1. This is an appeal against an order made by Ray, J. dated the 29th May, 1962 staying the suit filed by the respondent-appellant being suit No. 1432 of 1961 (Bengal Jute Mill Co. Ltd. v. Lalchand Dugar) and all proceedings thereunder. The facts are as follows: On or about 10th October, 1960 the petitioner agreed to buy from the respondent and the respondent agreed to sell to the appellant 80,000 bags of 8. Twills manufactured by the respondent, at the rate of Rs. 160/- per 100 bags, free alongside export vessel in the Port of Calcutta. The contract, being contract No. 280 dated 10th October, 1980, was made by an exchange of bought and sold notes made in the usual form of the East India Jute and Hessian Exchange Ltd., Calcutta through a broker S. N. Goenka who is a licensed broker of the said Exchange. Both the bought and sold notes contained a written condition that delivery of the goods was to be given against payment in cash positively on 10th October, 1960 against Mill's pucca delivery order. There is the usual Arbitration clause for reference of disputes under the contract to the arbitration of the Bengal Chamber of Commerce and Industry. On the 22nd March, 1961 the petitioner submitted certain disputes between the parties to the arbitration of the Bengal Chamber cf Commerce and Industry. On the 29th August, 1961 the respondent filed a suit in this Court being suit No. 1432 of 1961 (Bengal Jute Mill Cc., Ltd. v. Lalchand Dugar). On the 18th November, 1961 the petitioner made an application for stay of the suit and all further proceedings under Section 34 of the Indian Arbitration Act. It is this suit which has been stayed by an order dated 29th May, 1962. I regret to say that the learned Judge has given no reasons for making the order. With respect, I think that in such cases it is essential to set out the reasons. A stay of a suit, is in a way, an adjudication of the rights of the parties. Although such an order is discretionary, the Court must exercise a judicial discretion and inasmuch as such a stay can be ordered on a number of grounds, it is extremely difficult for a Court of appeal to decide the correctness cr otherwise of the order made, unless it knows the precise grounds upon which the learned Judge has acted, in ordering a stay of proceedings. It would be convenient here to state certain facts. The case of the respondent is as follows : Pursuant to tne contract, the respondent duly tendered Mill's pucca delivery order in respect of the said 80,000 bags of B. Twills on 10th October, 1960 and demanded payment in cash against such presentation, but the petitioner failed and neglected to make payment in cash and to take delivery of the said pucca delivery order. According to the respondent, the petitioner committed a breach of the said contract and the respondent accepted the breach and treated the contract as cancelled, which thereby became void. It is further stated that on the 12th October, 1960 the parties again entered into a fresh contract in respect of the identical goods but at a different price, through the same broker, being contract No. 281 of 1960. It is stated that the petitioner has committed a breach of this contract also. The case for the petitioner is as follows: According to the petitioner, the terms as to payment was not by cash but by crossed cheque. It is stated that on the 10th October, 1960 the respondent sent a darwan to the office of the petitioner with the Mill's pucca delivery order together with a bill for Rs. 1,28,000/- after the usual office hours. The cheque was being drawn tip and was going to be signed by a partner of the firm, who had gone to answer a nature's call. The sellers' darwan was requested to wait but did not do so and left the bill promising to collect the cheque on the next morning. On the next day, as the darwan failed to turn up, the petitioner contacted the sellers' office over the phone when it demanded cash payment Instead of cheque. This was complied with, but the seller refused to accept payment or to deliver the pucca delivery order as the market price of the goods had risen to a substantial extent in the meanwhile. It is admitted that on the 11th October, 1960 the seller wrote to the buyer purporting to cancel the contract, but it is stated that the cancellation was not accepted. It is alleged that by their failure and neglect to deliver the goods or the pucca delivery order within the stipulated time, the seller had committed a breach of contract and was liable to damages. It is admitted that a fresh contract, namely, contract No. 281was entered into on the 12th October, 1960, but It is said that this has nothing whatsoever to do with the contractNo. 280 of 1960 mentioned above.
