes place with or without the knowledge of the Bank and that the Guarantee herein contained shall remain in full force and virtue until all claims and demands of the Commissioners by virtue or arising out of or in connection with the said Contract have been fully paid and satisfied Provided Always and it is hereby agreed by and between the parties that the Bank's liability under the Guarantee is restricted to a maximum sum of 17,500 (Seventeen thousand five hundred pounds only) and this guarantee shall remain in force up to and including a period of six months after acceptance of the vessel in Calcutta unless a suit or an action to enforce a claim under the guarantee is filed against the Bank within six months after acceptance of the vessel in Calcutta as aforesaid all rights of the Commissioners under the guarantee shall stand forfeited and the Bank shall be released and discharged from all liabilities thereunder.'

19. There can hardly be any doubt that what the Bank was guaranteeing was the punctual, true and faithful performance and observance by the company of the covenants and conditions on the part of the Company. The Bank promised to pay to the respondent, upon demand, in writing and within a fortnight of such demand, the sums specified, as may become payable to the respondent by the company by virtue or arising in any way whatsoever out of or in connection with the contract or by reason of breach or non-performance of the same. Then comes the arbitration clause which says that if any question arises as to whether any sum has become so payable by the company to the respondent or whether the company is guilty of any breach or non-performance of the contract or of negligence or omission to perform the same, the decision of an Arbitrator in England to be appointed by the Ministry of Transport. Government of India, shall be final and conclusive. The reference to arbitration is therefore on two clearly defined and limited disputes, namely: (1) If any sum has become payable by the company to the respondent and (2) if the company is guilty of breach or non-performance of the said contract or of negligence or omission etc. The Arbitrator therefore has no jurisdiction to adjudicate upon any dispute other than those two. It is not a reference to arbitration couched in the wide terms to which I have referred earlier in this judgment. What is. however, of the utmost importance so far as this appeal is concerned, is that the arbitrator has no jurisdiction at all under the terms of the agreement to go into the question of liability of the Bank to the appellant. That question has been left severely alone, and entirely outside the jurisdiction of the Arbitrator. The suit which is sought to be stayed is a suit by the respondent against the Bank to enforce its claim. Looking at the plaint, there can be no doubt that the dispute in the suit is altogether outside the ambit of the terms of reference. In other words, the scope of the suit, as it appears from the plaint, is entirely outside the disputes agreed to be referred to the Arbitrator.

20. In paragraph 1 of the plaint the respondent pleads the agreement between the parties to the suit, namely, the Commissioners for the Port of Calcutta and Blyth Dry Docks Ship-building Co. Ltd. for the supply of 2 barges. In paragraph 2 the Contract of Guarantee between the plaintiffs and the defendant is pleaded, the terms of Guarantee being that the defendant guaranteed punctual, true and faithful performance by the Contractor of all the conditions of the contract and promised to pay on demand to the plaintiff a sum of 17.500 in each of the 2 guarantees in the event of any breach or non-performance of the contract. In paragraph 3 of the plaint the respondent pleads payment of diverse sums aggregating 1,75,000. In paragraph 4 of the plaint the respondent pleads the voluntary liquidation of the Contractor and failure to construct and supply the 2 Barges. In paragraph 5 of the plaint the respondent pleads that he suffered loss and damages. In paragraph 6 of the plaint it is alleged that the appellant failed and neglected to pay 35,000 being the amount of 2 guarantees. In paragraph 7 of the plaint it is alleged that the respondent is entitled to Rupees 7,35,000/- with interest of 6 per cent. These are all the averments in the plaint in the suit which is sought to be stayed by the appellant.

21. The correspondence between the respondent and the company which culminated in a contract for the construction and supply of the 2 barges, as also the two Deeds of Guarantee were annexed to the plaint. It is mainfestly clear from the plaint that no dispute has been raised therein on the two questions which the parties agreed to refer to arbitration namely: (1) Whether any sum has become payable by the Company to the respondent and (2) Whether the company is guilty of any breach or non-performance of the Contract or of negligence or omission to perform the same. These are the only two disputes which the parties agreed to refer to arbitration. But the only dispute set out in the plaint is the failure on the part of the appellant to pay to the respondent the sum of Rs. 7,35,000/- which the appellant promised to pay to the respondent, upon failure or neglect on the part of the Contractor to construct and supply the 2 Barges. In these facts, the conclusion is inescapable that the dispute raised and pleaded in the plaint is not a dispute which the parties had agreed to refer to arbitration. The law in this country as it stands today does not entitle the appellant to a discretionary order for stay of suit, in a case such as this.

