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Shalimar Paints Ltd. Vs. Omprokash Singhania - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberAward No. 55 of 1966
Judge
Reported inAIR1967Cal372
ActsArbitration Act, 1940 - Sections 34, 65 and 70
AppellantShalimar Paints Ltd.
RespondentOmprokash Singhania
Appellant AdvocateSarkar, Adv.
Respondent AdvocateBijoy Bachawat, Adv.
DispositionPetition dismissed
Cases ReferredBilas Roy and Co. v. Tona Jute Co. Ltd.
Excerpt:
- .....covered by the arbitration agreement and it is the respondent's case that, in any event the claim in suit is not entirely covered by the arbitration agreement. the respondent in the affidavit also makes a case that the order was subsequently substituted by a fresh order for delivery of 12 metric tonnes immediate and 12 metric tonnes as and when required and the price for the supply was increased at the rate of rs. 80/- per metric ton. the respondent finally contends that in view of the inordinate delay on the part of the petitioner the respondent will be irreparably prejudiced if the suit is stayed and the claim of the respondent is likely to be barred.4. mr. sarkar, learned counsel for the petitioner has contended that the arbitration clause is very wide and completely covers the.....
Judgment:
ORDER

A.N. Sen, J.

1. This is an application for stay of the suit under Section 34 of the Arbitration Act.

2. It is the case of the petitioner that the petitioner had entered into a transaction with the respondent on the basis of an indent bearing No. W/2419 dated 29th June, 1982 for purchase of 12 Metric Tonnes Marg-O-Dark 'HC' as per sample at the rate of Rs. 1000/- per Metric Tonne on terms and conditions contained in the said indent. The said Indent contains an arbitration clause to the following effect :--

'Any dispute arising out of this indent shall be subject to the Bengal Chamber of Commerce and Industry's arbitration.'

According to the petitioner by a letter dated 5-9-62 the quantity mentioned in the said indent was amended and raised to 24 Metric Tonnes out of which delivery of 12 Metric Tonnes was to be immediate and of the balance 12 Metric Tonnes, as and when the same would be required. It is the petitioner's further case that certain materials supplied by the respondent pursuant to the indent, did not conformto the samples and was duly rejected by the petitioner. The petitioner contends that in violation of the arbitration agreement the respondent has instituted this suit for recovery of the mm of Rs. 25,254/- as the price of the materials supplied and that the disputes and differences are completely covered by the arbitration agreement. The petitioner states that the petitioner has always been ready and willing to go to arbitration and prays for stay of this suit under Section 34 of the Arbitration Act.

3. In the affidavit-in-opposition filed on behalf of the respondent the respondent does not dispute the indent or the terms and conditions contained therein. The respondent also does not deny that the materials were supplied pursuant to the Indent. The respondent denies that the materials supplied were not according to sample. It is the case of the respondent that the petitioner after having accepted the materials without any objection, wrongfully purported later on to reject the same on Frivolous grounds. The respondent denies that the disputes and differences between the parties are entirely covered by the arbitration agreement and it is the respondent's case that, in any event the claim in suit is not entirely covered by the arbitration agreement. The respondent in the affidavit also makes a case that the order was subsequently substituted by a Fresh order for delivery of 12 Metric Tonnes immediate and 12 Metric Tonnes as and when required and the price for the supply was increased at the rate of Rs. 80/- per Metric Ton. The respondent finally contends that in view of the inordinate delay on the part of the petitioner the respondent will be irreparably prejudiced if the suit is stayed and the claim of the respondent is likely to be barred.

4. Mr. Sarkar, learned counsel for the petitioner has contended that the arbitration clause is very wide and completely covers the entire subject matter of the dispute in suit. Mr. Sarkar has drawn my attention to the plaint filed herein. He has argued that although in the plaint, no reference is made to the said indent or the arbitration clause, it is quite clear from the bills annexed to the plaint and on the basis of which the claim in the suit is made, that the claim in the suit arises out of the indent. According to Mr. Sarkar there is no reason why the suit should not be stayed.

5. Mr. Bachawat, learned counsel for the respondent opposing this application has raised the following contentions :--

(i) There is no valid arbitration agreement between the parties;

(ii) Even if it be held that there is a valid arbitration agreement between the parties, the subject matter of the suit is not covered by the arbitration clause;

(iii) In any event, in the facts and circumstances of the case the suit should not be stayed as the same will cause irreparable prejudice to the plaintiff-respondent.