2. It will be observed that the whole dispute hinges on the question as to the term as to payment. According to the seller the express stipulation for payment was payment in cash positively on the 10th October, 1960 against Mill's pucca delivery order. Both the bought note and sold note actually contain this condition. In spite of this, the case of the buyer is that the condition of payment was by crossed cheque on 10th October, 1960 and not by cash. The term actually appearing on the bought and sold note Is explained as follows T According to the buyer, the term as to payment was by crossed cheque against Mill's pucca delivery order. Although this was the contract between the parties, the seller in collusion and conspiracy with the broker Goenka caused it to be recorded in the bought note and sold note that payment was to be in cash positively on the 10th October, 1960. It is further stated that the broker, wrongfully and in collusion and conspiracy with the seller and under their dictation submitted to the buyer the bought note, after 27th October, 1960 and not earlier. It Is also stated that the broker was a mere tool in the seller's hand and the seller, tn collusion and conspiracy with the said broker, has wrongfully, and with a view to suit their purpose, caused the broker to write out the delivery and payment clause, viz., clause 4 of the bought note, by substituting the condition as to payment in 'cash' positively on 10th October, 1960 instead of by 'cheque'. With regard to the subsequent contract, namely, contract No. 281 of 1960 it is said that this has nothing to do with the contract No. 280 of 1960 and It is stated upon solemn affirmation that the letter, purported to be written by the broker dated 1st November, 1960 to the buyer, a copy whereof has been produced by the seller, was a letter fabricated by the seller in conspiracy and collusion with the broker who is a mere tool in the hands of the seller.
3. Although the word 'fraud' has not been mentioned, it is obvious that the charge is that the seller, fraudulently and in conspiracy and collusion with the broker who Is a tool in their hands, caused a condition to be incorporated falsely in the bought note and the sold note relating to contract No. 280 of 1960 and that this was done in order to avoid liability under the contract. There is a further charge that the seller had fabricated or caused to be fabricated a document to create evidence of this fact, also in collusion and conspiracy with the broker. This is, in short, the dispute that has been referred to Arbitration. I now come 1o the plaint that has been filed by the seller in suit No. 1432 of 1961. In the plaint, the contract is pleaded, being contract No. 280 of 1960, and the terms thereof have been set out, including the term as to payment in cash positively on 10th October, 1960 against Mill's pucca delivery order. It is than stated that the plaintiff duly tendered the pucca delivery order and ashed for payment in cash, but the defendant did not pay cash and take up the delivery order, thereby committing a breach of the contract. Thereupon, the seller treated the contract as cancelled whereby the contract became void. Next it is slated that the defendant falsely alleges that the provision as to payment was not by cash but by cheque and the defendant was ready and willing to pay by cheque and that the plaintiff had failed and neglected to tender pucca delivery order against payment by cheque. The plaintiff proceeds to state that the defendant had made a claim for damages caused by the plaintiff and referred the case to the Arbitration of Bengal Chamber of Commerce and Industry. The plaintiff finally states that It apprehended that if the bought notewas left outstanding in the case then it might cause theplaintiff serious injury and therefore prayed that it be adjudged that the contract had been cancelled and became void, for declaration that the plaintiff was not liable to the defendant, for damages, for an injunction restraining the defendant, its agent and servants from enforcing or taking any steps to enforce the said contract against the plaintiff, for Receiver and costs.
4. In the plaint, of course the plaintiff has not plead-ed 'fraud'. In fact, fraud is not the case of the plaintiff but that of the defendant, Naturally, the defendant has taken no step in the suit as yet and has not filed a written statement. He has, however, filed various affidavits as also statements of fact and a rejoinder before the Arbitrators in which he has made out the case of collusion and conspiracy mentioned above. In the application for stay also, he has made out a case of collusion and conspiracy. The question is whether under these circumstances the petitioner is entitled to an order staying the suit. The conditions necessary for the stay of legal proceedings have now beenclearly laid down. Firstly, there must be a valid and subsisting Arbitration agreement. Secondly, the subject-matter in question in the legal proceedings must be within thescope of the Arbitration agreement and the application for stay should be made at the earliest stage of the proceeding and the Court is to be satisfied that there was no sufficient reason why the matter should not be referred to arbitration. Various grounds have been canvassed before us, but the real ground is that the buyer has made out a case of fraud, collusion and conspiracy, or to be accurate, conspiracy and collusion amounting to fraud, even going to the extent of charging the fabrication of documents. Under the circumstances, the seller desires that the determination of such issues should not be left to Arbitrators but should bedecided in open Court. These charges and allegations are serious reflections on its honesty and integrity in business and it is claimed on behalf of the seller that it is entitled to vindicate its good name at a public trial in an open Court.