22. Looking a little deeper into the matter it will be at once seen that arbitration will not, and cannot by any means give to the respondent, the relief which he has claimed in the suit. If the matter was referred to arbitration the only questions that the Arbitrator could adjudicate upon, were whether any sum became payable by the company to the respondent and whether the company was guilty of breach or non-performance of the Contract or of negligence or omission to perform the same. A decision of the Arbitrator on either of these two questions, or on both, would not give to the respondent the amount it has claimed in the suit. Faced with this position, Counsel for the appellant submitted that after getting the award as contemplated by the agreement between the parties, the respondent would have to file a suit for recovery of its dues. If such is the position, as no doubt it is, we see no reasons for staying the suit, which is the only means by which the respondent can try to obtain satisfaction of its claim against the appellant. Even if an award is obtained on either or both of the question agreed to be referred, dispute in the suit would still remain outstanding and would have to be adjudicated upon in Court on the basis of the claim laid in the plaint.

22-A. There remains only 2 other contentions raised by Mr. Gupta to be dealt with. These were firstly that complicated questions of law were involved, and therefore the dispute should not be referred to arbitration and secondly that discretion should not be exercised in making an order of stay of the suit as the appellant had suppressed the fact that the petitioner was denying the acceptance and validity of the arbitration agreement. The questions of law, which according to the respondent, are too complicated to be dealt with in arbitration, have been set out in paragraph 15 of the petition. We are of opinion that those questions are by no means so complicated as to enable us to hold that they would be beyond the competence or ability of the Arbitrator to adjudicate upon them.

23. On the second question namely suppression, Mr. Gupta submitted that as the appellant had failed to mention in the petition its views on the validity and enforcibility of the arbitration agreement, as expressed in the correspondence mentioned earlier, it was guilty of suppression, and for that reason the Court's discretion should not be exercised in its favour in granting a stay of the suit. In support of this contention Counsel for the respondent relied on The King v. The General Commrs. for the purposes of the Income-tax Act, (1917) 1 KB 486. That was a case of a Rule Nisi in a high prerogative writ and it was held that suppression of material facts in the writ petition was enough to discharge the Rule Nisi. I do not think that the analogy of suppression in a writ petition can be applied to an application for stay of a suit under the Arbitration Act. In any event, we do not think that the alleged suppression was such as to hold that by itself it is enough to refuse to stay the suit. We are not impressed by either of these 2 contentions urged by Mr. Gupta and in our view the trial Court was right in rejecting these contentions.

24. There is however, one another matter to which I should refer before I conclude. Counsel for the respondent relied on the last few lines of the Contract of Guarantee which are as follows:

'And this Guarantee shall remain In force up to and including a period of six months after acceptance of the vessel in Calcutta unless a suit or an action to enforce a claim under the Guarantee is filed against the Bank within six months after acceptance of the vessel in Calcutta as aforesaid. All rights of the Commissioners under the Guarantee shall stand forfeited and the Bank shall be released and discharged from all liabilities thereunder.'

25. Relying on this part of the Contract between the parties Counsel for the respondent submitted that the respondent was bound to file a suit against the Bank if it wanted to keep the Guarantee alive beyond the period of six months from the acceptance of the vessel. He also submitted that the parties contemplated by the Contract itself, that a suit should be filed by the respondent for enforcement of its claim under the Contract of Guarantee. It seems to us that this contention on behalf of the respondent is well-founded. It was within the contemplation of the parties that a suit had to be filed within a period of six months after acceptance of the vessel in Calcutta, and unless such a suit was filed the appellant would stand released and discharged from its obligations under the Contract of Guarantee. Under the compulsion of the terms of contract the respondent is obliged to file a suit if it wanted to keep its claim against the appellant alive six months after the acceptance of vessel in Calcutta. It is true that the question of acceptance of vessel in Calcutta did not arise as the barges were neither manufactured nor delivered. But the intention of the parties is quite clear from the terms of the Contract namely, that a suit was contemplated by both the parties to the contract in certain events and that the respondent's claim against the appellant can only be enforced by a suit and not by a reference of the dispute to arbitration. That position seems to us to be amply dear from the terms of the contract itself.