5-A. In support of the contention that there is no valid arbitration agreement between the parties Mr. Bachawat has argued that the indent is nothing but an offer and there ifnothing to show that the offer was acceptedand a valid agreement was concluded on the basis of the said indent. He further contends that even in the petition for stay there is no averment that the said indent had been accented by the respondent or that a valid contract on the basis of the said indent had been concluded between the parties. I am unable to accept this contention. Apart from the fact that no such case has been made in the affidavit-in-opposition, the correspondence and the conduct of the parties clearly establish that there was a valid contract between the parties on the basis of the said indent. It is to be noted that in paragraph 3 of the petition, the petitioner specifically alleges that the materials were supplied pursuant to the said indent. The said allegation that the materials were supplied pursuant to the indent is not denied in the affidavit-in-op-position. The bills annexed to the plaint refer to the indent. The correspondence clearly establish that the said indent had been accepted by the respondent and the transaction between the parties had been on the basis of the indent. I am therefore of the opinion that there was a valid arbitration agreement between the parties and the said agreement is contained in Clause 8 of the said indent which has already been set out. Mr. Bachawat has next contended that the disputes in suit are not covered by the arbitration clause. He has drawn my attention to Clause 6 of the terms and conditions contained in the said indent and the said clause reads as follows :

'Clause 6--The decision of our words Manager in respect of both quality and quantity must he accepted as final.'

He has argued that the disputes in suit according to the petitioner relate to quality of the goods. According to Mr. Bachawat such a dispute does not come within the arbitration clause as it is specifically covered by Clause 6 of the terms and conditions and it is the contention of Mr. Bachawat that by virtue of the provisions contained in Clause 6 such a dispute is excepted and is outside the purview of the arbitration agreement. He contends that in view of the specific agreement between the parties contained in Clause 6 of the terms and conditions of the agreement, any dispute relating to quality cannot be said to have been intend-ed to be referred to arbitration. In support of this contention Mr. Bachawat has referred to and relied on the decision in the case of Andhra Co-operative Spinning Mills Ltd., Guntakal v. Srinivasan reported in AIR 1958 Andh Pra 158. In my view, the said decision is not of any assistance in the facts of the present case, particularly in view of the fact that the language used in the arbitration clause in the Andhra case referred to by Mr. Bachawat is quite different from the language used in the arbitration clause in the instant case. In the case of Andhra Co-operative Spinning Mills Ltd., AIR 1958 Andh-Pra 158, certain specified disputes were exempted from the scope of arbitration and were kept outside the scope of arbitration by express agreement recorded in the arbitration clause itself; in other words the arbitration clause itself made it clear that such disputes were exempted and were not to be referred toarbitration. In the instant case it is to be notedthat the arbitration clause is very wide and nosuch exception in respect of any dispute iscontained in the arbitration clause. It is undoubtedly true that Clause 6 provides that thedecision of the works Manager with regard toquality must be accepted as final, but if anyparty chooses not to be bound by the decisionof the works Manager and to act in accordancewith such decision and to raise disputes withregard to supplies made on the basis of theindent, such a dispute certainly arises out ofthe indent. In my view such a dispute iscovered by the arbitration clause and cannotbe contended to be exempted from the operation of the arbitration clause.