5. Before I deal with this point, it would be convenient to dispose of a few other points raised on behalf of the buyer. It is argued that the plaint does not disclose a cause of action. It is said that, when a contract is validly entered into, a cancellation of it, even on breach, cannot make it void. On the other hand, it is pointed out on behalf of the seller that under the Indian Contract Act, a contract may be 'ab initio' void or become void when it becomes unenforceable. I do not think that at this stage it is at ail open to us to decide this question as to whether the plaint discloses a cause of action. The leading case on tills point is a decision of the Court of Appeal in England, Monro v. Bognor Urban Council, (1915) 3 KB 167. In that case, there was an application under Section 4 of the English Arbitration Act which corresponds to Section 34 of the Indian Act. It was contended there that the suit filed was misconceived. Pickford L. J. said asfollows :
'It may be a very bad action; the Master thinks it is. The defendants, if they have a sufficiently strong opinion about it and if they have sufficient materials to do so, have the power to apply to stay the action or to dismiss It as being frivolous and vexatious, or on the ground that the claim discloses no cause of action, or that it is an abuse of the process of the Court. They have all those steps that they can take if they think fit. But that is not the point that we have to decide. We have to decide whether this is an action that ought to be brought withinprovisions of the Arbitration clause by being stayedand the dispute raised in it referred to arbitration within | that clause.'
In the same case, Bankes L. J. said as follows:
'If that is the nature of the claim, it seems to me plain that it does not come within the scope of the submission, and it is no answer to say that the plaintiff has mistaken his remedy and that he ought not to have brought this form of claim, and that he cannot substantiate it, or that if you look into it you will find that he ought to have brought a different action altogether, and if he had it would have been plain that it cams within the submis sion. It is no use saying that, as it seems to me. The only point is whether the claim which is brought -- whether it is good, bad, or indifferent -- comes within the submission to arbitration.'
6. This view has been upheld by this High Court as well as the Supreme Court. In Johurmull Parasram v. Louis Dreyfus and Company Limited, 52 Cal WN 137 : (AlR 1949 Cal 179), the facts were as follows: The parties had made a contract for sale and purchase of 1;000 tons of linseed oil. The contract had an arbitration clause. The buyers applied for arbitration whereupon the sellers filed a suit. The suit as framed did not ask for relief arising out of the contract but independent of it. There was a claim for damages for fraudulent misrepresentation. This was followed by an application under Section 34 before Clough, J. The learned Judge thought that the plaint was ingeniously framed with a view to avoiding any possible claim under the contract. Accordingly he held that in fact and in substance it was a claim for damages under the contract and an order was made staying the suit. Against this there was an appeal. Harries, C. J. said as follows:
'If a Court is entitled to go into the question what was substantially the nature of this claim, then Clough, J.'s decision may well be right. But in my view a Court is not entitled at this stage to go into such a question. The Court must consider the suit as it is pleaded and framed. If it comes to a conclusion that such a suit as pleaded is a suit on the contract or arising out of the contract then the suit should be stayed. But on the other hand if the suit as pleaded is a suit independent of the contract then the Court has no power to stay the suit though it Is satisfied that the frame of the suit is merely a means of avoiding the consequences of alleging the true nature of the claim. It appears in me that the present case is completely governed by a case decided by two very eminent Lord Justices in the English Courts, 1915-3 K B 157 (supra).'