26. For the reasons mentioned above this appeal fails and is accordingly dismissed with costs.

Ajay K. Basu, J.

27. I concur with my Lord but would like to add that on construction of the document (Bank Guarantee), Ext. G. at page 30 of the Paper-book, it is clear that the contracting parties to the said guarantee agreement were the Chartered Bank of 4. Netaji Subhas Road. Calcutta, and the Commissioner for the Port of Calcutta and in the recital to the said contract it is inter alia mentioned that Blyth Dry Docks Ship Building Co. Ltd. of London, supplier of 2 steel barges shall furnish a Bank Guarantee by a scheduled bank in Calcutta for a sum of 15,500 and pursuant to that the guarantee was furnished by the Bank as mentioned in the said document Ext. G.

28. The alleged arbitration clause Incorporated in the said guarantee is certainly outside the ambit and scope of the agreement between the contracting parties. That arbitration only speaks of an Arbitrator in London who will decide the quantum of the sum payable by the Contractor i.e. Messrs. Blyth Dry Docks Ship Building Co. Ltd. of London to the Commissioner for the Port of Calcutta. This arbitration clause does not mention anything about any dispute or claim against the bank. Therefore, the alleged case of action or claim against the bank in terms of the guarantee is not contemplated and is wholly outside the scope of the arbitration agreement The bank has nothing to do with the arbitration clause in the agreement. This is clear from the fact that at the end of the said paragraph 3 in the said document, Ext. G, it is mentioned that on certain eventualities a suit will have to be filed against the bank to enforce the claim under this guarantee. Therefore, on the construction of the document itself following the principles laid down in 1942-1 All ER 337 and : [1955]1SCR862 , it is clear that the stipulating parties to the guarantee did not bind themselves to the arbitration agreement as such,

29. Therefore, the bank is not entitled to get a stay of the suit under Section 34 of the Indian Arbitration Act.

30. Even assuming that the arbitration clause is binding on the parties to the guarantee (though there is no cogent reason for that) even then one of the essential ingredients for stay under Section 34 of I.A. Act would be whether the petitioner was ready and willing to proceed with the arbitration at the commencement of the proceedings.

31. Mr. Subrata Roy Choudhury, appearing for the appellant, urged that though it might appear from the correspondence disclosed in the affidavits that sometime prior to the commencement of the proceedings his client was contending that the guarantee agreement was invalid or was altered or was superseded and not binding or there was only a tentative agreement and no finally concluded contracts and from which it might appear that prior to the commencement of the proceedings the petitioner was not ready and willing to proceed with the arbitration but nonetheless at the time of the commencement of the proceeding which is the material time, his client might have taken a complete somersault and was ready and willing to abide by the arbitration clause in the contract of guarantee on which the plaintiff has filed the suit and so the petition should succeed. Because what is relevant is the attitude of the party at the commencement of the proceedings and not before. The suit was filed on or about the 9th November. 1967 and the writ of summons was served on the 29th November, 1967 and the application for stay was moved on the 5th January. 1968 and the correspondence relied on were earlier to the filing of the suit.

32. On proper consideration of the affidavits particularly affidavit-in-reply affirmed by Victor Ralf Winton, Deputy Manager and constituted Attorney of the Chartered Bank on 13th March. 1968 in paragraph 7 of his affidavit particularly in sub-paragraphs (b), (d) and (f) he has relied on his client's contention in the correspondence that passed earlier. That is to say there was in fact no resiling from the earlier attitude which was shown from the beginning of the dispute in the correspondence i.e. challenging the contract and the validity of the agreement. From which it is clear that the petitioner was not ready and willing even at the time and after the commencement of the proceeding.

33. I have no hesitation to say that the application for stay was not bona fide or made in the interest of justice and this appeal should be dismissed.

34. I may also mention here that the said Blyth Dry Docks Ship Building Co. of London which went into voluntary liquidation made it clear that they are not in a position to fulfil the said contract (Vide letter dated 28th January, 1967) when they said that the barges will not be completed and even in their letter dated 20th September. 1967 they said:

'No Indian contracts have been or are being carried out by the Joint Liquidators.'


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