6. Mr. Bachawat has next argued that in any event, the entire subject matter of the dispute in suit is not covered by the arbitration clause. He has contended that for the purpose of finding out whether the disputes in suit are matters agreed to be referred to arbitration or not, the court should consider only the averments made in the plaint and the arbitration clause, and the Court should not go into the merits or otherwise of the case made in the plaint. Mr. Bachawat submits that the case made in the plaint may be good or bad and the averments made therein may be correct or false, but the court in considering an application for stay of the suit under Section 34 of the Arbitration Act cannot go into the merits of the allegations and case made, and must proceed only on the basis of the allegations in the plaint. Mr. Bachawat has drawn my attention to the plaint and has placed particular reliance on paragraphs 3 and 12 thereof. He has argued that in the plaint itself there is no reference to the indent at all and on the basis of the averments in the plaint the court should not come to the conclusion that the materials had been supplied on the basis of the indent. According to him it is quite possible that the materials had been supplied on the basis of some other arrangement and in the absence of any reference to the indent itself in the plaint, the court will be speculating, if the court has to come to the conclusion that the materials had been supplied on the basis of the indent containing the arbitration clause. This argument of Mr. Bachawat does not appeal to me. It is to be noted that no such case is made in the affidavit-in-opposition. It is not the case made that apart from the materials supplied on the basis of the indent, the materials had been supplied by the respondent on the basis of any other arrangement or agreement. The bills on the basis of which the claim in the suit is made, are annexed to the plaint and the said bills themselves refer to the said indent No. W/2419 dated 29-6-62. The plaint itself, in my view, therefore clearly refers to the indent which brings the arbitration clause into the picture. There is no question, therefore, of the court making any speculation as to the nature of the claim or the nature of the dispute and on a construction of the plaint there is no difficulty in coming to the conclusion that the materials supplied were on the basis of the indent containing the arbitration clause. Mr. Bachawat has further argued that in any event the allegations made inparagraph 3 of the plaint with regard to the further agreement between the parties regarding payment of extra price is not in any event covered by the arbitration clause. According to him the said agreement is a distinct oral agreement and the arbitration clause cannot be said to apply to the said agreement. Mr. Bachawat has referred to the decision of the Supreme Court in the case of Thawardas Pherumal v. Union of India, reported in : [1955]2SCR48 and has placed particular reliance on the following observations at page 477 (paragraph 29):

'If parties choose to add a fresh contract in addition to or in substitution for the old then the arbitration clause cannot cover the new contract.'

Mr. Bachawat has also referred to the case of Johurmull Parasram v. Louis Dreyfus and Co. Ltd. reported in 52 Cal WN 137: (AIR 1949 Cal 179) and to the decision in the case of Bengal Jute Mill Co. Ltd. v. Lalchand Dugar, reported in : AIR1963Cal405 .

7. In my view the cases referred to by Mr. Bachawat are of no assistance to him in the facts of this particular case. There can hardly be any dispute with regard to the principles laid down or enunciated in the aforesaid cases. But it is to be noted that in the facts of the present case there is no question of the parties choosing to add a fresh contract in addition to or in substitution for the old. The allegations in paragraph 3 of the plaint at the most make the case of modification of one of the terms, namely, the terms as to price of the materials mentioned in the indent. There is, therefore, no question of adding a fresh contract in addition to or in substitution for the old. The dispute with regard to the price if there be any, in respect of materials alleged to have been supplied, arises out of the indent and in view of the very wide language used in the arbitration clause such a dispute will also be covered by the arbitration clause.

8. In the case of Rungta Sons (P) Ltd. v. Jugometal Trg. Republike, reported in : AIR1959Cal423 , there was an allegation in the plaint that the arbitration agreement had been abrogated and superseded by express oral agreement and an application for the stay of the suit had been resisted on the ground amongst other grounds, that there was no valid and binding arbitration agreement between the parties. Relying on the decision of the Supreme Court in the case of Anderson Wright Ltd. v. Moran and Co., : [1955]1SCR862 Bachawat, J. decided the issue on the application and held on a construction of the arbitration clause in the contract that the disputes in the suit were covered by the arbitration clause which was valid and subsisting. It is also to be noted that the language of the arbitration clause in the contract was very much similar. In the arbitration clause in the said contract as also in the arbitration clause in the present contract, the language used, is 'any dispute arising out of the contract'. Mr. Bachawat has further contended that in view of the alternative case made in paragraph 12 of the plaint under Sections 65 and 70 of the Contract Act, the disputes cannever be said to be covered by the arbitration clause, as the allegations therein are de hors the contract and on the footing or basis that there is no contract between the parties. In my view, there is no substance in this contention of Mr. Bachawat. It is to be noted that this is a case made in the alternative and this part of the case becomes really meaningless and useless as soon as it is held that there is a valid contract between the parties. It is open to the court to decide the question of the validity of the arbitration clause on an application under Section 34, and to come to the decision, the Court has further to decide that there is a valid contract between the parties in which the arbitration clause is contained. As soon as it is held that there is a valid contract containing an arbitration clause covering subject matter of dispute in the suit the claim in the alternative under Sections 65 and 70 of the Indian Contract Act becomes nugatory and is of no consequence. If this contention of Mr. Bachawat be accepted, it will then be possible in every case to defeat and circumvent the provisions and effect of an arbitration agreement in every case by introducing in the plaint an alternative case under Sections 65 and 70 of the Indian Contract Act.