7. This view has finally been approved by the Supreme Court in Gaya Electric Supply Cl. Ltd. v. State of Bihar, : 4SCR572 . It is clear therefore that at this stage it is not open to us to go into the question whether the suit has been properly framed or whether there is a cause of action. As has been pointed out in the cases above-mentioned, if there be any such infirmities in the plaint or if it is vexatious, it is open to the defendant to make an appropriate application under the Code of Civil Procedure, The next point taken is that no fraud has been pleaded in the plaint. This is a point without substance. The principle is, not, that the fraud should be pleaded in the plaint but that in connection with the dispute between the parties, an allegation of fraud should be made against the plaintiff. In order to find out whether such an allegation has been made, it is permissible to look, not only into the plaint but into the evidence and the correspondence. This has been laid down by Viscount Simon L. C. in Heyman v. Darwins, 1942 AC 356 at p. 361, where he says as follows:
'Turning now to the other question which I have called (a), what is the present dispute about? The answer has to be gathered from the affidavits filed in the application to stay, from the correspondence before writ exhibited to these affidavits and from the endorsement on the writ itself.'
8. The next point that has been taken is that in the suit, the broker has not been made a party. I do not see how this is a valid objection. It is not the plaintiff who has alleged a conspiracy. His claim also is not against the broker. I do not see how he can be compelled to make the broker a party. The defendant also cannot agitate a claim against the broker in these proceedings. In the Arbitration proceedings also, the broker is no party. If the defendant has an independent claim against the broker he will be able to agitate it in a proper action. Mr. Mukherjee appearing on behalf of the petitioner says that in the absence of the broker the point of conspiracy cannot be agitated. I do not agree. Doubtlessly, whan a written statement is filed, the defendant will take the point of fraud, collusion and conspiracy and try to establish it by evidence at the trial. In such an event, the plaintiff may be compelled to call the broker as a witness. The point will therefore be properly gone into in the action. If so advised, the defendant can make an application for the broker to be made a party. But whether such an application will be successful is a matter upon which we need not express any opinion at the present moment. I now come to the question as to whether the disputes which are the subject-matter of the suit are matters which are governed by the Arbitration clause. I must admit that the point of fraud, collusion and conspiracy has been taken in a manner which leaves much to be desired. The case of the buyers is that the contract was made by an exchange of sold note and bought note bearing No. 280 dated 10th October, 1960, Both the bought note and sold note contained the disputed term as to payment and both mention that that it should be by cash on a specified date. The buyer's case is that this term ought to be something different, namely, payment by cheque. If, therefore, the bought note does not represent the intentions of the buyer then it may be said that the parties were not ad idem, and therefore there was no contract. In that event, the plaintiff will succeed, as there would be no Arbitration clause in existence, which is required by law to be in writing. It is not the buyer's case that the bought note originally contained the word 'cheque', and that this word has been erased or mutilated and the word 'cash', substituted. And yet, a serious charge of collusion and conspiracy has been made. However, without going into the details of the allegation of fraud, collusion and conspiracy, it seems to me clear that the existence or otherwise of the fraud, collusion and conspiracy will be the main point in issue in the suit as well as in the Arbitration proceedings. Doubtlessly, the first point to be considered would be as to whether there was a completed contract. That will involve the determination of the point as to whether the terms were changed or altered fraudulently. If it is found that there was a completed contract, then the point will arise to be determined as to whether the term as to payment required cash to be paid on a specified date or whether the payment could have been made by cheque. Both sides however allege that there was a contract, but there is a difference as to the terms. Where a contract is not denied but the terms are in dispute, or where it is said that a contract originally existed but it became void because of some supervening circumstance, and this is denied by the other side, it does seem that the dispute is one under the contract and therefore the Arbitration clauseapplies. If therefore there were no special circumstances which would justify the filing of the