9. Mr. Bachawat has next contended that the discretionary power conferred under Section 34 of the Arbitration Act should not be exercised in this particular case, as in that event the plaintiff in the suit will suffer irreparable prejudice. Mr. Bachawat submits that if this suit is stayed and the plaintiff has to take recourse to arbitration, the plaintiff's claim will be completely defeated, and the claim of the plaintiff will then become barred. Mr. Bachawat has drawn my attention to paragraph 8 of the plaint in which it has been alleged that the goods had been supplied on or about 23rd February, 1963 and it is Mr. Bachawat's contention that if the claim has to be referred to arbitration now, the claim will be completely barred by limitation and the plaintiff's claim will be wholly defeated and the defendant will enjoy the plaintiff's goods without paying for the same. In support of the contention that the court should not exercise its discretion in staying a suit in a case where there is a possibility of the claim being barred if the suit be stayed and the disputes be referred to arbitration. Mr. Bachawat has referred to two unreported decisions of this Court. Mr. Bachawat has referred to the judgment of S.P. Mitra, J. in Matter No. 68 of 1964 (Re: Arbitration--Union of India v. Sitaram Sankarlal), delivered on the 2nd June, 1964 (Cal) (unreported). The facts of the case before S.P. Mitra, J. were as follows :--

10. The plaintiff was the lessor and the Union of India was the lessee in respect of two godowns in Calcutta. The agreement for lease dated 19th January, 1960 contained an arbitration clause which provided that all disputes and differences between the parties would be referred to the sole arbitration of a person nominated by the Ministry of the Government of India administratively dealing with the contract at the time of such nomination. On the 9th July, 1960 Union of India gave notice to the respondent that the godowns would be vacatedon the 11th October, 1960. The lessor claimed rent for the period of 1st September, 1960 to 11th October, 1960 and bills for rent for the above period had been sent. On the 9th March, 1961, the Regional Director (Food) stated in a letter that the matter had been referred to the Ministry for arbitration to settle the disputes in terms of the arbitration clause obtained in the agreement. Repeated reminders thereafter had been sent by lessor for settlement of his claim but the same had evoked no response. The suit was instituted on the 11th November, 1963, as the claim would otherwise become barred and up to the date of the institution of the suit, no intimation had been received from the appropriate authorities as to the appointment of any arbitrator. On these facts the learned Judge refused to exercise his discretion under Section 34 of the Arbitration Act to stay the suit and the learned Judge observed :

'In any event it would be improper to compel the respondent to go to arbitration at this stage inasmuch as the respondent may be faced with the possibility of his claim being held to be barred by limitation.'

He has also referred to the judgment of Bachawat, J. delivered on the 29th June 1955 in the matter of Commercial Cause Suit No. 8 of 1955 (Cal), Tona Jute Co. Ltd. v. Bilas Roy and Co. and in the matter of arbitration agreement dated 21st November, 1951 between the Bilas Roy & Co. v. Tona Jute Co. Ltd., Award Case No. 50 of 1955 (Cal). The learned Judge refused to stay the suit and had observed:--

'I have also taken into account the fact that if arbitration proceedings are commenced now, the claim will be barred by limitation.'

It is to be noted that an appeal was preferred from the judgment of Bachawat, J. being Appeal No. 119 of 1955 (Appeal from Original Order--Bilas Roy and Co. v. Tona Jute Co. Ltd. (Cal)). By a judgment delivered by the Court of Appeal on the 5th June, 1956, the said appeal was dismissed. The Court of Appeal, however, had no occasion to discuss this aspect of the learned Judge's judgment. Mr. Sarkar, appearing in support of this application has argued that the Court had refused to exercise its discretion in the peculiar facts of those cases and it cannot be laid down as a general principle of law, that whenever there is any possibility of the claim being barred, the court should refuse to exercise its discretion to stay the suit. Mr. Sarkar contends in that event to get round the provisions of the arbitration clause the parties will file the suit at a late stage and will resist every application for stay on the ground that the discretion should not be Exercised in favour of stay, as the claim would possibly become barred.

11. On a construction of Section 34 of the Arbitration Act the Supreme Court in the case of : [1955]1SCR862 lays down that the following conditions should be fulfilled to enable the court to grant the stay under Section 34 of the Arbitration Act.

(1) The proceedings must be commenced by a party to a arbitration agreement against another party to the agreement.

(2) The legal proceeding which is sought to be stayed must be in respect of a matter agreed to be referred.

(3) The applicant for stay must be a party to the legal proceedings and he must have taken no steps in the proceeding after appearance. It is also necessary that he should satisfy the court not only that he is but was at the commencement of the proceedings ready and willing to do everything necessary for the proper conduct of the arbitration,

(4) The court must be satisfied that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the arbitration agreement. In the instant case, in my view, the first two conditions are clearly satisfied. It is also correct that the applicant for stay is a party to the legal proceedings and the applicant has not taken any step in that proceeding.

12. In my view, however, there is sufficient reason for not referring the matter to arbitration in accordance with the arbitration agreement in the Facts and circumstances of this case. It does not appear from the facts and circumstances of the case that the applicant was ready and willing at the commencement of the proceedings to do everything necessary for the proper conduct of the arbitration. It is to be noted that no suggestion was ever made by the petitioner in any of the correspondence carried on between the parties that the disputes should be referred to arbitration for adjudication in accordance with the provisions contained in the arbitration clause. The plaintiff had made various demands and had sent letters of demands even through its solicitor. In the last letter of demand sent on behalf of the plaintiff on the 23rd August, 1963, by its solicitor, the solicitor writes as follows:--

'Please note that in view of wrongful attitude taken up by you, our clients have been advised to adopt legal proceedings for recovery of their just dues and you will be held responsible for all costs and consequences thereof.'

No reply had been sent to the said letter and even at that stage no willingess or preparedness to go to arbitration had been indicated. In any event in the facts of this case and particularly taking into consideration that the claim of the plaintiff, if referred to arbitration, will be completely barred, I do not consider that it will be just for me to exercise my discretion in favour of the applicant. It cannot be contended in the facts of this case that the plaintiff acted mala fide in not referring the disputes to the arbitration. It is quite possible that the plaintiff was under the impression that the disputes in the suit might not be covered by the arbitration clause. The applicant also has never raised the contention that the disputes are covered by the arbitration clause and should be referred to arbitration. The plaintiff has been compelled to file the suit as the claim of the plaintiff would otherwise become barred. In this application I am not concerned with the merits or the claim made. The claim in the not may be good or bad but in the facts of this case, in my view, it cannot be contendedthat the plaintiff has filed the suit at a latestage with any intention of defeating the provisions of the arbitration clause. In respectfulagreement with the observations of S.P. Mitra,J., and Bachawat, J., which I have alreadyquoted, I hold that the question whether theclaim in the suit is likely to be defeated underthe provision of the Limitation Act if referredto arbitration, is a material consideration forthe Court in the matter of exercise of its discretion under Section 34 of the Indian Arbitration Act. In my view, such a considerationreally comes within condition No. 4 laid downby the Supreme Court in the case of : [1955]1SCR862 , I, however, make it clear that I donot hold that stay must be refused as a matterof course in each and every case, where thereis the possibility of the claim being barred, ifreferred to arbitration. I agree with the contention of Mr. Sarkar that it cannot be contended to be the absolute principle of law thatstay of suit under Section 34 of the ArbitrationAct must necessarily be refused as a matter ofcourse, whenever there is any possibility of theclaim being barred by limitation, if the suitis stayed and the disputes are referred toarbitration. In my view, the possibility of aclaim being barred if referred to arbitration onstay of the suit, is a relevant and material consideration in exercising the discretion conferred on the Court under Section 34 of the Arbitration Act. Whether such a possibility amountsto a sufficient reason for refusing to stay thesuit, is a question which depends on the factsof each case. In the facts of the instant case,I am of the opinion for reasons already indicated, that the consideration that the plaintiffsclaim will be barred, if the suit is stayed andthe disputes have to be referred to arbitration,constitutes a sufficient reason for refusing toexercise the discretion in favour of the applicant. Staying this suit now, will, in my view,amount to a complete denial of justice to theplaintiff-respondent and will enable the applicant to retain the goods alleged to havebeen rejected, without making any payment forthe same. As I have already indicated, I donot see anything particularly wrong with theconduct of plaintiff-respondent which shouldentail such a punishment as to deprive theplaintiff of a proper hearing and adjudicationof the disputes on the merits. I, therefore, refuse to make any order staying the suit. Theinterim order is vacated. This application isdismissed. In the facts and circumstances ofthis case, I direct that each party shall payand bear its own costs of this application.


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