suit, it would perhaps be appropriate to stay the suit under Section 34. But a special circumstance does exist in this case, namely, that the buyer alleges fraud, collusion and conspiracy on the part of the seller. As I have pointed out, this appears to be the main dispute in this case. As I have also mention-ed above, the word 'fraud' has not been specifically men-tioned but it is sufficient to allege collusion and conspiracy. This will appear from a decision of this Court Eastern Steam Navigation Co. Ltd. v. Indian Exchange Navigation Co. Ltd. : AIR1943Cal238 . In that case, conspiracy was alleged and the defendant was willing to withdraw the allegation of con-spiracy and to proceed on with the Arbitration proceeding. Blagden, J. did not permit it. The learned Judge held that once conspiracy has been alleged, the plaintiff was entitled to have the matter agitated in court. I will now proceed to consider the authorities upon this point. The leading case on it is Russell v. Russell, C1880) 14 Ch. D. 471. It was held there by Jessel, M. R. that in a case where fraud is charged the court will in general refuse to send to Arbitration if the party charged with the fraud desires a public enquiry. This principle has now been confirmed by the Supreme Court In Printers (Mysore) Private Ltd. v. Pothan Joseph : 3SCR713 . Gajendragadkar, J. says as follows:-
'In exercising its discretion under Section 34 the court should not refuse to stay the legal proceedings merely because one of the parties to the arbitration agreement is unwilling to go before an arbitrator and in effect wants to-resile from the said agreement, nor can stay be refused merely on the ground that the relations between the parties to the dispute have been embittered or that the proceedings before the arbitrator may cause unnecessary delay as a result of the said relations. It may not always be reasonable or proper to refuse to stay legal proceedings merely because some questions of law would arise in resolving the dispute between the parties. On the other hand, if fraud or dishonesty is alleged against a party it may be open to the party whose character is impeached to claim that it should be given an opportunity to vindicate its character in an open trial before the court rather than before the domestic tribunal, and in a proper case the court may consider that fact as relevant for deciding whether stay should be granted or not.'
9. This view has also been confirmed by the Supreme Court in Abdul Kadir Shamsuddin v. Madhav Prabhakar : 3SCR702 . In that case Wanchoo, J. pointed cut that it was not every imputation of dishonesty that would induce a court to refuse to make a reference to Arbitration and order a stay. Where however serious allegations of fraud are made against a party and the party which is charged with fraud desires that the matter should be tried in open Court, that would be sufficient cause for the Court not to order an Arbitration agreement to be filed under Section 20 of the Arbitration Act, The same is the position under Section 34. The imputation of dishonesty made in the instant case is quite serious. Any allegation that the seller company is capable of dishonesty manipulating the terms of a contract, in collusion and conspiracy with the broker, is bound to have serious repercussion in the market and it is quite-natural that it should desire that its name should be vindicated in open Court.
10. Lastly, it is argued that nowhere in the petition and affidavits is this desire on the part of the plaintiff set out. I do not think that this is fatal. As a rule of pleading it is desirable that such a statement should be made in the affidavits themselves. But the very fact that a suit has been Instituted and the plaintiff opposes an application for stay, shows that it requires the matter to be decided by Court. Further, Counsel on behalf of the sellers has at the earliest opportunity, in the Court below as well as in this Court, taken a plea that his clients want the question of fraud, collusion and conspiracy to be decided by Court at a public trial. This is quite sufficient.
11. The result is, in our opinion, that an order for stay of the suit under Section 34 of the Arbitration Act should not have been made. The appeal is, therefore, allowed and the order of the Court below dated 29th May, 1962 is set aside. The appellant is entitled to the cost of the appeal. Certified for two counsel.
12. I agreed with the conclusions.
13. I however wish to deal with certain aspects cf the matter only.
14. It may be noticed that the appellant in his plaint proceeds on the basis of the sale note and its counter-part, the bought note, which provide inter alia for payment in cash positively on 10th October 1960 against Mills Pucca Delivery Order.
15. it may again be noticed that the respondent has not referred the matter to arbitration on the basis of a verbal agreement made on the 10th day of October, 1960. The reason for this is obvious, for a reference to arbitration must be in writing.
16. It may again be noticed that the respondent does not rely on all the terms of the bought note, and assert that there was a further oral agreement as to payment.
17. It may again be noticed that the respondent reiies upon all the terms of the bought note, except the term as to payment, and asserts that no effect should be given to this clause as to payment, for it was incorporated in the bought note as a result of fraud and collusion between the brokers and the appellant.
18. Therefore, the real question for consideration is whether the respondent can rely on all the terms of the written contract embodied in the bought note, including the arbitration clause, except the clause as to payment in the bought note, and at the same time contended that the clause as to payment in the bought note does not correctly represent the term as to payment. To put it differently, can he approbate some of the terms of a contract and reprobate at the same time a term of the same contract in writing?
19. In a Court of law governed by the Evidence Act, it would not be permissible, for it would offend Sections 91 and 92 of the Evidence Act, unless one or more of the provisos to Section 92 are attracted.
20. It is now necessary to advert to the provisos.
'Proviso (1). Any fact may be proved which would, invalidate any document, or which would entitle any person to any decree or order relating thereto; such as fraud, intimation, illegality, want of due execution, want cf capacity in any contracting party, want or failure of consideration, or mistake in fact or law.'
Proviso (1) can be divided into two parts, one part deals with the invalidation of a document, and the other part deals with the right to reform or rectify the document. The respondent does not seek to declare the bought note invalid on the ground of fraud or collusion. The respondent, again, does not seek to reform or rectify the term relating to payment embodied in the bought note, and thereafter asks for enforcement of the corrected contract. Hence, proviso (1) is not attracted.
Proviso (2) is as follows:
'The existence of any separate oral agreement as to any matter on which a document is silent, and which is not inconsistent with the terms, may be proved. In considering whether or not this proviso applies, the Court shall have regard to the degree of formality of the document,'
The respondent, again, does not seek to bring his case in the reference under proviso (2), for the bought note is not silent as to payment, and, moreover, he cannot urge that there was a separate oral agreement as to payment, for, in, that case, the arbitration clause wiil rot attach to the clause regarding payment.
21. Provisos (3), (4) and (5) have no application, and cannot be a means of escape for the respondent.
22. Therefore, the respondent cannot get rid of Section 92 of the Evidence Act. Hence, it des not lie in the mouth of the respondent to say in law that the terms of the contract were anything other than those embodied in the bought note, including the clause as to payment in cash positively on the 10th day of October 1960 against Mill's Pucca DeLI-very Orders. Consequently, there is no scope for any reference of any dispute or difference on the basis of the alleged term of payment by cheque.
23. An arbitration proceeding, however, is not govern- ed by the Evidence Act. In an arbitration proceeding, however, the principles of natural justice are bound to be followed. In my opinion, the principles embodied in Sections 91 and 92 of the Evidence Act lay down the principles of natural justice, and the Court in such a case of violation should come to the aid of the aggrieved party. In case the reference proceeds, and the Arbitrator gives effect to the principles embodied in Sections 91 and 92 of the Evidence Act, the respondent is bound to fail. Again, in case the reference proceeds, the Arbitrator ignores the principles of Sections 91 and 92, the decision is in favour of the respondent and then the point is agitated in Court, then the Court is bound to give effect to the principles of Sections 91 and 9 of the Evidence Act. Hence, in either view, the Court should not encourage the respondent in these circumstances by staying the suit. In these circumstances, in my view, no stay should be granted.
24. There is another way of looking at the problem.
25. The respondent has taken proceedings before Arbitrators under a contract, which according to him, containsa term which requires that payment should be made bycheque on the 10th October 1960 against Mill's Pucca Delivery Order. The appellant, on the other hand, has foundedhis claim on a contract one term of which requires thatpayment should be made in cash positively on the 10thOctober against Mill's Pucca Delivery Order. Therefore, a contract which is the subject-matter of the reference and the contract which is the subject-matter of the suit are not the same and are different. Hence, the dispute raised by the respondent cannot arise Under the contract pleaded by the plaintiff in the suit. Therefore, Section 34 cannot be brought in aid of the respondent.